Hanover Am. Ins. Co. v. Tattooed Millionaire Ent.

RECOMMENDED FOR PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 25a0263p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

┐

HANOVER AMERICAN INSURANCE COMPANY,

│

Plaintiff-Appellant/Cross-Appellee, │

│

v. │

> Nos. 24-5452/5453

│

TATTOOED MILLIONAIRE ENTERTAINMENT, LLC; │

CHRISTOPHER C. BROWN, │

Defendants-Appellees/Cross-Appellants, │

│

│

JOHN FALLS, │

Defendant-Appellee (24-5452). │

┘

Appeal from the United States District Court for the Western District of Tennessee at Memphis.

No. 2:20-cv-02834—Jon Phipps McCalla, District Judge.

Argued: January 30, 2025

Decided and Filed: September 25, 2025

Before: CLAY, GIBBONS, and STRANCH, Circuit Judges.

_________________

COUNSEL

ARGUED: Jeremy T. Grabill, PHELPS DUNBAR LLP, New Orleans, Louisiana, for Hanover

American Insurance Company. Malcolm B. Futhey, III, FUTHEY LAW FIRM PLC, Memphis,

Tennessee, for John Falls. ON BRIEF: Jeremy T. Grabill, Mark C. Dodart, PHELPS

DUNBAR LLP, New Orleans, Louisiana, for Hanover American Insurance Company. Malcolm

B. Futhey, III, FUTHEY LAW FIRM PLC, Memphis, Tennessee, for John Falls. John W.

Christopher, CHRISTOPHER LAW OFFICE, PLLC, Jackson, Mississippi, Charles E. Waldman,

Memphis, Tennessee, for Tattooed Millionaire Entertainment and Christopher C. Brown.

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OPINION

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JULIA SMITH GIBBONS, Circuit Judge. This appeal concerns the allocation among

different parties of an insurance payout resulting from a 2018 trial in the Western District of

Tennessee. In that first case, the jury verdict included a $2.5 million award to John Falls, a

Memphis musician and music businessman, under an insurance policy issued by Hanover

American Insurance Company. Hanover moved under Rule 50(b) to set aside the verdict, and

the district court granted its motion. On appeal, this court reversed and ordered the district court

to reinstate the jury verdict. We held in that case that because Hanover had failed to make an

initial 50(a) motion, it was therefore barred from making its Rule 50(b) motion.

The $2.5 million payout then became the subject of an interpleader action (and a parallel

state action between two of the three parties in this appeal). The district court initially enjoined

the state action, but this court reversed. Then, the district court, on summary judgment, held that,

applying principles of res judicata, the first trial and decision by this court precluded Hanover

from making certain arguments against Falls as to the distribution of funds. After a bench trial,

the district court found facts as to the value of the interests at stake and divided the funds, with

the majority going to John Falls and the remainder to Christopher C. Brown, who owned the

equipment insured by the policy. Hanover and Tattooed Millionaire Entertainment appeal.

We affirm the district court’s decision. First, Hanover may not challenge Falls’s

recovery, directly or indirectly, based on grounds and arguments it could have brought in the first

case. Although the district court erred by interpreting the wrong lease for the purposes of its

later analysis, we find this error harmless, because in the circumstances of this case it was correct

to allocate the funds based on the value of the leasehold. Finally, the district court’s

determination of the value of the leasehold and its resulting allocation was not clearly erroneous.

We affirm the district court’s judgment.

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I.

A.

In 2014, musician and producer Christopher C. Brown, through his company Tattooed

Millionaire Entertainment (TME), bought the House of Blues music studio in Memphis,

Tennessee. Hanover Am. Ins. Co. v. Tattooed Millionaire Ent., LLC, 974 F.3d 767, 771 (6th Cir.

2020) (“Hanover I”). Brown, through TME, also purchased an insurance policy on the studio

and the music equipment it contained from Hanover American Insurance Company. Id. Brown

insured the studio premises for $4.65 million, the music instruments and recording studio

equipment inside for $5.5 million, and the studio’s business income for $600,000. Id. The

instruments and equipment were termed Business Personal Property (“BPP”). Id.1 The House of

Blues building contained three studios: Studios A, B, and C. Id. Brown operated Studio A,

leased Studio B to John Falls, and leased Studio C to Daniel Mott. Id. at 771–72. Brown and

Falls, the lead singer of the band Egypt Central, had once been “cordial rivals,” but by 2014 built

a strong working relationship around launching a record label and producing music. Id. at 771.

Falls separately leased Studio B for his own independent music production operations. Id. Falls

also obtained insurance from Hanover for the specific BPP in Studio B and for lost business

income. Id.2

Falls’s lease agreements with Brown and the BPP insurance policy he obtained from

Hanover for the Studio B equipment are central to this case. Falls leased the studio space for

$500 a month, with automatic renewals, and the equipment for $1000 a month, with an option to

renew. Id.3 Falls’s policy from Hanover had a limit of $2.5 million for the BPP in Studio B and

$500,000 for business income. Id.

1

We use the terms “BPP” and “gear” interchangeably.

2

To be clear, this BPP was insured both by Brown (through his own policy) and by Falls (through the

policy at stake in this case). This fact is relevant to our determination that the district court did not err in its

allocation. See infra Section III.C.2.

