Best Choice Roofing & Home Improvement, Inc. v. Best Choice Roofing Savannah, LLC

IN THE UNITED STATES DISTRICT COURT FOR THE

MIDDLE DISTRICT OF TENNESSEE

NASHVILLE DIVISION

BEST CHOICE ROOFING & HOME )

IMPROVEMENT, INC., )

)

Plaintiff/Counter-Defendant, )

) NO. 3:18-cv-00615

v. )

) JUDGE CAMPBELL

BEST CHOICE ROOFING SAVANNAH, ) MAGISTRATE JUDGE NEWBERN

LLC & BEST CHOICE ROOFING )

AUGUSTA, LLC, )

)

Defendants/Counter-Plaintiffs, )

)

v. )

)

HENRY WAYNE HOLLOWAY, III, )

)

Third-Party Defendant. )

MEMORANDUM

I. Introduction

Pending before the Court are Plaintiff/Counter-Defendant’s Motion to Dismiss Counter-

Complaint (Doc. No. 28); Defendants’ and Counter-Plaintiffs’ Motion for Partial Summary

Judgment (Doc. No. 52); and Counter-Defendants’ Motion for Summary Judgment (Doc. No. 56).

For the reasons set forth herein, Defendants’ and Counter-Plaintiffs’ Motion for Partial Summary

Judgment (Doc. No. 52) is DENIED; and Counter-Defendants’ Motion for Summary Judgment

(Doc. No. 56) is GRANTED, in part, and DENIED, in part. Defendants’ counterclaim for breach

of contract for failure to comply with the notice and cure provision may proceed to trial. All other

counterclaims are dismissed. Plaintiff/Counter-Defendant’s Motion to Dismiss Counter-

Complaint (Doc. No. 28) is DENIED, as moot.

II. Factual and Procedural Background

Plaintiff Best Choice Roofing & Home Improvement, Inc. (“BCR”) brought this action

against Defendants Best Choice Roofing Augusta, LLC and Best Choice Roofing Savannah, LLC

(“Defendants”) to recover for breach of a “License Agreement” executed by each of the

defendants, and alternatively, to recover for trademark infringement and unfair competition. (Doc.

No. 1). Through an Amended Complaint, Plaintiff BCR added claims for false designation of

origin/false advertising, trademark dilution, and unjust enrichment. (Doc. No. 12). Plaintiff alleges

Defendants executed, and subsequently breached, License Agreements for use of the “Best Choice

Roofing” trademarks for their roofing services. Best Choice Roofing Savannah, LLC executed a

License Agreement on November 12, 2015, and Best Choice Roofing Augusta, LLC executed a

License Agreement on June 9, 2017. (Doc. No. 30-2). Plaintiff alleges Defendants breached the

Agreements by failing to submit monthly royalty payments, or alternatively, that their use of the

trademarks is unlawful. (Id.)

In response, Defendants filed an Answer and Counter-Complaint (Doc. No. 15), in which

they raised the following counterclaims against Plaintiff BCR and third-party defendant Henry

Wayne Holloway, III:1 corporate veil, fraudulent misrepresentation, fraudulent concealment,

constructive fraud, fraud in the inducement to contract, breaches of contract, violations of

Tennessee Consumer Protection Act (“TCPA”), tortious interference with business relationships

(customers), defamation, and unjust enrichment.

According to the parties’ statements of undisputed facts, BCR has six or seven corporate

branches in multiple states, each of which is owned by Mr. Holloway as BCR’s sole shareholder.

(Doc. No. 62 ¶¶ 1, 4). The corporate branches do not operate under license agreements. (Id.)

1 For ease of reference, these parties will be referred hereinafter as “Plaintiffs.”

2

The defendant companies are owned, in whole or in part, by Juanita “Tinker” Covington.

(Id. ¶ 2). Ms. Covington began working for Mr. Holloway in November of 2012. (Id. ¶ 3). Ms.

Covington was a sales representative for about four months, then transitioned into the role of sales

manager. (Id.) In 2015, at Mr. Holloway’s request, Ms. Covington opened a new location for BCR

in Savannah, Georgia and served as general manager. (Id.)

On November 12, 2015, Ms. Covington and Mr. Holloway entered into a “License

Agreement” for the Savannah location. (Id.) Ms. Covington testified in her deposition she did not

seek the assistance of counsel before executing the agreement because she “completely trusted Mr.

Holloway with everything, as far as all the paperwork, everything that was being done.” (Doc. No.

42-1, at PageID # 493). Ms. Covington conceded she was not prevented from seeking counsel

before executing the agreement, but she just “didn’t feel the need at the time.” (Id., at 493, 498).

On June 9, 2017, Ms. Covington and Mr. Holloway entered into a “License Agreement”

for the Augusta location. (Doc. No. 62 ¶ 7). Ms. Covington did not consult legal counsel before

entering the second agreement. (Doc. No. 42-1, at PageID #500). The terms of the License

Agreements are substantially similar. (Id.)

Through the pending motions, Plaintiffs seek summary judgment on all counterclaims, and

Defendants seeks summary judgment on their counterclaims for fraudulent misrepresentation and

for violation of the TCPA.

III. Analysis

A. The Standards Governing Motions for Summary Judgment

Summary judgment should be granted "if the movant shows that there is no genuine dispute

as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P.

56(a). The Supreme Court has construed Rule 56 to “mandate[] the entry of summary judgment,

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after adequate time for discovery and upon motion, against a party who fails to make a showing

sufficient to establish the existence of an element essential to that party’s case, and on which that

party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.

Ct. 2548, 91 L.Ed.2d 265 (1986).

In considering a motion for summary judgment, a court must draw all reasonable inferences

in favor of the nonmoving party. See, e.g., Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio

Corp.,475 U.S. 574, 587-88, 106 S. Ct. 1348, 89 L.Ed.2d 538 (1986); Shreve v. Franklin County,

Ohio, 743 F.3d 126, 132 (6th Cir. 2014). The court does not, however, make credibility

determinations, weigh the evidence, or determine the truth of the matter. Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 91 L.Ed.2d 202 (1986).

In order to defeat the motion, the nonmoving party must provide evidence, beyond the

pleadings, upon which a reasonable jury could return a verdict in its favor. Celotex Corp., 477 U.S.

at 324; Shreve, 743 F.3d at 132. Ultimately, the court is to determine “whether the evidence

presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that

one party must prevail as a matter of law.” Anderson, 477 U.S. at 251-52.

B. Breach of Contract

Under Tennessee law,2 the essential elements of a breach of contract claim are: (1) the

existence of an enforceable contract; (2) nonperformance amounting to a breach of the contract;

and (3) damages caused by the breach of contract. C&W Asset Acquisition, LLC v. Oggs, 230

S.W.3d 671, 676 (Tenn. Ct. App. 2007); Life Care Ctrs. of Am., Inc. v. Charles Town Assocs. Ltd.

Partnership, 79 F.3d 496, 513 (6th Cir. 1996).

Through the counterclaim, Defendants allege Plaintiffs breached the “License

2 The parties agree that Tennessee law applies to the claims raised in the pending motions.

4

Agreements” by failing to comply with the “notice and cure” provision in Section 15.1; by failing

to allege specific violations before termination as required by Section 15.2; by “exerting too much

control” over their business, transforming their relationship into that of a franchisor/franchisee;

and by failing to provide “‘marketing ideas’ in full” in connection with a “Shark Tank”

competition, and refused to deliver on the promised reward, as required by Section 4.2. (Doc. No.

