The opinion
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
FILED
ADMINISTRATIVE BOARD FOR ) GRUNDY CIRCUIT
FIRST UNITED METHODIST ) April 23, 1999
CHURCH OF TRACY CITY, ) NO. 01A01-9804-CV-00193
Cecil Crowson, Jr.
TENNESSEE, ) Appellate Court Clerk
)
Plaintiff/Appellee ) HON. CURTIS SMITH
) JUDGE
v. )
)
TENNESSEE DEPARTMENT OF )
HUMAN SERVICES, )
FAGAN THOMPSON, individually )
and as Program Manager for DHS, )
SOUTHEAST TENNESSEE )
PRIVATE INDUSTRY COUNCIL, )
INC., and )
WANZA LEE, individually and as )
Director of SETPIC, INC., )
) REVERSED and
Defendants/Appellants ) DISMISSED
Michael A. McMahan, Chattanooga, for Appellant Southeast Tennessee Private
Industry Council, Inc.
Gregory M. O’Neal, Winchester, for Appellee.
OPINION
INMAN, Senior Judge
This regrettable controversy arose from an essential misunderstanding
between good people dealing in good faith to provide good services to
economically disadvantaged families in Grundy and surrounding counties.
The complaint was filed by the First United Methodist Church of Tracy City
against the Tennessee Department of Human Services, its Program Manager Fagan
Thompson, the Southeast Tennessee Private Industry Council, Inc. [Council], and
its Executive Director, Wanza Lee, to recover the losses it sustained in attempting
to provide transportation for participants in a social program.
The legal predicate of the complaint is asserted fraudulent
misrepresentations and fraudulent inducements by the defendants arising from a
nebulous agreement by the Church to furnish transportation for recipients of
benefits provided by the Families First Program. The Church leased four buses for
a period of 90 days for the purpose of transporting the recipients, estimated to be
circa 250, on a daily basis, believing that the Council would reimburse it $7.00 per
rider, but unaware that DHS would reimburse some of the recipients directly if they
provided their own transportation. Most of the participants opted for the money,
as a result of which the plaintiff’s buses were, as a practical matter, seldom
utilized. The Church lost $18,000.00 plus interest on this humanitarian venture.1
The trial court found that
“Mr. Lee, as executive director of SETPIC, represented to UMCTC
that the only means of providing transportation to Families First
participants was by bus. The proof establishes that, had UMCTC
known participants in the Families First Program were offered direct
payment for transportation and that most would likely elect to be paid
directly, the church would not have pursued providing transportation
and would not have obligated itself for the cost of leasing buses. This
misrepresentation was material as it was a major consideration of
UMCTC in estimating the need for buses to provide transportation.”
“Mr. Lee was a principle source of information to UMCTC because
he had long experience in a field where UMCTC was ignorant.
Because of Mr. Lee’s superior knowledge, UMCTC reasonably relied
on him as a source of information. Their reliance on the information
he provided resulted in UMCTC incurring the expense and interest to
the date of trial on the loan made by the church to pay the lease.”
The judgment incorporates the foregoing finding, and further provides that
“. . . false representations were made with (sic) knowingly or
recklessly, the Plaintiff actually relied upon the misrepresentations,
1
DHS and Thompson were dismissed on motion, and a claim is presently pending
against DHS before the Board of Claims.
2
and the reliance was reasonable under the circumstances, and the
Plaintiff suffered damages as a result of its reliance upon the material
representations put forth by the Defendant.”
The Council and Mr. Lee appeal, and present for review the issue of whether
the plaintiff was entitled to recover under the doctrine of fraudulent
misrepresentation because it did not reveal that DHS would pay some participants
directly upon their request.
Our review of the findings of fact made by the trial Court is de novo upon
the record of the trial Court, accompanied by a presumption of the correctness of
the finding, unless the preponderance of the evidence is otherwise. TENN. R. APP.
P., RULE 13(d); Campbell v. Florida Steel Corp., 919 S.W.2d 26 (Tenn. 1996).
The facts are not in substantial, material dispute. The Reverend Mr. Walters,
pastor, testified that his Church was interested in starting a day care center under
the Families First Program, to be funded by DHS, which thereupon inquired of the
Church if it might also consider providing the transportation necessary for the
Program. A meeting was held in Dunlap on July 18 to discuss child care and
transportation. The role of the Council was that of transportation broker for DHS.
Mr. Walters attended the meeting in Dunlap accompanied by Martha Nixon,
a member of the Church. They were informed that Fagan Thompson, of the
Department of Human Services, was in charge of the transportation program for
Tennessee, and that the Council would be the broker for DHS in providing the
necessary transportation. The Church officials were told that they would be paid
about $3.50 per child and $4.00 per adult, later increased to $7.00 per day.
