The opinion
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
August 25, 2011 Session
JEFFREY L. DILLON v. NICA, INC., ET AL.
Appeal from the Circuit Court for Putnam County
No. 07N0067 John J. Maddux, Jr., Judge
No. M2010-02553-COA-R3-CV - Filed December 14, 2011
After his claim for insurance benefits for an injury sustained while making a delivery was
denied, plaintiff filed suit against the delivery company, the company providing the insurance
coverage and its president, and the third party administrator of the insurance plan, asserting
causes of action for breach of contract, violation of the Tennessee Consumer Protection Act,
and conspiracy to evade the Tennessee Workers’ Compensation Act. The jury found the
company providing the insurance and its president liable for violation of the Consumer
Protection Act and awarded compensatory and punitive damages. On appeal, the insurance
company and president contend that the trial court erred in finding that the plaintiff was an
employee of delivery company rather than an independent contractor, in excluding various
exhibits and testimony, in denying the president’s motion for a directed verdict, and in
awarding punitive damages. Because the punitive damage awarded was predicated on the
violation of the Tennessee Consumer Protection Act, which does not authorize an award of
punitive damages, the award of punitive damages is vacated and the case remanded for a
determination of whether an award of treble damages under the Consumer Protection Act
should be awarded. In all other respects, the judgment and rulings are affirmed.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed in
part and Vacated in part; Case Remanded
R ICHARD H. D INKINS, J., delivered the opinion of the court, in which P ATRICIA J. C OTTRELL,
P. J., M. S., and A NDY D. B ENNETT, J., joined.
W. I. Howell Acuff, Cookeville, Tennessee, for the appellants, NICA, Inc., and Thomas M.
McGrath.
Jon E. Jones and Andrew R. Binkley, Cookeville, Tennessee, for the appellee, Jeffrey L.
Dillon.
OPINION
Jeffrey L. Dillon was employed as a courier with Priority Xpress and suffered an
injury on March 13, 2006 when he slipped and fell while delivering a package. As a result
of the incident, Mr. Dillon submitted a claim for benefits to Gallagher Bassett Services, Inc.,
third party administrator of the insurance program sold and operated by NICA, Inc. This suit
arose from the denial of his claim.
Mr. Dillon filed suit against NICA, Inc., Thomas M. McGrath,1 Gallagher Bassett
Services , Inc. (“Gallagher Bassett”), and Priority Xpress, asserting causes of action for
breach of contract, violation of the Tennessee Consumer Protection Act, and conspiracy to
evade the Tennessee Workers’ Compensation Act. Mr. Dillon alleged that, as a condition
of his employment with Priority Xpress, he had been required to sign documents stating that
he was an independent contractor and to permit NICA, Inc., to deduct a premium for
insurance coverage from his paycheck. The complaint further alleged that NICA had sold
and operated the insurance plan “with the intention of rejecting valid claims”; that Priority
Xpress had failed to investigate the plan before requiring its employees to pay the premiums;
that Gallagher Bassett—as third party administrator of the insurance—knew or should have
known that NICA was operating the insurance plan “as an instrumentality for defrauding
drivers”; that Gallagher Bassett had conspired with NICA to assert “technical ‘policy
defenses’ to valid claims”;2 and that Mr. Dillon had never been provided a copy of his
insurance policy.
After settling his claims against Gallagher Bassett, Mr. Dillon proceeded to trial
against NICA and Mr. McGrath.3 Prior to trial, the parties stipulated that the issue of
whether plaintiff was an employee or an independent contractor would be decided by the
court; the remaining issues would be submitted to the jury. At the close of proof, the trial
court announced its finding that plaintiff was an employee of Priority Xpress. Mr. McGrath
then moved for a directed verdict on all claims asserted against him individually; the trial
court denied the motion. The jury returned a verdict declining to find that the defendants
conspired to evade Tennessee Workers’ Compensation laws and finding that defendants had
1
Mr. McGrath is the president and founder of NICA, Inc.
2
A letter denying his claim for disability benefits was appended as an exhibit to the complaint. The
letter stated that plaintiff’s policy required a physician to deem him “Totally Disabled” within 30 days of the
accident in order to receive “Weekly Disability Income Benefits” and that, because plaintiff had not been
declared “disabled” by a physician for more than two months after the accident, the claim was denied.
3
NICA, McGrath, and Priority Xpress were initially each represented by the same law firm and filed
an answer denying the allegations of the complaint. The court later entered an order permitting counsel for
NICA, McGrath, and Priority Xpress to withdraw, and NICA and McGrath retained their present counsel.
Priority Xpress did not retain counsel and did not thereafter appear in this matter.
