Montgomery v. Montgomery

IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

December 6, 2004 Session

BEATRICE HARMON MONTGOMERY v.

TERRY LANE MONTGOMERY, ET AL.

Appeal from the Chancery Court for Carter County

No. 24258 Thomas J. Seeley, Jr., Judge

No. E2004-00403-COA-R3-CV - FILED MARCH 17, 2005

While Beatrice Harmon Montgomery (“Plaintiff”) and Terry Lane Montgomery (“Defendant”) never

married, they lived together for many years beginning in 1969. Plaintiff and Defendant had one

child, Brian Montgomery. During their relationship, Plaintiff and Defendant accumulated substantial

assets and operated several businesses. Plaintiff filed this lawsuit seeking dissolution of her implied

business partnership with Defendant. Brian Montgomery intervened claiming he also was a partner

in two of the business ventures. The Trial Court concluded that Plaintiff and Defendant were equal

partners in all of their business pursuits, and that Brian also was a partner in two of them. It is this

ruling that forms the basis for most of the numerous issues raised on appeal. We reverse in part,

vacate in part, affirm in part as modified, and remand for further proceedings consistent with this

Opinion.

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

in Part, Vacated in Part, and Affirmed in Part as Modified; Case Remanded

D. MICHAEL SWINEY , J., delivered the opinion of the court, in which CHARLES D. SUSANO , JR., and

SHARON G. LEE, JJ., joined.

Thomas C. Jessee, Johnson City, Tennessee, for the Appellant Terry Lane Montgomery.

David S. Haynes, Bristol, Tennessee, for the Appellee Beatrice Harmon Montgomery.

Mark D. Edmonds, Jonesborough, Tennessee, for the Appellee Brian Montgomery.

OPINION

Background

This appeal involves the complicated dissolution of what the Trial Court found to be

an implied partnership between Plaintiff and Defendant, and at times also their only child, Brian

Montgomery.1 Plaintiff and Defendant are fifty-five years of age. They began living together in

1969 and their son Brian was born in 1970. Although they never married2, Plaintiff and Defendant

continued to live together for approximately twenty-seven years after Brian was born. In May of

1999, Plaintiff filed this lawsuit seeking a divorce or, alternatively, dissolution of an implied

partnership.

The pleadings in the record comprise five volumes and 745 pages. It took several

days to complete the trial and the transcript alone is over 1200 pages, excluding the 341 exhibits

marked for identification of which 124 were admitted at trial. Once the trial was completed, the

Trial Court orally announced many of its initial findings which later were transcribed and

incorporated into the Judgment entered in May of 2003. This Judgment did not resolve all of the

issues and, in addition, several post-trial motions were filed. In January of 2004, the Trial Court

resolved the remaining issues as well as the post-trial motions with the entry of a Final Judgment,

which later was amended in February of that same year. The Final Judgment altered few, if any, of

the findings in the initial Judgment and focused primarily on how the parties were to go about selling

or auctioning some of their assets.

This case involves the break-up of a long-term relationship between Plaintiff and

Defendant. During their relationship, the parties acquired substantial assets. For example, at the

time of trial the parties owned and operated a masonry business, an insurance business, a marina, a

mini-mall, and an apartment complex known as Eastland Apartments. The parties owned various

other business ventures during their relationship such as two Nautilus gyms. The primary issues at

trial involved who was entitled to what. Because Plaintiff and Defendant never were married, the

statutes and relevant case law addressing distribution of marital property did not apply. Relying on

applicable precedent from our Supreme Court, the Trial Court applied the law governing business

partnerships when rendering its Judgment. In short, the Trial Court concluded that Plaintiff and

Defendant were equal partners in all of their business ventures with the exception of the marina and

some land located across the road from the marina. With regard to these two assets, i.e., the marina

1

Although Brian M ontgomery is an intervening plaintiff in this lawsuit, any reference in this Opinion to

“Plaintiff” refers only to Beatrice Montgomery.

2

Plaintiff claimed she and Defendant had a valid common law marriage because they lived together in Florida

for a sufficient amount of time to be considered married under Florida’s then existing laws. Although Plaintiff advanced

this and other theories in support of her argument that she and Defendant actually were married, the Trial Court found

otherwise and this finding is not challenged on appeal. Nevertheless, during their relationship the parties held themselves

out as being married and we note that the Trial Court referred to them as either M r. or Mrs. Montgomery, or Terry and

Bea Montgomery.

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and the land, the Trial Court held that the parties’ son Brian was also a partner. It is this overall

conclusion by the Trial Court which forms the basis for most of Defendant’s issues on appeal.

When the Trial Court announced its initial decision from the bench, it made certain

credibility determinations and other findings which are important to the resolution of this appeal.

