Brian Douglas Spivey v. David N. King

IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

December 6, 2011 Session

BRIAN DOUGLAS SPIVEY v. DAVID N. KING ET AL.

Appeal from the Circuit Court for Knox County

No. 1-441-10 Dale C. Workman, Judge

No. E2011-01114-COA-R3-CV-FILED-FEBRUARY 2, 2012

The plaintiff Brian Douglas Spivey (“the Plaintiff”) alleges that the defendants, his former

business partners, David N. King and Anthony G. Brown (collectively “the Defendants’),

engaged in a conspiracy, and, pursuant to that conspiracy, took actions that include forcing

him into bankruptcy and harassing him in the bankruptcy case, expelling him from a business

entity, defaming him, and initiating unwarranted criminal charges that were dismissed. The

Defendants filed a motion to dismiss asserting that this was simply an attempt to relitigate

issues that had been determined in the Plaintiff’s bankruptcy and in a chancery court case the

Defendants had pursued. They also filed a motion for sanctions. It turns out that the

bankruptcy court did not issue its opinion until after the complaint in this case was filed and

that the chancery court action was stayed as to the Plaintiff as a result of his bankruptcy

filing. The trial court dismissed the complaint in an order that states that the dismissal was

for “failure to state a claim.” The trial court also awarded sanctions against the Plaintiff and

his attorney. The Plaintiff appeals. We affirm that part of the judgment dismissing the

claims related to forcing the Plaintiff into bankruptcy and harassing him in bankruptcy as

well as the claims related to expelling him from the business entity. We vacate that part of

the judgment dismissing claims related to defamation and the allegedly unwarranted criminal

prosecution. We also vacate that part of the judgment sanctioning the Plaintiff and his

attorney.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court

Affirmed in Part and Vacated in Part; Case Remanded

C HARLES D. S USANO, J R., J., delivered the opinion of the Court, in which H ERSCHEL P.

F RANKS, P.J., and J OHN W. M CC LARTY, J., joined.

R. D. Hash, Maryville, Tennessee, for the appellant, Brian Douglas Spivey.

Glenna W. Overton, Knoxville, Tennessee, for the appellees, David N. King and Anthony

G. Brown.

OPINION

I.

This is an action filed on September 1, 2010, by the Plaintiff against the Defendants.

The Plaintiff alleges that he and the Defendants formed a business entity called Brown, King,

Spivey Group, LLC (“BKS LLC” or “the LLC”) in November of 2006. The Plaintiff was

initially appointed as the managing member of the LLC and then relieved later of that

position approximately one year after the LLC’s formation. Within a short time he was also

expelled as a member of the LLC.

The Plaintiff alleges that the Defendants engaged in a civil conspiracy to destroy him

financially and personally. Their actions pursuant to the conspiracy allegedly constituted or

included, among other things, malicious prosecution, false imprisonment, abuse of process,

defamation, wrongful expulsion from the LLC, and forcing him into bankruptcy.

The Plaintiff alleges that the Defendants caused him to be arrested, booked, and

fingerprinted on false charges of felony forgery and misdemeanor theft. The Plaintiff alleges

that the forgery charge was dismissed by nolle prosequi before the preliminary hearing and

that the theft charge was dismissed due to expiration of the statute of limitations. The

Plaintiff alleges that the warrants were processed only because of the “dogged determination

and insistence of the . . . Defendants and their counsel.” The Plaintiff claims there was an

“unabated personal barrage of pleas” to the district attorney general by the Defendants and

their attorney and that they supplied hundreds of pages of documents, made numerous

personal visits, and made numerous phone calls pursuing a vigorous prosecution of the

charges.

The criminal charges relate to an insurance check written by State Farm Insurance to

payees, the Plaintiff, defendant King and First Tennessee Bank. The check was in the

amount of $16,681.32 for a casualty loss related to a theft at a house under construction by

the LLC and The Spivey Group, Inc., the general contractor for a development undertaken

by the LLC. Spivey Group is partially owned by the Plaintiff. The Plaintiff deposited the

check into the account of Spivey Group at First Tennessee Bank. According to the

allegations in the complaint, the insurance company mistakenly placed Mr. King’s name on

the check. The Plaintiff alleges that he deposited the funds in the account of The Spivey

Group, Inc. and used them for the benefit of the LLC.

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The Plaintiff makes several allegations concerning the motivation behind the criminal

prosecution. He says the theft charge is nonsense because it was allegedly based on

depositing the check without King’s endorsement but King knew he was never personally

entitled to the funds. He says also that he acted on the advice of First Tennessee Bank, a co-

payee on the check. The Plaintiff also alleges that if King really believed that a forgery had

occurred, he could have simply presented the facts to First Tennessee Bank and it would have

been obligated to pay King the face amount of the check.

The Plaintiff alleges the Defendants wrongfully forced him into bankruptcy by

resisting, with lies, his request for a continuance of a trial. The trial to which he refers is in

a case filed by the Defendants against him and others in Knox County Chancery Court. He

alleges that the Defendants defeated his request for a continuance with the falsehood that

their lender, First Tennessee Bank, was in the process of foreclosing against them on loans

they guaranteed for BKS LLC. The Plaintiff alleges that First Tennessee was “never even

close to foreclosure.” The Plaintiff filed a chapter 7 bankruptcy petition on the day before

a trial was scheduled in chancery court. The lawsuit was stayed as to claims asserted against

the Plaintiff personally, but the Defendants secured a judgment by default against The Spivey

Group, Inc. in the amount of $441,482. The Spivey Group, Inc. is one of the assets the

Plaintiff listed in his bankruptcy petition. The Plaintiff alleges that the amount of the default

judgment was grossly inflated by false testimony.

The Plaintiff alleges that the Defendants

have continued their civil conspiracy to destroy [him] by

continuing their pattern of willful and wanton harassment in the

United States Bankruptcy Court. Instead of respecting [the

Plaintiff’s] federal right to discharge any obligations to [the

Defendants] in a no or limited asset bankruptcy . . . they next

alleged in the Bankruptcy Court [that the Plaintiff] was not

entitled to discharge certain indebtedness . . . which

indebtedness was based upon the exact same misrepresentations

and incomplete data they used to obtain the Default Judgment in

Chancery Court. . . .

. . . [The Defendants], in a continued concerted effort to harass

[the Plaintiff], with dogged determination, filed a Complaint in

the United States Bankruptcy Court, thereby objecting to [the

Plaintiff’s] discharge of certain indebtedness to them, on the

exact same incomplete, flawed and misleading facts they

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presented to the Chancellor and obtained Default Judgment in

the Knox County Chancery Court.