-2-
violated the Consumer Protection Act “with regard to the furnishing of insurance.” 4 The jury
awarded plaintiff $7,747.34 in compensatory damages plus attorney fees. The jury also
found that plaintiff was entitled to punitive damages. A hearing on punitive damages was
conducted, and the jury awarded plaintiff $200,000 against NICA and $200,000 against Mr.
McGrath. The court made findings affirming the award of punitive damages and entered
judgment on the jury’s verdict.5
Plaintiff appeals and raises the following issues:
1. Did the trial court err in holding that Jeffrey Dillon was an employee and not
an independent contractor?
2. Did the trial court err in the exclusion of documentary evidence offered by
Thomas McGrath?
3. Did the trial court err in the exclusion from evidence of the applicable year
(2005) occupational/accident insurance binder?
4. Did the trial court err in refusing to allow Thomas McGrath to testify
concerning the two criminal convictions and the business activities of NICA
involved therein?
5. Did the trial court err in refusing to find that the jury’s verdict based upon
the Tennessee Consumer Protection Act was against the weight of the
evidence?
6. Did the trial court err in refusing to dismiss Thomas McGrath individually?
7. Did the trial court err in upholding the jury’s award of punitive damages
based upon a concert of actions between NICA and Thomas McGrath when
the jury expressly found that a conspiracy had not been proven?
8. Did the trial court err in upholding the jury’s award of excessive punitive
damages?
4
Although breach of contract was set forth as a claim in the complaint, it was not included in the
claims submitted to the jury. The record does not reveal the disposition of this claim.
5
Further proceedings were conducted on August 27, 2010, in which the court awarded plaintiff
$54,797.68 in compensatory damages and $450,000 in punitive damages against Priority Xpress. The court
also held a hearing on attorney fees and determined that plaintiff was entitled to $101,319.06 in attorney fees
from NICA and Mr. McGrath. Those matters are not a part of this appeal.
-3-
D ISCUSSION
A. Finding that plaintiff was an employee
The determination of whether the plaintiff was an employee or an independent
contractor is a question of law, which we review de novo with no presumption of correctness.
Lindsey v. Trinity Communications, Inc., 275 S.W.3d 411, 418 (Tenn. 2009) (citing
Cromwell Gen. Contractor, Inc. v. Lytle, 439 S.W.2d 598, 600 (Tenn. 1969); Overstreet v.
TRW Commercial Steering Div., 256 S.W.3d 626, 630 (Tenn. 2008)). We review the trial
court’s findings of fact accompanied by a presumption of correctness, unless the
preponderance of the evidence is otherwise. Tenn. R. App. P. 13(d).
In determining whether one is an employee or an independent contractor, a court is
to consider the following factors:
(i) The right to control the conduct of the work;
(ii) The right of termination;
(iii) The method of payment;
(iv) The freedom to select and hire helpers;
(v) The furnishing of tools and equipment;
(vi) Self-scheduling of working hours; and
(vii) The freedom to offer services to other entities;
Tenn. Code Ann. § 50-6-102(10)(D); see also Lindsey, 275 S.W.3d at 418; Masiers v. Arrow
Transfer & Storage Co., 639 S.W.2d 654, 656 (Tenn. 1982). Although no indicia is
“infallible or entirely indicative,” our courts have generally recognized that “the primary test
for determining claimant’s status as employee or independent contractor is the ‘right to
control.’” Lindsey v. Smith & Johnson, Inc., 601 S.W.2d 923 (Tenn. 1980). Another factor
that has gained significance is the right of termination. Masiers, 639 S.W.2d at 656 (citing
Wooten Transports, Inc. v. Hunter, 535 S.W.2d 858 (Tenn. 1976)). The power of a party to
a work contract to terminate the relationship at will is contrary to the full control of work
activities usually enjoyed by an independent contractor. Masiers, 639 S.W.2d at 656 (citing
Curtis v. Hamilton Block Company, 466 S.W.2d 220 (Tenn. 1971)).
The court made factual findings relative to the statutory factors. With respect to the
right to control the conduct of the work, the court found that plaintiff was required “to pay
for an insurance program that he did not want to participate in,” to wear a uniform with a
Priority Xpress logo on it, to carry a fire extinguisher in his vehicle and an operational pager,
to return phone calls within a certain period of time, and to have automobile insurance with
$300,000 in liability coverage. The trial court found that the Independent Contractor
Agreement contained two clauses that gave Priority Xpress the right of termination: a
termination provision and a pricing provision. The court held that the termination provision
permitted NICA to terminate plaintiff, and that the pricing provision permitted NICA “to
-4-
lower his pay . . . to such a low amount that . . . it would not be possible for [plaintiff] to
work there. And so, that’s basically the right . . . to terminate the plaintiff.”6 As to the
factors at § 50-6-102(10)(D)(iii) - (vii), the court found (1) that Priority Xpress controlled
the method of payment and that plaintiff was unable to participate in the negotiation of
delivery prices; (2) that plaintiff did not have control of his vacation schedule and was
required to find replacement drivers if he wanted to take a vacation; (3) that, although
Plaintiff furnished his own tools and equipment, Priority Xpress controlled the type and
amount of those tools; (4) that Priority Xpress set his work schedule and required him to
check in after certain deliveries; and (5) that plaintiff didn’t have the time or permission to
offer his services to other entities. The court found plaintiff to be credible, a finding as to
which we accord considerable deference. See Whirlpool Corp. v. Nakhoneinh, 69 S.W.3d
164, 167 (Tenn. 2002).