Specifically, the Trial Court stated:

As in most domestic type cases, credibility in this case was a

key issue. The Court found Mr. Montgomery to be evasive and

apparently forgetful throughout his testimony. He violated two

injunctions of the Court, one … [prohibiting] the parties from

disposing of any of their assets … and the injunction on June 28,

1999 … which said the parties were not to deny access to each other

with respect to their various properties. Mr. Montgomery also

illegally recorded Mrs. Montgomery’s telephone conversations and …

[he] filed what this Court found to be a spurious $1.6 million lien on

the marina ….

Mrs. Montgomery, on the other hand, was generally more

forthright and candid in her testimony even when it was at times to

her disadvantage. Mr. Montgomery did stipulate and agree to a

partial division of their property as follows: Mr. Montgomery was to

receive the houseboat and its contents and the masonry business.

Mrs. Montgomery was to receive the condominium and its contents

with the debt on the condominium to be paid from the proceeds of the

sale of the marina, and she was to receive her insurance business.

[Counsel for Mr. Montgomery] agreed these were the stipulated

understandings between the parties as to these properties, but he did

not stipulate that they were partnership properties. The Court finds

that they are partnership properties, and in that connection, this Court

would include the one-acre lot in Milligan, which was … used

exclusively in the masonry business to be part of the masonry

business.

The Court finds and holds that the parties did combine their

labor and monies until at least September, 1999. Mr. Montgomery

contends that he did more in the way of monies and sweat equity to

the acquisition of their various properties and monies. Mrs.

Montgomery … contributed monies, and there were years earlier on

in their relationship when she earned more money than Mr.

Montgomery, and she also gave material assistance in the operation

of both [of the Nautilus gyms … and] the Eastland Apartments, the

masonry business where she did the record keeping and was active in

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the operation of the marina prior to September, 1999. Her

involvement in the development of the Florida properties was not as

great as in some of the other businesses, but it was a part of the

overall scheme of these parties or goal of these parties to acquire

assets and make substantial income.… The Court finds clearly under

the facts of this case that Mr. and Mrs. Montgomery, Terry and Bea

Montgomery were partners and that they did combine their labor,

efforts, monies in the acquisition of properties and money.…

(emphasis added)

There is considerable disagreement between the parties on appeal as to the Trial

Court’s conclusion as to when their business partnership actually began. The Trial Court stated in

its Judgment that Plaintiff and Defendant “became equal partners in all of their business ventures

beginning with the Masonry business in approximately 1981.” Plaintiff claims the year should have

read “1971" and this was merely a typographical error in the Judgment. Relying on the year as set

forth in the Judgment (i.e., 1981), Defendant claims the Trial Court erred when it concluded Plaintiff

was an equal partner in the masonry business, the Eastland Apartments, the Milligan lot, and certain

land located in Florida. Alternatively, Defendant argues that if the finding of a partnership was

correct, then he is entitled to recoup his initial investment of $180,000 in the Eastland Apartments

prior to the parties dividing any remaining proceeds. Defendant also argues the Trial Court erred in

finding Plaintiff to be a partner with regard to certain land titled in the names of Defendant and Brian

Montgomery. Next, Defendant argues the Trial Court erred when it concluded Brian Montgomery

was a partner with regard to the marina, and further erred in awarding Plaintiff and Brian

Montgomery certain offsets and credits on their portion of the value of the marina. Defendant further

argues that the Trial Court erred when it ordered the parties’ property to be sold and divided in such

a manner that did not allow Defendant to recoup his initial investments.

Separate and apart from any issues involving the claimed partnership and its assets,

Plaintiff also claimed Defendant illegally wiretapped her telephone, thereby entitling her to statutory

damages. The Trial Court held that Defendant had violated the applicable statute and awarded

Plaintiff $10,000 in statutory damages. On appeal, Plaintiff claims there were three separate illegal

wiretaps and, therefore, she should have been awarded $10,000 in damages for each violation, for

a total of $30,000. Defendant argues that the Trial Court improperly awarded Plaintiff $10,000 in

damages and claims that any award to Plaintiff for the illegal wiretap would constitute an abuse of

discretion.

Discussion

The factual findings of the Trial Court are accorded a presumption of correctness, and

we will not overturn those factual findings unless the evidence preponderates against them. See

Tenn. R. App. P. 13(d); Bogan v. Bogan, 60 S.W.3d 721, 727 (Tenn. 2001). With respect to legal

issues, our review is conducted “under a pure de novo standard of review, according no deference

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to the conclusions of law made by the lower courts.” Southern Constructors, Inc. v. Loudon County

Bd. Of Educ., 58 S.W.3d 706, 710 (Tenn. 2001).

"Generally, what will constitute a partnership is a matter of law, but whether a

partnership exists under conflicting evidence is one of fact." Messer Griesheim Indus., Inc. v.