The Plaintiff also alleges that the Defendants, in furtherance of their conspiracy, have

made false, defamatory statements to others, including his banker, his insurance agent, his

vendors, and his subcontractors. His complaint alleges numerous forms of damages

including the expense of defending the malicious criminal charges, loss of assets, and

damage to his credit. His complaint demands compensatory damages of $5,000,000 and

punitive damages of $5,000,000. The only attachments to the complaint are the two criminal

warrants.

Approximately one month after the complaint was filed, the Defendants filed their

“Motion to Dismiss for Failure to State a Claim Upon Which Relief Can be Granted.” The

motion does not allege that either the bankruptcy case or the chancery court case somehow

bars the present case. In fact, the motion expressly states that “the Bankruptcy court has not

rendered an opinion.” The motion contains the strange statement that “[a] motion to dismiss

for failure to state a claim shall be treated as a motion for summary judgment.” Other than

the assertion that “there was no conspiracy between the Defendants and their counsel,” and

some descriptive criticism of the litigation strategy of the Plaintiff in both bankruptcy and

chancery court, the thrust of the motion is found in the statement, “[t]hrough pleadings,

transcripts and affidavits, Defendants will show to this Court that it is the Plaintiff that has

filed this lawsuit for purposes of harassment.”

The same day the Defendants filed their motion to dismiss, they filed a motion for

extension of time to answer some pending request for admissions. They argued that their

pending motion to dismiss rendered the request moot.

Strangely enough, even though they had not filed a motion for summary judgment, or

even asserted in their motion to dismiss that they were entitled to judgment as a matter of law

for lack of an issue of material fact, the Defendants filed a “Statement of Undisputed Facts”

along with several exhibits. The exhibits include (1) a copy of the chancery court complaint;

(2) a copy of the Plaintiff’s bankruptcy petition; (3) a three-page excerpt taken from the

Plaintiff’s deposition in the chancery court case in which he testified that the insurance check

was deposited into the LLC’s account; (4) the affidavit of Mr. Brown in which he denied

making defamatory statements but admitted making derogatory statements that were true; (5)

the affidavit of King in which he (a) asserted that his name was forged on the check and

denied giving the Plaintiff permission to sign his name, and (b) denied making defamatory

statements about the Plaintiff but admitted making derogatory statements that were true; (6)

excerpts of the testimony of several witnesses in the bankruptcy case; and (7) the affidavit

of attorney Overton, the Defendants’ counsel, asserting (a) that she had only one telephone

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call and one personal meeting with the state prosecutor in the criminal cases, (b) that she had

one telephone conversation with the Plaintiff’s banker, (c) that she had not talked to others

as alleged in the complaint, and (d) that the bankruptcy court had not issued an opinion.

Shortly after filing their Statement of Undisputed Facts, the Defendants filed a motion

for sanctions. They asserted that the “Complaint has no merit and was filed for the purposes

of harassment.”

The Plaintiff responded to the Defendants’ motion for extension of time with the

assertion that the motion to dismiss “is actually a MOTION FOR SUMMARY JUDGMENT

in that it relies upon information outside the pleadings.” (Capitalization in original.) The

plaintiff asserted that the Defendants should be required to respond to the pending request

to admit and that the Plaintiff intended to take the depositions of the parties and other key

witnesses.

On October 8, 2010, the Defendants filed an amended motion to dismiss in which they

asserted that

[o]n October 7, 2010, the Bankruptcy Court issued an Opinion

awarding the [Defendants] . . . a judgment against [the Plaintiff]

in the amount of $344,604.29 and the judgment was not

dischargeable. The Bankruptcy Court found that [the Plaintiff]

. . . misappropriated large sums of BKS LLC

funds, presumably for other projects and

admittedly for his personal use, both without the

authorization or knowledge of the [Defendants].

By using BKS LLC funds for projects other than

BKS LLC projects, the [Plaintiff] acted

knowingly and fraudulently, and the [Defendants]

are entitled to a nondischargeable judgment

against him for the amounts misappropriated from

BKS LLC.

The Opinion from the Bankruptcy Court is further indication

that the Plaintiff has filed a Complaint which is without

merit. . . .

The motion attached, as an exhibit, a full copy of the judgment and memorandum opinion

of the bankruptcy court.

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The Plaintiff then filed an “Interim Response to Defendant’s Motion to Dismiss and

Amended Motion to Dismiss” which reiterated his position that the motion to dismiss must

be treated as a motion for summary judgment and asserted that he had filed a motion for new

trial in the bankruptcy court. He asked the court for time to conduct discovery and to

prosecute the motion for new trial. The motion for new trial filed in the bankruptcy case and

brief in support were filed as attachments to the “interim” response.

The Plaintiff also filed an “interim” response to the motion for sanctions. He asked

that the motion be continued until the completion of the case when “all the facts and evidence

are before the court.”

On or about November 5, 2010, the Plaintiff filed in this action a “Notice” that the

affidavits of the Defendants contained false testimony. The Plaintiff attached numerous

exhibits that purported to show the Defendants testified falsely that they did not learn the

Plaintiff had deposited the insurance check in the wrong account until certain disclosures

were made in bankruptcy; the Plaintiff testified in his second deposition in the chancery court

case that the check was deposited into the account of The Spivey Group, Inc.

On January 24, 2011, the Plaintiff filed a “supplemented interim response” to the

motion to dismiss. In narrative form it purports to show (1) the Defendants conspired not

to pay his company, The Spivey Group, Inc., a 10% builder’s fee that they had previously

agreed upon; (2) the Defendants “made false and defamatory statements about [the Plaintiff]

to First Tennessee Bank Officials, John Verdeaux, the Board for Licensing Contractors, . . .

various sub-contractors including Ron Kidd, and others;” (3) the expulsion of the Plaintiff

as a member and as the managing member was done in meetings held without proper notice;

(4) the Defendants testified falsely in the chancery court case, and elsewhere, “about the 10%

builders fee, the status of the homes [under construction], the status of the financials, and

more”; (5) the Defendants submitted false and incomplete information to the authorities

prosecuting the criminal charges. The Plaintiff specifically charges that the Defendants “did

not disclose that the check was mailed to Spivey at Spivey’s home and business address, that

Spivey and King had an 88 minute phone conversation on the day that Spivey received the

check where King gave Spivey permission to endorse the check, and that the charge for theft

was past the one year statute of limitations.” The Plaintiff specifically asserts that he

should be allowed proper time for discovery which will prove

that Brown and King did not make completely truthful

statements to the detective which were presented by King and

Brown to the magistrate to pursue Spivey’s false arrest and false

imprisonment, all as part of their malicious prosecution, abuse

of process, and civil conspiracy.