The evidence does not preponderate against the trial court’s findings of fact and these
facts support the determination that plaintiff was an employee as defined at Tenn. Code Ann.
§ 50-6-102(10)(D).7 We affirm the finding that plaintiff was an employee of Priority Xpress
and not an independent contractor.
B. Evidentiary issues
The admissibility of evidence is within the sound discretion of the trial court, and we
review the trial court’s decision to admit or exclude evidence under an abuse of discretion
standard. Mercer v. Vanderbilt Univ., Inc., 134 S.W.3d 121, 131 (Tenn. 2004) (citing Otis
v. Cambridge Mut. Fire Ins. Co., 850 S.W.2d 439, 442 (Tenn. 1992)). This standard of
review “reflects an awareness that the decision being reviewed involved a choice among
several acceptable alternatives,” Gonsewski v. Gonsewski, M2009-00894-SC-R11CV, 2011
6
The termination provision stated that the Agreement:
may be terminated without cause at any time by either party giving the other party at lease
five (5) calendar days written notice of such termination. Either party may terminate this
contract immediately with cause upon default or some other material breach.
The pricing provision granted Priority Xpress “the sole and exclusive right to change the delivery charges
and prices from time to time and at any time giving written notice to [plaintiff], and any such change shall
become effective on the specified date.”
7
In addition, the Independent Contractor Agreement included language which designated plaintiff
as an “Independent Contractor,” stated that “[plaintiff] . . . wishes to specify his/her relationship to Priority
Xpress as that of an Independent Contractor and not that of an employee” and that Priority Xpress had no
“right of power to exercise any direction, control or determination over the . . . Contractor’s activities . . .
in operating his/her business.” Our Supreme Court has held that such language is insufficient to establish
an independent contractor relationship when the surrounding facts show an employer-employee relationship.
See Boruff v. CNA Ins. Co., 795 S.W.2d 125, 126 (Tenn. 1990).
-5-
WL 4116654, at *3 (Tenn. Sept. 16, 2011), and an abuse of discretion occurs when the trial
court causes an injustice by applying an incorrect legal standard, reaches an illogical result,
resolves the case on a clearly erroneous assessment of the evidence, or relies on reasoning
that causes an injustice. Id. (citing Wright ex rel. Wright v. Wright, 337 S.W.3d 166, 176
(Tenn. 2011); Henderson v. SAIA, Inc., 318 S.W.3d 328, 335 (Tenn. 2010)).
Defendants sought to introduce several exhibits from other proceedings involving
Priority Xpress, Capital Express, NICA and/or Mr. McGrath, as well as copies of materials
from the NICA and Gallagher Bassett websites; they appeal various rulings relative to the
admissibility of the proposed exhibits.
1. Exhibit 80
Exhibit 80 was comprised of documents related to a workers’ compensation claim
filed with the Tennessee Department of Labor and Workforce Development by a Kris
Grempler, a courier for Priority Xpress; Mr. Grempler’s claim arose out of an injury he
sustained on September 29, 2006—approximately six months after Mr. Dillon’s injury. The
exhibit contained an order entered by a specialist with the Department finding that Mr.
Grempler was an independent contractor and denying him workers’ compensation benefits.8
The trial court excluded the exhibit on the grounds that it was not relevant and constituted
hearsay. The court also stated that, even if the exhibit was relevant, it would be excluded
under Tenn. R. Evid. 403.
While defendants argued that the exhibit was “directly relevant to the question, as best
we can prove it without Priority [Xpress] being available as a witness, as to what the
relationship was with the independent contractors,” the order of the specialist does not set
forth any fact upon which the specialist based the finding that Mr. Grempler was an
independent contractor. The exhibit does not otherwise contain any evidence bearing on the
nature of the relationships Priority Xpress had with its couriers or, more specifically, the
relationship Priority Xpress had with Mr. Dillon. The exhibit does not “make the existence
of any fact that is of consequence to” the issues in the case more or less probable and,
consequently, is not relevant.9 The trial court did not abuse its discretion in excluding the
exhibit on the basis of relevance.
The court also correctly excluded the exhibit as inadmissible hearsay. Defendants
argued that the exhibit fell under the business record exception to the hearsay rule. See Tenn.