15, at 16-17). Defendants further allege Plaintiffs breached an Asset Purchase Agreement by

instituting the current litigation before complying with the provisions of Section 13.11. (Id., at 17).

Plaintiffs argue summary judgment is appropriate on the breach of contract claim because

Defendants have not presented evidence of nonperformance of the cited provisions, nor have they

shown a causal connection between any alleged breach and damages.

Despite the various allegations made in their counterclaim, Defendants discuss only two of

the allegations in responding to Plaintiffs’ summary judgment motion: failure to comply with the

notice and cure provision in Section 15.1; and exertion of “too much control” over their business.

(Doc. No. 63, at 13-15). As Defendants have failed to offer any support for their other breach of

contract allegations, summary judgment is warranted on those claims. Celotex Corp., 475 U.S. at

324; Anderson, 477 U.S. at 251-52.

Defendants argue Plaintiffs breached the provisions of Section 15.1 of the License

Agreements by failing to provide them with notice and an opportunity to cure any breach before

terminating the contracts and filing suit. Section 15.1 provides:

15.1 Default by Licensee. If Licensee does not comply promptly with any term

or condition of this Agreement at or with respect to any Licensed Location,

Licensee will be in default under this Agreement. In addition to all other remedies

BCR may have at law or in equity, BCR may (at its option but subject to the notice

and cure provisions described below and the terms of this Agreement): (a)

terminate the applicable Schedule and the Licensee’s right to operate the specified

Licensed Concept at the specified Licensed Location, if the default under the

Schedule is material, or (b) terminate this Agreement as a whole if Licensee’s

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default is material and relates to two (2) or more of the Schedules issued to Licensee

pursuant to this Agreement.

BCR may not terminate any Schedule or this Agreement as a whole unless BCR

gives Licensee prior written notice of and (except as provided below) an

opportunity to cure the default. Licensee will have 7 days after the effective date of

notice from BCR to cure any default in payment to BCR or its affiliates and 30 days

to cure any other type of default, except that Licensee will have no opportunity to

cure the default if BCR had given Licensee notice of other defaults (even though

cured) under any Schedule(s) issued pursuant to this Agreement. Notwithstanding

these notice provisions, if applicable law requires a longer cure period, Licensee

will have the longer cure period required by law.

(Doc. No. 30-2, at 12, 36-37).

Plaintiffs argue they were not required to provide notice and an opportunity to cure because

the termination was based on Section 15.2 of the License Agreements, which provides:

15.2 Termination. Notwithstanding Section 15.1, BCR may, at its option,

terminate this Agreement as a whole on written notice to Licensee (without right to

cure), if any of the following events occur:

an assignment of any interest in this Agreement or in any Schedule that is

not in accordance with the provisions of Section 12.1;

any transfer of interest in Licensee that is not in accordance with the

provisions of Section 12.2;

Licensee discloses the contents of the Code of Conduct or any other of

BCR trade secrets or proprietary or confidential information;

Licensee knowingly maintains false books or records, or knowingly

submits false reports to BCR, or knowingly misrepresents any material

fact in its application for this license; or

Licensee conducts its business hereunder in such a way as to constitute an

imminent danger to the public health or poses a risk of significant and

immediate damage to the value of the Marks.

(Doc. No. 30-2, at 12, 37). Plaintiffs further cite to a letter, dated July 6, 2018, from Plaintiffs’

counsel to Noel R. Bagwell (identified as counsel for Defendants), which states, in pertinent part,

as follows:

6

As you know, we represent Best Choice Roofing & Home Improvement, Inc.

(hereinafter ‘BCR’). As you also know your clients, Best Choice Roofing

Savannah, LLC and Best Choice Roofing Augusta, LLC (hereinafter collectively

‘LICENSEE’) each entered into a License Agreement with BCR to use the BEST

CHOICE ROOFING mark in connection with their roofing businesses.

Despite being given many opportunities to do so, LICENSEE has repeatedly failed

to submit monthly royalty payments to BCR as required by the License

Agreements. Since LICENSEE’s failure to pay for the right to use the BEST

CHOICE ROOFING mark poses a risk of significant and immediate damage to the

value of the BEST CHOICE ROOFING mark, BCR hereby terminates the License

Agreements pursuant to Section 15.2 thereof.

Please remind LICENSEE that in view of the termination of the License

Agreements, use of the BEST CHOICE ROOFING mark must immediately cease.

Please also remind LICENSEE that LICENSEE’s continued use of the BEST

CHOICE ROOFING mark without BCR’s permission, authorization or consent is

likely to cause consumer confusion.

In view of the foregoing as well as your letter of July 2, 2018, BCR has authorized

us to file suit against LICENSEE, which we have done . . .

(Doc. No. 30-3) (emphasis added).

As set out in the letter, Plaintiffs contend the notice and cure provisions of Section 15.1 did

not apply because they exercised their right to immediate termination under Section 15.2. The

basis given in the letter for immediate termination was the “risk of significant and immediate

damage to the value” of the marks posed by Defendants’ failure to pay royalties. Although not

cited specifically, Plaintiffs’ letter presumably invokes the last clause listed in Section 15.2:

“Licensee conducts its business hereunder in such a way as to constitute an imminent danger to

the public health or poses a risk of significant and immediate damage to the value of the Marks.”

The issue raised by the termination letter, in the Court’s view, is whether failure to pay

royalties constitutes “an imminent danger to the public health” or a “risk of significant and

immediate damage to the value of the Marks.” Neither party has sufficiently addressed this issue

in the briefs. Therefore, the Court declines to resolve the issue through the pending motions.

7

As for Plaintiffs’ alternative argument that Defendants have not shown damages as a result

of the alleged breach, Defendants argue their litigation costs were incurred because Plaintiffs failed

to provide a notice-and-cure period. Plaintiffs have not cited any authority indicating litigation

costs are not recoverable. Thus, Plaintiffs are not entitled to summary judgment on this issue, and

Defendants’ counterclaim for breach of Section 15.1’s notice and cure provisions may proceed to

trial.

On the other hand, Defendants’ allegation that Plaintiffs exerted “too much control” over

Defendants’ business, transforming their relationship into that of a franchisor/franchisee, does not

state a breach of contract claim. Through Section 18.1 of the License Agreements, Plaintiffs took

the position the relationship between the parties was that of licensor/licensee, and not

franchisor/franchisee.3 Plaintiffs did not take a contrary position during the period the agreements

were in effect and they do not take a contrary position in this litigation. That Defendants disagree

with the label Plaintiffs placed on their relationship through the agreements does not constitute a

breach of the Agreements.4 Defendants do not otherwise cite a provision of the agreements

breached by an exercise of “too much control.” Thus, Defendants’ counterclaim for breach of

contract based on the exercise of “too much control” cannot withstand summary judgment.

3 Section 18.1 states as follows:

Relation of Parties. BCR and Licensee are not and may not be considered as

franchisor/franchisee, joint venture, partners, or agents of each other. Neither Licensee nor

BCR has the power to bind or obligate the other except as set forth in this Agreement.