Cryotech of Kingsport, Inc., 45 S.W.3d 588, 605 (Tenn. Ct. App. 2001)(quoting Wyatt v. Brown, 39

Tenn. App. 28, 281 S.W.2d 64, 68 (1955)). Since there is no written partnership agreement between

any of the parties to this litigation, the party alleging the existence of the partnership carries the

burden of proving that fact by clear and convincing evidence. See Tidwell v. Walden, 330 S.W.2d

317, 319 (Tenn. 1959); Kuderewski v. Estate of Hobbs, No. E2000-02515-COA-R3-CV, 2001 Tenn.

App. LEXIS 561, at ** 10-11 (Tenn. Ct. App. July 30, 2001), no appl. perm. appeal filed.

The Revised Uniform Partnership Act defines a “partnership” generally as “an

association of two (2) or more persons to carry on as co-owners of a business or other undertaking

for profit ….” Tenn. Code Ann. § 61-1-101(6). Our Supreme Court provided further guidance in

Bass v. Bass, 814 S.W.2d 38 (Tenn. 1991) when it stated:

In determining whether one is a partner, no one fact or circumstance

may be pointed to as a conclusive test, but each case must be decided

upon consideration of all relevant facts, actions, and conduct of the

parties. Roberts v. Lebanon Appliance Service Co., 779 S.W.2d 793,

795 (Tenn. 1989). If the parties' business brings them within the

scope of a joint business undertaking for mutual profit – that is to say

if they place their money, assets, labor, or skill in commerce with the

understanding that profits will be shared between them – the result is

a partnership whether or not the parties understood that it would be

so. Pritchett v. Thomas Plater & Co., 144 Tenn. 406, 232 S.W. 961,

969-70 (1921).

Moreover, the existence of a partnership depends upon the

intention of the parties, and the controlling intention in this regard is

that ascertainable from the acts of the parties. Wyatt v. Brown, 39

Tenn. App. 28, 281 S.W.2d 64, 67 (1955). Although a contract of

partnership, either express or implied, is essential to the creation of

partnership status, it is not essential that the parties actually intend to

become partners. Wyatt, 281 S.W.2d at 67. The existence of a

partnership is not a question of the parties' undisclosed intention or

even the terminology they use to describe their relationship, nor is it

necessary that the parties have an understanding of the legal effect of

their acts. Roberts, 779 S.W.2d at 795-96. It is the intent to do the

things which constitute a partnership that determines whether

individuals are partners, regardless if it is their purpose to create or

avoid the relationship. Wyatt, 281 S.W.2d at 67. Stated another way,

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the existence of a partnership may be implied from the circumstances

where it appears that the individuals involved have entered into a

business relationship for profit, combining their property, labor, skill,

experience, or money.

Bass, 814 S.W.2d at 41 (footnote omitted).

It is important to note that the statutory factors contained in Tenn. Code Ann. § 36-4-

121(c) which are to be considered when dividing marital property do not apply in this case. In

Martin v. Coleman, 19 S.W.3d 757 (Tenn. 2000), our Supreme Court affirmed a conclusion by the

trial court that there was an implied partnership between Delores Coleman and Robert Coleman.

The Colemans had been married and divorced. They later reunited and lived together unmarried for

sixteen more years. The Supreme Court concluded that Mr. Coleman’s retirement benefits were not

part of the Colemans’ business partnership and, therefore, were not partnership assets subject to

division. In reaching this conclusion, the Court specifically refused to consider Ms. Coleman’s

contributions as a homemaker because such contributions were beyond the parties’ business

relationship. Id. at 761-62. Of course, if the Colemans had been married, Ms. Coleman’s

contributions as a homemaker indeed would have been relevant. See Tenn. Code Ann. § 36-4-

121(c)(5).3 The Coleman Court also refused to hold that unmarried couples could create an implied

partnership simply by their “continued cohabitation.” Id. See also Story v. Lanier, No. W2003-

02194-COA-R3-CV, 2004 Tenn. App. LEXIS 761, at * 27 (Tenn. Ct. App. Nov. 17, 2004), appl.

perm. appeal pending, (“While we are mindful of Ms. Story's contributions to the [domestic]

relationship following this [business] transaction, we are directed to focus our attention upon the

facts as they relate to the parties' decision to enter this particular transaction, not the facts as they

relate to domestic matters.”).