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(Capitalization in original omitted).

In support of his supplemented interim response, the Plaintiff filed several affidavits,

including his own affidavit of 26 narrative pages. The Plaintiff’s affidavit directly asserts

that the Defendants and persons acting on their behalf submitted incomplete information to

the criminal investigators and others involved in the criminal prosecution. The affidavit also

indicated persons to whom the Defendants made false and defamatory statements, including

the Plaintiff’s banker and a subcontractor named Ron Kidd, to whom the Defendants had

“bragged” about what they had done to the Plaintiff. The Plaintiff also filed numerous

attachments to the affidavits, including photographs of the houses under construction.

On January 2, 2011, the Defendants supplemented their motion to dismiss with a copy

of the order denying the motion for new trial in bankruptcy court. They asserted that the

affidavits the Plaintiff filed constitute a further attempt “to relitigate issues that were already

tried.”

On March 1, 2011, the trial court entered an order in the present case which states, in

its entirety as follows:

The Defendants filed a Motion to Disqualify Plaintiff’s Counsel;

Motion to Dismiss for Failure to State a Claim, Motion for Rule

11 Sanctions and Motion for Extension of Time to Respond to

Request for Admissions. On December 9, 2010 the Defendants’

motions came to be heard before the honorable Judge Dale

Workman. During argument, it was announced to the Court that

the Plaintiff in this case had filed a Motion for a New Trial in

the adversary proceeding in the Bankruptcy Court. The

adversary proceeding contained allegations that were also raised

in this Circuit Court action.

The Court denied the Defendants’ Motion to Disqualify

Counsel. The Court continued the remaining motions until after

the Bankruptcy Court ruled upon the Motion for a New Trial.

On January 28, 2011, the remaining motions came to be heard

before the honorable Judge Dale Workman. It was announced

to the Court that the Bankruptcy Court denied this Plaintiff’s

Motion for a new trial. Upon hearing the argument by counsel,

the Court granted Defendants’ Motion to Dismiss for Failure to

State a Claim. The Court also granted the Defendants’ Motion

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for Rule 11 Sanctions. The Motion for Extension of Time to

Respond to Request for Admissions became moot.

The Court ordered that the Defendants are to prepare a Bill of

Particulars within fifteen (15) days [of] the date of this hearing.

The Bill of Particulars shall state specifically what sanctions the

Defendants are seeking and against whom the Defendants wish

for the sanctions to be assessed. . . . The Plaintiff will have

forty-five (45) days from the date that the Defendants file their

Bill of Particular[s] to perform any discovery and respond. It is

hereby ordered that the Bill of Particulars shall be heard on

April 8, 2011 at 9:00 a.m..

On March 30, 2011, the Plaintiff filed a motion to alter or amend the order entered on

March 1, 2011. The Plaintiff asserted the order was improper pursuant to Tenn. R. Civ. P

58 for lack of the approval of all counsel or the appropriate certificate of service. He also

asserted that the order should have contained a ruling on his request for discovery. Further,

he argued that the court should amend the order to allow him to proceed on the malicious

prosecution and related claims because he could not present them in the bankruptcy court

proceedings which were limited to the issue of whether a debt owed to the Defendants was

dischargeable.

The Defendants filed their “Bill of Particulars.” Unfortunately, the record contains

only the front page of that filing. There is very little substance in that one page.

In an order entered April 19, 2011, the court denied the motion to alter or amend and

granted the Defendants’ Bill of Particular[s] with respect to the

attorney fees only. The Court awarded sanctions in the amount

of four thousand nine hundred sixty-eight dollars ($4,968.00)

against the Plaintiff. . . . The court awarded sanctions in the

amount of one thousand eighteen dollars ($1,018.00) against the

Plaintiff’s attorney, R.D. Hash. The sanctions against attorney

Hash is a portion of the sanctions awarded against Plaintiff

Spivey.

II.

The Plaintiff timely filed a notice of appeal. He raises these issues:

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Whether the . . . Trial Court erred in dismissing [the] Plaintiff’s

Complaint pursuant to the motion to dismiss for failure to state

a claim upon which relief can be granted filed pursuant to

[Tenn. R. Civ. P.] . . . 12.02.

Whether the . . . Trial Court erred in not treating [the

Defendants’] motion to dismiss for failure to state a claim upon

which relief can be granted as a motion for summary judgment.

Whether the . . . Trial Court erred in granting [the Defendants’]

motion for sanctions.

Although they have not listed any new issues, the Defendants ask in their brief that we

modify the award of sanctions to make counsel for the Plaintiff responsible jointly with the

Plaintiff for the full amount, and award sanctions for this appeal.

III.

It appears to us that the dispositive issue in this case is whether the judgment of the

bankruptcy court bars the Plaintiff’s claims as a matter of law. It is upon that issue that we

will endeavor to decide whether the trial court erred in dismissing the Plaintiff’s claims.

Before we look at the particulars of that key issue, it is appropriate that we comment

upon the briefs. We believe the essence of the first and second issues as raised and argued

by the Plaintiff is the same; namely, that the trial court obviously looked outside the

pleadings when it considered the judgment of the bankruptcy court, and, as a consequence,

the trial court’s judgment became a summary judgment rather than a dismissal for failure to

state a claim. The Defendants’ response appears to argue both that the trial court treated this

as a motion for summary judgment and that the trial court treated the motion as a pure motion

to dismiss and that whatever it did was correct. The trial court obviously stated that it was

granting the motion for failure to state a claim. We agree with the Plaintiff that the court,

despite what it said in its order, was bound to treat the motion as a motion for summary

judgment and did, in fact, treat the motion as a motion for summary judgment.

