Southern Security Federal Credit Union v. Cumis Insurance Society, Inc.

IN THE COURT OF APPEALS OF TENNESSEE

AT JACKSON

AUGUST 22, 2005 Session

SOUTHERN SECURITY FEDERAL CREDIT UNION v. CUMIS

INSURANCE SOCIETY, INC.

Direct Appeal from the Chancery Court for Shelby County

No. CH-03-0809-3 D. J. Alissandratos, Chancellor

No. W2004-02700-COA-R3-CV - Filed December 27, 2005

In this appeal, we are called upon to review the trial court’s order entering summary judgment in

favor of the bank. After one of its customers deposited a counterfeit check into its account at the

bank, the bank filed a claim with its insurance company to recover for its loss under a bond.

Specifically, the bank sought coverage under two provisions in the bond. The bank filed its first

motion for summary judgment on one of the bond’s provisions. The insurance company responded

by agreeing that, for purposes of ruling on the motion for summary judgment, the bank’s customer

intended to commit a fraud when he deposited the check. By doing so, the insurance company

sought to trigger an exclusion provision in the bond. Thereafter, the bank filed a second motion for

summary judgment on the other provision in the bond. In response, the insurance company, in an

effort to create a disputed issue of material fact as to this provision, asserted that the customer did

not intended to commit fraud when he deposited the check. The trial court granted the bank’s

motions for summary judgment. In regards to the bank’s motions for summary judgment, we

reverse the trial court’s award of summary judgment to the bank and find that genuine issues of

material fact remain to be decided, therefore, summary judgment is inappropriate.

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

ALAN E. HIGHERS, J., delivered the opinion of the court, in which W. FRANK CRAWFORD , P.J., W.S.,

and HOLLY M. KIRBY , J., joined.

Fred C. Statum, III, Jeffrey S. Price, Nashville, TN, for Appellant

Michael G. McLaren, William E. Cochran, Jr., Memphis, TN, for Appellee

OPINION

I.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Gulf Properties, Ltd., Inc. (hereinafter “Gulf Properties”), a Tennessee corporation,

maintained an account at Southern Security Federal Credit Union (hereinafter “Southern Security”

or “Appellee”), a federally chartered credit union with its principal place of business in Memphis,

Tennessee. In 1996, Allen C. Thompson (hereinafter “Thompson”), the chief executive officer of

Gulf Properties, was contacted via the Internet by an individual identifying himself as Prince Jerry

Ufot (hereinafter “Prince Ufot”) of Nigeria. Prince Ufot requested Thompson’s assistance with

making investments in the United States. In response to this inquiry, Thompson expressed his

concerns to Prince Ufot about fraudulent Nigerian investment schemes. Nevertheless, Prince Ufot

persuaded Thompson to assist him in the venture, and Prince Ufot informed Thompson that he

received a commitment from a banker who intended to send Thompson a check for £ 120,000

pounds sterling. Thompson agreed to assist Prince Ufot by researching potential investment

opportunities available in the United States in exchange for an $18,000.00 fee to cover his expenses.

The parties agreed to this fee, and Prince Ufot informed Thompson that he could deduct the fee from

the forthcoming check.

When Thompson received the check, he deposited it into Gulf Properties’ account at

Southern Security on April 25, 2002. According to Thompson, he informed Southern Security of

his concerns about the check’s validity and that he wanted the check deposited for collection only.

On April 26, 2002, Southern Security forwarded the check to National Bank of Commerce

(hereinafter “NBC”) for international collection. On May 9, 2002, Southern Security received a

credit from NBC in the amount of $170,964.00, the United States Dollar equivalent of the £ 120,000

pounds sterling. According to Southern Security, it relied on this credit as evidence of collection by

NBC, and it released its hold on the funds and issued a credit to Gulf Properties’ account. According

to Thompson, he received a call from Southern Security around this time informing him that the

check had cleared and that the funds were credited to Gulf Properties’ account.

On May 9, 2002, the same day that Southern Security received the credit from NBC,

Thompson transferred $9,000.00 to another account and withdrew an additional $9,000.00 to cover

his $18,000.00 fee. On May 14, 2002, Thompson, at the direction of Prince Ufot, transferred

$140,000.00 from Gulf Properties’ account to another bank in China. According to Thompson,

Prince Ufot stated that he intended to release in excess of $30,000,000.00 in additional investment

funds upon receipt of the $140,000.00. On May 23, 2002, NBC notified Southern Security that it

would be returning the check due to “suspected fraud.” Further, NBC debited $174,427.36 from

Southern Security’s account at NBC. The parties subsequently learned that the check was

counterfeit. In response to NBC’s actions, Southern Security froze Gulf Properties’ account. By the

time NBC returned the check to Southern Security, however, only $580.33 of the original amount

remained in Gulf Properties’ account.