Our starting point is to decide whether the Trial Court concluded the partnership

began in 1971 or 1981. After making the credibility determinations quoted earlier in this Opinion,

the Trial Court made numerous findings of fact regarding, inter alia, the parties’ various business

ventures, the operation of these businesses over the years, as well as contributions to the business

ventures by Plaintiff and Defendant and, when applicable, by Brian Montgomery. Even though

many of the findings of fact often are duplicated, all in all they comprise approximately sixty-one

(61) pages. The Trial Court’s Judgment was well-considered and thorough. As noted previously,

the Trial Court held that the parties’ business partnership began with the advent of the masonry

business. Along this line the Trial Court’s first five of its many findings of fact regarding the

masonry business are as follows:

3

W hen equitably distributing marital property in a divorce case, Tenn. Code Ann. § 36-4-121(c)(5) requires

a trial court to consider the “contribution of each party to the acquisition, preservation, appreciation, depreciation or

dissipation of the marital or separate property, including the contribution of a party to the marriage as homemaker, wage

earner or parent, with the contribution of a party as homemaker or wage earner to be given the same weight if each party

has fulfilled its role.”

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In 1971, the decision that Terry become self-employed was

joint, and Bea Montgomery began to participate in the masonry

business as soon as Terry began to work as a self-employed person in

1971.

In 1973 Bea and Terry Montgomery entered into a business

relationship for profit, combining their property, labor, skill,

experience, and money. Terry and Bea began a masonry business as

a self employment in Terry’s name.

Bea was at that time earning more than Terry.

Bea Montgomery’s work supplied the health insurance for all

three through 1982.

Bea began to participate in the masonry business as soon as

Terry Montgomery began to operate as a self-employed person in

1971 in that they opened a joint account for the masonry business in

1971.

Throughout the findings of fact and to the extent applicable, the Trial Court continued

to reference pertinent events with regard to the parties’ business ventures which had taken place prior

to 1981. We believe it is clear that the Trial Court determined Plaintiff’s and Defendant’s

partnership first began with the masonry business in 1971 and continued thereafter. Therefore, we

agree with Plaintiff that the reference in the Judgment to the year when the partnership began as

“1981" was indeed a typographical error and should have read “1971".

Defendant claims the Trial Court erred when it concluded he and Plaintiff were equal

partners in: (1) the masonry business; (2) the Milligan lot; (3) the Eastland Apartments; (4) certain

real estate located in Florida; and (5) land titled in the names of Defendant and Brian Montgomery

and which is located across from the marina. With regard to the masonry business, we previously

have set forth only the first five factual findings made by the Trial Court. Other factual findings

detailing Plaintiff’s contributions to the masonry business include, but are not limited to: Plaintiff

handled the payroll account, paid the bills and signed all of the checks for the business, prepared the

1099's, handled the workers’ compensation insurance, filed documents with the IRS including tax

returns, handled the book keeping, made the deposits, collected the debts, and placed orders and

handled the invoices. The Trial Court also found that Plaintiff never received any wages or a salary

for her work in the masonry business. Instead, proceeds from the masonry business were deposited

into savings and money market accounts which were joint accounts held in the names of both

Plaintiff and Defendant.

In 1980, Plaintiff and Defendant purchased one acre of land for $2,500 using joint

funds. Plaintiff’s net earnings at that point in time were roughly $4,000 more per year than

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Defendant’s earnings. The land was purchased from Defendant’s cousin, Gene Lewis (“Lewis”).

This land was titled only in Defendant’s name even though joint funds were used for its purchase.

Plaintiff and Defendant discussed building apartments on this land and eventually decided to “take

on that venture.” Defendant and Lewis began constructing the apartments in 1980. In 1982, Lewis

wanted out of the apartment business. Plaintiff and Defendant agreed to buy-out Lewis’ interest,

which they did together. Defendant continued to construct the apartments and in 1986 they were

completed and began to generate revenue.

Plaintiff was working for a credit company during the first year or two of the

construction of the apartments and her earnings were deposited into joint accounts. Beginning in

1982 and continuing after construction on the apartments was completed, Plaintiff devoted much of

her efforts to another one of the parties’ business ventures. Specifically, Plaintiff operated and

managed the Elizabethton Nautilus gym. Plaintiff also managed a second Nautilus gym located in

Johnson City during 1982 and a portion of 1983. The Johnson City Nautilus gym was sold in 1983

for a net gain of approximately $37,000, of which over $26,000 was used to purchase Lewis’ interest

in the apartment complex. Plaintiff assisted in managing the apartments once they were completed.

Leases with tenants showed Plaintiff and Defendant as the lessors. The lessees made their checks

payable to Plaintiff, who then deposited the checks into a joint account. Plaintiff received no wages

or salary for her involvement with the apartments.