3

Falls and Brown had created an arrangement that was highly advantageous to Falls, who was paying a far-

below-market rate to lease high-end recording equipment owned by Brown; he had an automatically renewing lease

to the Studio B space in which the equipment was housed, and he had the option to renew the equipment lease at

terms to be agreed. The insurance on the BPP in studio B was a policy protecting the parties’ respective interests,

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In 2015, the studio suffered a break-in and a fire determined to be arson; the building was

damaged, and a great deal of the equipment was damaged or stolen. Id. at 772. Together,

Brown, Mott, and Falls compiled their insurance claims into one document with the help of a

public adjustor, but separately signed proofs of loss, with each claiming losses up to their policy

limit—eventually totaling $10.5 million in BPP alone. Id. Hanover made an advance payment

of around $2.7 million: Falls and Mott each received $250,000, and Brown received the

remaining $2.2 million. Id. But problems soon arose. Hanover discovered that Brown had

forged the receipts detailing his underlying purchases of the lost equipment. Id. at 773. And

Brown had recently suffered two other suspicious insurance losses, including a “remarkably

similar loss to arson” in the previous calendar year. Id. Hanover sued, seeking recovery of its

advance payments and a declaratory judgment that it did not owe any remaining payments to

either Brown, TME, or Mott. Id. Brown, Falls, and Mott counter-sued, seeking the remainder of

their claims under breach of contract. Id.

The five-day trial in the Western District of Tennessee involved testimony from Brown

and Falls, among others. Id. Brown’s testimony gave an impression of untrustworthiness, even

beyond the forgery of the receipts, to which he admitted. Id. In the words of the court in

Hanover I, the falsifying of the receipts constituted “forgery . . . on a grand scale,” because “the

receipts were not just recreations of lost originals, but forged representations of transactions that

had never occurred.” Id. Falls, on the other hand, appeared more credible: he demonstrated “a

detailed grasp of the production business that indicated both that there were legitimate reasons

for him to have control of Studio B and that he had in fact been hard and productively at work

there until the fire.” Id. Although Falls lacked documentation to substantiate his claims, an

independent appraiser testified to the “high professional quality of the studio” and assisted Falls

in preparing valuations for the insurance claim. Id. at 774. The jury also heard testimony that

Falls had not been involved in the initial purchase of the equipment and that Falls had played no

part in Brown’s forgery. Id.

with Falls’s advantageous leasehold protected and Brown/TME listed as a loss payee due to be paid “jointly” in the

event of a loss “as interests may appear.” DE 153, Pretrial Order, Page ID 4317–18.

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The verdict form was structured so that each question that the jury answered would cover

claims between Hanover and only one of the three insured parties. Id. Answering the nineteen

questions divided among the three parties, the jury found the following facts:

• No defendant had made a material misrepresentation in his initial application for

insurance when describing and valuing the studio and equipment; material

misrepresentations and unlawful insurance acts were made only as to the value of

the equipment lost in the fire.

• Brown and TME were indistinguishable; TME’s actions could be attributed to

Brown.4

• Brown had made material misrepresentations after the fire with intent to deceive

Hanover as to the amount of loss suffered in the fire and had “committed an

unlawful insurance act” in making his claim.5

• Falls, however, had not committed material misrepresentations with intent to

deceive, nor any unlawful insurance acts.

• Hanover owed $2.5 million in BPP coverage and $250,000 in business income

coverage to Falls.

Id.; see also No. 2:16-CV-02817, DE 312, Verdict Form, Page ID 7688–91 (W.D. Tenn. Nov.

20, 2018).

After the verdict, Hanover filed a motion for judgment as a matter of law under Federal

Rule of Civil Procedure 50(b), arguing for the reversal of the verdict as to Falls. Crucially,

although the motion was styled as a “renewed” motion for judgment as a matter of law, Hanover

had never actually made an initial Rule 50(a) motion for judgment as a matter of law against

Falls before the case was submitted to the jury. Hanover I, 974 F.3d at 782–83. The district

court granted the motion nonetheless. Falls, Brown, and TME appealed.

B.

The Hanover I opinion focused on the propriety of this grant of Hanover’s 50(b) motion

by the district court. This court determined that Hanover forfeited its Rule 50(b) motion by not

4

Based on this conclusion, this opinion refers to “Brown/TME,” following the district court’s lead.

5

Brown has since pled guilty to a federal mail fraud charge connected to his insurance claims against the

Hanover policy. See No. 2:20-CR-20245, DE 2; 63; 96 (W.D. Tenn. Sept. 20, 2023 and Oct. 17, 2024). Docket

numbers are indicated for materials from dockets other than the case on appeal. A DE citation without a docket

number refers to the case on appeal, W.D. Tenn. docket number 2:20-cv-02834.

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making a 50(a) motion as to Falls.6 Id. at 779–90. Accordingly, the court did not consider the

merits of Hanover’s Rule 50(b) motion and remanded with instructions for the district court to

reinstate the jury verdict as to Falls. Id. at 790–91. This court’s reasoning flowed from the

relationship between Rule 50(a) and Rule 50(b). The necessity of a Rule 50(a) pre-verdict

motion before a Rule 50(b) post-verdict motion is based on basic concepts of notice and fairness:

the Rule 50(a) motion raises arguments to the court and opposing parties before a case goes to

the jury, and so it follows that a party may not wait to see how the jury decides something before

seeking relief. See id. at 780–81.

The court briefly analyzed alternative grounds for potentially affirming the district court,

rejected them, and went on to make comments about the future course of litigation in the case.