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When the aforementioned facts unfolded, Southern Security was the named insured under

a “Credit Union Bond” (hereinafter the “Bond”) issued by Cumis Insurance Society, Inc. (hereinafter

“Cumis” or “Appellant”), a Wisconsin corporation. On June 13, 2002, Southern Security, relying

on the Bond, submitted a claim to Cumis to recover the losses it incurred in this case. When Cumis

refused to pay the claim, Southern Security filed a complaint against Thompson, Gulf Properties,

Cumis, and NBC in the Chancery Court of Shelby County.1 Therein, Southern Security alleged that

Thompson deposited the check with the intent to defraud Southern Security. It also sought a

declaratory judgment against Cumis regarding its rights under the Bond, specifically relying on two

coverage provisions in the Bond. Coverage Provision R, governing fraudulent deposits, provides

as follows:

We will pay you for your loss resulting directly from a person

depositing into a share, share draft or other depository account

maintained with you, or exchanging for cash with you, a check or

draft that is ultimately not paid, providing that:

a. The person intended to commit a fraud by depositing or

exchanging for cash the check or draft; and

b. You made payment or extended credit against the check or

draft.

For purposes of this coverage only:

1) Cashing or permitting withdrawals against a check or draft

prior to final settlement will not be considered extensions of

credit excluded by the Loan Exclusion; and

2) Loss sustained by you pursuant to the provisions of a written

contract between you and a credit union service network due

to a deposit or exchange that occurs at a “service center” or

“service outlet” will be considered a direct loss and will not

be excluded by the Service Center Exclusion.

Coverage Provision W, governing counterfeit share drafts, checks, or securities, provides, in relevant

part, as follows:

1

On August 28, 2003, the trial court entered an order granting Southern Security’s motion for a default

judgment against Thompson and Gulf Properties due to their failure to answer the complaint.

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1. We will pay you for your loss resulting directly from a

“counterfeit”2 share draft or check other than a money order

which was finally paid against your corporate share or

checking account or a share draft or checking account your

member has with you.

Relying on these coverage provisions, Southern Security alleged that Cumis breached the bond by

refusing to pay the claim in bad faith. Cumis subsequently answered Southern Security’s complaint

by denying that it had an obligation under the Bond to pay Southern Security’s claim.

On January 21, 2004, Southern Security filed a motion for summary judgment against Cumis

in the trial court. In support of its motion, Southern Security also submitted the affidavit of an

investigative consultant specializing in financial fraud who opined that the check presented by

Thompson was counterfeit and that Thompson “was an active participant in a Nigerian advance fee

fraud Email scam that served as the catalyst for [Southern Security’s] loss.” Southern Security also

submitted an accompanying statement of undisputed facts and a memorandum of law, both of which

included only a reference to Coverage Provision W, reiterated the opinions of Mr. Wilson, and

asserted that Southern Security’s loss was covered under that provision of the Bond.

In response to Southern Security’s motion, Cumis submitted a memorandum in opposition

to the motion asserting that, pursuant to the plain language of Coverage Provision W, Southern

Security was precluded from recovering under the Bond. Specifically, Cumis asserted that, not only

must Southern Security show that the check was counterfeit in order to recover under Coverage

Provision W, but it must also demonstrate that the check was “finally paid” and that the check was

“paid against your corporate share or checking account or a share draft or checking account your

member has with you.” Cumis alleged in the alternative that, even if Southern Security’s loss fell

within the scope of Coverage Provision W, a genuine issue of fact remained as to whether Southern

Security’s loss was caused by its own failure to act in a commercially reasonable manner and its

failure to mitigate its damages.

Moreover, Cumis argued that the Bond contained Exclusion Provision 10, governing

fraudulent deposits, which would further preclude recovery based upon the allegations in Southern

Security’s pleadings. Exclusion Provision 10 provides as follows:

Any loss resulting directly from a person depositing into a share,

share draft, checking or other depository account maintained with

you, or exchanging for cash with you a check or draft that is not paid

provided:

2

The Bond defines “counterfeit” as “an imitation which is intended to deceive and to be taken as an original.”