Our agreement to this one proposition, however, takes us only one step along the path

that the Plaintiff attempts to lead us. The Plaintiff wants us to conclude that the trial court’s

language describing the dismissal as being pursuant to Tenn. R. Civ. P. 12.02 for failure to

state a claim, rather than pursuant to Tenn. R. Civ. P. 56 for summary judgment, makes the

judgment wrong as a matter of law because the trial court did not allow him discovery. There

are two reasons we cannot accept the Plaintiff’s argument as the basis for our decision. First,

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as to any claims that the bankruptcy court judgment bars as a matter of law through the

doctrines of res judicata or collateral estoppel, we cannot understand how any amount of

discovery would reverse the effects of those doctrines. We are not inclined to reverse the

trial court and remand this case just so the case can be dismissed on remand in an order that

is called something different. See Tenn. R. App. P. 36(b)(reversal is not required for an error

that does not affect a substantial right). Second, the record before us does not support the

assertions that the Plaintiff was denied discovery altogether or did not have it within his

power to respond factually to any portion of the motion that went outside the pleadings.1

Clearly the Plaintiff was on notice when the motion to dismiss was filed on or about October

4, 2010, that the court was being asked to consider matters outside the complaint. Yet the

Plaintiff did not move the court to compel any discovery. Other than the few requests to

admit, there is no record of any attempt to undertake discovery, such as a notice of deposition

or notice of service of interrogatories. There is no order in the record before us suspending

or prohibiting discovery. Thus, we are not inclined to base the outcome of this case on the

label that the trial court gave its ruling. In Mills v. Booth, 344 S.W.3d 922 (Tenn. Ct. App.

2010) we affirmed a trial court’s order “granting [defendants’] motions to dismiss” even

though we held that the motions were converted into summary judgment motions by

consideration of materials outside the pleadings. Id. at 924, 926. We took the approach of

simply reviewing the trial court’s order pursuant to the standards of Tenn. R. Civ. P. 56 to

determine whether the claims failed as a matter of law. We will follow that same approach

in the present case.

We note the Defendants’ repeated mention, both in the trial court and this court, of

the chancery court case. It is undisputed that the chancery court case is still pending and that

no judgment was entered against the Plaintiff in his individual capacity. We have been

presented no authority and no reasoned argument why a judgment in the chancery court

against some person or entity other than the plaintiff could bar any of his claims. We

therefore hold that the judgment in chancery court does not furnish a basis for the dismissal

of any of the Plaintiff’s claims.

If the claims are barred, the bar must be based upon the judgment of the bankruptcy

court. Neither the order of the trial court nor the brief of the Defendants directly addresses

how the judgment of the bankruptcy court constitutes a bar to the entirety of the complaint.

The Defendants admit in their brief that the terms “ ‘res judicata’ and ‘collateral estoppel’

were never mentioned in the . . . [m]otion [to dismiss].” They contend, however, that either

the controlling facts were previously determined or were matters that the Plaintiff failed to

raise in the previous litigation. The thrust of their argument, as we perceive it, is that the

1

Counsel for the Plaintiff asserted at oral argument that the trial court prohibited discovery, but

acknowledged that there is no such order in the record.

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bankruptcy court judgment bars all claims in the Plaintiff’s complaint either by res judicata

or collateral estoppel.

This Court discussed the doctrine of res judicata in Lien v. Couch, 993 S.W.2d 53

(Tenn. Ct. App. 1998), wherein we stated:

Res judicata is a claim preclusion doctrine that promotes finality

in litigation. It bars a second suit between the same parties or

their privies on the same cause of action with respect to all the

issues which were or could have been litigated in the former

suit.

Parties asserting a res judicata defense must demonstrate that (1)

a court of competent jurisdiction rendered the prior judgment,

(2) the prior judgment was final and on the merits, (3) the same

parties or their privies were involved in both proceedings, and

(4) both proceedings involved the same cause of action. . . .

Id. at 55-56 (citations omitted). In general terms, the principle of res judicata requires a party

to raise in a single lawsuit all the claims he or she has that arise from a single incident. Id.

at 56. Collateral estoppel was discussed in Mullins v. State, 294 S.W.3d 529 (Tenn. 2009):

The party invoking collateral estoppel has the burden of proof.

To prevail with a collateral estoppel claim, the party asserting it

must demonstrate (1) that the issue to be precluded is identical

to an issue decided in an earlier proceeding, (2) that the issue to

be precluded was actually raised, litigated, and decided on the

merits in the earlier proceeding, (3) that the judgment in the

earlier proceeding has become final, (4) that the party against

whom collateral estoppel is asserted was a party or is in privity

with a party to the earlier proceeding, and (5) that the party

against whom collateral estoppel is asserted had a full and fair

opportunity in the earlier proceeding to contest the issue now

sought to be precluded.

Moreover, in order for the doctrine of collateral estoppel to

apply, the issue must not only have been actually litigated and

decided, it must also have been necessary to the judgment.

Determinations of an issue or issues that are not necessary to a

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judgment have the characteristics of dicta and will not be given

preclusive effect.

The question of whether collateral estoppel applies is a question

of law. Accordingly, summary judgment is an appropriate

vehicle for resolving a collateral estoppel claim. Courts

reviewing a lower court’s decision to grant a summary judgment

based on a collateral estoppel claim must review the record de

novo without a presumption of correctness. The reviewing

courts must also view the evidence in the light most favorable

to the non-moving party and must resolve any doubts and draw

all inferences in the non-moving party's favor.

Id at 535 (citations and footnote omitted).

Under both doctrines, our analysis must include a close examination of the opinion

of the bankruptcy court to determine the issues that were decided and those that were not

decided. This makes it necessary that we quote extensively from the 35-page opinion of the

bankruptcy court. We caution the reader that our editorial changes, indicated in brackets,

include a change in the designation of the parties to accommodate our previously defined

terms. “The Plaintiff” in the present case, and in the quote that follows, was “the Defendant”

in the bankruptcy opinion as originally worded. “The Defendants,” as defined in the present

case and as labeled in the quotation below, were “the Plaintiffs” in the bankruptcy case. We

have reversed the defined terms in the material from the bankruptcy court to conform to the

designations in our opinion. The part of the bankruptcy opinion that is pertinent to our

analysis follows:

This adversary proceeding is before the court upon the

Complaint to Determine Nonsdischargeability of Debt Pursuant

to 11 U.S.C. § 523 . . . filed by [the Defendants] . . . asking the

court to award them a money judgment and requesting a

determination that the judgment is nondischargeable under 11

U.S.C. § 523(a)(2), (4), and/or (6) (2006). The trial was held on

May 24, 2010. . . .

This is a core proceeding. 28 U.S.C. § 157(b)(2)(I) (2006).

Pursuant to an Operating Agreement . . . , the parties formed

BKS LLC. . . [The Plaintiff] was . . . appointed as managing

member of BKS LLC although he was not to receive any

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additional payment for serving in that capacity. Under the

Operating Agreement, [the Plaintiff’s] authority as managing

member included all rights and powers necessary to manage the

business and affairs of BKS LLC and his responsibilities

included, but were not limited to, furnishing financial reports

and records of the LLC to the other members, ensuring tax

returns were filed, executing documents on behalf of the LLC,

conducting the day-to-day management of the LLC, and

employing attorneys, certified public accountants, and other

persons to assist in the management of the LLC. . . .

