James Thompson v. Knoxville Teachers Federal Credit Union

IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

November 13, 2002 Session

JAMES L. THOMPSON v.

KNOXVILLE TEACHERS FEDERAL CREDIT UNION, ET AL.

Appeal from the Chancery Court for Knox County

No. 01-151257-2 Daryl R. Fansler, Chancellor

FILED DECEMBER 10, 2002

No. E2002-00780-COA-R3-CV

James L. Thompson (“Plaintiff”) was the principal stockholder, director, and officer of People

Personnel Industrial Corporation. Plaintiff began kiting checks when the corporation started having

financial difficulties. Plaintiff’s actions resulted in a substantial monetary loss to Knoxville Teachers

Federal Credit Union (“Credit Union”). After both the corporation and Plaintiff filed for bankruptcy,

the parties entered into an agreement whereby the Credit Union agreed not to pursue or assist any

other party in pursuing a cause of action against Plaintiff based on the check kiting. Thereafter,

Plaintiff was prosecuted in federal court. The Credit Union supplied information to the United States

Government pertaining to the amount of its financial losses. After Plaintiff pled guilty in federal

court to defrauding the Credit Union, he was ordered to serve a small amount of time in prison and

pay restitution of $74,417.29 to the Credit Union. Plaintiff brought this lawsuit claiming the Credit

Union pursued the order of restitution in the criminal proceeding and thereby violated the terms of

the settlement agreement. The Trial Court granted summary judgment to Defendants, and Plaintiff

appeals. We affirm.

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

Chancery Court Affirmed; Case Remanded.

D. MICHAEL SWINEY, J., delivered the opinion of the court, in which HERSCHEL P. FRANKS , J., and

CHARLES D. SUSANO, JR., J., joined.

C. Mark Troutman, LaFollette, Tennessee, for the Appellant James L. Thompson.

Sam H. Poteet, Jr., Fred C. Statum, III, and Jeffrey S. Price, Nashville, Tennessee, for the Appellees

Knoxville Teachers Federal Credit Union and Cumis Insurance Society, Inc.

OPINION

Background

Plaintiff sued Defendants in June of 2001 seeking damages for an alleged breach of

a settlement agreement. Plaintiff was the principal shareholder, director, and officer of People

Personnel Industrial Corporation. After the corporation began experiencing financial difficulties,

Plaintiff admittedly began “kiting checks.” Plaintiff’s check kiting resulted in the Credit Union

suffering financial losses which were insured through Defendant Cumis Insurance Society, Inc.

(“Cumis”). To compensate the Credit Union for its losses, Plaintiff executed a Promissory Note on

behalf of Peoples Personnel Inc., and Plaintiff and his wife personally guaranteed the debt. People

Personnel Inc., is a separate corporation from People Personnel Industrial Corporation, although

Plaintiff was the principal shareholder, officer, and director of both corporations. The promissory

note was drafted incorrectly and should have been executed on behalf of People Personnel Industrial

Corporation, not People Personnel, Inc. Plaintiff claims he was unaware of the mistake. After

executing the promissory note, Plaintiff claims he paid approximately $30,000 towards the debt.

According to the complaint, in March of 1999, Plaintiff realized he could not salvage

People Personnel Industrial Corporation and the corporation filed for bankruptcy. Due to the

mistake in the drafting of the promissory note, the Credit Union’s lien against the corporation’s

assets was lost. Since Plaintiff and his wife had personally guaranteed the debt, he and his wife filed

for bankruptcy. The Credit Union filed an adversary proceeding in Bankruptcy Court seeking to

deny the discharge of the remaining debt it was owed by Plaintiff and his wife. Plaintiff denied there

were any grounds to avoid the discharge of this debt and requested an award of attorney fees. The

parties then entered into a Joint Stipulation of Dismissal of Complaint to Determine Dischargeability

of Debt. In relevant part, this Joint Stipulation provides:

5. The [Credit Union and Cumis] have agreed to dismiss

the above-styled Complaint with prejudice and to not pursue or to

allow any party to pursue on their behalf any cause of action they

have or may have against the Defendants [James or Barbara

Thompson], either jointly or severally, or any related party for actions

of the Defendants which are the subject of the Complaint.

6. In exchange for dismissal with prejudice of the above-

styled Complaint, the Defendants have agreed not to pursue or to

allow any party to pursue on their behalf, any cause of action they

have or may have against the Plaintiffs either jointly or severally,

whether known or unknown, and including but not limited to, any

claims related to the Plaintiff’s commencement and pursuit of the

Complaint to Determine Dischargeability of Debt.

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After this Joint Stipulation was entered into, Plaintiff was prosecuted for check kiting

in the United States District Court. According to Plaintiff, the Credit Union and Cumis actively

participated in the criminal proceeding “cause of action for restitution” in violation of the terms of

the Joint Stipulation. Plaintiff claims he is entitled to damages of $74,417.29, which is the amount

of restitution he was ordered to make when sentenced in the United States District Court for his

criminal actions.

