Marks, Shell, and Maness v. Cynthia T. Mann

IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

February 17, 2004 Session

MARKS, SHELL, & MANESS, ET AL. v. CYNTHIA T. MANN, ET AL.

Appeal from the Chancery Court for Montgomery County

No. 98-08-0011 John H. Gasaway, III, Chancellor

No. M2002-00652-COA-R3-CV - Filed June 23, 2004

This cause is a civil suit for damages against Gary and Cynthia Mann resulting from Cynthia Mann’s

embezzlement of funds totaling $550,000.00 from the law firm of Marks, Shell, and Maness. The

trial court found Mr. and Mrs. Mann jointly and severably liable for the loss. Mr. Mann appeals.1

We affirm the ruling of the trial court.

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

Affirmed and Remanded

WILLIAM B. CAIN , J., delivered the opinion of the court, in which WILLIAM C. KOCH , JR., P.J., M.S.,

and PATRICIA J. COTTRELL, J., joined.

David G. Ridings, Goodlettsville, Tennessee, for the appellants, Cynthia T. Mann and Gary J. Mann.

Roger A. Maness, Clarksville, Tennessee, for the appellees, Marks, Shell & Maness, a Tennessee

general partnership consisting of Albert P. Marks, Carmack C. Shell and Roger A. Maness; and

Albert P. Marks, Carmack C. Shell and Roger A. Maness f/d/b/a Marks, Shell, Maness & Marks.

OPINION

Appellant, Gary Mann, was married to Cynthia Mann during the 1990's, at a time when she

worked at the law firm of Marks, Shell and Maness. In the late 1990's, Ms. Mann began embezzling

money from the law firm. She worked on loan closings and would divert funds from the loan

closings to pay towards their home equity line of credit, credit cards and other debt. Ms. Mann’s

theft was discovered in July of 1998. Total losses to the firm totaled over $550,000.00.

Ms. Mann pled guilty to theft of over $60,000.00 and was sentenced to eight years in prison

by Judge Gasaway, the judge presiding in the civil case at bar. She has since been released on parole

and is currently living with Mr. Mann, although the parties divorced in June of 2001.

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People’s First National Bank and Trust Company had a deed of trust encumbering the home of Gary and

Cynthia Mann on which Plaintiffs sought to impose an equitable lien, but the home was foreclosed upon by the bank and

the claim against People’s First Bank and Trust Company became moot.

The current action on appeal is the civil case for damages against Cynthia Mann and Gary

Mann resulting from Ms. Mann’s theft. After hearing testimony and receiving evidence, the trial

court found as follows:

1. Defendant, CYNTHIA T. MANN, knowingly, willfully and

fraudulently misappropriated monies from the plaintiffs’ loan closing trust account

resulting in a total loss to plaintiffs in the amount of $553,006.79;

2. Defendant, GARY J. MANN, knowingly, willfully and fraudulently

received the economic benefit of the misappropriations by defendant, CYNTHIA T.

MANN, such that he should also be liable to the plaintiffs for the total amount of

their loss in the amount of $553,006.79;

3. The testimony of defendant, CYNTHIA T. MANN, and defendant,

GARY J. MANN, denying that defendant, GARY J. MANN, knowingly, willfully

and fraudulently received the benefit of the misappropriations by defendant,

CYNTHIA T. MANN, was not credible and defendant, GARY J. MANN, had actual

knowledge of those misappropriations during the time they were occurring; . . . .

....

IT IS HEREBY ORDERED, ADJUDGED AND DECREED:

1. That plaintiffs have and recover a money judgment against defendants,

CYNTHIA T. MANN and GARY J. MANN, jointly and severably (sic) in the

amount of $553,006.79 together with the costs of this cause for which let execution

issue if necessary; . . . .

Only Mr. Mann appeals the ruling of the trial court. He alleges, essentially, that the evidence

preponderated against the finding of the trial judge against him in that there was no proof of actual

knowledge by Mr. Mann of Ms. Mann’s fraudulent activity. Mr. Mann also alleges that the proper

standard of proof should have been clear and convincing evidence, as opposed to a preponderance

of the evidence, and that the trial court erred by not disclosing to Gary Mann’s attorney that he was

the same judge that sentenced Ms. Mann in the criminal action. We affirm the judgment of the trial

court.