Much of Defendant’s brief is devoted to comparing and contrasting the contributions

of each partner to the various business ventures. We certainly agree with Defendant that the

contributions of the partners may be important when determining how much of an interest each

partner has in an implied partnership. In the present case there was considerable disagreement over

the extent of the parties’ contributions. In resolving the conflicting testimony, the Trial Court made

specific credibility determinations and ultimately credited the testimony of Plaintiff and Brian

Montgomery over that of Defendant. "Unlike this Court, the trial court observed the manner and

demeanor of the witnesses and was in the best position to evaluate their credibility." Union Planters

Nat'l Bank v. Island Mgmt. Auth., Inc., 43 S.W.3d 498, 502 (Tenn. Ct. App. 2000). A trial court's

determinations regarding credibility are accorded deference by this Court. Id.; Davis v. Liberty

Mutual Ins. Co., 38 S.W.3d 560, 563 (Tenn. 2001). In light of the foregoing, we are unable from

our review of the record to conclude that the preponderance of the evidence weighs against the Trial

Court’s factual findings as to the quality and quantity of Plaintiff’s contributions to the parties’

business ventures.

Having affirmed the Trial Court’s factual findings as to Plaintiff’s contributions, we

next consider whether the facts as found by the Trial Court support its conclusion that Plaintiff

proved by clear and convincing evidence that there was a partnership between her and Defendant and

that they were equal partners. In support of his claim that the Trial Court erred in concluding

Plaintiff was a partner with regard to the businesses and assets at issue on appeal, Defendant again

focuses almost exclusively on each party’s specific contributions to each particular business venture.

In so doing Defendant dramatically downplays Plaintiff’s contributions and fails even to mention

many of the Trial Court’s factual findings. For example, when discussing Plaintiff’s contribution

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to the Eastland Apartments, Defendant states that “[a]t best” all Plaintiff did was “she ran some

errands and collected some rent.” We are puzzled by this characterization given that the land upon

which the apartments were built was purchased with joint funds and Lewis’ interest in the apartment

complex was bought-out using funds from the sale of the Johnson City Nautilus gym which had been

operated solely by Plaintiff.

Fortunately, we are not required to discuss each and every one of Plaintiff’s and

Defendant’s contributions to each separate business venture. This is so because the Trial Court

found there was one implied partnership between Plaintiff and Defendant with one goal, “to acquire

assets and make substantial income.” In other words, the Trial Court did not find that each particular

business venture constituted a unique or separate partnership but rather that there was one

partnership between Plaintiff and Defendant which had several business ventures as partnership

assets. Since there was only one partnership with one collective goal even though this one

partnership operated several businesses, it is not at all surprising that Plaintiff and Defendant devoted

different amounts of time to the various businesses. Thus, while Defendant was busy constructing

the Eastland Apartments, Plaintiff was busy operating one and for a period of time two Nautilus

gyms. In fact, the Trial Court found that Plaintiff would begin working at the Elizabethton Nautilus

at 7:00 a.m. and typically did not leave until 9:00 p.m. Plaintiff taught aerobics classes, etc., and

when the gym was closed in the evenings, she did the necessary cleaning. When Plaintiff operated

both Nautilus gyms, she alternated her time between the two facilities. The point being, the critical

finding in this case is that both Plaintiff and Defendant devoted substantially equal amounts of time

and effort to the partnership and to achieving its goal, not whether they devoted the exact same

amount of time to each separate aspect or asset of the partnership.

As set forth in Bass, a partnership “may be implied from the circumstances where it

appears that the individuals involved have entered into a business relationship for profit, combining

their property, labor, skill, experience, or money.” 814 S.W.2d at 41 (emphasis added). In the

present case, it is clear to this Court, as it was to the Trial Court, that the parties entered into a

business relationship for profit, and combined their property, labor, skill, experience, and money.

We have discussed some but by no means all of Plaintiff’s contributions to the partnership. After

reviewing all of Plaintiff’s contributions and the numerous other findings of fact detailed by the Trial

Court, we affirm without hesitation the Trial Court’s conclusion that Plaintiff proved by clear and

convincing evidence that she and Defendant were business partners, that they were equal partners,

that there was one partnership between Plaintiff and Defendant which involved all their various

business pursuits, and that this partnership started in 1971.

The next issue is Defendant’s claim that even if he and Plaintiff were business

partners, the Trial Court nevertheless erred when it failed to allow him to recoup his initial

investment of $180,000 in the Eastland Apartments. In making this argument Defendant relies upon

an inception date of 1981 for when the partnership began, a position we have rejected. Defendant

and Plaintiff agree that when the Eastland Apartments were completed in 1986, they were worth

$180,000 and there was no corresponding debt. Defendant then claims that between 1981 and 1986,

all Plaintiff did to assist with the apartments was “running errands.” Taking that one step further,

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Defendant then argues that since Plaintiff essentially did nothing between 1981 and 1986, the initial

investment of $180,000 must somehow be all his and he is entitled to recoup that initial investment

before any excess value is distributed.