This appeal focuses on the scope and potential preclusive effect of this portion of the Hanover I

opinion. The parties aim portions of their preclusion arguments at almost every sentence in this

final section of Hanover I. For clarity, we reproduce it here:

C. Tennessee Public Policy

The jury awarded Falls $2,500,000 as the amount of insurance he was owed, up to

his policy limit, for Business Personal Property coverage and $250,000 as the

balance of the Business Income insurance he was owed. (Along with the

$250,000 he was already advanced and under the verdict would not have to pay

back, this amount brought the BI payout up to his policy maximum of $500,000.)

The BPP payment covers the loss of the gear in Falls’s studio. However, Brown

is the ultimate owner of the lost gear, on which Falls had a perpetually renewable

leasehold.

Therefore, Hanover argues, payment of the $2,500,000 would violate public

policy, because Brown would ultimately benefit from his own wrongdoing. It is

an “ancient equity maxim that no one should benefit from his own wrongdoing.”

K&T Enters., Inc. v. Zurich Ins. Co., 97 F.3d 171, 178 (6th Cir. 1996). The

Supreme Court of Tennessee recognized the application of this principle in

insurance cases in Box v. Lanier, 112 Tenn. 393, 79 S.W. 1042, 1045 (1904).

“No one shall be permitted to profit by his own fraud, or to take advantage of his

6

In Hanover I, we recognized that the trial judge had made ambiguous comments conceivably inviting the

parties to forgo filing Rule 50(a) motions. Hanover I, 974 F.3d at 781–83. But we also noted that these comments

did not deter Hanover from making an explicit Rule 50(a) motion with respect to Brown. Id. at 784. So, the 50(b)

motion as to Falls was deemed forfeited.

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own wrong, or to found any claim upon his own iniquity, or to acquire property

by his own crime.” Ibid.

The public-policy argument, however, even if accepted, does not mean that Falls

takes nothing of the $2,500,000 BPP award. Falls had a property interest in the

“gear,” in the form of his leasehold with unlimited renewal options.7 Leaseholds

have been held to be insurable interests. More to the point, Hanover clearly

accepted at trial that Falls had at least an arguable property interest: Barkman

testified at trial that the payment for BPP under the Falls policy would go to Falls

and Brown jointly. Thus, Barkman said, it would have to be endorsed by Brown

to be cashed by Falls. As Falls’s counsel explained to us at oral argument, the

proceeds will become the subject of an interpleader action between Falls, Brown,

Hanover, and Brown’s other creditors.

This was the district court’s plan for how to handle the issue: Falls and TME

would “sue each other” in the event of a win, but not fight it out during the main

trial. Though Falls and Hanover both make interesting legal arguments as to the

disposition of the funds, we see no reason to short-circuit that plan. Such

arguments can be made in whatever subsequent proceedings arise over this

payment.

CONCLUSION

For the foregoing reasons, we DENY Hanover’s motion to dismiss these appeals

and AFFIRM the judgments of the court below as to Brown/TME, Nos. 19-5550

& 19-5551, and Mott, 19-5562. But we REVERSE as to Falls, No. 19-5483, and

REMAND with instructions to reinstate the jury verdict on the grounds that

Hanover had forfeited its Rule 50(b) motion by not bringing a Rule 50(a) motion.

Id. at 790–91.

Proceedings then diverged. Falls sued Brown and TME in Tennessee state court (without

adding Hanover as a party), and Hanover filed this interpleader action and sought an injunction

against the state-court proceeding in the federal district court. Hanover Am. Ins. Co. v. Tattooed

Millionaire Ent., LLC, 38 F.4th 501, 503 (6th Cir. 2022). The district court initially enjoined the

state court proceedings, but this court then reversed that decision, holding that the exception to

the federal Anti-Injunction Act covering injunctions necessary to protect the district court’s

jurisdiction did not apply. Id. at 508–12.

7

Hanover I footnote 15: “As Falls stated at trial: ‘[T]here’s the unresolved matter of the fact that I had a

lease for equipment and a space. That equipment had monetary value to me that I have been out now for three

years.’ Cf. State of Tenn. ex rel. Dept. of Trans. v. Gee, 565 S.W.2d 498, 501–02 (Tenn. Ct. App. 1977) (discussing,

in the context of a takings case, the proper calculation of the property value of a leasehold).”

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The state court proceedings resulted in an allocation of the payout between Falls and

TME. Hanover argued that this state court decision does not bind it because it was not a party to

the state court case, and the district court agreed with that argument. Falls does not appeal this

portion of the district court’s decision.

C.

After this court reversed the injunction, proceedings continued in the district court. The

district court had initially denied Falls’s motion to dismiss Hanover’s arguments against Falls as

precluded by Hanover I and allowed Hanover to brief its arguments against Falls. But then on

summary judgment, the district court changed course, held that Hanover was precluded from

arguing against Falls’ recovery and granted summary judgment to Falls on his claims against

Hanover. The district court then held a one-day bench trial. The court heard testimony from

Brown, Falls, Nathan Evers (a Hanover representative), Pete Matthews (an audio engineer who

testified to the rental value of Studio B and its recording equipment), and Robert Vance (an

accounting expert who testified to the value of Falls’s leasehold interest). The district court

accepted Vance’s valuation, awarded $2,066,217.30 to Falls, and held that Brown was barred by

Tennessee public policy from receiving or crediting the remaining $433,782.70 of the $2.5

million he would otherwise be due. Hanover then appealed, and Brown cross-appealed.

II.