The proper standard of proof required for a tort action for fraud is a simple preponderance

of the evidence standard. Estate of Acuff v. O’Linger, 56 S.W.3d 527, 530-31 (Tenn.Ct.App. 2001);

Jarmakowicz v. Suddarth, No. M1998-00920-COA-R3-CV, 2001 WL 196982, at *10 (Tenn.Ct.App.

Feb. 28, 2001). Further, due to the nature of fraud, proof of knowledge may be made through either

direct or circumstantial evidence. Dodson v. Anderson, 710 S.W.2d 510, 513 (Tenn. 1986); Brown

v. Birman Managed Care, Inc., 42 S.W.3d 62, 67 (Tenn. 2001). We find that the trial court properly

used the preponderance of the evidence standard to determine that Mr. Mann, more likely than not,

had actual knowledge of his wife’s fraud. The trial court also properly used circumstantial evidence

in reaching its determination that Mr. Mann had actual knowledge of the fraud.

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In order to attribute one spouse’s fraud to the other, it must be shown that the spouse ratified

the act by accepting the benefits with knowledge of the fraud.

We are of the opinion that the marital relationship alone does not render one

spouse liable for the fraudulent actions of the other. Cf. Hammond v. Herbert Hood

Co., 31 Tenn.App. 683, 221 S.W.2d 98 (1948) (cert. denied May 6, 1949) (marital

relationship alone does not supply evidence of a principal and agency relationship),

see generally 41 Am.Jur.2d Husband & Wife § 436 (1968). A spouse may, however,

ratify the fraudulent act of the other so as to become liable for the fraud itself by

accepting or retaining the benefits of the act knowing it was tainted with fraud.

Lyons v. Jones, 22 Tenn. App. 262, 121 S.W.2d 125 (1938) (cert. denied Oct. 22,

1938), cf. Pratt v. Duck, 28 Tenn. App. 502, 191 S.W.2d 562, 567 (1945) (cert.

denied Dec. 1, 1945) (Principal held to have ratified unauthorized act of agent by

acceptance of receipts without question), see generally Annot., 82 A.L.R.3d 625

(1978).

In Lyons v. Jones, supra, a husband and wife executed a note contemplating

a legal interest rate of 6%. Subsequently, the payee, in the presence and with the

consent of the husband, altered the note so as to reflect a usurious interest rate of 8%.

The husband obtained the money on the altered instrument and expended it to

improve the joint property of the husband and wife. The wife, who knew nothing of

the alteration initially, argued that the note was voided as to her as the result of a

material unauthorized alteration. The court disagreed, however, and held, “[the wife]

cannot deny the agency of the husband and reap the profit of the transaction; when

she retains the benefit she ratifies the acts of her husband as her agent after

knowledge of the alteration.” 22 Tenn. App. at 269, 121 S.W.2d at 129. We find the

court’s ruling in Lyons to be sound and clearly applicable to the case at bar.

We disagree with defendants’ contention that the record is devoid of evidence

demonstrating that Mrs. Anderson possessed any knowledge of the fraud perpetrated

by her husband. It is well settled that any fact may be proved by either direct or

circumstantial evidence, City of Columbia v. C.F.W. Construction Co., 557 S.W.2d

734, 740 (Tenn. 1977), and we note that circumstantial evidence is particularly

cogent in cases involving fraud. Gibson’s Suits in Chancery § 195 (Inman 6th ed.

1982). Cf. Seago v. Martin, 53 Tenn. (6 Heisk.) 308, 310 (1871) (slight

circumstances sufficient to raise presumption of ratification).

Dodson v. Anderson, 710 S.W.2d at 512-13.