In their Answer, the Credit Union and Cumis admitted Plaintiff had been kiting

checks and Plaintiff signed the promissory note. Defendants averred the remaining balance owed

by Plaintiff was $74,417.29.1 Defendants also admitted entering into the Joint Stipulation in the

Bankruptcy Court and that Plaintiff was ordered by the United States District Court to pay restitution

in the amount of $74,417.29 as part of Plaintiff’s sentence for his criminal actions. Defendants

denied, however, that they had breached the terms of the Joint Stipulation or were otherwise liable

to Plaintiff.

Defendants moved for summary judgment, claiming Plaintiff had no evidence to

support his “allegation that the Defendants breached the Settlement Agreement between the parties.

In addition, the Plaintiff has not incurred any damages as a result of the alleged breach.” In support

of the motion, Defendants filed the affidavit of Myra Melton (“Melton”), a probation officer with

the United States Probation Office. Melton was assigned to Plaintiff’s criminal action and prepared

the sentencing report and recommendations to the District Court. According to Melton, Plaintiff

pled guilty to devising a scheme to defraud a credit union and was sentenced to five months in

prison, followed by five years of probation. Plaintiff also was ordered to pay restitution in the

amount of $74,417.29. Pursuant to the sentencing guidelines, Plaintiff’s conduct warranted ten to

sixteen months of imprisonment, three to five years of supervised release, and a fine of $3,000 to

$1,000,000. Melton went on to state as follows:

8. I prepared and presented the information to the court

which the court used in determining the proper punishment for Mr.

Thompson.

9. Neither Knoxville Teachers Federal Credit Union nor

Cumis Insurance Society pursued a criminal judgment or Order of

Restitution and neither Knoxville Teachers Federal Credit Union nor

Cumis Insurance Society advocated to the court the entry of the

criminal Order of Restitution.

1

Cumis paid the Credit Union $73,417.29 through its insurance policy. The Credit Union was owed the

rema ining $1 ,000 .

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10. Based upon my experience, the court will not waive or

excuse a criminal defendant from his obligation to pay restitution to

the victim of the crime.2

11. Neither Knoxville Teachers Federal Credit Union nor

Cumis Insurance Society had or has the authority or ability to prevent

the entry of the Order of Restitution or to release the Order of

Restitution. The Order of Restitution is part of Mr. Thompson’s

criminal sentence and cannot be modified by an agreement of private

parties.

Plaintiff responded to the motion for summary judgment. Plaintiff asserted

Defendants actively pursued restitution claims against Plaintiff instead of advising the United States

Government that any claims between the parties had been resolved. Plaintiff “viewed the settlement

agreement as a compromise of any claims for restitution and so advised the government.” Plaintiff

also stated he reviewed, during the course of the criminal proceedings, information provided by

Defendants to the United States Government relating to the check kiting scheme, the amount of the

checks involved, and the attorney fees incurred by Defendants. Plaintiff also stated counsel for the

Credit Union was present at the sentencing hearing and “appeared to be prepared to file the

documents in connection with the pursuit of restitution,” but these documents never were filed.

(emphasis added).

The Trial Court granted Defendants’ motion for summary judgment, although the

exact reasons for doing so are not stated in the Order. Plaintiff appeals the grant of summary

judgment to Defendants. On appeal, the issue as stated by Defendants is: “Whether the Chancellor

properly held that, as a matter of law, the separate and independent action of the United States

District Court in sentencing Plaintiff to make restitution as part of Plaintiff’s punishment upon

criminal conviction for defrauding a federal credit union did not constitute a breach of a civil

settlement agreement between Plaintiff and Defendants.”3

Discussion

The standard for review of a motion for summary judgment is set forth in Staples v.

CBL & Associates, Inc., 15 S.W.3d 83 (Tenn. 2000):

The standards governing an appellate court’s review of a

motion for summary judgment are well settled. Since our inquiry

involves purely a question of law, no presumption of correctness

2

In the Presentence Investigation Report filed in the criminal proceeding, Melton pointed out that while the

app licable statute allows an o rder of restitution, in accordance with § 5E 1.1 o f the USSG , “restitution sh all be o rdered.”

3

Plaintiff’s brief does not contain a statement of the issues presented for review as required by Tenn. R. App.

P. 27(a)(4).

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attaches to the lower court’s judgment, and our task is confined to

reviewing the record to determine whether the requirements of Tenn.

R. Civ. P. 56 have been met. See Hunter v. Brown, 955 S.W.2d 49,

50-51 (Tenn. 1997); Cowden v. Sovran Bank/Central South, 816

S.W.2d 741, 744 (Tenn. 1991). Tennessee Rule of Civil Procedure

56.04 provides that summary judgment is appropriate where: (1) there

is no genuine issue with regard to the material facts relevant to the

claim or defense contained in the motion, see Byrd v. Hall, 847

S.W.2d 208, 210 (Tenn. 1993); and (2) the moving party is entitled

to a judgment as a matter of law on the undisputed facts. See

Anderson v. Standard Register Co., 857 S.W.2d 555, 559 (Tenn.