Licensee specifically acknowledges that the relationship created by this Agreement is not

a fiduciary or any other similar or special relationship, but solely an arm’s-length business

relationship.

(Doc. No. 30-2, at 14).

4 Defendants’ argument that the exercise of “too much control” triggers application of particular statutes

will be considered below.

8

C. Veil-Piercing Claim5

Under Tennessee law, a corporation is presumptively treated as a distinct entity from its

shareholders, and a shareholder is not personally liable for the acts of the corporation. Rogers v.

Louisville Land Co., 367 S.W.3d 196, 214 (Tenn. 2012). Under certain circumstances, however,

the corporate veil may be pierced and a shareholder held accountable for the obligations of the

corporation. Id.; Church Joint Venture, L.P. v. Blasingame, 947 F.3d 925, 930 (6th Cir. 2020). The

corporate veil is disregarded, for instance, where it has been used “as a cloak or cover for fraud or

illegality, to work an injustice, to defend crime, or to defeat an overriding public policy, or where

necessary to achieve equity.” Rogers, 367 S.W.3d at 214-15. The veil may also be pierced upon

a showing that the corporation is a “sham or a dummy or where necessary to accomplish justice.”

Church, 947 F.3d at 931 (quoting Schlater v. Haynie, 833 S.W.2d 919, 925 (Tenn. Ct. App. 1991).

The party seeking to pierce the corporate veil has the burden of presenting facts demonstrating it

is entitled to relief. Id.; Rogers, 367 S.W.3d at 215.

The Tennessee courts consider several factors in determining whether the corporate veil

should be pierced:

Factors to be considered in determining whether to disregard the corporate veil

include not only whether the entity has been used to work a fraud or injustice in

contravention of public policy, but also: (1) whether there was a failure to collect

paid in capital; (2) whether the corporation was grossly undercapitalized; (3) the

nonissuance of stock certificates; (4) the sole ownership of stock by one individual;

(5) the use of the same office or business location; (6) the employment of the same

employees or attorneys; (7) the use of the corporation as an instrumentality or

business conduit for an individual or another corporation; (8) the diversion of

corporate assets by or to a stockholder or other entity to the detriment of creditors,

or the manipulation of assets and liabilities in another; (9) the use of the corporation

as a subterfuge in illegal transactions; (10) the formation and use of the corporation

5 The parties have not addressed the issue of whether “veil piercing” may be asserted as a stand-alone

claim before the determination of whether Plaintiffs owes damages to Defendants on any counterclaim.

Given the Court’s dismissal of the counterclaim on other grounds, however, it is unnecessary to address

this issue.

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to transfer to it the existing liability of another person or entity; and (11) the failure

to maintain arms-length relationships among related entities.

Id., at 215 (quoting CAO Holdings, Inc. v. Trost, 333 S.W.3d 73, 88 (Tenn. 2010)); see also F&M

Mktg. Srvcs., Inc. v. Christenberry Trucking and Farm, Inc., 523 S.W.3d 663, 667 (Tenn. Ct. App.

2017). No single factor is conclusive; courts will typically rely on a combination of the factors in

deciding the issue. Id. In every case, however, “the equities must ‘substantially favor’ the party

requesting relief,” and “the presumption of the corporation's separate identity should be set aside

only ‘with great caution and not precipitately.’” Id. (quoting Schlater, 833 S.W.2d at 925).

With regard to the third factor, Tennessee courts have explained that ownership of a

corporation by one individual is not uncommon, and “this fact standing alone does not weigh

heavily” on the question of whether the corporate veil should be pierced. F&M Mktg. Srvcs., Inc.,

523 S.W.3d at 669. In addition, “the fact that a shareholder exercises complete dominion and

control over a corporation alone is insufficient to justify piercing the corporate veil.” Id. The party

seeking to pierce the corporate veil must show that such control was used “to commit fraud or

wrong, to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and

unjust act in contravention of third parties’ rights.” Id.

Plaintiffs argue they are entitled to summary judgment on this counterclaim because

Defendants have failed to provide sufficient evidence to support it. The only evidence Defendants

rely on to support the claim is the deposition testimony of Ms. Covington that an individual named

Skye Gardner told her Mr. Holloway had purchased some items for himself through the business

accounts of BCR. (Doc. No. 59-1, at 5-6). Defendants have not cited to any deposition or sworn

statement of Mr. Gardner. Rather, they cite a document that purports to be an “interview” with Mr.

Gardner by Noel Bagwell. (Doc. No. 64-2). Plaintiffs object to consideration of the transcript as

inadmissible hearsay.

10

Rule 56(c)(2) provides that a party may, in connection with a motion for summary

judgment, object “that the material cited to support or dispute a fact cannot be presented in a form

that would be admissible in evidence.” When such an objection is made, “[t]he burden is on the

proponent to show that the material is admissible as presented or to explain the admissible form

that is anticipated.” Fed. R. Civ. P. 56(c)(2) advisory committee’s note. See also Mangum v. Repp,

674 Fed. Appx. 531, 536-37 (6th Cir. 2017); Thomas v. Haslam, 2018 WL 1702064, at *25-26

(M.D. Tenn. March 26, 2018); Weldon v. Hale, 2017 WL 3479622, at *7-8 (S.D. Ohio Aug. 14,

2017).6 Defendants have failed to demonstrate the interview transcript meets the standard for

authenticity under the Federal Rules of Evidence. For example, Defendants have not submitted an

affidavit from Mr. Bagwell as the person who presumably recorded the interview, nor have they

submitted an affidavit from the person who created the transcript. See, e.g., Mimbs v. Spalding Cty.

Sch. Dist., 2018 WL 7348863, at *3 (N.D. Ga. Dec. 21, 2018) (holding that unauthenticated

transcripts may not be considered in ruling on motion for summary judgment); Southall v. USF

Holland, Inc., 2018 WL 6413651, at *10 (M.D. Tenn. Dec. 5, 2018), aff'd sub nom. Southall v.

USF Holland, Inc, 2019 WL 6605754 (6th Cir. Dec. 5, 2019). Defendants have also failed to

explain the admissible form in which the evidence would be presented at trial. Thus, the Court

must disregard the interview transcript in considering whether summary judgment is appropriate

on the veil-piercing claim.

Defendants alternatively argue Ms. Covington’s identification of Mr. Gardner as a possible

6 Although summary judgment should be based on admissible evidence, the evidence does not necessarily

have to be presented in final, admissible form at the motion for summary judgment stage. See, e.g., Thomas,

2018 WL 1702064, at *25-26.

11

witness is sufficient to withstand summary judgment on this claim.7 Naming a witness who could

possibly support a claim, however, would not be sufficient to sustain the veil-piercing claim at

trial, and is not sufficient to defeat summary judgment. As discussed above, the nonmoving party

“must provide evidence” to support its claim, and that evidence must “present a sufficient

disagreement to require submission to a jury.” Celotex Corp., 475 U.S. at 324; Anderson, 477 U.S.

at 251-52.8 Defendants have failed to provide such evidence. Therefore, Plaintiffs are entitled to

summary judgment on the veil-piercing claim.