This Court, in a case very similar to the one at bar, further analyzed the appropriate standard

of review and elements of the claim. In the case of H & M Enterprises, Inc. v. Murray, No. M1999-

02073-COA-R3-CV, 2002 WL 598556 (Tenn.Ct.App. April 17, 2002), defendant’s wife had been

working as a secretary, bookkeeper and officer manager for plaintiff company. Defendant wife was

found to have embezzled money from plaintiff company and her husband was found jointly and

severally liable. Although, this Court found the proof lacking in that case and reversed the trial

court’s judgment, we reaffirmed Tennessee Rule of Appellate Procedure 13(d) review of the trial

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court’s findings of fact with a presumption of correctness unless the evidence preponderates against

the findings. H & M Enterprises, 2002 WL 598556, at *1-2. Also, with regard to the nature of the

claim, this Court stated:

H & M Enterprises’ claim against Mr. Murray is essentially one for

conversion. It asserted that Mr. Murray should be held jointly and severally liable

for the embezzled funds because he had either conspired or personally assisted his

wife in embezzling the funds or because he had “[ratified] the intentional and

fraudulent actions of his wife . . . so as to establish an agency relationship,” making

her his agent in embezzling the company’s funds. Thus, to recover from Mr. Murray,

H & M Enterprises had the burden of proving each of the elements of a conversion

claim. Nunley v. Nunley, 925 S.W.2d 538, 541 (Tenn.Ct.App. 1996).

Conversion is the appropriation of tangible property to a party’s own use in

exclusion or defiance of the owner’s rights. Barger v. Webb, 216 Tenn. 275, 278,

391 S.W.2d 664, 665 (1965); Lance Prods., Inc. v. Commerce Union Bank, 764

S.W.2d 207, 211 (Tenn.Ct.App. 1988). Conversion is an intentional tort, and a party

seeking to make out a prima facie case of conversion must prove (1) the

appropriation of another’s property to one’s own use and benefit, (2) by the

intentional exercise of dominion over it, (3) in defiance of the true owner’s rights.

Kinnard v. Shoney’s, Inc., 100 F.Supp.2d 781, 797 (M.D. Tenn. 2000); Mammoth

Cave Prod. Credit Ass’n v. Oldham, 569 S.W.2d 833, 836 (Tenn.Ct.App. 1977).

Property may be converted in three ways. First, a person may personally

dispossess another of tangible personalty. Restatement (Second) of Torts § 223(a)

(1965). Second, a person may dispossess another of tangible property through the

active use of an agent. See, e.g., McCall v. Owens, 820 S.W.2d 748, 751

(Tenn.Ct.App. 1991); 1 Stuart M. Speiser et al., The American Law of Torts § 3.4

(1983) (“The American Law of Torts”) (stating that “those who ratify and adopt acts

of a wrongdoer done for their benefit” may be liable). Third, under certain

circumstances, a person who played no direct part in dispossessing another of

property, may nevertheless be liable for conversion for “receiving a chattel.”

Restatement (Second) of Torts § 223(d).

Two or more persons may be held jointly and severally liable for damages in

tort when they intentionally unite in the wrongful act causing the injury. Hale v.

Knoxville, 189 Tenn. 491, 502, 226 S.W.2d 265, 269 (1949). Joint and several

liability may be imposed on all (1) who actively participate in the tortious acts, (2)

who intentionally aid the acts, or (3) who ratify and adopt tortious acts done for their

benefit. Hux v. Butler, 339 F.2d 696, 699 (6th Cir. 1964); 1 The American Law of

Torts § 3.4. In appropriate circumstances, joint and several liability is appropriate

for conversion claims. See, e.g., Breeden v. Elliott Bros., 173 Tenn. 382, 386-87, 118

S.W.2d 219, 220 (1938).

H & M Enterprises, 2003 WL 598556 at *2-3.

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The trial court, in the case at bar, determined that Mr. Mann “knowingly, willfully and

fraudulently received the economic benefit of the misappropriations” by Ms. Mann. He further

determined that Mr. Mann “had actual knowledge of those misappropriations during the time they

were occurring.” He, thus, knowingly received and used the stolen money, ratifying the actions of

his agent, Ms. Mann. In making his ruling from the bench, the trial court stated:

Now, with respect to whether the partners are entitled to a judgment against

Gary Mann, the Court had been presented really with two contentions. The

plaintiffs’ contention with respect to Mr. Mann is that he had actual knowledge of the

fraud that Ms. Mann was perpetrating against the plaintiffs. The plaintiffs, by law,

must convince the Court that more likely than not he had actual knowledge of her

fraud.