After the Dunlap meeting, Church representatives pursued the matter with
the local DHS office in Tracy City. Ms. Nixon began gathering information about
the number of people who were eligible and who had indicated in DHS surveys a
need for transportation services. She was in contact with the local DHS office
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daily for three weeks obtaining census figures about DHS clients who might use
transportation. She was not told by DHS about its authority to pay $5.00 per day
to participants for alternative transportation.
The Church appointed a committee, made plans, and developed a budget,
which concluded that the expenses for the transportation might exceed the revenue,
but recommended to the Administrative Board of the Church that it proceed with
the project if its expenses were guaranteed for 90 days.
Mr. Walters informed Mr. Thompson that the Church could not provide
transportation without a guarantee of its costs. Walters was informed by Mr. Lee
that he did not have the authority to guarantee the costs because the approval of
DHS was required.
By the end of July, the Church committee had obtained information from the
Department of Human Services about the number of people who might be utilizing
the transportation program. These figures were furnished to Mr. Thompson and to
Mr. Lee.
Mr. Walters testified that Mr. Thompson led him to believe that it would be
a “pilot type program” for providing transportation under the Families First
Program, and that he discussed the matter with Mr. Lee, who told him that the
Council did not then have a contract with DHS. Mr. Andy of the Church admitted
that Mr. Lee told them that the approval of DHS was required for any contract.
The Church representatives had been told by DHS representatives that they
could expect 45 participants initially and that the number could grow to 250 to 300.
These numbers were obtained from interviews by DHS of their clients. Mr. Lee
was never a party to the discussions about how many participants would be
involved or how many buses would be needed.
4
The Church finalized its plans to enter into an agreement for transportation
of Families First participants on August 14, 1996, and a week later Mr. Walters
was informed by Mr. Lee that the rate that the Council was authorized to pay was
$7.00 a day. Mr. Walters said this daily rate was inadequate, and acknowledged
that at all times he knew that so far as Mr. Lee was concerned the rate would be
$7.00 per day per passenger unless he received some authority from DHS.
On August 23rd, there was a meeting at the Department of Human Services
offices in Tracy City about the implementation of the Families First Program. The
primary purpose of the meeting was to tell the participants what they were
supposed to do and explain procedures for all components of Families First
including child care, adult education and transportation. At that meeting Mr. Lee
announced that the Tracy City United Methodist Church had been selected as the
transportation provider. Mr. Walters testified that Mr. Lee stated the Church’s
expenses would be guaranteed for 90 days, but Mr. Lee denied that he ever
discussed a 90 day pilot contract with the Church. Mr. Andy testified that Mr. Lee
said a financial guarantee was being “worked on” but no term was mentioned. Mr.
Walters understood that the guarantee would come from DHS, and acknowledged
that Mr. Lee told him at that time that the State had not yet prepared his contract.
Mr. Andy admitted “in fairness to Mr. Lee,” that he correctly told the Church about
a possible guarantee from DHS.
The Church had previously made arrangements with Taylor Bus Sales in
Murray, Kentucky, to lease four buses for a period of 90 days. It took delivery of
the buses during the last week of August. But before taking delivery of the buses,
Mr. Walters called Mr. Lee, who told him that he did not yet have a contract in
place with the Department of Human Services. Fagan Thompson of DHS told Mr.
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Walters that the “contract was in the works,” that it would be forthcoming, and
“not to worry.” Nevertheless, the buses were delivered, even though Mr. Walters
knew that no contract had been approved.
A contract was forwarded from the Council to Mr. Andy of the Church on
or about August 29th. It did not provide a financial guarantee. Whereupon, Mr.
Walters called both Fagan Thompson and Wanza Lee, but it was Fagan Thompson
of DHS who advised Mr. Walters that an addendum would be forthcoming. Mr.
Lee again told Rev. Walters that he could do nothing without directions from DHS
and furnished Mr. Walters a copy of his contract with the State showing that he did
not have the authority to do what Mr. Thompson had apparently promised.
Once the Church began the transportation, there were few participants in
Families First who utilized the transportation services, because the Department of
Human Services would pay participants up to $5.00 per day to arrange their own
transportation. Mr. Lee testified that approval for alternate transportation came
from DHS case managers and DHS procedures, that he could not speculate on who
would use alternative means, and that he had no knowledge of the research that
UMCTC members were doing with DHS about the participants.
The Church stopped its participation in the program and returned the leased
buses at the end of the 90 day lease. It then sought redress from DHS for the
money that it had lost, but the Commissioner stated that she was unable to resolve
the matter.
It is worth emphasizing that Mr. Walters testified that the agreement was
made “between myself and Fagan Thompson,” and that it was Mr. Thompson who
reassured him that the contract was “in the works.”
6
We find scant evidence in this record that Mr. Lee represented or
misrepresented anything to the Church, which argues, in the brief, that Lee
“candidly admitted” from past experiences that he anticipated a high percentage
of the participating people would choose to use the alternative form of
transportation.
The record reveals this testimony by Mr. Lee, which we reproduce verbatim:
Q: Did you know how many people in Grundy County
would be using that [alternative means]?