8
The exhibit also contained a “claim summary,” apparently from Gallagher Bassett’s records, of
the insurance benefits paid to Mr. Grempler through the NICA plan.
9
Relevant evidence is evidence “having any tendency to make the existence of any fact that is of
consequence to the determination of the action more probable or less probable than it would be without the
evidence.” Tenn. R. Evid. 401. Evidence which is not relevant is not admissible. Tenn. R. Evid. 402.
-6-
R. Evid. 803(6).10 The witness through whom the exhibit was tendered for admission, Mr.
McGrath, however, was not the custodian of records of either the Tennessee Department of
Labor and Workplace Development or Gallagher Bassett, where the documents in the exhibit
were obtained; consequently, the record was not admissible as a business record as permitted
by the rule and the court did not err in holding that the exhibit did not fall within the claimed
exception.
2. Exhibit 82
Exhibit 82 was an order of dismissal from a proceeding in the Nebraska Workers’
Compensation Court which the court excluded on the grounds that it was not relevant and
that a proper foundation for its admission was not laid; the court also stated that the exhibit
should be excluded under Tenn. R. Evid. 403.
The exhibit shows that a Paul S. Christensen sustained an injury on March 8, 1999,
when he was working as a courier for a company called Capital Express, and subsequently
filed a claim for workers’ compensation benefits; the issue in the case was whether Mr.
Christensen was an independent contractor or an employee of Capital Express. The
Nebraska court held that, under Nebraska law, he was an independent contractor, and that
he was not entitled to workers’ compensation benefits.11 Defendants proffered the exhibit
“to show a good faith effort by NICA to do just what they said they would do, step up and
defend these cases and help clarify the lines wherever they may happen in the country. . . .[t]o
support NICA’s position that they show up wherever in the country these issues are coming
up to clarify these issues on behalf of their independent contractors.”
10
Tenn. R. Evid. 803(6) provides:
A memorandum, report, record, or data compilation, in any form, of acts, events, conditions,
opinions, or diagnoses made at or near the time by or from information transmitted by a
person with knowledge and a business duty to record or transmit if kept in the course of a
regularly conducted business activity and if it was the regular practice of that business
activity to make the memorandum, report, record or data compilation, all as shown by the
testimony of the custodian or other qualified witness or by certification that complies with
Rule 902(11) or a statute permitting certification, unless the source of information or the
method or circumstances of preparation indicate lack of trustworthiness. The term
“business” as used in this paragraph includes business, institution, profession, occupation,
and calling of every kind, whether or not conducted for profit.
11
The court based its decision on the ten factors set forth in Larson v. Hometown Communications,
Inc., 540 N.W.2d 339 (Neb. 1995), as well as Stephens v. Celeryvale Transport, Inc., 286 N.W.2d 420 (Neb.
1979), in which the Nebraska Supreme Court stated that a written contract “may be of prime importance”
in describing the nature of the relationship. In finding that Mr. Christensen was an independent contractor,
the court in part relied on a written contract that stated that the parties had an independent contractor
relationship.
-7-
Exhibit 82 does not show or discuss what relationship existed between NICA and Mr.
Christensen or NICA and Capital Express or the nature or extent of any responsibilities
NICA had to either.12 The exhibit does not demonstrate whether NICA had any duty to
appear in the matter or whether NICA was even a part of the proceedings that ultimately led
to dismissal of Mr. Christensen’s claim. The exhibit had no relevance in determining
whether the defendants violated the Tennessee Consumer Protection Act or conspired to
evade Tennessee workers’ compensation laws or in resolving any factual dispute.
Likewise, we agree that the exhibit’s probative value, if any, was substantially
outweighed by the danger of confusion of the issues and misleading the jury. Defendants had
stated that they were “not asking the Court to take notice of the [exhibit] in terms of
informing [the court’s] decision on the independent contractor issue.” Their stated purpose
was, instead, to show that NICA had defended workers’ compensation lawsuits around the
country. Other than naming NICA in the caption, however, the order does not show what,
if any, action NICA took in regard to the proceeding. The issue before the Nebraska court
was whether Mr. Christensen was an independent contractor, and we agree with the trial
court that this exhibit had the potential to confuse the issues and mislead the jury.
3. Exhibit 83
Exhibit 83 was composed of copies of pleadings and a judgment of dismissal filed in
an action brought in Massachusetts by the Hartford Fire Insurance Company (“Hartford”)
against Thomas McGrath d/b/a Bay State Associates, Inc. In the case at bar, Mr. McGrath
testified that he had pled guilty to two felonies in Massachusetts in 1996 and defendants
asserted that Exhibit 83 was introduced to show:
other facts relevant to that [conviction], including the fact that [Hartford], who
if the state was right, should have been able to prevail in this case and get its
premium for those very same workers and failed, is directly relevant to the
issue of how NICA was operating at the time and continued to operate. . . . the
felony convictions didn’t have anything to do with their method of operation.