D. Tennessee Consumer Protection Act

The Tennessee Consumer Protection Act prohibits the use of “[u]nfair or deceptive acts or

practices affecting the conduct of any trade or commerce.” Tenn. Code Ann. § 47-18-104(a). The

Act lists certain acts considered to be “unfair or deceptive,” including the following provisions

cited by Defendants in their counterclaim:

(5) Representing that goods or services have sponsorship, approval, characteristics,

7 Defendants do not argue Ms. Covington’s testimony about the substance of Mr. Gardner’s statement

would be admissible at trial, and consequently, have not addressed the hearsay nature of the statement.

8 To the extent Defendants argue the naming of witnesses by the non-movant somehow “shifts the burden”

on summary judgment to the movant, they are in error. As the Supreme Court explained in Celotex:

. . . [W]e find no express or implied requirement in Rule 56 that the moving party support

its motion with affidavits or other similar materials negating the opponent's claim. . .

* * *

In cases like the instant one, where the nonmoving party will bear the burden of proof at

trial on a dispositive issue, a summary judgment motion may properly be made in reliance

solely on the ‘pleadings, depositions, answers to interrogatories, and admissions on file.’

Such a motion, whether or not accompanied by affidavits, will be ‘made and supported as

provided in this rule,’ and Rule 56(e) therefore requires the nonmoving party to go beyond

the pleadings and by her own affidavits, or by the ‘depositions, answers to interrogatories,

and admissions on file,’ designate ‘specific facts showing that there is a genuine issue for

trial.’

477 U.S. at 323-24 (footnote omitted) (emphasis in original).

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ingredients, uses, benefits or quantities that they do not have or that a person has a

sponsorship approval, status, affiliation or connection that such person does not

have;

(8) Disparaging the goods, services or business of another by false or misleading

representations of fact;

(9) Advertising goods or services with intent not to sell them as advertised;

(12) Representing that a consumer transaction confers or involves rights, remedies

or obligations that it does not have or involve or which are prohibited by law;

Tenn. Code Ann. § 47-18-104(b)(5), (8), (9), (12).

A “deceptive” act or practice is “‘one that causes or tends to cause a consumer to believe

what is false or that misleads or tends to mislead a consumer as a matter of fact.’” Audio Visual

Artistry v. Tanzer, 403 S.W.3d 789, 810 (Tenn. Ct. App. 2012) (quoting Tucker v. Sierra Builders,

180 S.W.3d 109, 116 (Tenn. Ct. App. 2005)). An act or practice may be deemed “unfair” if it

“‘causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by

consumers themselves and not outweighed by countervailing benefits to consumers or to

competition.’” Tanzer, 403 S.W.3d at 810 (quoting Tucker, 180 S.W.3d at 116-17)).

Section 109(a)(1) of the TCPA provides that “[a]ny person who suffers an ascertainable

loss of money or property . . . as a result of the use or employment by another person of an unfair

or deceptive act or practice . . . may bring an action individually to recover actual damages.” In

order to recover under the Act, a plaintiff must prove: (1) the defendant engaged in an unfair or

deceptive act; and (2) the defendant’s conduct caused an ascertainable loss of money or property.

Tanzer, 403 S.W.3d at 810. As to the second element, “the alleged ‘unfair or deceptive act or

practice’ must in fact cause the damages of which plaintiff complains.” White v. Early, 211 S.W.3d

723, 743 (Tenn. Ct. App. 2006).

Defendants’ counterclaim alleges the following violations of the TCPA:

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63. Counter-Defendants represented that Counter-Plaintiffs had purchased from

Counter-Defendants all of Counter-Defendants’ assets related to or used in

connection with the businesses Counter-Plaintiffs purchased from Counter-

Defendants, whereafter Counter-Defendants’ subsequently illegally engaged in a

scheme to license to Counter-Plaintiffs intellectual property, which, apparently,

was transferred in the aforementioned purchase and sale, to Counter-Plaintiffs

(T.C.A. § 47-18-104(b)(5));

64. Counter-Defendants represented that Counter-Plaintiffs had obtained a license

to use Counter-Defendants’ Trademark, when, in fact, Section 2.1 of the ‘License

Agreement’ restricts the ‘scope of the license’ ‘only to the Licensed Concept

specified in an applicable Schedule at the Licensed Location specified in the same

Schedule,’ which does not include the Trademark, subsequently adding, ‘This

license does not extend to any other location, product, concept, or distribution

channel’ (T.C.A. § 47-18-104(b)(5));

65. In Section 18.1 of the ‘License Agreement,’ Counter-Defendants represented

that the relationship between Counter-Defendants and Counter-Plaintiffs was not,

and could not be construed to be, a franchisor/franchisee relationship, when, in fact,

the relationship between Counter-Defendants and Counter-Plaintiffs was a

franchisor-franchisee relationship, as defined by the FTC Franchise Rule. (T.C.A.

§ 47-18-104(b)(5));

66. Counter-Defendants deceptively, misleadingly, and wrongfully published

statements to customers, who had a contingent agreement for services with

Counter-Plaintiffs, that Counter-Plaintiffs were a fraudulent business, and a scheme

that was just trying to take customers’ money (T.C.A. § 47-18-104(b)(8));

67. In the Asset Purchase Agreement between Counter-Defendants and Counter-

Plaintiff, Counter-Defendants advertised certain intellectual property, business

opportunities, and other services with intent not to sell them as advertised, when

Counter-Defendants offered for sale a business in Georgia, along with all of

Counter-Defendants’ assets related to or used in connection with the businesses

with the intent to engage in a conflicting transaction that would also allow Counter-

Defendants to license to Counter-Plaintiffs the very intellectual property it was

apparently selling, transferring, and assigning to Counter-Plaintiffs, that is all of

Counter-Defendants’ intellectual property related to or used in connection with the

businesses (T.C.A. § 47-18-104(b)(9));

68. In the License Agreement between Counter-Defendants and Counter-Plaintiff,

Counter-Defendants advertised to sell to Counter-Plaintiffs a license for a

‘Licensed Concept’ and certain other intellectual property (i.e. a ‘franchise’ as

defined in the FTC Franchise Rule), without the intent to sell the franchise as such,

but rather to attempt to unfairly and deceptively pass off the franchise as a licensing

scheme, in order to subvert and evade the FTC Franchise Rule, in violation of 15

U.S.C. Section 5 (T.C.A. § 47-18-104(b)(9)); and

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69. In the License Agreement between Counter-Defendants and Counter-Plaintiffs,

Counter-Defendants represented that a consumer transaction, the ‘License

Agreement’ (along with the Asset Purchase Agreement, Bill of Sale, and other

ancillary contracts and documents), confers or involves rights, remedies or

obligations that it does not have or involve or which are prohibited by law,

including but not limited to, all of those pertaining to a license agreement, as distinct

from a franchise, for, while all franchises include one or more trademark licenses,

but not every trade mark license rises to the level of being a franchise, the

relationship between Counter-Defendants and Counter-Plaintiffs was that of

franchisor-franchisee. (T.C.A. § 47-18-104(b)(12));

70. Counter-Plaintiffs have suffered damages as a result of the unfair and deceptive

acts of the Counter-Defendants;

(Doc. No. 15, at 18-20).