We reject this argument for three reasons. First, once again Defendant overlooks

Plaintiff’s financial contributions to the apartment complex when the land was purchased with joint

partnership funds and thereafter when the Johnson City Nautilus gym being operated only by

Plaintiff was sold to buy-out Lewis’ interest in this property. Second, when Defendant was devoting

so much time and effort to the Eastland Apartments, Plaintiff was devoting an equivalent amount

of time and effort to other partnership ventures. Third, the partnership began in 1971, not 1981, and

Defendant has not shown that any part of his claimed initial investment was paid with non-

partnership funds. This issue is without merit.

The next issue surrounds the marina and Defendant’s claim that the Trial Court erred

when it concluded Brian Montgomery also was an equal one-third partner in this business venture.

Before we resolve this issue there are two points worth mentioning. First, Defendant does not

challenge the Trial Court’s conclusion that Plaintiff was a partner in the marina. Second, on appeal

both Brian and Plaintiff ask this Court to affirm the Trial Court’s finding that Brian was an equal

one-third partner.

In the Judgment the Trial Court also made many findings of fact surrounding Brian

Montgomery’s contributions to the marina. Some of these factual findings are:

It took approximately 3 to 4 years to get the approval from the TVA

for the marina and the … effort for this and the paperwork and

meetings were primarily with Bea. All of the contact with the TVA

was done from the Elizabethton Nautilus office where Bea was

managing.… Correspondence with TVA was handled through Brian

and Bea. Terry, Brian and Bea went to the county court clerk and

applied for the business license for the Marina. Business license for

the Marina was listed in their 3 names. It was discussed and agreed

that Bea, Terry and Brian would be partners from the beginning in the

Marina. It was to be a family business.…

Brian had finished 3 years at East Tennessee State, and

decided he was interested in going away to chiropractic school.…

Brian, Bea and Terry [later] decided to forgo the expense of

chiropractic school and use those funds instead in developing the

Marina.… Brian’s plans changed after the conversations between

Terry, Bea and Brian relative to the partnership in the Marina. Terry

expressed that he hated to see Brian leave home to go to college.…

Terry said to Brian, “What would it take to get you to stay here and

manage the marina?” … Brian was told that he was to manage it and

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become a partner in it.… Terry and Bea told him that they would be

sharing the profits with him. The improvements and the buildings

were all a joint efforts (sic) between Brian and Terry and Bea.

(citations to the trial record omitted)

In addition to the foregoing, the Trial Court also found that Brian and his wife,

Sherry, lived primarily at the marina and took responsibility for running the day to day operations.

Brian and Sherry also purchased equipment for the marina, including $18,177.28 for a John Deere

955 tractor, and $7,800 for a John Deere 755 tractor. Brian also marketed the marina at boat shows

and hosted boat shows at the marina.

For the same reasons set forth earlier, including the fact that credibility determinations

significantly impacted the Trial Court’s findings, we are unable to conclude that the preponderance

of the evidence weighs against these factual findings by the Trial Court. Likewise, we further affirm

the Trial Court’s finding that Brian Montgomery proved by clear and convincing evidence that he

was a one-third partner in the marina, with Plaintiff and Defendant each owning a one-third interest

as well.4

Another asset at issue involves 33.3 acres of land located across the road from the

marina. The Trial Court found this land was purchased by Plaintiff and Defendant for $50,000 using

funds from their joint account. This land was titled in the names of Defendant and Brian

Montgomery. The Trial Court concluded that Plaintiff and Defendant had an undivided one-half

interest in this land, and Brian Montgomery had the remaining one-half interest. On appeal,

Defendant challenges whether Plaintiff should be considered a partner in this asset. Since this land

was purchased with Plaintiff and Defendant’s joint funds and because the purchase took place well

after the business partnership began in 1971, we readily hold that the Trial Court properly concluded

that Plaintiff was a partner as to this asset as well. However, we believe the Judgment should be

modified to reflect that Plaintiff, Defendant, and Brian Montgomery each own a one-third

partnership interest in this property as they did in the Marina itself. We also believe the Judgment

should be modified so that Plaintiff and Defendant are reimbursed for their initial investment of

$50,000, with each of them receiving $25,000 prior to the remaining proceeds from the sale of this

land being distributed equally among Plaintiff, Defendant, and Brian Montgomery. As modified,

the Trial Court’s conclusion with regard to this asset is otherwise affirmed.

Defendant’s next issue is his claim that the Trial Court erred when it failed to apply

the Uniform Partnership Act and allow him to be repaid his initial contributions to certain assets

4

W e note that the Trial Court also held that Plaintiff and Defendant were entitled to be reimbursed for their

initial investment in the marina land and a “large metal building” located on the marina premises. These investments

were made prior to Brian Montgomery becoming a partner and it was agreed that the value of these investments at the

time they were made totaled $100,000. The Trial Court ordered Plaintiff and Defendant each to receive $50,000 from

the sale of the marina prior to the remaining proceeds being divided one-third among each of the three partners. Our

holding does not disturb this finding and resulting order by the Trial Court.