Reviewing a case on appeal from a bench trial, we review the district court’s legal

conclusions de novo and its factual determinations for clear error. Fox v. Washington, 949 F.3d

270, 276 (6th Cir. 2020). A factual finding is clearly erroneous if “although there is evidence to

support it, the reviewing court on the entire evidence is left with the definite and firm conviction

that a mistake has been committed.” Osborn v. Griffin, 865 F.3d 417, 436 (6th Cir. 2017)

(citation modified). And a level of deference on factual questions is proper: “if ‘the district

court’s account of the evidence is plausible in light of the record viewed in its entirety, the court

of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it

would have weighed the evidence differently.’” Id. (citation modified).

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III.

The district court was correct to hold that Hanover was precluded from contesting the

amount of its payment to Falls. Nevertheless, Brown adopts Hanover’s arguments. Brown is

permitted to make arguments regarding the construction of the policy, and so we analyze those

arguments. On the merits, however, those arguments do not require the district court’s order to

be vacated or reversed. Under Tennessee law, the fact that TME is listed as a “loss payee” in the

policy means only that the value of Brown/TME’s ownership interest in the BPP (subject to the

leasehold) ought to be satisfied by the payout proceeds as well as the leasehold interest, not that

Brown/TME gets the entire payout. So the disposition of the case still depends on the legal

question of the parties’ obligations after the fire and the factual question of the values of the

underlying interests.

The district court’s decision determined that the lease had not terminated. The district

court then valued the leasehold based on the trial testimony, and allocated the funds based on

that valuation. Although the district court relied on the lease for the Studio B space rather than

the lease for the recording equipment at issue in this case, we hold that its error was harmless.

Under Tennessee law, when parties arrange for insurance coverage within a lease, a loss covered

by that insurance does not necessarily terminate the lease; instead, the parties’ rights and

obligations under the lease as expressed in the language of the instrument inform the allocation

of the insurance funds. Under the circumstances of the lease and strong working relationship

seen in this case, the intent of the parties was to insure both Falls’s valuable leasehold and

Brown’s ownership interest subject to that potentially renewing leasehold. So the district court

was correct to allocate the funds based on the value of the respective interests at stake. And the

values it reached were not clear error. Finally, Tennessee public policy prevents Brown from

recovering his allocated funds, because he admitted to misrepresenting the value of the BPP

under the policy.

A.

The judgment of a federal court sitting in diversity is given the same preclusive effect in a

later federal proceeding that it would be given in the state courts of the state in which the first

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federal court sits. Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001). Thus,

the district court was correct to apply the Tennessee law of claim preclusion, alternatively termed

res judicata, to the federal judgment in Hanover I.

The doctrine of claim preclusion promotes finality in litigation and operates to bar “a

second suit between the same parties or their privies on the same claim with respect to all issues

which were, or could have been, litigated in the former suit.” Elvis Presley Enters., Inc. v. City

of Memphis, 620 S.W.3d 318, 323–24 (Tenn. 2021) (citation omitted). The party asserting the

defense of claim preclusion must show:

(1) that the underlying judgment was rendered by a court of competent

jurisdiction, (2) that the same parties or their privies were involved in both suits,

(3) that the same claim or cause of action was asserted in both suits, and (4) that

the underlying judgment was final and on the merits.

Id. at 324 (citation omitted). The Western District of Tennessee had jurisdiction over Hanover I.

Hanover, Falls, Brown, and TME were parties to both cases. But the third and fourth elements

are closer calls. The third element asks whether Hanover’s arguments about the proper

interpretation of the insurance agreement and the application of Tennessee public policy

principles were made, or could have been made, in Hanover I, and the fourth asks whether that

case was a final decision. We address these together. Falls argues that “[i]n defending Falls’s

counterclaim [in Hanover I], Hanover was obligated on pain of res judicata/claim preclusion to

raise all arguments as to why Falls would have been precluded from recovery of the BPP or

restricted to a lower amount.” CA6 R. 29, Falls Br., at 21.

The argument Hanover makes in this case was also made in its forfeited 50(b) motion.

Hanover argued that because TME/Brown was the sole owner and included as loss payee for the

BPP insured under Falls’s policy, “every penny of the $2,500,000 BPP award will be payable to

TME/Brown, the confessed ringleader of the fraudulent scheme,” which Tennessee public policy

does not permit. No. 2:16-CV-02817, DE 319-1, Hanover’s 50(b) Mot., Page ID 8769 (W.D.

Tenn. Dec. 17, 2018). Meanwhile, in its brief on this appeal, Hanover argues that “Falls is not

entitled to any portion of the BPP insurance proceeds because Brown/TME own all of the

insured gear and the Falls insurance policy identifies TME as the sole loss payee for “ALL

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INSURED BPP.” CA6 R. 24, Hanover Opening Br., at 24. This case begins to taste like a

second bite at the apple.

Not so fast, Hanover says. As Hanover sees it, our decision in Hanover I “specifically

preserved the allocation issue” for a future interpleader case—therefore, the claim was either not

fully decided or was expressly preserved. Id. at 7 (emphasis omitted). There is some attraction

to this contention at first consideration. A judgment must be final for claim preclusion to apply,

and a decision that leaves a certain issue open for future adjudication is not accorded preclusive

effect as to that issue. See Restatement (Second) of Judgments, § 13(a) (calling this a “common

sense” principle). The Hanover I decision specifically states that Hanover’s “interesting legal

arguments as to the dispositions of the” insurance proceeds “can be made in whatever subsequent

proceedings arise over” the payment at issue here. 974 F.3d at 791.

Hanover I was primarily concerned with holding Hanover’s Rule 50(b) motion precluded

and reinstating the jury verdict that ordered the payment to Falls. The problem, however, lies in

determining which “arguments,” and against whom, the Hanover I court meant when it said this.