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a. The person intended to commit a fraud by depositing or

exchanging for cash the check or draft; and

b. You made payment or extended credit against the check or

draft.

Except as may be covered under:

1) Fraudulent Deposit Coverage; or

2) Employee Or Director Dishonesty Coverage; or

3) Plastic Care/PIN Endorsement.

Specifically, Cumis noted the following: (1) in its complaint, Southern Security alleged that

Thompson “committed intentional misrepresentation, deceit and fraud against [Southern Security]”;

and (2) in support of its motion for summary judgment, Southern Security asserted that Thompson

was an “active participant” in a scheme to defraud Southern Security. In response to Southern

Security’s statement of undisputed facts, Cumis admitted, “only for the purpose of responding to

[Southern Security’s] Motion for Summary Judgment,” that the check was counterfeit and that

Thompson engaged in a scheme to defraud Southern Security. Cumis expressly reserved “the right

to offer proof challenging Mr. Thompson’s purported knowledge of the nature of the counterfeit

check.”

On March 19, 2004, Southern Security submitted a response to Cumis’ memorandum

referencing Cumis’ admission that Thompson “committed misrepresentation, deceit and fraud” and

stating: “This undisputed fact greatly simplifies the coverage issue before the court and insures [sic]

coverage under Coverage Provision R of the Bond.” A hearing on Southern Security’s original

motion for summary judgment was set for March 26, 2004, however, counsel for Cumis did not

receive a copy of Southern Security’s latest response until March 25, 2004, the day before the

hearing. Cumis informed Southern Security on March 25, 2004 that it deemed this latest response

to be a second motion for summary judgment, therefore, Cumis asserted that it should be given the

time permitted by the Tennessee Rules of Civil Procedure to respond to such motion.

Cumis subsequently filed its response to Southern Security’s second motion for summary

judgment, wherein Cumis asserted that Thompson “did not intend to commit a fraud by depositing

with [Southern Security] the subject cashier’s check.” In support of its response, Cumis submitted

Thompson’s affidavit, wherein he stated as follows:

I did not participate in any fraudulent scheme and was a victim of the

scheme of Prince Ufot’s actions. If I had known the check was not

valid, I would not have authorized the transfer to [the bank in China].

I relied upon [Southern Security] to confirm that the check was valid

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and finally paid before the proceeds from the check were made

available and withdrawn.

After conducting a hearing on Southern Security’s motions for summary judgment, the chancery

court entered an order on July 21, 2004 finding simply that “said motion is well taken and should

be granted,” and entered a judgment awarding damages to Southern Security. Thereafter, Southern

Security filed a motion for prejudgment interest. On October 11, 2004, the chancery court entered

an order granting Southern Security’s motion for prejudgment interest. Cumis filed a timely appeal

to this Court presenting the following issues for our review:

1. Whether the trial court erred in granting summary judgment to the Appellee; and

2. Whether the trial court erred in awarding prejudgment interest to the Appellee.

For the reasons set forth more fully herein, we reverse the trial court’s grant of summary judgment

to the Appellee and remand this case for further proceedings.

II.

STANDARD OF REVIEW

“[T]he summary judgment process is designed to provide a quick, inexpensive means of

concluding cases, in whole or in part, upon issues as to which there is no genuine dispute regarding

material facts.” Byrd v. Hall, 847 S.W.2d 208, 210 (Tenn. 1993) (citations omitted). A motion for

summary judgment should be granted “if the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to judgment as a matter of law.” Tenn. R. Civ. P.

56.04 (2005); see also Williamson County Broad. Co. v. Williamson County Bd. of Educ., 549

S.W.2d 371, 372 (Tenn. 1977) (setting forth the two imperatives contained in the rule). “The

moving party has the burden of proving that its motion satisfies these requirements.” Bain v. Wells,

936 S.W.2d 618, 622 (Tenn. 1997) (citing Downen v. Allstate Ins. Co., 811 S.W.2d 523, 524 (Tenn.

1991)). “Once it is shown by the moving party that there is no genuine issue of material fact, the

nonmoving party must then demonstrate, by affidavits or discovery materials, that there is a genuine,

material fact dispute to warrant a trial.” Byrd, 847 S.W.2d at 211 (citations omitted). The party

opposing the motion “may not rest upon the mere allegations or denials of the adverse party’s

pleading, but his or her response, by affidavits or as otherwise provided in this rule, must set forth

specific facts showing that there is a genuine issue for trial.” Tenn. R. Civ. P. 56.06 (2005).