Notwithstanding these lengthy allegations, Defendants discuss only one specific allegation

in arguing their TCPA claim survives summary judgment.9 Defendants argue Plaintiffs violated

the TCPA by violating the Federal Trade Commission’s (“FTC”) Franchise Rule, 16 C.F.R. §

436.2. Plaintiffs violated the Franchise Rule, Defendants argue, by representing in the License

Agreements that the parties’ relationship was not that of a franchisor/franchisee, and by failing to

make the disclosures required of a franchisor. In that regard, the Franchise Rule requires a

franchisor to provide a prospective franchisee with a detailed disclosure statement in connection

with the offer or sale of a franchise. 16 C.F.R. §§ 436.2, 436.5. The FTC is authorized to bring suit

to enforce the Rule. 15 U.S.C. §§ 45, 53; United States v. Lasseter, 2005 WL 1638735, at *1 (M.D.

Tenn. June 30, 2005) (action brought by the FTC based on its statutory authority to enforce the

Franchise Rule). There is no private right of action available, however, for franchisees to enforce

the Rule. See, e.g., Akers v. Bonifasi, 629 F. Supp. 1212, 1221-22 (M.D. Tenn. 1984); A Love of

9 To the extent the Defendants make passing reference to other allegations, they have failed to support

the allegations with evidence sufficient to defeat summary judgment. Celotex Corp., 475 U.S. at 324;

Anderson, 477 U.S. at 251-52. Thus, those allegations are dismissed.

15

Food I, LLC v. Maoz Vegetarian USA, Inc., 70 F.Supp.3d 376, 382 (D.D.C. 2014).

Defendants contend the Franchise Rule is enforceable under the TCPA because violation

of the Rule is an “unfair or deceptive” act or practice for purposes of the FTC Act, and the TCPA

is to be interpreted consistently with the FTC Act. See 16 C.F.R. § 1.8 (“A violation of a rule shall

constitute an unfair or deceptive act or practice in violation of section 5(a)(1) of that Act, unless

the Commission otherwise expressly provides in its rule.”); Tenn. Code Ann. § 47-18-115 (“It is

the intent of the general assembly that this part shall be interpreted and construed consistently with

the interpretations given by the federal trade commission and the federal courts pursuant to §

5(A)(1) of the Federal Trade Commission Act, codified in 15 U.S.C. § 45(a)(1)).10 Defendants

have not cited any authority, however, holding that failure to strictly comply with the Franchise

Rule is a per se unfair and deceptive act or practice under the TCPA. Cf. Cluck-U Chicken, Inc. v.

Cluck-U Corp., 358 F.Supp.3d 1295, 1313 (M.D. Fla. 2017) (“Liability under [the Florida

Deceptive and Unfair Trade Practices Act] requires more than a mere technical violation of the

FTC’s Franchise Rule;” party must also prove the alleged violation “was likely to deceive a

consumer acting reasonably in the same circumstances.”)

Plaintiffs argue that the relationship created by the License Agreements was not that of

franchisor/franchisee, but even if it were, and even if the Franchise Rule were enforceable under

the TCPA, the statute of limitations bars Defendants’ counterclaim. Actions by private parties to

enforce the TCPA “shall be brought within one (1) year from a person’s discovery of the unlawful

act or practice . . .” Tenn. Code Ann. § 47-18-110. Under this “discovery rule,” a TCPA cause of

10 A number of states have enacted their own franchise disclosure laws, but Tennessee has not. A Love of

Food, 70 F.Supp.3d at 382-83; cf. Tenn. Code Ann. §§ 47-25-1501, et seq. (governing termination of

franchise relationships).

16

action accrues, and the statute of limitations begins to run, “‘when the plaintiff knows or in the

exercise of reasonable care and diligence should know that an injury has been sustained as a result

of wrongful or tortious conduct by the defendant.’” Montesi v. Nationwide Mut. Ins. Co., 970

F.Supp.2d 784, 789 (W.D. Tenn. 2013) (quoting Almanza v. Baird Tree Serv. Co., 2012 WL

4758276, at *7 (E.D. Tenn. Oct. 5, 2012)). Although the determination of the time when a plaintiff

discovers or reasonably should have discovered a cause of action is typically a question of fact,

accrual can be a question of law for the court when undisputed evidence can lead to only one

conclusion. Id.¸ at 789-90.

Defendants’ TCPA claim, as discussed above, is that Plaintiffs represented the parties’

relationship was not that of a franchisor/franchisee, and consequently, Plaintiffs failed to make the

disclosures required of a franchisor in offering to sell a franchise. According to Defendants, one

need look no further than the terms of the agreements themselves to conclude the arrangement was

actually a franchise. Defendants do not rely on any specific events occurring after the agreements

were executed to support their claim. Plaintiffs argue the cause of action accrued, therefore, when

the agreements were executed. Defendants have not addressed the statute of limitations argument

in their briefs, nor have they otherwise suggested a different accrual date.

Based on the record presented, the Court concludes Defendants knew, or in the exercise of

reasonable care and diligence should have known, the basis of their cause of action on the day Ms.

Covington signed the agreements. According to Defendants, the agreements described the true

nature of the relationship, and any disclosures should have been made on or before the day the

agreements were executed. The BCR Savannah License Agreement was executed on November

12, 2015, and the BCR Augusta License Agreement was executed on June 9, 2017. (Doc. No. 13-

2, at 1, 26). The TCPA counterclaim was filed on September 6, 2018 (Doc. No. 15), more than a

17

year after the agreements were signed. Accordingly, Defendants’ TCPA counterclaim is barred by

the statute of limitations.11

E. Fraud-Related Counterclaims

Defendants have asserted counterclaims for fraudulent misrepresentation (or alternatively,

negligent misrepresentation), fraudulent concealment, constructive fraud, and fraud in the

inducement to contract. Plaintiffs argue they are entitled to summary judgment on these

counterclaims because Defendants have failed to support them with sufficient evidence to

withstand summary judgment.

The Tennessee courts consider “fraud,” “intentional misrepresentation,” and “fraudulent

misrepresentation” to be different names for the same cause of action. Hodge v. Craig, 382 S.W.3d

325, 342 (Tenn. 2012). “To recover for intentional misrepresentation, a plaintiff must prove: (1)

that the defendant made a representation of a present or past fact; (2) that the representation was

false when it was made; (3) that the representation involved a material fact; (4) that the defendant

either knew that the representation was false or did not believe it to be true or that the defendant

made the representation recklessly without knowing whether it was true or false; (5) that the

plaintiff did not know that the representation was false when made and was justified in relying on

11 Plaintiffs alternatively argue the TCPA counterclaim should be dismissed because Defendants have

failed to present evidence as to the damages/causation element of the claim. See, e.g., A Love of Food, 70

F.Supp.3d at 412 (explaining that even in states with their own franchise disclosure laws, the plaintiff must

show the lack of disclosure was the cause of its damages in order to recover on a failure to disclose claim).

Plaintiffs also argue the Franchise Rule did not require disclosures in this case because Ms. Covington was

an “insider,” and fell within an exception to the Rule. See 16 C.F.R. § 436.8(a)(6) (disclosures need not be

made to certain purchasers who worked in management at the franchisor for two years within 60 days of

the sale). Given the Court’s dismissal of the TCPA counterclaim on other grounds, it is unnecessary to

address these arguments.