* * *

Following its formation, BKS, LLC obtained construction loans

with First Tennessee Bank totaling approximately $1,300,000,

which were also personally guaranteed by [the Defendants and

the Plaintiff], along with an operating line of credit in the

amount of $100,000 from First Tennessee Bank and an

American Express credit card to be used to pay expenses and

finance the LLC’s projects. The loan proceeds were used to

purchase seventeen lots – thirteen in Montclair subdivision and

four in Cantrell Heights subdivision – and in February 2007,

[the Plaintiff] pulled the building permits for and BKS LLC

began construction of homes on Lots 1, 2 and 3 in Montclair and

Lots 20, 28, 29, and 30 in Cantrell Heights. Together with the

initial investment of $1,000 funded by the parties, BKS LLC’s

sole source of funds was derived from the American Express

card and the line of credit with First Tennessee Bank.

In early November 2007, [the Defendants] called a meeting to

discuss concerns about the time-lines for the houses being built.

At roughly that same time, [the Plaintiff] advised [the

Defendants] that he expected a 10% builders [sic] fee, and on

November 8, 2007, he advised [the Defendants] that he was

stopping construction on the homes and would not be attending

the meeting they had called. At the November 8 meeting, [the

Defendants] removed [the Plaintiff] as managing member of the

LLC for not providing financial information, not accounting for

money borrowed for construction purposes, starting construction

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on houses outside of BKS LLC, and not managing day-to-day

operations in the LLC’s best interest. Subsequent to [the

Plaintiff’s] removal as managing member, Mr. Brown retrieved

the LLC’s financial records which showed, among other things,

that although construction of the homes BKS LLC had started

was not completed, the construction loans and line of credit with

First Tennessee Bank were nearly depleted, that the American

Express credit card had a balance of nearly $100,000, and that

an insurance check for reimbursement of a copper theft at Lot

20 of the Cantrell Heights subdivision had been deposited into

the bank account for The Spivey Group, Inc. . . . rather than

BKS LLC’s account. Thereafter, at a special meeting held on

November 30, 2007, [the Defendants] voted unanimously to

expel [the Plaintiff] from BKS LLC for violations of items (4)

through (9) of unnumbered paragraph 6 . . . of the Operating

Agreement. [These include “misappropriation of funds or

property of the Limited Liability Company.”]

* * *

On February 21, 2008, The Spivey Group, Inc., through [the

Plaintiff], its president, recorded with the Knox County Register

of Deeds a Notice of Mechanic’s Lien in the amount of

$54,767.59 for work performed at Lot 20 in Cantrell Heights

subdivision, which was paid out of the proceeds realized from

the sale of that property at closing. At some point thereafter,

[the Defendants] brought a lawsuit against The Spivey Group,

Inc in the Knox Count Chancery Court and, using the summary

of damages prepared by Mr. Brown based upon his comparison

of the invoices to the construction draws entered into the record

in this adversary proceeding as Trial Exhibit 10, obtained a

default judgment against The Spivey Group, Inc. in the amount

of $441,481.54.

[The Plaintiff] filed the Voluntary Petition commencing his case

under Chapter 7 of the Bankruptcy Code on November 12, 2008,

and on March 16, 2009, [the Defendants] timely filed the

Complaint initiating this adversary proceeding, requesting a

monetary judgment . . .and a determination that the judgment is

nondischargeable. [The Defendants] contend that [the Plaintiff]

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obtained monies from them through misrepresentation, false

pretenses, and actual fraud, that he embezzled funds from BKS

LLC while in a fiduciary role, and that he maliciously intended

to cause financial devastation to [the Defendants].

It is within the jurisdiction and authority of the bankruptcy court

to adjudicate [the Defendant’s] claims and award any necessary

damages . . . [citations omitted].

* * *

Notwithstanding Mr. Brown’s testimony to the contrary, many

of the expenses listed on . . . Trial Exhibit 10 cannot be directly

attributable to any fraudulent action by [the Plaintiff] and are

thus not recoverable damages by [the Defendants]. Included

among those amounts are the expenses incurred by [the

Defendants] in order to keep BKS LLC operational after [the

Plaintiff’s] expulsion . . . .

With respect to the $272,186.32 in monies either spent over the

loan amounts or unaccounted for, as shown on . . . Trial Exhibit

10, the court similarly finds that [the Defendants] have proved

entitlement to some, but not all of these funds. . . .

* * *

The court agrees that, with respect to any money spent over the

loan amount, [the Defendants] have not proved an entitlement

to damages against [the Plaintiff]. . . . Accordingly, of the

$272,186.32 referenced on . . . Trial Exhibit 10 as being spent

over the loan amount or not accounted for, only the unaccounted

for funds in the amount of $187,492.93 may be rightfully

included in any damages calculation.2

2

This includes the [monies] attributed to the copper wiring theft and subsequent reimbursement by

State Farm Insurance Company. [The Defendants] proved that [the Plaintiff] deposited the $16,681.32

reimbursement check dated March 13, 2007, into The Spivey Group, Inc.'s bank account; however, they did

not prove that [the Plaintiff] spent those funds on projects outside those of BKS LLC. The court also finds

[the Plaintiff's] explanation as to why he did not deposit the check into the BKS LLC checking account – that

the deposit would be credited toward the loan balance and not available for payment on invoices – to be

plausible and within the parties’ established routine for payment of invoices by The Spivey Group, Inc. on

behalf of BKS LLC.

-15-

* * *

The court likewise finds that [the Plaintiff] is not entitled to the

10% builder’s fee in the amount of $30,557.09 included with his

mechanic’s lien and referenced on . . .[his invoice]. Although

[the Plaintiff] testified that he, on behalf of The Spivey Group,

Inc., had an agreement with [the Defendants] that he would be

paid a 10% builder’s fee by BKS LLC there was no contract

between The Spivey Group, Inc. and BKS LLC setting forth any

such agreement, nor was there any reference within the

Operating Agreement or other document in the record that

establishes any such agreement. Without a written contract or

other such documentation, the court cannot find the existence of

any such arrangement, and [the Defendants] are entitled to

recover it within their damages.

* * *

As demonstrated by the record, [the Plaintiff] charged a total of

$223,444.75 on the American Express card, and of that total,

[the Plaintiff] testified that $84,491.36 was for personal charges.