The standards governing a court’s assessment of the evidence when evaluating a motion for

summary judgment are well established. Bain, 936 S.W.2d at 622; Carvell v. Bottoms, 900 S.W.2d

23, 26 (Tenn. 1995). Courts must view the evidence in the light most favorable to the non-moving

party and draw all reasonable inferences in the non-moving party’s favor. Byrd, 847 S.W.2d at

210–11. In doing so, courts are not permitted to “weigh” the evidence or evaluate the credibility of

the witnesses. Id. at 216. Courts should grant a motion for summary judgment only when the facts

and the inferences drawn from those facts would permit a reasonable person to reach only one

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conclusion. Bain, 936 S.W.2d at 622 (citation omitted); Carvell, 900 S.W.2d at 26 (citation

omitted).

The standard of review which guides this Court when evaluating a trial court’s grant of

summary judgment to a party is likewise well established. Bain, 936 S.W.2d at 622; Carvell, 900

S.W.2d at 26. “Our task on appeal is to review the record to determine whether the requirements

for granting summary judgment have been met.” Church v. Perales, 39 S.W.3d 149, 157 (Tenn. Ct.

App. 2000); see also Burgess v. Harley, 934 S.W.2d 58, 62 (Tenn. Ct. App. 1996). To that end, we

are guided by the same standards utilized by the trial court in evaluating the motion for summary

judgment. Prince v. St. Thomas Hosp., 945 S.W.2d 731, 733 (Tenn. Ct. App. 1996). Accordingly,

we review a trial court’s grant of summary judgment to a party “de novo without any presumption

that the trial court’s conclusions were correct.” Webber v. State Farm. Mut. Auto. Ins. Co., 49

S.W.3d 265, 269 (Tenn. 2001); see also Penley v. Honda Motor Co., 31 S.W.3d 181, 183 (Tenn.

2000).

III.

DISCUSSION

On appeal, Cumis contends that summary judgment is not appropriate in this case because

genuine issues of material fact exist regarding whether Southern Security may recover under

Coverage Provision W and/or Coverage Provision R in the Bond. Conversely, Southern Security

argues that summary judgment is appropriate in this case because, even if a genuine issue of fact

exists as to whether Thompson committed fraud and, therefore, a trial as to Coverage Provision R

is necessary, it is still entitled to recover under Coverage Provision W since it is undisputed that the

check at issue is counterfeit.

We must begin by properly characterizing the various documents filed in the trial court. In

its complaint, Southern Security sought a declaratory judgment as to its rights under Coverage

Provision W and Coverage Provision R in the Bond. Southern Security filed its original motion for

summary judgment on January 21, 2004. Therein, it only mentioned Coverage Provision W. After

Cumis responded to this motion, Southern Security filed a response to Cumis’ response stating that,

pursuant to the content of Cumis’ response, it was entitled to coverage under Coverage Provision

R. Cumis treated Southern Security’s response as a second motion for summary judgment as to

Coverage Provision R. The trial court’s order does not indicate whether it treated these filings as

two separate motions for summary judgment with responses thereto. In any event, we have

determined that Southern Security filed two motions for partial summary judgment — one for each

of the coverage provisions at issue –– in the trial court below.3

3

Our characterization of the various documents filed with the trial court as motions for partial summary

judgment is supported by the statements of the parties during the course of this litigation. At oral argument, counsel for

Southern Security referred to its later filing as a second motion for summary judgment. Throughout this litigation, Cumis

has steadfastly argued that Southern Security has, in essence, filed two motions for summary judgment.

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A party is entitled to seek summary judgment as to any or all of the causes of action raised

in a complaint. See Tenn. R. Civ. P. 56.01 (2005) (governing a plaintiff’s right to seek summary

judgment “as to all or any part” of its claim); Tenn. R. Civ. P. 56.02 (2005) (governing the

defendant’s right to seek summary judgment “as to all or any part” of the claims against it); Tenn.

R. Civ. P. 56.05 (2005) (setting forth the procedure to be used when a case is not fully adjudicated

on a motion for summary judgment). From the terseness of the trial court’s order, we must infer that

the trial court granted both of Southern Security’s motions. Accordingly, we will address the

correctness of the trial court’s rulings regarding these two motions in turn.

A.