18

the truth of the representation; and (6) that the plaintiff sustained damages as a result of the

representation.” Id., at 343. See also Thompson v. Bank of America, N.A., 773 F.3d 741, 751 (6th

Cir. 2014).

Defendants allege Plaintiffs engaged in fraudulent misrepresentation by representing the

agreements between the parties were license agreements when they knew the agreements were, in

fact, franchise agreements. (Doc. No. 15 ¶¶ 11-36). The motivation for the alleged

misrepresentation, according to the counterclaim, was the desire to avoid application of the FTC

Franchise Rule. (Id.) The misrepresentation is allegedly reflected in Section 18.1 of the agreement,

which, as discussed above, states: “BCR and Licensee are not and may not be considered as

franchisor/franchisee, joint venture, partners, or agents of each other . . . Licensee specifically

acknowledges that the relationship created by this Agreement is not a fiduciary or any other similar

or special relationship, but solely an arm’s-length business relationship.” (Doc. No. 30-2, at 14).

To support their fraud claims, Defendants rely on the deposition testimony of Mr.

Holloway that he spent “months and months and thousands and thousands of dollars consulting

with my attorneys” to determine “exactly what I can and cannot do as a licensor” before engaging

in licensing. (Doc. No. 47-1, at PageID # 600).12 Defendants also rely on the testimony of Ms.

Covington that: (1) Mr. Gardner told her Mr. Holloway “brought some people in to talk about

franchising at one time, on pricing, to what it would cost to do the paperwork up for franchising.

And it was an astronomical amount, and that’s when he decided to do the paperwork himself;” (2)

Mr. Holloway asked her, during a conversation at a bar when she was the general manager of

12 Defendants also point to statements made about Mr. Holloway by Mr. Gardner in the interview

transcript. For the reasons explained above, Mr. Gardner’s interview is not properly authenticated and

presented for summary judgment consideration.

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BCR’s Savannah location, if she wanted to buy the location as a “franchise;” and (3) she

“completely trusted Mr. Holloway with everything, as far as all the paperwork, everything that

was being done.” (Doc. No. 42-1, at PageID ## 508, 493, 497). Finally, Defendants rely on the

contents of the License Agreements to establish the relationship described is actually that of a

franchisor/franchisee, rather than licensor/licensee.

As to the first element of their fraud claim, the only “representation” Defendants discuss

in the summary judgment briefs is the “not a franchisor/franchisee” language contained in Section

18.1 of the License Agreements. Plaintiffs argue the provision of a contract stating the parties are

not in a franchise relationship is not a “representation of a present or past material fact” for

purposes of a fraud claim. Plaintiffs contend the contract language constitutes a legal opinion, and

Ms. Covington was free to have that opinion confirmed by her own legal counsel before she signed

the agreements.

In Boyce v. LPP Mortg. Ltd., 435 S.W.3d 758 (Tenn. Ct. App. 2013), the Tennessee Court

of Appeals discussed the distinction between representations of fact and representations of law in

the context of considering whether to apply equitable estoppel:

[I]n order to apply equitable estoppel, the opposing party must have either

concealed material facts or made a false representation of material ‘facts, either past

or present.’ Consumer Credit Union v. Hite, 801 S.W.2d 822, 825 (Tenn. Ct. App.

1990). Legal arguments, however, are not facts.

* * *

Indeed, the situation presented by this case is similar to the situation wherein a party

makes a material factual misrepresentation in order to induce another party to make

a contract. In that situation, Williston on Contracts notes that misstatements as to

the law do not qualify as material factual misrepresentations:

It is well settled that a claim of fraud in the making of a contract cannot

generally be supported by proof of misstatements as to matters of law. On

this principle, a conscious misstatement of the meaning of certain terms in

a written contract has been held immaterial.

20

The rule, which is in essence an application of the broader principle that

fraud must rest on a misrepresentation of a matter of fact, and cannot be

supported by a misstatement of a matter of opinion, is based on the

principle that everyone is equally capable of determining the law, is

presumed to know the law and is bound to take notice of the law and,

therefore, in legal contemplation, cannot be deceived by representations

concerning the law or permitted to say he or she has been misled.

26 Williston on Contracts § 69:10 (4th ed.) (noting certain exceptions not

applicable in this case).

435 S.W.3d at 772; see also Downing v. Fidelity Nat’l Title Ins. Co., 2017 WL 6371196, at *7-8

(N.D. Ga. Sept. 14, 2017) (under Georgia law, “[a] claim of fraud cannot be predicated upon

misrepresentations of law or misrepresentations as to matters of law.”); General Electric Capital

Corp. v. Delaware Machinery & Tool Co., 2011 WL 1899203, at *3 (S.D. Ind. May 17, 2011)

(dismissing fraudulent inducement claim where plaintiff alleged defendant misrepresented their

contract as a lease rather than a security agreement; fraudulent inducement claim, under Indiana

law, may not be based on representations as to the legal effect of the document sued on because

“[e]very person is presumed to know the contents of the agreement which he signs, and has,

therefore, no right to rely on the statements of the other party as to its legal effect.”)

The reason for requiring the “representation” be one of fact and not law becomes clear, in

this case, when one attempts to establish the veracity of the representation, i.e. does the License

Agreement actually describe a franchise? Defendants claim the alleged representation is false

because the terms of the License Agreements satisfy the definition of “franchise” fashioned by the

FTC in its Franchise Rule:

(h) Franchise means any continuing commercial relationship or arrangement,

whatever it may be called, in which the terms of the offer or contract specify, or the

franchise seller promises or represents, orally or in writing, that:

(1) The franchisee will obtain the right to operate a business that is

identified or associated with the franchisor's trademark, or to offer, sell, or

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distribute goods, services, or commodities that are identified or associated

with the franchisor's trademark;

(2) The franchisor will exert or has authority to exert a significant degree

of control over the franchisee's method of operation, or provide significant

assistance in the franchisee's method of operation; and

(3) As a condition of obtaining or commencing operation of the franchise,

the franchisee makes a required payment or commits to make a required

payment to the franchisor or its affiliate.

16 C.F.R. § 436.1(h). But the term “franchise” is also defined in other statutes. For example, for

purposes of its franchise termination statute, the Tennessee legislature defines the term as follows:

‘Franchise’ means a written or oral agreement for a definite or indefinite period, in

which a person grants to another person authority to use a trade name, trademark,

service mark or related characteristic within an exclusive territory, or to sell or

distribute goods or services, within an exclusive territory, at wholesale, retail, by

lease agreement or otherwise; provided, that ‘franchise’ means only such

agreement where the franchisee is required to be licensed under § 57-3-203; and

provided further, that a franchise is not created by a lease, license or concession

granted by a retailer to sell goods or furnish services on or from premises which are

occupied by the retailer-grantor primarily for its own merchandising activities;

Tenn. Code Ann. § 47-25-1502(1); see also Tenn. Code Ann. § 47-25-1902(6) (defining the term

for the Motorcycle and Off-Road Vehicle Dealer Fairness Act); Tenn. Code Ann. § 47-25-602(5)

(defining the term for the Petroleum Trade Practices Act).