A: No.
Q: When did you find that out?
A: Well, as the request for them to start using it would
come in. No way to speculate as to the level of activity
for . . . now, we did feel that a high percentage of the
people across the group like for stipending, you know.
That was my feelings.
Q: From past experience?
A: Past experience. But to really know, no way to tell you
that.
The quoted testimony hardly rises to the admission of anything.
To summarize, there is no evidence in this record that Mr. Lee of the
Council fraudulently misrepresented or induced the Church to contract as it did.
To recover for fraudulent misrepresentation, a plaintiff must prove that the
defendant knowingly and falsely misrepresented a past or present fact which the
plaintiff reasonably relied upon. Metro Gov’t. v. McKinney, 852 S.W.2d 233
(Tenn. App. 1992). We reiterate that there is no proof in this record that the
defendants knowingly and falsely misrepresented to the plaintiff that some
participants might opt to be paid directly by DHS and provide their own
7
transportation. Fraud aside, there is no evidence that the Council deliberately
failed to inform the plaintiff that some participants might opt out.2
It was the DHS that recruited the Church to submit a proposal to provide the
transportation services, and virtually all of the information on which the Church
relied was furnished by employees of DHS.
The trial court’s decision appears to rest on the following two factual
findings: first, that Mr. Lee told the Church that “the only means of providing
transportation to Families First participants was by bus” and the second, that Mr.
Lee never informed the Church “that participants could elect to be directly paid for
transportation.” The evidence in the record does not support the trial court’s
finding that Mr. Lee made this statement. The only testimony on this point was
that of Martha Nixon who stated that “[w]e were told that there was no
transportation in Grundy County if we did not help.” Her use of the passive voice
obscures the identity of the person who made that statement. After reading the
record as a whole, especially the testimony of the Reverend William Bruce Walters
and Leo Andy, we conclude that this statement was most likely made by Fagan
Thompson or some other employee of the Department.
In order to recover for fraudulent or negligent misrepresentation, the plaintiff
must prove that it reasonably relied on false statements made by the defendant. See
Speaker v. Cates Co., 879 S.W.2d 811, 816 (Tenn. 1994); Metropolitan Gov’t. v.
McKinney, 852 S.W.2d 233, 237 (Tenn. App. 1992). The Church’s
2
The parties seemingly presumed that the trial court did, in fact, find fraudulent
misrepresentation. A careful reading of his findings, however, reveal that he stopped short of
finding that Mr. Lee falsely represented that the participants would likely elect direct
payments from DHS.
8
misrepresentation claims against Mr. Lee and STPCI must fail because of their
concession that all the representations about the details of the Families First
program were made by representatives of the Department. There is no factual or
legal basis for holding Mr. Lee or STPIC responsible for these statements.
The trial court’s second factual finding is that Mr. Lee did not inform the
representatives of the Church that participants in the Families First program could
receive a direct stipend for arranging their own transportation. Mr. Lee candidly
concedes that he did not inform the Church of this option, but it does not
necessarily follow that his failure to do so warrants imposing liability on him or
STPIC.
Our courts have recognized that the nondisclosure of information may give
rise to an action for fraud. However, concealment or nondisclosure becomes
fraudulent only when it is the duty of a party having knowledge of the facts to
disclose them to the other party. See Macon County Livestock Mkt., Inc. v.
Kentucky State Bank, Inc., 724 S.W.2d 343, 349 (Tenn. App. 1986). This duty
arises only when (1) there is a fiduciary relationship between the parties, (2) one
of the parties has expressly reposed trust and confidence in the other, or (3) the
contract is intrinsically fiduciary and calls for perfect good faith. See Domestic
Sewing Mach. Co. v. Jackson, 83 Tenn. 418, 424-25 (1885); Justice v. Anderson
County, 955 S.W.2d 613, 616-17 (Tenn. App. 1997).
These legal standards govern our analysis of the claims in this case even
though the claimant is a religious, not-for-profit entity. Religious organizations
engaging in secular transactions are not entitled to more favorable treatment by the
law simply because their motives are eleemosynary rather than monetary. Under
the facts of this case, the Church did not have a fiduciary relationship with Mr. Lee
9
and had not expressly placed its trust and confidence in him. To the contrary, if the
Church was placing its trust and confidence in anyone, it was in Mr. Thompson
and the other Department employees. The information concerning the opportunity
for participants in the Families First program to obtain direct subsidies rather than
to use state-provided transportation was publicly available to anyone performing
due diligance. Thus, under the facts of this case, Mr. Lee did not have a duty to
inform the Church about the other transportation options available to the Families
First participants.
We conclude that the evidence preponderates against the judgment which
is reversed. The case is dismissed at the costs of the appellee.
_______________________________
William H. Inman, Senior Judge
CONCUR:
_______________________________
William C. Koch, Jr., Judge
_______________________________
Charles D. Susano, Jr., Judge
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