Summary Judgment as to Coverage Provision W

In relevant part, Coverage Provision W provides that Cumis will pay Southern Security for

a loss resulting from a “‘counterfeit’ share draft or check other than a money order which was finally

paid against your corporate share or checking account or a share draft or checking account your

member has with you.” In support of its motion for summary judgment as to this provision,

Southern Security supplied the affidavit of its investigative consultant who opined that the check

presented by Thompson was counterfeit and that Thompson engaged in a scheme to defraud

Southern Security. Southern Security also submitted a statement of undisputed facts and

memorandum of law, wherein it reiterated the consultant’s opinions.

The party opposing the motion for summary judgment must respond to the facts set forth by

the movant by one of the following methods: “(i) agreeing that the fact is undisputed, (ii) agreeing

that the fact is undisputed for purposes of ruling on the motion for summary judgment only, or (iii)

demonstrating that the fact is disputed.” Tenn. R. Civ. P. 56.03 (2005). “[A]n adverse party may

not rest upon the mere allegations or denials of the adverse party’s pleading, but his or her response,

by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is

a genuine issue for trial.” Tenn. R. Civ. P. 56.06 (2005).

In its response to Southern Security’s first motion for summary judgment, Cumis admitted

that the check was counterfeit, but “only for purpose of responding to [Southern Security’s] Motion

for Summary Judgment.” Cumis also admitted that Thompson engaged in a scheme to defraud

Southern Security, but “only for the purpose of responding to [Southern Security’s] Motion for

Summary Judgment.” Moreover, Cumis reserved the right to offer proof to challenge Thompson’s

exact knowledge concerning the nature of the counterfeit check.

Despite Cumis’ admission that the check at issue was counterfeit, Cumis asserted that

genuine issues of material fact remained as to the other elements set forth in Coverage Provision W.

Namely, whether the check had been “finally paid,” and whether the check was “drawn on or paid

against” an account held at Southern Security. Cumis, relying on the undisputed fact that Thompson

intended to commit a fraud, also asserted that a genuine issue of material fact existed regarding

whether Exclusion Provision 10, which precludes coverage for a loss from a check deposited into

an account at Southern Security when the person depositing the check intended to commit a fraud,

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would abrogate coverage under Coverage Provision W. Finally, Cumis asserted that genuine issues

of material fact existed regarding whether Southern Security was precluded from recovering under

the Bond for its failure to act in a commercially reasonable manner and its failure to mitigate its loss.

On appeal, Southern Security argues that Coverage Provision W is susceptible to multiple

interpretations, one being that the “finally paid” and “paid against” language applies only to money

orders. Since the check at issue was clearly not a money order, Southern Security contends that these

elements are inapplicable to the present case. The trial court’s order does not indicate whether the

trial court found Coverage Provision W to be ambiguous. Upon reviewing Southern Security’s

response to Cumis’ response to its first motion for summary judgment, we note that Southern

Security never raised the ambiguity of the contract as an issue in the trial court. Instead, Southern

Security attempted to distinguish the law relied upon by Cumis in support of its argument that these

elements must be met before Southern Security could recover. It is well established that the

appellate courts of this state will not entertain issues raised for the first time on appeal. City of

Cookeville v. Humphrey, 126 S.W.3d 897, 905–06 (Tenn. 2004); Lawrence v. J.L. Stanford &

Ashland Terrace Animal Hosp., 655 S.W.2d 927, 929 (Tenn. 1983); Chadwell v. Knox County, 980

S.W.2d 378, 384 (Tenn. Ct. App. 1998). Cumis has taken the position that Coverage Provision W

is ambiguous for the first time on appeal. Accordingly, we decline to entertain this argument. Thus,

disputed legal and factual issues regarding the applicability of this provision in the Bond remain to

be resolved.

Next, Cumis responded to Southern Security’s first motion for summary judgment by

asserting that Southern Security failed to act in a commercially reasonable manner and that it failed

to mitigate its losses. On appeal, Southern Security contends that Cumis failed to offer any evidence

to create a genuine issue of material fact regarding these defenses in its response to Southern

Security’s motion for summary judgment. We agree.

“When a motion for summary judgment is made and supported as provided in this rule, an

adverse party may not rest upon the mere allegations or denials of the adverse party’s pleading, but

his or her response, by affidavits or as otherwise provided in this rule, must set forth specific facts

showing that there is a genuine issue for trial.” Tenn. R. Civ. P. 56.06 (2005) (emphasis added).

Upon reviewing Cumis’ response to Southern Security’s motion for summary judgment on Coverage

Provision W, we find no citations to any facts in the record which would create disputed issues of

fact on these defenses. To the contrary, Cumis merely made perfunctory allegations to the effect that

Southern Security engaged in conduct that would permit Cumis to assert these defenses. Cumis

cannot rely on these bare assertions to create genuine issues of material fact as to these defenses.