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prior to any remaining proceeds being distributed among the partners. As we pointed out in footnote

4, supra, the Trial Court allowed Plaintiff and Defendant to recover their initial contributions to the

purchase of the marina land and a “large metal building” prior to Brian receiving his one-third share.

We also have modified the Judgment to allow Plaintiff and Defendant to recover their initial $50,000

investment in the 33.3 acres of land located across from the marina. Thus, at least with respect to

the two assets where Brian was held to be a partner, Defendant has been allowed to recover his initial

investments.

With regard to Defendant’s partnership with Plaintiff, Defendant does not point us

to anywhere in the record where it is shown that he made any initial contribution to the mini-mall

or any other asset using funds that were not partnership funds. Contrary to Defendant’s assertions

in his brief, simply because a piece of property may be titled only in his name does not mean that

partnership funds were not used to purchase that property or that it is not partnership property. As

to the mini-mall, it was purchased in the early 1990's and the down-payment came from an

agreement whereby rent paid for the Elizabethton Nautilus gym was to be applied toward this

purchase. Thus, any initial investment clearly consisted of partnership assets and Defendant cannot

claim any individual entitlement to these funds. The same result holds true for the marina as the

record is replete with evidence establishing the funds used for this business venture were indeed

funds of Plaintiff’s and Defendant’s partnership.

The next group of issues pertains to the several credits Plaintiff and Brian

Montgomery were given against Defendant’s one-third interest in the marina. Beginning in 1999,

Defendant operated the marina without any assistance from Plaintiff or Brian. The Trial Court

concluded that the marina partnership “terminated at that time. Whatever active income Terry

Montgomery made from the marina the Court has found is his from that time on, and whatever active

expenses he incurred are his.” However, the Trial Court then stated that the “passive income” still

was partnership property to be divided equally among the three partners, the passive income being

the depreciation deduction for income tax purposes. Stated another way, the Trial Court held that

even though the partnership in the marina technically had ended, the land, buildings, etc., were still

partnership property and, therefore, the depreciation deductions for that land and buildings, etc.,

should be divided among the partners. Because Defendant deducted on his tax returns the entire

allowable depreciation, the Trial Court concluded Plaintiff and Brian were entitled to a credit. We

agree with these conclusions up to this point. However, in determining the amount Plaintiff and

Brian were entitled to receive as a credit, the Trial Court took the entire amount of depreciation

deducted by Defendant for 1999 through 2001, then subtracted from that sum the total amount of

income tax paid by Defendant for those years. The Trial Court then divided the resulting figure by

one-third, holding that Plaintiff and Brian each were entitled to a credit in the amount of $65,600.

We disagree with the Trial Court’s method of calculation because it has the effect of

treating the depreciation as a dollar-for-dollar tax credit, as opposed to a deduction against taxable

income. Therefore, we vacate these particular credits to Plaintiff and Brian as calculated by the Trial

Court. The tax returns in the record show Defendant’s total tax liability for 1999 through 2001 when

he deducted from his gross income 100% of the depreciation. On remand, the Trial Court is

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instructed to determine the amount of taxes Defendant would have paid had he deducted only one-

third of the depreciation. The Trial Court then is to deduct from this sum the amount of taxes

Defendant actually paid when he deducted all of the allowable depreciation. The resulting figure

should represent the amount of taxes Defendant did not have to pay because he claimed the extra

two-thirds of the depreciation. This sum is to be divided with one-half being a credit to Plaintiff,

and the remaining one-half being a credit to Brian. We agree with the Trial Court that these credits

should be taken against Defendant’s interest in the marina which was sold for over $1.6 million

while this appeal was pending.5

The Trial Court also determined that Defendant had misappropriated funds totaling

$94,250. From this total, $27,000 was marina funds and the Trial Court ordered Defendant to re-pay

Plaintiff and Brian $9,000 each as reimbursement for their one-third share of these misappropriated

funds. The Trial Court determined that the remaining $67,250 was misappropriated from funds

belonging to the partnership between Plaintiff and Defendant, and the Trial Court ordered an

additional reimbursement to Plaintiff of $33,625. Defendant challenges the Trial Court’s order

regarding these credits, claiming simply that this money was lost in a bad investment for which all

of the partners must share.

We disagree. Describing the loss of the $94,250 as a “bad investment” is a significant

understatement, to say the very least. The facts show that the $94,250 was given by Defendant to

his brother, Rev. Larry Montgomery, who operated the Greater Ministries International Church of

Tampa. The Trial Court found the Greater Ministries Church was “just patently a pyramid scheme”

and further determined that Rev. Montgomery’s credibility was even worse than Defendant’s. In

short, the Trial Court concluded these “donations” were “nothing more than a spurious scheme by

Terry Montgomery and his brother to keep monies and assets from any claim of Beatrice

Montgomery.”