It had to do with two anomalies in it, and this is the best proof of one of those
anomalies, which is, if they had, in fact, been where the state said they were,
they would have owed Hartford these premiums.
The trial court excluded the exhibit on grounds that it was not relevant.
The complaint contained in Exhibit 83 alleged that Mr. McGrath d/b/a Bay State
Associates, Inc. owed Hartford $41,059.00 for insurance premiums and sought judgment for
12
Although the case was styled Paul S. Christensen v. NICA, a/k/a Capital Express, Mr. McGrath
testified that, despite the “a/k/a” in the caption, Capital Express and NICA were not the same business and
that Capital Express was “a contracting company.”
-8-
that amount; the answer denied the allegations of the complaint and asserted various
affirmative defenses. The judgment dismissed the lawsuit in favor of Mr. McGrath d/b/a Bay
State Associates, Inc. but did not set forth any factual findings or the legal basis of the
dismissal.13 It is not possible to discern from the pleadings or the judgment why the case was
dismissed. In addition, the caption of the case identified “Thomas McGrath d/b/a Bay State
Associates, Inc.” as defendant, and neither the pleadings nor the order of dismissal show how
that defendant was related to any of the actions or parties at issue in the instant case. The
court properly determined the proposed exhibit to be irrelevant.
4. Exhibit 86
Defendants sought to introduce as exhibit 86 copies of pages from NICA’s and
Gallagher Bassett’s internet websites obtained through another internet website known as
“The Wayback Machine.”14 The exhibit was fourteen pages, seven of which were copies of
pages from the three websites and the remainder being a document entitled “Certain
Independent Contractors of NICA, Inc., Schedule of Benefits, Class 1 (Full Time).” Counsel
for defendants described the exhibit as “the web history of the MyNICA site 15 from October
4th, 2003,” that the exhibit “establishes that this website was operating in October of 2003”
and that the schedule of benefits document which was part of the exhibit did not come from
NICA’s records but “came from the website as the website displays these records.” The
exhibit was objected to on the basis of lack of a proper foundation being laid for its
admission and relevance.
With regard to the foundation for admission of the exhibit, counsel for defendant
stated:
In the form that they are here they did not come from NICA’s records. They
came from the website as the website displays these records. As they appear
on the website however, NICA created the website at that time in history, and
linked to Gallagher’s website the other documents that are linked to this at that
time in history.
With regard to relevance, counsel for defendant stated that the exhibit was offered to show
that “the [insurance] plan was available to the world, much less Jeff Dillon, prior to his ever
13
The judgment of dismissal was signed by an “Assistant/Clerk” and appears to reference a second
document in which findings were made by “Meagher, J.” That document and any findings contained therein
were not a part of the proposed exhibit.
14
Counsel for defendant described “The Wayback Machine” as “a website that captures snapshots
of sites as they existed going way back, and you plug in the particular site and it finds the pages as they
existed at that time in history.”
15
Counsel explained that MyNICA was a website maintained by defendant, NICA, Inc.
-9-
signing on with NICA.” The court excluded the exhibit on the ground of authenticity and
because “there is no evidence that the plaintiff had access to this.”
We agree that the proposed exhibit was properly excluded as evidence. The
discussion regarding Exhibit 86, as well as Exhibits 80, 82 and 83, was held during a “jury
out” hearing and the court ruled on the admissibility of the exhibits at the conclusion of the
hearing. While Mr. McGrath, as president of NICA, may have been able to satisfy the
authenticity requirement at Tenn. R. Evid. 901, with respect to the pages comprising the
“schedule of benefits” portion of the exhibit, the court correctly held that he could not satisfy
the authenticity requirement relative to the entirety of the exhibit as proposed for admission,
since he was not employed in any capacity by Gallagher Bassett.16 It does not appear from
the record that any further effort was made to separately admit the “schedule of benefits”
portion of the documents into evidence or to make an offer of proof in that regard.
5. 2005 Binder
Defendants complain that the trial court excluded a set of documents which they refer
to as the “2005 Binder”17 and state that the court “first excluded this evidence on day one of
the trial, on the basis that the material had not been provided to plaintiff in a timely manner.”
In support of this statement, they cite to a bench conference which occurred during the
examination of Mr. McGrath and which was not transcribed. After the conference the court
instructed the jury that “NICA has failed to produce the insurance policy; and therefore, you
may draw the conclusions that The Court stated.”18 Defendants’ assertion that the court
excluded the 2005 Binder in this ruling is not supported by the record.
Defendants contend that they made an offer of proof during the testimony of Mr.