In the Court’s view, the determination of whether the terms of the License Agreements

describe a “franchise” relationship is a legal opinion, dependent on the definition to be applied to

the facts given. The resulting conclusion is not a “fact” that can be objectively verified. Nor have

Defendants suggested that any government agency or association makes such a determination,

through a “license,” “certification,” or otherwise. Thus, on the record before the Court, Defendants

have failed to establish that Plaintiffs made a representation of fact for purposes of the first element

22

of their fraudulent misrepresentation counterclaim.13 Accordingly, summary judgment is

warranted on that claim.

Defendants alternatively allege Plaintiffs engaged in negligent misrepresentation.

Negligent misrepresentation has been limited by Tennessee courts to “‘business or professional

persons who negligently supply false information for the guidance of others in their business

transactions.’” Hodge, 382 S.W.3d at 345. To recover for negligent misrepresentation, the plaintiff

must prove: (1) the defendant is acting in the course of his business, profession, or employment,

or in a transaction in which he has a pecuniary (as opposed to gratuitous) interest; (2) the defendant

supplies faulty information meant to guide others in their business transactions; (3) the defendant

fails to exercise reasonable care in obtaining or communicating the information; and (4) the

plaintiff justifiably relies upon the information. Robinson v. Omer, 952 S.W.2d 423, 427 (Tenn.

1997). See also Thompson, 773 F.3d at 752.

For the reasons described with regard to fraudulent representation, Defendants cannot

establish the second element of this claim – that Plaintiffs supplied “faulty information” by

representing the relationship described in the agreements was a “franchise.” The determination of

whether that representation constitutes “faulty information” is a legal opinion, dependent on the

definition to be applied to the facts given. Thus, summary judgment is warranted on this

counterclaim.

13 Plaintiffs also argue Defendants cannot establish the fourth element of the claim – that Ms. Covington

was justified in relying on the truth of the representation. As Plaintiffs point out, Ms. Covington had the

means of acquiring her own legal opinion simply by having the agreements reviewed by legal counsel, and

Defendants have not suggested she entered into the agreements through threats, force, or undue pressure.

See Boyce, 435 S.W.3d at 772 (explaining that equitable estoppel requires the party raising the defense to

show he lacked the opportunity to know the truth, and denying application of the defense because

appellants, “through diligent research, had every opportunity to know of the [relevant legal] decisions.”)

Given the Court’s dismissal of the fraud claims on other grounds, however, it is unnecessary to address this

issue.

23

Although Defendants allege separate counterclaims for constructive fraud and fraudulent

concealment, Tennessee courts have explained they are both parts of the same cause of action:

Fiduciary relationship, confidential relationship, constructive fraud and fraudulent

concealment are all parts of the same concept. [T]he nature of the relationship

which creates a duty to disclose, and a breach of [that] duty constitutes constructive

fraud or fraudulent concealment, springs from the confidence and trust reposed by

one in another, who by reason of a specific skill, knowledge, training, judgment or

expertise, is in a superior position to advise or act on behalf of the party bestowing

trust and confidence in him. Once the relationship exists ‘there exists a duty to

speak . . . [and] mere silence constitutes fraudulent concealment.’

PNC Multifamily Capital Institutional Fund XXVI Ltd. Partnership v. Bluff City Community

Development Corp., 387 S.W.3d 525, 549-50 (Tenn. Ct. App. 2012) (quoting Shadrick v. Coker,

963 S.W.2d 726, 736 (Tenn. 1998)); see also Kincaid v. SouthTrust Bank, 221 S.W.3d 32, 39

(Tenn. Ct. App. 2006) (holding constructive frauds concern “a breach of a legal or equitable duty,

with or without fraudulent intent, and entail as an attribute of fraud, conduct which reasonably can

be expected to influence the conduct of others.”)

The courts recognize two types of concealment: one type is where there is a duty to disclose

and the other type is where the concealment constitutes a trick or contrivance. Id., at 550. A party

commits fraudulent concealment when he or she fails to disclose “a known fact or condition where

he or she had a duty to disclose and another party reasonably relies upon the resulting

misrepresentation, thereby suffering injury.” PNC, 387 S.W.3d at 550. The fact or condition must

be one that is “material.” Id. A party does not have a duty to disclose a material fact, however,

“where ordinary diligence would have revealed the undisclosed fact:”

‘a party cannot be permitted to claim that he has been taken advantage of if he had

the means of acquiring the needed information or if, because of his business

experience or his prior dealings with the other party, he should have acquired

further information before he acted.’

Id., at 550-51. The plaintiff must also show her damages were caused by her reasonable reliance

24

on the nondisclosure. Id., at 551.

Assuming Defendants can establish Plaintiffs had a “duty to disclose” for purposes of these

claims, they have failed to present evidence that “a known fact or condition” was not disclosed.

As with the other fraud claims, Defendants allege liability here based on Plaintiffs’ failure to

disclose the relationship described in the agreements was a “franchise.” As explained above, the

conclusion that the relationship is a “franchise” is a legal opinion, dependent on the definition to

be applied to the facts given. That conclusion is not a “fact or condition” that can be objectively

verified. Therefore, summary judgment is warranted on Defendants’ counterclaims for

constructive fraud and fraudulent concealment.

In order to recover for fraud in the inducement to contract, a plaintiff must show the

defendant: (1) made a false statement concerning a fact material to the transaction; (2) with

knowledge of the statement’s falsity or utter disregard for its truth; (3) with the intent of inducing

reliance on the statement; (4) the plaintiff reasonably relied on the statement; and (5) the reliance

resulted in an injury. Thompson, 773 F.3d at 752; see also Baugh v. Novak, 340 S.W.3d 372, 388

(Tenn. 2011).

To support this claim, Defendants rely on Ms. Covington’s deposition testimony that,

during a conversation with Mr. Holloway in a bar, which occurred when she was the general

manager of BCR’s Savannah location, Mr. Holloway asked her if she wanted to buy the location

as a “franchise.” (Doc. No. 42-1, at PageID # 493, 497). Defendants also base liability for this

claim on the contents of the agreements.14

14 Defendants also rely on the interview transcript of Mr. Gardner. For the reasons explained above, Mr.

Gardner’s interview is not appropriately presented for summary judgment consideration.

25

Again, Defendants have failed to present evidence that Plaintiffs made a false statement of

fact. As for Mr. Holloway’s use of the word “franchise” during his conversation with Ms.

Covington, Defendants do not take the position that the reference was false. Indeed, Defendants

argue the relationship was a franchise.15 As for the statement in the agreements themselves, for the

reasons described above, Defendants have not shown the statement is a “fact,” as opposed to a

legal opinion. Accordingly, summary judgment is warranted on Defendants’ counterclaim for

fraud in the inducement to contract.

F. Tortious Interference with Business Relationships

In order to establish the tort of intentional (tortious) interference with business relationships

under Tennessee law, a plaintiff must prove the following: (1) an existing business relationship

with specific third parties or a prospective relationship with an identifiable class of third persons;

(2) the defendant’s knowledge of that relationship and not a mere awareness of the plaintiff’s

business dealings with others in general; (3) the defendant’s intent to cause the breach or

termination of the business relationship; (4) the defendant’s improper motive or improper means;

and (5) damages resulting from the tortious interference. Trau-Med of America, Inc. v. Allstate Ins.