....

And there is direct evidence and there is also circumstantial evidence.

Examples of direct evidence would be, he saw the swimming pool, he saw the deck,

he saw the car, he saw the wheels on the car, he saw the 52-inch TV. That’s direct

evidence. Is it direct evidence that he had actual knowledge?

Well, the Court has to take the direct evidence and view it along with the

circumstantial evidence. Well, what is the circumstantial evidence? These people,

according to the testimony, have been married 19 years. Common sense and

everyday experience tells the trier of fact that over the course of 19 years, the

household business is common knowledge.

They went from a lifestyle - - from one lifestyle to another. Their house was -

- had a mortgage payment of roughly $500 a month and then went to $1,500 a month.

They bought furniture, appliances, and built a deck and a pool and bought a big TV.

And Mr. Mann wants the Court to believe that that didn’t tip him at all. I mean, that

was just business as usual apparently.

One of the things the Court has to do in coming in and deciding a case is to,

of course, judge the credibility of the witnesses, size them up, look them over, check

out their demeanor, and ask themselves whether the Court believes them or not. And

the law gives the Court the right to accept some, all, or none of what any witness

says. The Court simply finds Ms. Mann’s credibility to be - - she’s just not worthy

of belief.

With respect to Mr. Mann, what he is asking the Court to believe is that when

all of this was going on around him, it didn’t mean anything to him. I mean, his

explanation is, I never checked the mail, I never looked at the statements, I never

looked at the checkbook, I never saw anything come in the house. It seemed okay

with me.

What he’s asking the Court to do belies common sense and everyday

experience. We’re talking about - - we’re not talking about a little change in things.

We’re talking about thousands of dollars of merchandise being brought into the

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house and put into the closet. And whether they shared the closet or not, the position

that Mr. Mann takes on is one that the Court finds to be incredible.

Is it more likely than not, taking everything into consideration, that Mr. Mann

knew what she was doing? The Court is satisfied that he did. Judgment in favor of

the plaintiffs against Mr. Mann in the same amount of money, $553,000, jointly and

separately liable.

We find that the evidence does not preponderate against the findings of the trial judge. The

evidence showed a significant change in the Manns’ lifestyle including a significantly larger house,

new furniture, and new appliances. Mr. Mann also purchased a Harley Davidson motorcycle for

himself and a car for his daughter to which he added $1600 chrome wheels, a new sound system and

an anti-theft system. They also paid cash for a deck and pool addition to their new home and a 52"

television. Mr. Mann signed the parties tax returns and certainly knew how much money both he

and his wife made. He also testified that he knew of no savings or investments, other than $26,000

in equity in their previous home, that could have paid for all these purchases.

When you look at the Manns’ living expenses and their income, it becomes obvious that their

expenses far outweigh their income. Mr. Mann was an independent contractor who paid his own

taxes and business expenses other than gas and vehicle. In 1994, the Manns showed an adjusted

gross income of $36,893.45. In 1995, their adjusted gross income was $24,182.28; in 1996,

$21,509.97 (in 1996, Mr. Mann sustained a worker’s compensation injury and was out of work for

approximately three months drawing worker’s compensation benefits); in 1997, $27,111.00, and

when the theft was discovered in 1998, $33,673.00.

The Manns’ had a house payment of $541 per month in 1995, but in 1996, they purchased

a new home with a house payment of $1,431.47. The parties also had a $425 monthly payment for

Ms. Mann’s vehicle and a $300 a month payment for Mr. Mann’s Harley Davidson. After moving

into their home, they purchased new furniture for $3,500 in cash and a new 52" television for $1,400

in cash. They further improved the house by installing a pool for approximately $5,000 and a deck

for approximately $3,000, both paid for in cash. They also purchased a vehicle for their daughter

with a car payment of approximately $200 per month and, shortly thereafter, spent around $2,000

in cash installing custom wheels, a sound system, and an anti-theft system. Ms. Mann also

purchased a significant amount of clothing, jewelry and other incidental items. She testified that she

would occasionally bring home $800 worth of clothing in a single day. Mr. Mann, in his defense,

simply stated that he didn’t handle the finances, didn’t know of his wife’s expenditures, and thought

they had sufficient money to cover their purchases. The trial court found this explanation

implausible. In looking at the evidence presented, both circumstantial and direct, we do not find that

the evidence preponderates against the trial court’s ruling.