Accordingly, Cumis cannot rely on these defenses as the basis for its argument that Southern

Security’s motion for summary judgment on Coverage Provision W should be denied.

Finally, we turn to the applicability of Exclusion Provision 10. Southern Security contends

that, since both parties agree that the check at issue is counterfeit, it is entitled to recover under

Coverage Provision W as a matter of law. Southern Security’s position, however, overlooks the

significance of Exclusion Provision 10. For purposes of this motion for summary judgment, it is

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undisputed that Thompson intended to commit a fraud when he deposited the check into Gulf

Properties’ account at Southern Security. “The issues relating to the scope of coverage . . . present

questions of law which ‘can be resolved using a summary judgment when the relevant facts are not

in dispute.’” Allstate Ins. Co. v. Jordan, 16 S.W.3d 777, 779 (Tenn. Ct. App. 1999) (quoting

Standard Fire Ins. Co. v. Chester O’Donley & Assocs., 972 S.W.2d 1, 5–6 (Tenn. Ct. App. 1998)).

Thus, Exclusion Provision 10, by its plain and unambiguous language,4 would preclude Southern

Security from recovering under Coverage Provision W based on the undisputed fact, for purposes

of this motion, that Thompson intended to commit a fraud against Southern Security.

B.

Summary Judgment as to Coverage Provision R

Coverage Provision R provides, in essence, that Cumis will pay Southern Security for a loss

resulting from a person depositing a check into an account held at Southern Security when that

person intended to commit a fraud and Southern Security made payment on the check. On March

19, 2004, Southern Security responded to Cumis’ response to the first motion for summary judgment

filed by Southern Security. Therein, Southern Security noted that, in response to its initial motion

for summary judgment, Cumis admitted that Thompson committed a fraud against Southern Security

when he deposited the counterfeit check. Relying on this admission, Southern Security asserted that

it was entitled to summary judgment on Coverage Provision R. In response, Cumis filed the affidavit

of Thompson stating that he did not intend to commit a fraud when he deposited the check.

On appeal, Cumis argues that Southern Security is not entitled to summary judgment under

Coverage Provision R because Thompson’s affidavit created a genuine issue of material fact

regarding whether he intended to commit fraud when he deposited the check. Conversely, Southern

Security contends that no genuine issue of material fact exists because Cumis previously admitted

that Thompson committed fraud, therefore, it is bound by that admission. Specifically, Southern

Security argues that Cumis is judicially estopped from taking inconsistent positions on this issue.

“The doctrine of judicial estoppel or estoppel by oath is well established in this state.”

Monroe County Motor Co. v. Tenn. Odin Ins. Co., 231 S.W.2d 386, 392 (Tenn. Ct. App. 1950).

“A general statement of the doctrine of judicial estoppel is that where one states on oath in former

litigation, either in a pleading or in a deposition or on oral testimony, a given fact as true, he will not

be permitted to deny that fact in subsequent litigation, although the parties may not be the same.”

Melton v. Anderson, 222 S.W.2d 666, 669 (Tenn. Ct. App. 1948). As we have previously noted,

4

The parties do not assert that this provision is ambiguous. “It is the function of a court to interpret and enforce

contracts as they are written, notwithstanding they may contain terms which my be thought harsh and unjust. A court

is not at liberty to make a new contract for parties who have spoken for themselves.” Sm ithart v. John Hancock Mut.

Life Ins. Co., 71 S.W .2d 1059, 1063 (Tenn. 1934). “The language of the policy must be taken and understood in its

plain, ordinary and popular sense.” Am . Justice Ins. Reciprocal v. Hutchison, 15 S.W .3d 811, 814–15 (Tenn. 2000)

(citing Bob Pearsall Motors, Inc. v. Regal Chrysler-Plymouth, Inc., 521 S.W .2d 578, 580 (Tenn. 1975)). W hen the

language is plain and unambiguous, the “[q]uestions relating to the interpretation of written contracts involve legal rather

than factual issues.” Nat’l Ins. Ass’n v. Sim pson, 155 S.W.3d 134, 138 (Tenn. Ct. App. 2004) (citations omitted).