The best reading of the Hanover I opinion is that, while Hanover can advance its public policy

arguments against Brown, Hanover is barred by the reinstated verdict in Hanover I and by its

litigating positions in that case from contesting its obligation to pay Falls or the amount of the

payment to Falls. In short, this court preserved Hanover’s public policy arguments against

Brown, but not its arguments against Falls.

This conclusion is a necessary consequence of the way Hanover I was structured and

submitted to the jury: each party’s liability was tied to its own alleged insurance

misrepresentations. The jury was tasked with assessing Falls’s counterclaim for breach of

contract and was not asked to decide whether any acts at all by Brown/TME could prevent

recovery under the Falls policy.

This principle of separability was significant throughout the Hanover I opinion in this

court. The Hanover I opinion titles the section at issue “Tennessee Public Policy.” Id. at 790.

Hanover’s “public policy” argument was that because (1) general Tennessee principles of equity

prevent any party from profiting from its own fraud, (2) Brown had been found by the jury to

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have committed wrongful insurance acts, and (3) the policy’s terms meant that Brown as owner

would get all, or at the very least some of the funds; therefore Hanover ought not to have to make

the payout at all. In short, because Brown—the ultimate owner of the lost BPP and the putative

sole payee under the policy—had been found by the jury to have committed wrongful insurance

acts, Hanover owed no money at all on this policy despite the verdict. Id.

The Hanover I opinion looked askance at this argument. “The public-policy argument,

however, even if accepted, does not mean that Falls takes nothing of the $2,500,000 BPP award.

Falls had a property interest in the ‘gear,’ in the form of his leasehold with unlimited renewal

options.” Id. This language shows that the Hanover I court viewed the argument as potentially

attacking or conflicting with the verdict and Hanover I judgment—if Falls had no insurable

interest, how could he recover under the policy, as the jury found he should?

Further, the court in Hanover I disapproved of Hanover’s “sandbagging” in an effort to

avoid paying Falls. The opinion faulted Hanover for seeking to change course after it had

allowed the case to be submitted to the jury under a theory of separate liability, under which

Brown’s misbehavior was adjudicated separately from Falls’s entitlement to recovery. Hanover

could have requested jury instructions on the effect of Brown’s actions on Falls’s policy, or

otherwise “could have requested that the verdict form be structured so as to tie the issues

together,” but had not done so. Id. at 788. “Thus, all parties sent the case to the jury with each

party’s own misrepresentations isolated from the others and tied to its own individual liability.”

Id. (emphasis in original); see No. 2:16-CV-02817, DE 312, Verdict Form, Page ID 7688–91

(W.D. Tenn. Nov. 20, 2018). But then, after the jury had found misconduct by Brown and not

by Falls, Hanover “turned around and argued the opposite” to try to avoid paying Falls based on

Brown’s fraud. Id.; see also id. at 784 (“the case went to the jury on a theory that was very

nearly the opposite of that on which Hanover prevailed after trial” by means of its 50(b) motion).

We stated that “behavior of this sort, sometimes called ‘lying in the weeds’ or ‘sandbagging,’

should be strongly discouraged.” Id.

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To be fair to Hanover, this specific quoted “sandbagging” language probably applied to a

very similar but distinct argument on which Hanover had prevailed by 50(b) motion.8 But the

fact remains that if Tennessee public policy barred any payout under the Falls policy because of

Brown’s acts (as Hanover argues here) the verdict form could not have been structured the way it

was, with only Falls’s potential misrepresentations capable of barring his recovery. This court

held Hanover’s 50(b) motion to be forfeited. Such forfeiture would have little meaning if

Hanover could lie in the weeds even longer and then mount arguments against Falls on grounds

available in Hanover I. In this way, the arguments Hanover now seeks to make against Falls

ought to have been made as part of the Hanover I action before the case went to the jury.

Hanover argues in its reply brief that it “did try to address allocation of the BPP funds in

Hanover I.” CA6 R. 30, Hanover Reply Br., at 1. But it does not get credit for having done so in

the Rule 50(b) motion that this court held was forfeited.

In sum, this court in Hanover I preserved a “public-policy argument,” but it also upheld

and reinstated a verdict that (1) found no wrongdoing on the part of Falls and (2) awarded him

funds based on a principle of separability. See Hanover I, 974 F.3d at 788, 790. The district

court in the current case reconciled those two actions by holding that Hanover could still argue

against Brown that public policy barred recovery of whatever portion of the payout Brown was

owed, but that Hanover could not get a new chance to litigate allocation against Falls. This was

correct.

Res judicata does not bar consideration of these contractual issues as raised by Brown,

who had no incentive in Hanover I to attack his co-defendant’s interest (and whose ability to

pursue these arguments was more clearly anticipated both by the amended judgment in the

district court and the Hanover I opinion’s endorsement of the “sue each other” plan). Hanover I,

974 F.3d at 791; cf. United States v. Berman, 884 F.2d 916, 923 n.9 (6th Cir. 1989). Next, we

8

This would have been the argument that Brown’s fraud directly voided Falls’s policy by the terms of its

plain language, which even Hanover admits was decided in Hanover I (Hanover suggests in arguing against

preclusion that the district court thought Hanover was asserting this argument again). The fact that this concededly

precluded argument mirrors the operation and structure of the argument Hanover seeks to make today (i.e., Brown’s

bad acts block recovery by Falls under the language of Falls’s policy) is further support for our holding that there is

no reason this argument could not have been raised in litigating Hanover I.