Assuming that the entire $73,391.86 payment [that the Plaintiff

testified of making] came from The Spivey Group, Inc. funds

rather than BKS LLC funds, by his own testimony, [the

Plaintiff] owes $11,099.50 above the payment he made towards

his admitted personal charges. In addition to that amount, the

court also finds that [the Plaintiff] is liable to [the Defendants]

for the $38,062.11 for business-related expenses shown on the

Transaction Detail Report which are not found on the Job Costs

Detail Report, the $971.64 for charges listed on the Job Costs

Detail Report as “credit card purchases” not appearing on the

Transaction Detail Report, and the $61,235.01 for expenses

listed on the Job Costs Detail Report for different amounts than

those listed on the Transaction Detail Report for a total of

$111,368.26 associated with the American Express card.

Determinations as to the dischargeability of debts are governed

by 11 U.S.C. § 523(a), which, as relevant to this adversary

proceeding, provides that:

-16-

(a) A discharge under section 727. . . of this title

does not discharge an individual debtor from any

debt –

* * *

(2) for money, property, services, or an extension,

renewal, or refinancing of credit, to the extent

obtained, by –

(A) false pretenses, a false representation, or

actual fraud, other than a statement respecting the

debtor’s or an insider’s financial condition;

* * *

(4) for fraud or defalcation while acting in a

fiduciary capacity, embezzlement, or larceny; [or]

* * *

(6) for willful and malicious injury by the debtor

to another entity or to the property of another

entity[.]

11 U.S.C. § 523(a). . . .

* * *

In order to be a nondischargeable debt under subsection

(a)(2)(A), there must be a showing of fraud in the inducement;

i.e., [the Defendants] must prove that [the Plaintiff] intentionally

misled them into personally guaranteeing the construction loans

and line of credit and opening the American Express account

through fraudulent or material untruths and that they relied upon

the untruths when they formed BKS LLC and incurred the

liability. Without the initial inducement, it is not sufficient to

show that [the Plaintiff] made misrepresentations and/or false

statements concerning the financial information after the fact,

just as it is not sufficient for a finding under this subsection to

show that [the Plaintiff] denied [the Defendants] access to the

books and records. The record is clear that the representations

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[the Plaintiff] made when he was approached by [the

Defendants] about forming the company that he was a licensed

contractor and that he had business relationships with vendors

and subcontractors were accurate. Additionally, the court is not

convinced that the representation by [the Plaintiff] that he could

manage the day-to-day operations was false and made with an

intent to deceive and induce, based upon his approximately

twelve years of experience in the building field and the fact that

he had operated The Spivey Group, Inc. for approximately two

years prior to forming BKS LLC with [the Defendants].

Accordingly, based upon the record before the court, [the

Defendants] have not met their burden of proof that the debt is

nondischargeable under § 523(a)(2)(A).

Section 523(a)(4) provides that debts obtained by

embezzlement, larceny, or through fraud or defalcation while

acting in a fiduciary capacity are nondischargeable. For the

purposes of this subsection and as it relates to this adversary

proceeding, embezzlement is “the fraudulent appropriation of

property by a person to whom such property has been entrusted

or into whose hands it has lawfully come.”[Citation in original

omitted] 3 . . .

To prove fraudulent misappropriation, the [party opposing

discharge] must prove “fraud in fact, involving moral turpitude

or intentional wrong, rather than implied or constructive fraud.”

[Citation in original omitted] . . . .

* * *

In his capacity as managing member, [the Plaintiff] was chosen

by the parties to have the initial responsibility for setting up the

LLC’s books and finances and to be responsible for its day-to-

day management. In association with these duties and with [the

Defendants’] knowledge and acquiescence, [the Plaintiff]

requested draws on the construction loans and line of credit,

withdrew funds from the BKS LLC account, and deposited them

into The Spivey Group, Inc.’s account for disbursements to

3

. . . Only the embezzlement aspect of § 523(a)(4) is at issue in this adversary proceeding.

-18-

contractors and vendors on behalf of BKS LLC for its projects.

Nevertheless, as previously discussed, [the Plaintiff]

misappropriated large sums of BKS LLC funds, presumably for

other projects and admittedly for his personal use, both without

the authorization or knowledge of [the Defendants]. By using

BKS LLC funds for projects other than BKS LLC projects, [the

Plaintiff] acted knowingly and fraudulently, and [the

Defendants] are entitled to a nondischargeable judgment against

him for the amounts misappropriated from BKS LLC.

[The Defendants] also aver the applicability of §523(a)(6) for a

“willful and malicious” injury. . . .

* * *

Based upon the record, the court finds that although [the

Plaintiff] did exercise dominion and control over funds

belonging to BKS LLC, he did not do so to the exclusion of [the

Defendants], and they are not entitled to a determination that his

actions were willful and malicious for purposes of § 523(a)(6).

...

The court agrees that [the Plaintiff] acted in conscious disregard

to [the Defendants], constituting malicious conduct, but they

have not proved that he acted willfully, with an intent to cause

them harm, which is likewise required by § 523(a)(6).

* * *

In summary, the court finds that [the Plaintiff] fraudulently

misappropriated and embezzled funds which were entrusted to

him pursuant to his position as managing member of BKS LLC.

The record supports a judgment in favor of [the Defendants] and

against [the Plaintiff] in the total amount of $344,604.29,

representing $3,961.81 in late fees and missed discounts,

$120.18 for failing to return key sensors, $187,492.93 in funds

received from the construction draws and line of credit with

First Tennessee Bank by the Spivey Group, Inc. but not

attributable to any BKS LLC project, a credit of $2,617.69 for

interest paid by The Spivey Group, Inc. to First Tennessee Bank

but not accounted for by [the Defendants], $13,721.71 for

invoices attached to the mechanic’s lien filed by [the Plaintiff]

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against Lot 20 Cantrell Heights that had previously been paid

with BKS LLC funds, $30,557.09 for the 10% builder’s fee also

included within the mechanic’s lien, and $111,368.26 for

charges made by [the Plaintiff] on the American Express card

for personal charges and charges which cannot be reconciled.

This judgment is nondischargeable pursuant to 11 U.S.C. §

523(a)(4).

(Headings omitted; citations to bankruptcy record omitted; our footnotes 2 and 3 are in the

original with other footnotes in original omitted; legal citations in original retained except

when otherwise indicated in brackets).

It is clear from the record in the present case that the Plaintiff moved the bankruptcy

court to give him a new trial. At least one ground for the motion was that the Defendants

testified falsely in that trial. The bankruptcy court denied the motion for new trial. The

Plaintiff did not appeal the judgment of the bankruptcy court. It has now become final.