1993). The moving party has the burden of proving that its motion

satisfies these requirements. See Downen v. Allstate Ins. Co., 811

S.W.2d 523, 524 (Tenn. 1991). When the party seeking summary

judgment makes a properly supported motion, the burden shifts to the

nonmoving party to set forth specific facts establishing the existence

of disputed, material facts which must be resolved by the trier of fact.

See Byrd v. Hall, 847 S.W.2d at 215.

To properly support its motion, the moving party must either

affirmatively negate an essential element of the non-moving party’s

claim or conclusively establish an affirmative defense. See McCarley

v. West Quality Food Serv., 960 S.W.2d 585, 588 (Tenn. 1998);

Robinson v. Omer, 952 S.W.2d 423, 426 (Tenn. 1997). If the moving

party fails to negate a claimed basis for the suit, the non-moving

party’s burden to produce evidence establishing the existence of a

genuine issue for trial is not triggered and the motion for summary

judgment must fail. See McCarley v. West Quality Food Serv., 960

S.W.2d at 588; Robinson v. Omer, 952 S.W.2d at 426. If the moving

party successfully negates a claimed basis for the action, the non-

moving party may not simply rest upon the pleadings, but must offer

proof to establish the existence of the essential elements of the claim.

The standards governing the assessment of evidence in the

summary judgment context are also well established. Courts must

view the evidence in the light most favorable to the nonmoving party

and must also draw all reasonable inferences in the nonmoving

party’s favor. See Robinson v. Omer, 952 S.W.2d at 426; Byrd v.

Hall, 847 S.W.2d at 210-11. Courts should grant a summary

judgment only when both the facts and the inferences to be drawn

from the facts permit a reasonable person to reach only one

conclusion. See McCall v. Wilder, 913 S.W.2d 150, 153 (Tenn.

1995); Carvell v. Bottoms, 900 S.W.2d 23, 26 (Tenn. 1995).

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Staples, 15 S.W.3d at 88-89. A fact is “material” for summary judgment purposes, if it “must be

decided in order to resolve the substantive claim or defense at which the motion is directed.” Luther

v. Compton, 5 S.W.3d 635, 639 (Tenn. 1999)(quoting Byrd v. Hall, 847 S.W.2d at 211).

Defendants argue the criminal action in which restitution was ordered is not a “cause

of action” that a private party can pursue and, therefore, the undisputed material facts show they

neither pursued any cause of action nor allowed the United States Government to do so on their

behalf. Thus, Defendants argue there was no breach of the Joint Stipulation which prohibited their

pursuing or allowing any party to pursue a cause of action against Plaintiff. Defendants rely on K.B.

v. State Farm Fire and Casualty Co., 189 Ariz. 263, 267, 941 P.2d 1288, 1292 (Ariz. App. 1997)(“A

victim is not a party to the criminal trial and he has no opportunity to litigate the issues.”) and State

v. Stirba, 972 P.2d 918, 921 (Utah App. 1998)(“The State’s right to pursue criminal restitution

cannot be equated with the victim’s right to pursue civil damages.”). Plaintiff essentially argues

Defendants breached the Joint Stipulation by providing the United States Government information

regarding the amount of its losses which were incurred as a result of Plaintiff’s criminal activity and

“appearing” to be ready to file documents.

According to Melton’s affidavit, Defendants neither pursued a criminal judgment or

order of restitution, nor advocated for same. Melton further stated the federal court, in her

experience, will not excuse a criminal defendant from his or her obligation to pay restitution. More

importantly, however, is Melton’s testimony that Defendants neither have the authority to prevent

an order of restitution from being entered, nor can they release Plaintiff from this obligation which

he has to the federal court. Plaintiff did not rebut any of these material facts established by Melton.

While Defendants may have provided information to the federal court with regard to the amount of

its losses, the undisputed material facts show that whether or not Plaintiff was ordered to pay

restitution clearly was out of Defendants’ hands, and they could not impact that result. As such,

Defendants did not “pursue” a cause of action against Plaintiff for restitution, even assuming there

is a cause of action for restitution. Likewise, Defendants did not “allow” the United States

Government to pursue a cause of action against Plaintiff since Defendants neither could allow nor

disallow the restitution aspect of the federal court’s sentence imposed upon Plaintiff.

We conclude the undisputed material facts show neither Defendant violated the terms

of the Joint Stipulation. Accordingly, the Trial Court properly granted Defendants summary

judgment. Because we conclude there was no breach of the Joint Stipulation, we pretermit any

remaining issues.

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Conclusion

The judgment of the Trial Court is affirmed, and this cause is remanded to the Trial

Court for such further proceedings as may be required, if any, consistent with this Opinion. The

costs on appeal are assessed against the Appellant James L. Thompson, and his surety.

___________________________________

D. MICHAEL SWINEY, JUDGE

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