Co., 71 S.W.3d 691, 701 (Tenn. 2002).

Plaintiffs argue Defendants have not presented sufficient admissible evidence to withstand

summary judgment on this counterclaim. In response, Defendants cite to the deposition testimony

of Ms. Covington describing the basis for the claim:

15 Plaintiffs also argue any reliance by Ms. Covington on such statements would be unreasonable. See

Solomon v. First American Nat’l Bank of Nashville, 774 S.W.2d 935, 943-44 (Tenn. Ct. App. 1989)

(explaining that a party dealing on equal terms with another generally is not justified in relying upon that

person’s representations regarding the contents of a writing when the means of knowledge is equally

available to both parties). Given the Court’s dismissal of this counterclaim on other grounds, it is

unnecessary to address this issue.

26

A. I don't have the customers' names with me, as far as right off the top of my head.

But I had two separate customers, one from Augusta, Georgia and one from

Savannah, Georgia, that called in based on (sic) this was right at the time that

everything took place, the separation between us took place, they called the 800

number and reached corporate. Corporate was told that any calls that came in from

any of our branches were to go directly to Mr. Holloway. The homeowner called

in, and Mr. Holloway told them that he owned Best Choice Roofing, that the

paperwork that they had was fraudulent paperwork, that we were not in business,

that we were a fraudulent company and not to do business with us.

Q. All right. Can you please, as a late-filed exhibit, provide me the names of those

customers?

A. I can.

Q. Thank you.

(WHEREUPON, a document was marked as Late-Filed Exhibit Number 14.)

BY MR. COOK:

Q. Any others besides those two?

A. Those two are the only two that I'm aware of that reached out that my salesman

was able to contact to find out why, they -- I don't know if there's any others or not,

because I wasn't -- those were the only two that we actually spoke with.

Q. All right. And did they terminate your contract?

A. One did, one did not.

Q. All right.

A. One terminated it to start with because I was actually up here. But when I got

back and was able to speak to them . . .

(Doc. No. 42-1, at PageID #495-96).

Plaintiffs argue Ms. Covington has yet to identify the two customers to whom she referred

during her deposition, and that her testimony is not sufficient to establish the elements of the

counterclaim. In response, Defendants argue they “need not reveal their fact witnesses to Counter-

27

Defendants unless required to do so by Rule or court order . . .” (Doc. No. 63, at 17), and that Ms.

Covington’s testimony is sufficient to withstand summary judgment.

It is not clear from Ms. Covington’s testimony whether she spoke to the customers

personally (rather than learning this information from her salesman), but if she did not, her

testimony arguably would not be admissible at trial for lack of personal knowledge. Fed. R. Evid.

602. Assuming Ms. Covington spoke with these customers directly and they relayed to her Mr.

Holloway’s statements, Plaintiffs argue her testimony would be inadmissible at trial under the

applicable hearsay rules. Defendants contend her testimony is not hearsay because it is not offered

for the truth, and is admissible under Federal Rule of Evidence 801(d)(2) as the statement of a

party opponent.

The Court agrees that Mr. Holloway’s alleged statement to the customers about the

defemdant companies would likely be admissible at trial under Federal Rule of Evidence 801, as

Defendants argue, if the customers were called to testify about the statement. The customers’

statements to Ms. Covington, however, is a different matter; and Defendants have not addressed

the admissibility of Ms. Covington’s testimony about those statements. See, e.g., Back v. Nestle

USA, Inc., 694 F.3d 571, 577-78 (6th Cir. 2012) (“For double-hearsay statements to be admissible,

each separate statement must either be excluded from the hearsay definition or fall within a hearsay

exception.”); Fed. R. Evid. 805. The statements were made to Ms. Covington by the customers –

not a party opponent; and they would be offered for the truth – to prove Mr. Holloway made the

disparaging statement to the customers. See Warren v. Fed. Nat’l Mtg. Assoc., 932 F.3d 378, 387-

88 (5th Cir. 2019) (first level of hearsay may not be offered for truth but second level of hearsay is

offered to prove truth of what witness heard); EEOC v. Evans Fruit Co., Inc., 2013 WL 4498747

(E.D. Wash. Aug. 21, 2013) (same); United States v. Dickey, 102 F.3d 157, 163 (5th Cir. 1996)

28

(same). Defendants have failed to explain the admissible form in which this evidence could be

presented at trial, and therefore, the Court must disregard the deposition testimony of Ms.

Covington. As Defendants have presented no other evidence in support of their tortious

interference with business relationships counterclaim, summary judgment is warranted.

G. Defamation

In order to establish a claim for defamation under Tennessee law, a plaintiff must show:

(1) a party published a statement; (2) with knowledge that the statement was false and defaming

to the other; or (3) with reckless disregard for the truth of the statement or with negligence in

failing to ascertain the truth of the statement. Brown v. Christian Bros. Univ., 428 S.W.3d 38, 50,

(Tenn. Ct. App. 2013).

Plaintiffs argue Defendants have failed to present evidence sufficient to withstand

summary judgment on the defamation counterclaim. To support this claim, Defendants offer the

same deposition testimony of Ms. Covington offered in support of the tortious interference with

business relationships counterclaim. As with that claim, they do not explain how that testimony

could be presented in admissible form at trial. As Defendants have cited no other evidence in the

record to support their defamation counterclaim, summary judgment is warranted.

H. Unjust Enrichment

To recover on an unjust enrichment claim under Tennessee law, the plaintiff must show:

(1) a benefit conferred upon the defendant by the plaintiff; (2) appreciation by the defendant of

such benefit; and (3) acceptance of such benefit under such circumstances that it would be

inequitable for him to retain the benefit without payment of the value thereof. Freeman Indus.,

LLC v. Eastman Chem. Co., 172 S.W.3d 512, 525 (Tenn. 2005). “The most significant

requirement of an unjust enrichment claim is that the benefit to the defendant be unjust.” Id. “A

29

plaintiff need not be in privity with a defendant to recover,” but must demonstrate “that he or she

has exhausted all remedies against the person with whom the plaintiff enjoyed privity of contract.”

Id. A plaintiff need not show the defendant received a direct benefit in order to recover; “a plaintiff

may recover for unjust enrichment against a defendant who receives any benefit from the plaintiff

if the defendant's retention of the benefit would be unjust.” Jd.

Plaintiffs argue Defendants have failed to present evidence sufficient to withstand

summary judgment on the unjust enrichment counterclaim. The factual allegations pled by

Defendants in connection with this claim to relate to Plaintiffs’ receipt of rebates from suppliers

that Defendants claim should have been paid to them as the “procuring cause.” (Doc. No. 15, at

22-23). Defendants have not addressed this claim in any of their summary judgment briefs, nor

have they otherwise cited to evidence in the record to support the claim. Therefore, summary

judgment is warranted on the unjust enrichment counterclaim.

IV. Conclusion

For the reasons set forth above, Defendants’ counterclaim for breach of the notice and cure

provisions of the License Agreements may proceed to trial. In all other respects, Plaintiffs’

summary judgment motion is granted, and Defendants’ summary judgment motion is denied.

It is so ORDERED.

Mae =. Codd

HX Cnllfp

UNITED STATES DISTRICT JUDGE

30