With this background, we can now consider whether the bankruptcy court’s judgment

precludes any of the issues or claims raised by the Plaintiff’s complaint in this action. The

bankruptcy court’s opinion leaves no room for doubt that Brown and King were entitled to

expel Spivey from his position as managing partner and as a member of the LLC based upon

his misappropriation of funds for his own use. It also leaves no room for doubt that Brown

and King were justified in the approach they took in the bankruptcy court. That court found

that they proved substantial damages from the Plaintiff’s misappropriation of their funds, and

that his fraudulent actions justified a finding that the debt would not be discharged. The

bankruptcy was commenced by the Plaintiff’s “voluntary” petition. Any contention that the

Defendants testified falsely or took unjustifiable positions in the chancery court are best left

to that court, where the case remains pending.

This leaves for our consideration only the civil conspiracy claim, the defamation

claim, and the claim or claims related to Spivey’s criminal prosecution:

The elements of a cause of action for civil conspiracy are: (1) a

common design between two or more persons, (2) to accomplish

by concerted action an unlawful purpose, or a lawful purpose by

unlawful means, (3) an overt act in furtherance of the

conspiracy, and (4) resulting injury.

Kincaid v. SouthTrust Bank, 221 S.W.3d 32, 38 (Tenn. Ct. App. 2006).

There is nothing in the bankruptcy court’s opinion that addresses the conspiracy claim

other than as relates to the specific claims that we have already held were determined by the

-20-

bankruptcy court. Since there is nothing unlawful in expelling a member that is embezzling

money from an entity, and nothing unlawful in proving the damages from that embezzlement

and in successfully opposing a discharge of any such damages in bankruptcy, we must treat

any actions of the alleged conspiracy that concern these aspects of the complaint as barred.

In going forward, we will focus on the alleged defamation and claims related to the criminal

prosecution.

We turn first to the defamation claim:

To establish a prima facie case of defamation, the plaintiff must

prove that (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.

Sullivan v. Baptist Mem'l Hosp., 995 S.W.2d 569, 571 (Tenn.

1999) (relying on Restatement (Second) of Torts § 580 B

(1977)).

Hibdon v. Grabowski, 195 S.W.3d 48, 58 (Tenn. Ct. App. 2005). We cannot imagine how

it would be that the determination of the dischargeability of the debt would insulate the

Defendants from liability for defamation. The bankruptcy court’s opinion found that the

Plaintiff was liable to the Defendants, but it also found that they had included within their

claim certain damages that were simply a cost of doing business and not properly chargeable

to the Plaintiff. It further found specifically that, when the parties were forming the LLC,

the Plaintiff spoke truthfully with regard to his contractor’s credentials and experience. In

short, the bankruptcy opinion establishes, if anything, that the parties on both sides were

making statements that the true facts do not support. King and Brown admitted in their

affidavits filed in the trial court that they made derogatory statements about the Plaintiff.

They claimed, however, that any such statements were true, without further elaboration. We

are not convinced that a party can shift the burden of production for summary judgment

purposes by an affidavit that merely asserts, in blanket form, that every derogatory statement

they made was true. We need not decide that in this present case because the Plaintiff

countered the Defendants’ affidavits with his own that identifies persons to whom statements

were made as well as the subject matter of the statements and asserts that they were false.

We conclude that issues of material fact are present regarding the defamation claim.

Therefore, the trial court erred in granting summary judgment against the Plaintiff on his

defamation claim.

We also conclude that there is nothing in the bankruptcy court opinion that defeats the

claims related to the unsuccessful criminal prosecution of the Plaintiff. If anything, the

bankruptcy court’s opinion tends to support the Plaintiff’s claim. It found that the Plaintiff’s

explanation of his handling of the insurance check was plausible and consistent with the

-21-

parties’ business practices. Further, it found that the Defendants failed to prove that the

Plaintiff used the proceeds for something other than to pay legitimate obligations of the LLC.

The only reason that the Defendants offer in their brief, other than the bankruptcy

opinion, is that it was police officers and the district attorney’s office that did the

prosecuting. A person who reports an alleged crime to authorities may nevertheless be held

liable for malicious prosecution as we explained in Spicer v. Thompson, No. M2002-03110-

COA-R3-CV, 2004 WL 1531431 (Tenn. Ct. App. M.S., filed July 7, 2004):

For a plaintiff to be successful in a malicious prosecution case

growing out of an arrest for an alleged criminal act, it must be

alleged and proved that: a criminal proceeding has been

instituted by the defendant against the plaintiff; such proceeding

terminated in favor of accused; there was an absence of probable

cause for the proceeding; and, there was malice or a primary

purpose other than that of bringing defendant to justice.

Definitions of probable cause, however

differently expressed, all agree in these two

essentials: (1) The prosecutor must in good faith

have honestly believed the accused was guilty of

the crime charged; and (2) his belief must have

been reasonable-based on facts and circumstances

sufficient to lead an ordinarily prudent person to

believe the accused was guilty of the crime

charged. The prosecutor must have made the

investigation an ordinarily prudent person would

have made in the circumstances.

The entry of a nolle prosequi whether or not the defendant in the

criminal case has been put in jeopardy is a sufficient termination

in favor of the defendant in the criminal prosecution to comply

with the rule in malicious prosecution cases that the underlying

suit must have been terminated in favor of the defendant.

* * *

Advice of counsel is an affirmative defense:

. . . To make out this defense, the burden was . . .

to prove that he honestly sought such advice, that

he fully disclosed to his counsel all the material

-22-

facts he knew and all he could have known by

reasonable diligence, that his counsel advised the

prosecution, and that he acted in good faith upon

such advice.

The district attorney general is counsel whose advice can

constitute a defense to a malicious prosecution action. This

affirmative defense is dependent upon full, correct and honest

disclosure to counsel of all material facts within the knowledge

of the prosecutor or that could have been ascertained by

reasonable diligence. This Court has held:

But the party must state not only all material facts

within his knowledge but all facts which he had

reasonable ground to believe existed at the time of

making the statement, or all material facts which

he could have ascertained by reasonable

diligence.

Id. at *23-25 (emphasis added; citations omitted). The Defendants did not even assert in

their statement of undisputed facts that they fully disclosed all matters known to them that

would have impacted the probable cause evaluation of the magistrate and district attorney

general. Even if they had, the filings made on behalf of the Plaintiff specifically assert and

explain that there were material omissions from the Defendants’ affidavits and statements

to prosecutors that instigated the criminal prosecutions. Moreover, the Defendants fail to

even mention anywhere in their brief to this court or in their filings in the trial court the

affirmative defense of advice of counsel. For all of these reasons, we conclude that the

Defendants did not conclusively establish the affirmative defense of advice of counsel so as

to defeat the claims related to the criminal prosecutions.