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“[j]udicial estoppel is, strictly speaking, not a true estoppel. It has been termed a quasi estoppel

which estops a party from playing fast and loose with the courts by contradicting a previous position

or previous testimony during a course of litigation or during a subsequent action.” Woods v. Woods,

638 S.W.2d 403, 405–06 (Tenn. Ct. App. 1982) (citations omitted); see also Stamper v. Venable,

97 S.W. 812, 813 (Tenn. 1906); Gerber v. Segal, No. W2001-01709-COA-R3-CV, 2003 Tenn. App.

LEXIS 120, at *8–9 (Tenn. Ct. App. Feb. 11, 2003). The doctrine is aimed at

safeguard[ing] the administration of justice by placing a restraint

upon the tendency to reckless and false swearing and thereby preserve

the public confidence in the purity and efficiency of judicial

proceedings.

....

As said, the rule rests not upon the prejudice to the individual, but

prejudice to the administration of justice and hence to society, which

would result if a litigant were allowed to obtain an advantage for

himself, or attempt to do so, by willfully swearing one thing one time,

and obtain another advantage, or attempt to do so, by willfully

swearing precisely the opposite another time, with no explanation of

the inconsistency and with the possibility of prevailing in both

instances. To countenance such a situation would be to regard with

complacency a violation of the sanctity of the oath, and bring our

system into disrepute.

Melton, 222 S.W.2d at 669.

Several decisions handed down by the appellate courts of this state suggest that a prior

statement of fact directly contradictory to a present statement of fact must have been made under

oath before the doctrine of judicial estoppel can be applied. See, e.g., Allen v. Neal, 396 S.W.2d

344, 346 (Tenn. 1965) (“Judicial estoppels arise from sworn statements made in the course of

judicial proceedings, generally in former litigation . . . .”); Sartain v. Dixie Coal & Iron Co., 266

S.W. 313, 318 (Tenn. 1924) (“The distinctive feature of the Tennessee law of judicial estoppel (or

estoppel by oath) is the expressed purpose of the court, on broad grounds of public policy, to uphold

the sanctity of an oath.”); Werne v. Sanderson, 954 S.W.2d 742, 745 (Tenn. Ct. App. 1997) (citing

Brown v. Brown, 281 S.W.2d 492, 502 (Tenn. 1955)) (“[I]n order for the judicial estoppel to apply,

the party against whom the estoppel is urged must have made a statement of fact under oath that he

or she later seeks to contradict.”).

Based on the aforementioned authorities, one could conclude that, since the statement of fact

made by Cumis in response to Southern Security’s first motion for summary judgment (i.e., that

Thompson did commit a fraud) was not made under oath, the doctrine of judicial estoppel is

inapplicable to Cumis’ response to Southern Security’s second motion for summary judgment (i.e.,

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that Thompson did not commit a fraud). Southern Security correctly notes, however, the following

statement by our supreme court regarding the doctrine of judicial estoppel:

While the law of judicial estoppel is ordinarily applied to one

who has made oath to a state of facts in a former judicial proceeding

which in a later proceeding he undertakes to contradict, yet it is

frequently applied, where no oath is involved, to one who undertakes

to maintain inconsistent positions in a judicial proceeding.

Stearns Coal & Lumber Co. v. Jamestown R. Co., 208 S.W. 334, 334 (Tenn. 1918) (citing Stamper

v. Venable, 97 S.W. 812, 813 (Tenn. 1906)) (emphasis added); see also 31 C.J.S. Estoppel and

Waiver § 140 (1996) (“Generally, a party is estopped to assume inconsistent positions in the course

of the same judicial proceeding.”). Thus, it would appear that “an oath is not absolutely required in

order for the judicial estoppel doctrine to be applied.” Greenman v. Hutchins, No. 03A01-9709-

CV-00404, 1998 Tenn. App. LEXIS 283, at *13 (Tenn. Ct. App. Apr. 29, 1998) (no perm. app.

filed).

While we must adhere to the general statement of the doctrine formulated by our supreme

court, Barger v. Brock, 535 S.W.2d 337, 341 (Tenn. 1976), Southern Security cites to no case

applying the doctrine to the unique facts of this case. Likewise, our own independent research has

failed to find any Tennessee case squarely addressing this issue. In any event, Southern Security’s

attempts to judicially estop Cumis from asserting in its response to Southern Security’s second

motion for summary judgment that Thompson did not commit fraud must fail. The doctrine of

judicial estoppel will only apply where “the previous statement was not only untrue but was willfully

false in the sense of conscious and deliberate perjury.” Monroe, 231 S.W.2d 386, 393 (Tenn. Ct.