McGrath to support their contention that the materials in the 2005 Binder constituted an
enforceable contract of insurance; they make specific reference to a 21-page document
denominated “Occupational Accident Plan Evidence of Insurance,” which they asserted at
trial was the “master policy of insurance.” In the course of examining Mr. McGrath, counsel
for defendants questioned him regarding the documents contained in the 2005 Binder. In the
16
Further, the only information relative to “The Wayback Machine” website was provided by the
statements of counsel for defendants.
17
The “binder” is a 131 page looseleaf document; it is not a binder of coverage as that term is
customarily used in insurance matters.
18
The court had earlier told the jury that the jury could “determine that no such policy exists or if
such policy does exist, its been destroyed and/or withheld, and its terms would be unenforceable as to the
defendant.” The parties subsequently stipulated that defendants had not produced a 2006 policy issued by
Lloyd’s of London, whom Mr. McGrath testified either underwrote or issued the insurance offered by NICA.
-10-
course of a discussion between counsel and the court regarding the relevancy of the materials
in the exhibit, the court stated:
So you haven’t produced the policy of insurance, Mr. Acuff, and as a matter
of fact I ruled on this before the trial started.19 And so we’ve just wasted a lot
of time here talking about things other than the policy of insurance. The
Court’s already ruled on that to start with, and I find no new information that
would change the Court’s opinion in regard to whether a policy of insurance
exists at this time.
As is clear from the quoted excerpt, what defendants characterize as the court’s exclusion of
the 2005 Binder was, in fact, the court’s reiteration of its earlier determination that a policy
of insurance germane to the issues in the case had not been produced. Again, their contention
that the 2005 Binder was excluded is not supported by the record.20
6. Mr. McGrath’s testimony regarding his two criminal convictions
Plaintiff’s counsel called Mr. McGrath as a witness and questioned him regarding
proceedings in California and Massachusetts in which he had been involved. Mr. McGrath
acknowledged that he had pled guilty to a felony “involving dishonesty in regard to the State
of California over a workers compensation matter” and had pled guilty to a felony for mail
fraud involving workers’ compensation in Massachusetts. On cross-examination by his
counsel, Mr. McGrath was asked: “what’s the underlying story in the sense of what activity
was NICA doing that caught the state’s attention?” Counsel for plaintiff objected and
asserted that the indictments would be the best evidence of the circumstances surrounding
the convictions; a lengthy discussion between the court and counsel ensued. In their brief,
defendants cite twenty-one pages of the transcript as containing the testimony, objections and
arguments relative to this issue, and also contend that it contains an offer of proof. The cited
testimony contains numerous objections by plaintiff’s counsel, primarily on grounds that the
plea agreements, rather than Mr. McGrath’s testimony, were the best evidence of what
occurred in California and Massachusetts. Each time that plaintiff’s counsel objected, the
court permitted argument on the admissibility of the particular testimony and ruled on the
objection; when the court sustained an objection, counsel for defendants rephrased the
question and continued.
19
The court’s statement references a ruling made prior to trial. Neither a written order nor an oral
ruling on any such pre-trial matter is in the record; defendants do not assign error to any ruling of the court
made prior to trial.
20
The record shows that counsel for defendants did interrogate Mr. McGrath at length without
objection relative to some of the materials in the 2005 Binder but that, following the statement of the court
quoted above, no effort was made to introduce all or any part of the binder and no offer of proof was made.
-11-
Pursuant to Tenn. R. Evid. 103, where the ruling alleged to constitute error is one
excluding evidence, the substance of the evidence and the specific evidentiary basis
supporting its admission must be made known to the court by offer of proof or be apparent
from the context; in addition, to constitute error, a substantial right of the party offering the
evidence must be affected. At no point during the testimony does counsel or Mr. McGrath
make an offer of proof as to what the testimony which they contend to have been erroneously
excluded would have been, and we cannot infer the substance of the testimony from the
discussion between counsel and the court; we do not presume that the substantial rights of
either defendant were affected by the rulings. Accordingly, this issue was not preserved for
appeal, and we affirm the trial court’s ruling.21
C. Whether the verdict was supported by the evidence
Defendants filed a motion for new trial, asserting that a new trial should be granted
because, inter alia, the jury’s finding that defendants violated the Tennessee Consumer
Protection Act was against the weight of the evidence. In the order denying the motion, the
court stated that “the Court made an individual review of the evidence in this case as the 13 th
juror and found the evidence preponderated in favor of the jury’s verdict.” On appeal,
defendants assert that a new trial should be granted because the verdict that the defendants
violated the Consumer Protection Act was not supported by material evidence.