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consider Hanover’s contractual arguments as raised by Brown, who incorporates them by

reference.9 Brown’s brief agrees with Hanover on all contract issues, and only differs in arguing

that Tennessee public policy does not actually bar Brown from benefiting from the allocated

funds. We address those arguments below. See infra Section III.F.

B.

Hanover’s first merits argument is that clauses in the Falls policy naming TME as the

“loss payee” are best interpreted such that any insurance payment under the policy simply goes

to TME. CA6 R. 24, Hanover’s Opening Br. at 24–34; CA6 R. 27, Brown/TME Br. at 11

(incorporating Hanover’s arguments by reference).

The parties disagree about the character of the ownership and leasehold interests in the

BPP, but they stipulated to the existence and relevance of certain contractual terms in the policy.

They agree that “Brown/TME is the sole owner of the gear insured by the Falls policy subject to

the leasehold interest held by Falls.” DE 153, Pretrial Order, Page ID 4317. They also agree that

the lease for the BPP “required Falls to insure the gear for ‘at least $2,500,000.’” Id. at Page ID

4318. They agree that TME is listed as a “Loss Payable” for “ALL INSURED BPP.” Id. And

they agree that additional “Loss Payable Provisions” are part of the policy and provide that “For

Covered Property in which both you and a Loss Payee . . . have an insurable interest, [Hanover]

will: a. Adjust losses with you; and b. Pay any claim for loss or damage jointly to you and the

Loss Payee, as interests may appear.” Id. Finally, they agree that Falls has not paid rent to

Brown or TME under the lease for the studio or the lease for the BPP since the fire. Id.

From there, they diverge. Brown incorporates Hanover’s arguments that a “loss payable”

clause requires that a named loss payee take priority over the claim of a named insured. Hanover

makes this argument by citing Union Planters National Bank v. American Home Assurance Co.,

No. W2001-021124-COA-R3-C, 2002 WL 1308344 (Tenn. Ct. App. Mar. 18, 2002). Falls

disagrees, pointing out that the stipulated Loss Payable Provisions specifically provide that

claims under the policy would be paid “jointly to you and the Loss Payee, as interests may

9

For convenience and clarity, however, we still refer to them as Hanover’s arguments, as we are responding

to arguments in Hanover’s briefing.

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appear” and distinguishing Union Planters.10 CA6 R. 29, Falls Br., at 28–32 (emphasis omitted).

Finally, Falls argues, even if the loss payable clause does give priority, it only does so up to the

extent of the interest itself.

Although the loss payable clause does protect TME/Brown’s ownership interest, Falls is

correct that any protection only goes to the extent of the interest itself, so the argument does not

make the difference Hanover thinks it does. Union Planters states that “[g]enerally, a ‘loss-

payable’ clause provides that proceeds of an insurance policy are to be paid first to the

designated loss payee rather than to the named insured.” 2002 WL 1308344, at *4. Loss

payable clauses most typically appear at the intersection of a mortgage and an insurance policy,

where, for example, a bank as mortgagee owns an interest in an insured piece of property and is

listed as a loss payee so that its “interest in property is protected should a loss occur.” Reeves v.

Granite State Ins. Co., 36 S.W.3d 58, 60 (Tenn. 2001).

But this amount need not be the entire value of the insurance policy. A loss payee’s

interest in proceeds is protected no more or less than the loss payee’s interest in the insured

property. If, in the mortgage context, the underlying note is partially satisfied (as in, for

example, when the mortgagor has paid off a portion of the debt), the mortgagee designated as

loss payee only recovers the remaining portion of their interest—where the debt is fully paid, this

may be none. See Benton Banking Co. v. Tenn. Farmers Mut. Ins. Co., 906 S.W.2d 436, 438,

440 (Tenn. 1995) (mortgagee “entitled to insurance proceeds to the extent of the mortgage

debt”); Hocking v. Va. Fire & Marine Ins. Co., 42 S.W. 451, 451 (Tenn. 1897) (a mortgagee

“made payable as his interest may appear is, in a large sense, an assignee to the extent of his

interest” (emphasis added) (citation omitted)).

So, some division of proceeds between the two parties is consistent with the joint loss

payee language in the Hanover policy, where both parties had insurable interests covered by the

policy. To be sure, Union Planters could possibly be read to require Brown’s interest to be

10

Falls also argues that because Brown, not TME, owned the BPP at stake, TME as loss payee had no

insurable interest and may not recover as a matter of law. This argument would carry more weight if the parties had

not stipulated that “Brown/TME is the sole owner of the gear” and if the jury had not found that TME and Brown

were “indistinguishable such that Tattooed Millionaire Entertainment, LLC, may be disregarded.” No. 2:16-CV-

02817, DE 312, Verdict Form, Page ID 7689 (W.D. Tenn. Nov. 20, 2018); DE 153, Pretrial Order, Page ID 4317.

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valued and satisfied first, with Falls getting the remainder (the reverse of what happened here,

where Falls’s interest was valued first and compensated in full).