App. 1950) (citing Davis v. Mitchell, 178 S.W.2d 889, 897 (Tenn. Ct. App. 1943)) (emphasis

added); see also Rose v. Snyder, 206 S.W.2d 897, 906 (Tenn. 1947) (“[I]t does not apply where there

is an explanation showing such statement was . . . anything short of a ‘wilfully false’ statement of

fact.”); Chandler v. D. Canale & Co., No. W2000-02067-COA-R3-CV, 2001 Tenn. App. LEXIS

394, at *9 (Tenn. Ct. App. May 25, 2001) (“Anything short of a willfully false statement is

insufficient to invoke judicial estoppel.”); Woods v. Woods, 638 S.W.2d 403, 406 (Tenn. Ct. App.

1982) (“The doctrine of judicial estoppel applies only where there has been a willful misstatement

of fact — that is, perjury.”).

We cannot say that Cumis’ response to Southern Security’s first motion for summary

judgment (i.e., that Thompson did not engage in fraud against Southern Security) constitutes a

willful misstatement of fact. Rule 56.03 of the Tennessee Rules of Civil Procedure expressly

provides that a party opposing a motion for summary judgment may respond to said motion by

“agreeing that the fact is undisputed for purposes of ruling on the motion for summary judgment

only.” Tenn. R. Civ. P. 56.03 (2005). This is precisely what Cumis did, reserving its right to offer

proof to the contrary should it become necessary to do so. Cumis only changed its position on this

factual issue when Southern Security filed its second motion for summary judgment. We cannot say

that this amounts to a willful misstatement of fact which would trigger the application of the doctrine

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of judicial estoppel.5 Accordingly, Cumis is not judicially estopped from asserting in its response

to Southern Security’s second motion for summary judgment that Thompson did not intend to

commit a fraud against Southern Security.

At oral argument, Southern Security conceded that, if a factual issue exists concerning

whether Thompson engaged in a fraud, then summary judgment regarding Coverage Provision R

would not be appropriate. Thompson’s affidavit creates a genuine issue of material fact on the issue

of whether Thompson engaged in a fraud against Southern Security. “We recognize that where a

claim of fraud is presented, ordinarily only upon a full trial of the action can the issue properly be

developed. As a general rule, summary judgment is not an appropriate procedure for the disposition

of such an issue.” Fowler v. Happy Goodman Family, 575 S.W.2d 496, 499 (Tenn. 1978).

Accordingly, the trial court erred in granting this motion for summary judgment as well.

III.

CONCLUSION

Regarding Coverage Provision W, we hold that the trial court erred in awarding summary

judgment to Southern Security. Instead, we reverse the trial court’s ruling regarding this provision.

Moreover, Southern Security is not entitled to summary judgment as to Coverage Provision R,

therefore, it “has simply lost a preliminary skirmish and must proceed to trial.” Williamson County

Broad. Co. v. Williamson County Bd. of Educ., 549 S.W.2d 371, 372 (Tenn. 1977). Having

determined that the trial court erred in awarding summary judgment to the Appellee in both

instances, we necessarily reverse the trial court’s ruling regarding prejudgment interest. However,

we need not address the propriety of the trial court’s ruling in that regard given the need for a trial

in this case. Costs of this appeal are to be taxed to the Appellee, Southern Security Federal Credit

Union, for which execution may issue if necessary.

___________________________________

ALAN E. HIGHERS, JUDGE

5

“Typically, summary judgment motions are not made until each side has had a chance to engage in formal

discovery to gather what evidence there is in support of his or her position.” Jack H. Friedenthal et al., Civil Procedure

§ 9.2, at 454 (3rd ed. 1999); see also Messer Griesheim Indus., Inc. v. Cryotech of Kingsport, Inc., 45 S.W .3d 588,

608 (Tenn. Ct. App. 2001) (“Implicit in the summary judgment rubric is the idea that it should only be granted after

adequate time for discovery.”). Nothing in the record presently before this Court suggests that the parties engaged in

discovery prior to Southern Security filing its motions for summary judgment. Thus, we are not presented with an

admission of fact which typically follows a request for such an admission. See Tenn. R. Civ. P. 36.02 (2005) (noting

that an admission made pursuant to a request for admissions is “conclusively established unless the court on motion

permits withdrawal or amendment of the admission.”); Tenn. Dep’t of Hum an Servs. v. Barbee, 714 S.W .2d 263, 266

(Tenn. 1986) (“[A] Rule 36 admission, unless it is allowed to be withdrawn or amended, concludes the matter and avoids

any need for proof at trial.”).

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