In reviewing the verdict of the jury, we do not reweigh the evidence or determine
credibility of witnesses; rather we take the strongest legitimate view of all the evidence to
uphold the verdict. We assume the truth of all evidence that supports the verdict and discard
all contrary evidence; allow all reasonable inferences to sustain the verdict; and, if there is
any material evidence to support the verdict, we affirm the verdict. Harper v. Watkins, 670
S.W.2d 611, 631 (Tenn. Ct. App. 1983); Marshall v. Cintas Corp., Inc., 255 S.W.3d 60, 72
(Tenn. Ct. App. 2007); Ellis v. White Freightliner Corp., 603 S.W.2d 125 at 129 (“[W]hen
the trial judge has approved the verdict, the review in the Court of Appeals is subject to the
rule that if there is any material evidence to support the award, it should not be disturbed.”).
The Tennessee Consumer Protection Act was enacted to provide statutory remedies
beyond common-law fraud actions for consumers and legitimate business enterprises
victimized by unfair or deceptive business acts or practices. See Tenn. Code Ann. § 47-18-
102; Tucker v. Sierra Builders, 180 S.W.3d 109, 115 (Tenn. Ct. App. 2005). In order to
recover under the Act, the plaintiff must prove: “(1) that the defendant engaged in an unfair
and deceptive act or practice declared unlawful by the T.C.P.A. and (2) that the defendant’s
conduct caused an ‘ascertainable loss of money or property, real, personal, or mixed, or any
21
We also note that, although the court initially sustained objections to some of Mr. McGrath’s
testimony on the basis of the best evidence rule, the court offered to revisit the issue when counsel for
defendants produced the indictments and plea agreements. Defendants did not introduce those documents,
and the admissibility of Mr. McGrath’s testimony regarding the matter was not considered again.
-12-
other article, commodity, or thing of value wherever situated. . . .’” Tucker, 180 S.W.3d at
115 (citing Tenn. Code Ann. § 47-18-109(a)(1)). Our Supreme Court has stated that a
“deceptive act or practice” is, in essence, a material representation, practice, or omission
likely to mislead reasonable consumers to their detriment. Fayne v. Vincent, 301 S.W.3d
162, 177 (Tenn. 2009). While the Act does not define the terms “unfair” and “deceptive,”
it does set forth specific “unfair or deceptive acts or practices” that are declared unlawful and
in violation of the Act. Tenn. Code Ann. § 47-18-104(b).
Upon our review of the evidence and affording the jury’s verdict the inferences to
which it is entitled, the verdict that defendants violated the Consumer Protection Act is
supported by material evidence, both testimonial and documentary.
D. Denial of Mr. McGrath’s motion for a directed verdict
At the close of proof, Mr. McGrath moved for a directed verdict in his favor, asserting
that the testimony showed that all of his activities were done in his capacity as President or
CEO of NICA. The court denied the motion, holding that “the Court is of the opinion that
there is sufficient evidence to present . . . this jury Mr. Thomas McGrath as a defendant in
this case . . . .” Following the entry of the trial court’s final judgment, Mr. McGrath filed a
motion seeking to have the judgment against him set aside; the motion was denied. On
appeal, he contends that he should have been dismissed from the case because “there has
been no showing . . . of individual action and no showing of facts as would be required to
make the shareholder liable for the actions of the corporation.”
This Court reviews a trial court’s decision on a motion for directed verdict de novo,
without a presumption of correctness, utilizing the same standard employed by the trial court.
Biscan v. Brown, 160 S.W.3d 462, 470 (Tenn. 2005). When ruling on a motion for directed
verdict, a court must “review the evidence in the light most favorable to the non-moving
party, give the non-moving party the benefit of all reasonable inferences, and disregard all
the evidence contrary to the non-moving party’s position.” Burton v. Warren Farmers Co-
op, 129 S.W.3d 513, 520 (Tenn. Ct. App. 2002) (citing Alexander v. Armentrout, 24 S.W.3d
267, 271 (Tenn. 2000); Addaman v. Lanford, 46 S.W.3d 199, 203 (Tenn. Ct. App. 2000)).
A motion for directed verdict should be denied “if material evidence is in dispute or doubt
exists as to the conclusions to be drawn from that evidence.” Johnson v. Tennessee Farmers
Mut. Ins. Co., 205 S.W.3d 365, 370 (Tenn. 2006). In reviewing the denial of the directed
verdict, we “take the strongest legitimate view of the evidence in favor of the non-moving
party, construing all evidence in that party's favor and disregarding all countervailing
evidence.” Id.
Trial testimony was that Mr. McGrath was the founder and sole shareholder of NICA.
Mr. McGrath testified that NICA’s program and business plan was created, developed, and
implemented by him, and that he personally solicited businesses such as Priority Xpress and
other courier companies to join the program. He further testified that he told Priority Xpress
-13-
that NICA would indemnify it if Priority Xpress would sign its drivers up with the NICA
program and told Gallagher Bassett that NICA intended to indemnify courier companies
affiliated with NICA from workers compensation claims. Construing the testimony and
evidence in plaintiff’s favor, reasonable minds could find that Mr. McGrath, alone or in
concert with NICA, violated the Consumer Protection Act and was personally liable for the
damages sustained by plaintiff. Accordingly, the court did not err in denying the motion for
directed verdict. Upon the same proof, applying the material evidence standard to the motion
Mr. McGrath filed after trial, the court did not err in denying the motion.