The court also specifically stated that neither Mr. nor Ms. Mann was a credible witness. As

the trial court is able to witness a party’s demeanor and testimony, the trial court is best able to

determine a witnesses’ credibility.

Regarding a trial court’s assessment of credibility, this Court has held that:

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When the resolution of the issues in a case depends upon the truthfulness of

witnesses, the trial judge, who has the opportunity to observe the witnesses

in their manner and demeanor while testifying, is in a far better position that

this Court to decide those issues. See McCaleb v. Saturn Corp., 910 S.W.2d

412, 415 (Tenn. 1995); Whitaker v. Whitaker, 957 S.W.2d 834, 837

(Tenn.Ct.App. 1997). The weight, faith, and credit to be given to any

witness’s testimony lies in the first instance with the trier of fact, and the

credibility accorded will be given great weight by the appellate court. See id.,

In re Estate of Walton v. Young, 950 S.W.2d 956, 959 (Tenn. 1997).

Mach. Sales Co., Inc. v. Diamondcut Forestry Prod., LLC, 102 S.W.3d 638, 643

(Tenn.Ct.App. 2002).

Chadwick v. Spence, No. W2003-00931-COA-R3-CV, 2004 WL 298367, at *4 (Tenn.Ct.App. Feb.

11, 2004). We see no evidence to dispute the court’s credibility determinations.

Appellant also alleges that the trial court erred by not disclosing to counsel for Mr. Mann that

the trial judge in the civil action was the presiding judge of the criminal sentencing for Ms. Mann.

The implication of this allegation can only be that, had counsel for Mr. Mann known of the

circumstances, he would have requested that the trial judge recuse himself. Thus, we can only find

reversible error if we determine that the trial judge should have recused himself in this case. In a

similar circumstance, the Supreme Court of Tennessee stated:

All litigants are entitled to the “cold neutrality of an impartial court” and have

a right to have their cases heard by fair and impartial judges. Kinard v. Kinard, 986

S.W.2d 220, 227 (Tenn.App. 1998) (quoting Leighton v. Henderson, 220 Tenn. 91,

414 S.W.2d 419, 421 (1967); Chumbley v. People’s Bank & Trust Co., 165 Tenn.

655, 57 S.W.2d 787, 788 (1933)). In general, a judge should recuse himself or

herself if there is any doubt regarding the judge’s ability to preside impartially or if

the judge’s impartiality can reasonably be questioned. See State v. Hines, 919

S.W.2d 573, 578 (Tenn. 1995). Under Canon 3 of the Code of Judicial Conduct, a

judge is required to recuse himself or herself when “the judge has a personal bias or

prejudice concerning a party or a party’s lawyer, or personal knowledge of disputed

evidentiary facts concerning the proceeding.” Tenn.R.Sup.Ct. 10, Canon 3(E)(1)(a).

Caudill v. Foley, 21 S.W.3d 203, 214 (Tenn. 2000).

In this case, we see absolutely no evidence of personal bias or prejudice with regard to Ms.

Mann. Mr. Mann, who knew of the judge’s dealings with Ms. Mann’s criminal conviction, did not

even think it important enough to inform his lawyer. Further, the information known by the trial

judge regarding Ms. Mann from her sentencing was public record, much of which was brought out

in evidence during the course of the civil trial. The fact that Judge Gasaway determined that Ms.

Mann, a confessed embezzler and accomplished liar for over three years, was not credible does not

demonstrate bias, but good common sense.

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The judgment of the trial court is in all respects affirmed.

___________________________________

WILLIAM B. CAIN, JUDGE

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