Defendant states in his brief:

Beatrice Montgomery should not be allowed to benefit from the good

investments made by Terry Montgomery but not suffer the losses

made in the bad investments. The Uniform Partnership Act makes all

parties equally liable for debt or claims chargeable to the partnership.

We agree with Defendant’s general proposition that partners are responsible for debts

properly chargeable to the partnership. However, the Trial Court did not find that Defendant simply

made a bad investment. The Trial Court found Defendant and his brother engaged in fraudulent

conduct in an attempt to hide partnership assets from Plaintiff. In order for us to alter the Trial

5

By way of example only, let’s assume Defendant’s total tax liability for the three years at issue was $25,000

when he deducted 100% the depreciation. Let’s also assume that if Defendant had only deducted one-third of the

depreciation, his total tax liability for the three years would have been $60,000. In this hypothetical situation, Defendant

saved $35,000 by deducting the extra two-thirds of the depreciation, and Plaintiff and Brian would each be entitled to

a credit for one-half of the total savings, or $17,500.

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Court’s judgment with regard to the $94,250, Defendant would have to successfully argue either that

the preponderance of the evidence does not support the Trial Court’s factual findings, or that the

partnership and its partners nevertheless should be responsible for missing funds resulting from

Defendant’s fraudulent conduct. Defendant makes neither of these arguments, successfully or

otherwise, and cites us to no authority which would support such a position. Therefore, we affirm

the Trial Court’s judgment with regard to the $94,250.

Prior to the trial, Defendant cashed in a life insurance policy for $15,000. The Trial

Court found this to be a violation of one of its previous orders and held that the $15,000 should be

considered partnership assets of Plaintiff and Defendant. Accordingly, the Trial Court gave Plaintiff

a credit of $7,500 against Defendant’s share of the proceeds from the sale of the marina. We fail to

see how Defendant’s purchase of a life insurance policy, or cashing in such a policy, can properly

be considered as part of his business partnership with Plaintiff. Defendant’s life insurance policy

would be akin to the retirement benefits in Martin v. Coleman, supra, which were held by the

Supreme Court not to be part of the business partnership of the Colemans who had lived together

for sixteen years. Therefore, we reverse the Trial Court’s conclusion that Plaintiff is entitled to a

credit of $7,500 based on Defendant cashing in his life insurance policy.

The final issue involves Defendant’s alleged illegal wiretaps in violation of Tenn.

Code Ann. § 39-13-601. In its Judgment, the Trial Court pointed out that Defendant admitted to this

activity once but it “appeared” to the Trial Court to have occurred on three occasions. The Trial

Court awarded Plaintiff $10,000 in statutory damages.

We have reviewed the evidence, including Plaintiff’s testimony, concerning these

three incidents. With regard to the first incident, Plaintiff stated she found a tape recorder and “if

one of us wasn’t there to answer the telephone, the messages were recorded.” As best we can tell,

all Defendant was doing was recording messages. The third incident, however, clearly involved the

hidden recording of conversations, not just recording messages. It is unclear from the evidence

whether the second violation merely recorded messages, or also recorded conversations. Based on

the foregoing, we conclude that Plaintiff proved only one violation of Tenn. Code Ann. § 39-13-601.

Civil damages under this statute include actual damages or “[s]tatutory damages of one hundred

dollars ($100) a day for each day of violation or ten thousand dollars ($10,000), whichever is

greater” plus attorney fees and costs. See Tenn. Code Ann. § 39-13-603(a)(1). On appeal,

Defendant argues that the Trial Court abused its discretion in awarding Plaintiff $10,000 in damages.

Unfortunately for Defendant, the Western Section of this Court recently issued its opinion in

Robinson v. Fulliton, 140 S.W.3d 312 (Tenn. Ct. App. 2003). In Robinson, we held that when actual

damages are less than the statutory damages of $10,000, a trial court is “required to award … the

$10,000 statutory damages at a minimum.” Id. at 324. In any event, we would not find an abuse of

discretion by the Trial Court in awarding this $10,000. Therefore, we affirm the Trial Court’s award

to Plaintiff of damages in the amount of $10,000 for the Defendant’s single violation of Tenn. Code

Ann. § 39-13-601.

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Conclusion

The Judgment of the Trial Court is reversed in part, vacated in part, and affirmed in

part as modified. This cause is remanded to the Trial Court for further proceedings consistent with

this Opinion and for collection of the costs below. Exercising our discretion, costs on appeal are

taxed one-third against the Appellant Terry Lane Montgomery and his surety, one-third against the

Appellee Beatrice Harmon Montgomery, and one-third against the Appellee Brian Montgomery.

_________________________________

D. MICHAEL SWINEY, JUDGE

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