E. Punitive Damages
Defendants assert that the trial court erred in upholding the jury’s award of punitive
damages and that the amount of punitive damages awarded to plaintiff was excessive.
After the jury reported its verdict, the court read the verdict form as follows:
THE COURT: All right, ladies and gentlemen of the jury, I’m going to
read what the verdict form says and then I’ll ask you to raise your hand if you
do agree with this. It says number 1, Did one or more of the defendants in a
conspiracy act or cause drivers to be mislabeled as independent contractors
rather than employees for the purposes of evading Tennessee Workers’
Compensation Laws? And the answer is, No.
And in question number 2, Did one or more of the defendants acting
alone or in concert violate the Tennessee Consumer Protection Act with regard
to the furnishing of insurance? The answer is, Yes.
If you answered “Yes”, what amount of damages did Jeff Dillon sustain
as a result? And the answer is, $7,747.34 plus pertinent attorneys’ fees to this
case, 9 weeks at 70 percent of gross averagepay, $545.86 equals $4,912.74
plus Jeff Dillon insurance premium and application fee, $2,834.60 cents.
So, is the total then 7747.34; is that correct?
THE JURY FOREPERSON: Yes, your honor.
THE COURT: Okay. And then, going below that, If you answered
“Yes” to question 2, was NICA guilty of this? Answer, Yes. If you answered
“Yes” to question 2, was Thomas M. McGrath guilty of this? Answer, Yes.
If you answered “Yes” to, and then (c) part says, If you answered “Yes”
to question 2, Do you find that punitive damages should be awarded for the
violation of Tennessee Consumer Protection Act against -- number 1, Against
NICA, Inc.? Answer, Yes. Against Thomas M. McGrath? Answer, Yes.
Dated August 13, 2010, signed by the presiding juror[]; is that correct?
THE JURY FOREPERSON: (Nodded head).
-14-
A hearing on the amount of punitive damages was held, and the jury returned a verdict for
punitive damages of $200,000.00 against NICA, Inc. and $200,000.00 against Thomas
McGrath.
Punitive damages are not available for violations of the Tennessee Consumer
Protection Act. Paty v. Herb Adcox Chevrolet Co., 756 S.W.2d 697, 699–700 (Tenn. Ct.
App. 1988); see also Lorentz v. Deardan, 834 S.W.2d 316, 320 (Tenn. Ct. App. 1992)
Rather, the Act provides for an award of treble damages if the defendant’s unfair or
deceptive act or practice under the Act was willful or knowing. Tenn. Code Ann. § 47-18-
109(a)(3). Inasmuch as the award of punitive damages was based on the finding that
defendants violated the Act, it must be vacated.
Neither of the parties has addressed or raised the applicability of an award of treble
damages under the Consumer Protection Act to this case, and such an award was not
considered by the trial court. While there is some overlap between the factors which the trial
court considered in its review approving the award of punitive damages 22 and the factors
which are to be considered in awarding treble damages for a willful violation of the Act,23
we are of opinion that any possible award of treble damages is more properly presented in
the first instance to the trial court. Consequently, we remand the case for a determination of
whether treble damages should be awarded.
Our holding in this regard renders the challenge as to the amount of punitive damages
moot.
22
The court considered defendants’ financial affairs, financial condition, and net worth; the nature
and reprehensibility of the defendants’ wrongdoing; the impact of defendants’ conduct on the plaintiff; the
relationship of the defendants to the plaintiff; the defendants’ awareness of the amount of harm being caused
and the defendants’ motivation in causing the harm; the duration of defendants’ misconduct and whether the
defendant attempted to conceal the conduct; whether the defendant profited from the activity; whether there
were previous punitive damage awards based on the same wrongful conduct; whether defendants took
remedial action or attempted to make amends or offered to promptly and fairly settle for actual harm caused;
and defendants’ failure to carry out its statutory obligation to provide a summary of benefits and exclusions
for purchasers of its alleged insurance.
23
Tenn. Code Ann. 47-18-109(a)(4) provides:
In determining whether treble damages should be awarded, the trial court may consider,
among other things:
(A) The competence of the consumer or other person;
(B) The nature of the deception or coercion practiced upon the consumer or other
person;
(C) The damage to the consumer or other person; and
(D) The good faith of the person found to have violated the provisions of this part.
-15-
C ONCLUSION
For the foregoing reasons, the judgment of the Circuit Court for Putnam County is
affirmed in part, vacated in part, and the case remanded.
___________________________________
RICHARD H. DINKINS, JUDGE
-16-