But we hold that Union Planters does not control priority here. It is not clear that

Brown’s interest is required to be paid by the insurer first in a situation like this one, where

(1) the payment is to be made “jointly” and (2) the underlying relationship between the parties is

one of lessor and lessee, rather than mortgagor and mortgagee. We have not found a Tennessee

case applying similar language to give such strict priority in the joint payee, lessor-lessee

context. Cf. Charter Oak Fire Ins. Co. v. Lexington Ins. Co., No. M2002-01752-COA-R3-CV,

2004 WL 431488, at *1–2, *6 (Tenn. Ct. App. Mar. 2, 2004) (lessees purchased fire insurance as

required in lease; lessor named as “loss payee or additional insured”; insurance company paid

funds to lessors, after subtracting funds paid first to lessee “for loss of personal property” in the

fire based on lease language).11 And some cases from other jurisdictions, confronting situations

where lessors and lessees are both to be paid, do not give either party priority and simply carry

out a division of the proceeds according to the nature and value of the underlying interests. See,

e.g., Grand Forks Seed Co. v. Northland Greyhound Lines, Inc., 168 F. Supp. 882, 884 (D.N.D.

1959); Osborn v. Home Ins. Co., 914 S.W.2d 35, 38 (Mo. Ct. App. 1996); cf. Hartsell v. Integon

Indem. Corp., 493 S.E.2d 740 (N.C. 1997).

When property is condemned in eminent domain, Tennessee cases explicitly approve

valuing the leasehold first and giving the remainder of the condemned value to the lessor. State

v. Gee, 565 S.W.2d 498, 502 (Tenn. Ct. App. 1977) (in the eminent domain context, rejecting

lessor-first calculation as a matter of law). Osborn uses the eminent domain methodology in an

insurance payout division context. 914 S.W. 2d at 38. And Hanover does not challenge Falls’s

citation to eminent domain cases on appeal.

11

In Hayes v. Ferguson, the Tennessee Supreme Court held that, where lessees had refused to use an

insurance payout to replace premises, the lessor was entitled to the money because lessee’s “interest in it and right to

it ceased.” 1885 WL 2862, at *12–13 (Tenn. 1885). The Hayes opinion declined to distribute insurance funds based

on the language of a loss payee clause that named the lessees. Rather, the lessees’ obligation to replace buildings at

their own expense in the event of fire meant that the funds, even if initially paid to them, were only to be used for

that purpose. The insurance policies in Hayes insured the interests of the lessors, “not the leasehold interest” of the

lessees. Id. at *10. In this case, by contrast, Hanover concedes that the Hanover I jury found that Falls had an

insurable interest in the BPP at stake here. We examine Tennessee law in construing the lease and its obligations

below. See infra Section III.C.2.

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Although Hanover points to testimony from its corporate representative, Nathan Evers,

who testified at the bench trial in this case that the policy requires Hanover to pay TME only,

testimony as to how Hanover would interpret its own policy—which lines up well with its

current litigating position—does not control the application of law to loss payee provisions. See

Union Planters, 2002 WL 1308344, at *4 (“The interpretation of the policy . . . is a matter of

law, not of fact.”).

We hold that the district court was correct to treat the joint loss payable clause as

allowing a division of proceeds between Brown as lessor and Falls as lessee based simply on the

value of those two interests. So this question is ultimately the same as the question of how to

divide the proceeds between the two parties. And that, in turn, is governed by the terms of the

lease agreement between TME and Falls.

C.

1.

We next consider the leases. Hanover argues that Falls cannot recover as the district

court allowed him to because his lease terminated at one of three possible times: before the fire,

because (Hanover alleges) Falls failed to pay rent; at the time of the fire, because (Hanover

claims) a fire terminates a leasehold interest; or in 2017, at the time the lease contemplated

termination absent renewal. Hanover argues that it should, at most, only be liable to Falls for

payments reflecting the leasehold’s value through 2017.12

The district court found that the lease never terminated because (1) the record showed

that Falls was current on lease payments before the fire; and (2) the lease did not require a

written notice to exercise the option to renew, which meant that the lease “extend[ed]

automatically unless a notice of termination was provided.” DE 164, District Ct. Op., Page ID

4594, 4596. The first determination is not clear error where, as here, the trial testimonies of Falls

12

Hanover further proposes reducing this figure by the amount of the lost business profits payout Falls has

already received. This suggestion is not well taken. This appeal concerns the payout for an interest in the BPP, not

the payout for lost profits. Hanover does not argue that as a matter of law Falls cannot recover both; it just argues

that the result Falls seeks is absurd.

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and Brown as to whether Falls’ payments were current contradicted each other, and Falls’s was

clearer and more definite.13 But the latter determination was error. In determining that the lease

extended automatically, the district court referred to the retail lease for the Studio B space

instead of the lease for the Studio B equipment at issue in this case. The retail lease provides for

automatic renewal; the equipment lease only provides that Falls had an option to renew, on terms

to which the parties would agree at the time of renewal.

Although both parties discuss whether the lease terminated and cite Tennessee cases

involving the lease and insurance context, they focus their arguments on termination, rather than

how the intent of the parties as expressed in the lease should be interpreted to allocate

responsibility for repair and the resulting distribution of the insurance funds. We do not typically

answer such questions of intent in the first instance. But in the interest of judicial economy, we

do so today. Cf. Kerr v. Comm’r of Soc. Sec., 874 F.3d 926, 933 (6th Cir. 2017).

2.

Under Tennessee law, the owner of insured leased property does not always receive the

entire proceeds of any insurance policy when the property is destroyed by fire. Instead, the cases

contemplate that where the parties have contracted for one party’s purchase of insurance, and

allocated the cost and responsibility of repair, the choices made and expressed in their agreement

control the distribution of insurance proceeds. The question is how this principle is to be applied

today, ten years later, where the studio has not been rebuilt? We hold that the proceeds may be

divided as the district court undertook to do.