Before leaving this point, we will consider whether the Plaintiff was obligated to

litigate the defamation claim or the malicious prosecution and related claims in the

bankruptcy court. Neither party addresses this point in the briefs, other than maybe a

conclusory suggestion by the Plaintiff that it makes no sense to litigate personal injury torts

in bankruptcy court. Our research confirms the Plaintiff’s suggestion. “In the absence of

very special circumstances or obvious prejudice, the bankruptcy court should abstain from

resolving controversies which do not involve the property or administration of a debtor’s

estate, and where another court provides a more suitable forum.” In re Marrs, 36 B.R. 22,

24 (Bankr. M. D. Tenn.1983) (internal citations omitted). Our research produced one case

that reads Marrs as authority for abstaining, on the court’s own motion, from deciding a

-23-

debtor’s counterclaim for malicious prosecution against his creditor in an adversary action.

In re Fornaro, 402 B.R. 104, 110 (Bankr. D. N.J. 2009). We conclude that the Plaintiff was

not obligated to bring his conspiracy, defamation and claims related to the criminal

prosecution in the bankruptcy case. We further hold that the trial court erred in dismissing

the claims on what we have treated as summary judgment.

The last issue for our consideration is whether the trial court erred in awarding

sanctions pursuant to Tenn. R. Civ. P. 11. Rule 11.01 requires that every pleading be signed

by a pro se party or the attorney of a party that is represented. Rule 11.02 makes that

signature equivalent to a certification that a reasonable inquiry has been made into the facts

and law and that the pleading is not filed for an improper purpose, “such as to harass or to

cause unnecessary delay or needless increase in the cost of litigation.” Rule 11.03 allows a

trial court, subject to expressly stated conditions, to “impose an appropriate sanction upon

the attorneys, law firms, or parties that have violated subdivision 11.02 or are responsible for

the violation.” The conditions expressly stated in Tenn. R. Civ. P. 11.03 that are pertinent

to this appeal are:

. . . A motion for sanctions under this rule shall be made

separately from other motions . . . and shall describe the specific

conduct alleged to violate subdivision 11.02. . . .

* * *

. . . When imposing sanctions, the court shall describe the

conduct determined to constitute a violation of this rule and

explain the basis for the sanction imposed.

Tenn. R. Civ. P. 11.03(1)(a) and (3)(emphasis added).

As we stated in Marra v. Bank of New York, 310 S.W.3d 329 (Tenn. Ct. App. 2009):

In determining whether . . . conduct is sanctionable under Rule

11, the trial court must determine if such conduct was

reasonable at the time the document was signed. Krug v. Krug,

838 S.W.2d 197, 205 (Tenn. Ct. App. 1992) (quoting Andrews

v. Bible, 812 S.W.2d 284, 288 (Tenn.1991)). “[T]he question of

whether a Rule 11 violation has occurred requires the trial court

to make highly fact-intensive determinations regarding the

reasonableness of the attorney’s (and client’s) conduct.” Boyd

v. Prime Focus, Inc., 83 S.W.3d 761, 765 (Tenn. Ct. App.

-24-

2001). As such, we review a trial court's ruling on a Rule 11

motion for an abuse of discretion. Krug, 838 S.W.2d at 205.

Id. at 340. The mere fact that a claim ultimately fails does not make it per se frivolous. Id.

at 343. Any doubts as to the merits of the underlying action, and the motion for sanctions,

should be resolved against awarding sanctions. Id.

The Plaintiff points out that neither the motion nor the trial court’s order describe the

specific conduct alleged to have violated Rule 11. The motion for sanctions contains little

more than the conclusory allegation that the “[c]omplaint has no merit and was filed for the

purpose of harassment.” The order granting sanctions, which was part of the order that

dismissed the case, states only that “[t]he Court also granted the Defendants’ Motion for Rule

11 Sanctions.” Apparently, the trial court attempted to cure any deficiencies in the motion

and order by directing the Defendants to file a “Bill of Particulars.” However, the order did

not require that the filing describe the specific conduct alleged to violate the Rule 11; it only

requires that the Defendants state “specifically what sanctions [they] are seeking and against

whom the Defendants wish for the sanctions to be assessed . . . .” Furthermore, we have only

the front page of the “Bill of Particulars” in the record, and that page does not describe

specific conduct that allegedly justifies sanctions. Under these circumstances, we would not

be justified to presume that the trial court conducted the “highly fact-intensive

determinations” as to specific conduct necessary to support an award of sanctions.

However, we need not base our analysis of the award of sanctions on the procedural

deficiencies alone. The only justification the Defendants offer in their brief for the award

of sanctions is that the claims were either without merit or already litigated. We have

expressly held that some of the claims were not shown to be without merit. As to the ones

that were litigated, they were not litigated to conclusion by the time the complaint in this case

was filed. The bankruptcy opinion was not filed until after the complaint was filed, and the

denial of the motion for new trial happened just shortly before the trial court dismissed the

case. The chancery court judgment was not against the Plaintiff, and therefore determined

nothing with regard to the present case. The trial court’s award of sanctions can only be

based upon the same erroneous premise that the court used to dismiss the complaint in its

entirety, that premise being that the judgment of the bankruptcy court barred all of the

Plaintiff’s claims in the present case as a matter of law. Accordingly, we conclude that the

trial court abused its discretion in awarding sanctions against the Plaintiff and his attorney.

The Defendants suggest that we should even increase the award of sanctions against

the Plaintiff for the filing a frivolous appeal. For the reasons we have already articulated, we

do not find the appeal to be frivolous. The Defendants’ request that we make the attorney

for the Plaintiff responsible for all of the sanctions jointly with the Plaintiff is now moot.

-25-

V.

The judgment of the trial court is affirmed in part and vacated in part. That part of the

judgment dismissing the Plaintiff’s claims for expelling him from the LLC, forcing him into

bankruptcy, and opposing his discharge in bankruptcy is affirmed. That part of the judgment

dismissing the Plaintiff’s claims for defamation and for wrongfully prosecuting him, as well

as conspiracy to accomplish those wrongs, is vacated. That part of the judgment awarding

sanctions against the Plaintiff and his attorney is vacated. Cost on appeal are taxed to the

appellees, David N. King and Anthony G. Brown. This case is remanded, pursuant to

applicable law, for further proceedings.

_______________________________

CHARLES D. SUSANO, JR., JUDGE

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