Tennessee cases regarding the disposition of fire insurance proceeds in a lessor-lessee

context hinge on the intent of the parties regarding repairs or replacement after fire loss, as

expressed in the lease terms or inferred from them. See First Am. Nat. Bank v. Chicken Sys. of

Am., Inc., 510 S.W.2d 906, 908 (Tenn. 1974) (“[T]he cardinal rule of construction” of written

instruments is “that the intention of the parties as ascertained from the language of the instrument

controls.”); St. Paul Surplus Lines Ins. Co. v. Bishops Gate Ins. Co., 725 S.W.2d 948, 951 (Tenn.

13

See, e.g., DE 156, Trial Tr., Page ID 4386–88 (cross-examination of Brown) (“Q: Did you have a ledger

where you kept a ledger of Mr. Falls’s rent payments? A: We’re musicians, and that was never a thing.”).

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Ct. App. 1986); Charter Oak, 2004 WL 431488, at *5; Hall v. Park Grill, LLC, No. E2020-

00993-COA-R3-CV, 2021 WL 2135952, at *2, *6 (Tenn. Ct. App. 2021). Specifically, where

the parties have contracted to require insurance, and include in the lease clauses that contemplate

potential repair or replacement of insured property, the structure of the lease relationship

survives in some form following loss by fire and these clauses control the distribution of the

insurance funds, which are typically understood to be used to replace the lost or damaged

property. See EVCO Corp v. Ross, 528 S.W.2d 20, 24 (Tenn. 1975) (“[W]e do not believe it was

the intention of the parties that there should be an automatic cancellation or termination” where

promises regarding repair and replacement were included in the lease in question); Taylor v.

White Stores, Inc., 707 S.W.2d 514, 516–17 (Tenn. Ct. App. 1985) (concluding that lease did not

terminate based on the “clear import” of the lease agreement).

The intent of the parties controls even where the language of the lease does not

necessarily require that the funds be used for replacement, and even where this means the lessor

does not completely recover for its leased and destroyed property. In Hall v. Park Grill, LLC,

the lessor had leased a building to Park Grill, “a company that had utilized the building primarily

as a storage facility for its restaurants” in Gatlinburg, Tennessee. No. E2020-00993-COA-R3-

CV, 2021 WL 2135952, at *1 (Tenn. Ct. App. May 26, 2021). The building was destroyed in the

Gatlinburg wildfires of 2016, and an insurance company paid the lessee, Park Grill, who had

insured the premises, around $130,000. Id. In 2019, the plaintiff, Faye Hall, representative of

the original lessor’s estate, sued based on the lease, seeking the value of the leased building or

the amount of the fire insurance proceeds. Id. at *2. Where Hall had argued that the lease’s

clear import required fire insurance proceeds to be put toward replacing the building, the Court

of Appeals of Tennessee interpreted the lease differently, and held that the parties had expressly

agreed that the funds would only be used for replacing the building “[i]n the event these premises

are damaged by fire or other insurable loss, and the premises can be reasonably repaired within

ten (10) working days.” Id. at *2, *13. Because the premises could not be repaired within that

period, the lessor’s estate was not entitled to the insurance proceeds. Id. at *15.

In EVCO, the lessor covenanted to be responsible for “all major repairs” and was

required to “carry fire insurance upon the building structure,” while the lessee covenanted to

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“return the premises back to the lessor at the expiration of the lease.” 528 S.W.2d at 21 (citation

omitted). The court held that the lessor’s promise to carry out major repairs, coupled with the

lessor’s covenant to carry fire insurance, meant that “the loss in this case must fall upon the

lessors” despite the lessee’s promise to return. Id. at 24. Nonetheless, due to the time spent in

litigation and the short time left on the lease, the Tennessee Supreme Court did not instruct

lessors to rebuild the premises, as it read the lease to require, and it left the scope of relief for

their breach open to Tennessee’s Chancery Court on remand. Id. at 24–25. In St. Paul, the

obligation was reversed: the lessee expressly covenanted to repair or to replace the premises and

promised to keep the premises “insured against loss or damage by fire.” 725 S.W.2d at 950. The

Tennessee Court of Appeals described the situation as “somewhat analogous . . . in reverse” to

EVCO, and stated that “obviously the funds from the fire insurance policies were to be used” for

the purpose of fulfilling the lessees’ promise to replace the building. Id. at 952. Where both

sides agreed the lease had terminated, and the proceeds had not been so used, the Court of

Appeals simply awarded the insurance proceeds in their entirety to the lessors. Id.

There are five clauses of Falls’ lease that are relevant to our determination of the intent of

the parties. First, the equipment lease provides that Brown/TME as lessor “shall maintain, at the

Lessor’s cost, the equipment in good repair and operating condition, allowing for reasonable

wear and tear. Such costs shall include labor, material, parts, and similar items.” CA6 R. 25,

App., at 00007. We call this the “repair” clause. Second, the lease provides that “[a]t the end of

the Lease term, the Lessee shall be obligated to return the equipment to the Lessor at the

Lessee’s expense.” Id. We call this the “return” clause. Third, the lease provides that Falls as

lessee “assumes all risk of damage to the equipment from any cause, and agrees to return it to the

Lessor in the condition received from the Lessor, with the exception of normal wear and tear,

unless otherwise provided in this Lease.” Id. at 00008. We call this the “assumption” clause.

Fourth, the lease provides that “[u]nless otherwise provided in this Lease, if the equipment is

damaged or lost, the Lessor shall have the option of requiring the Lessee to repair the equipment

to a state of good working order, or replace the equipment with like equipment in good repair,

which equipment shall become the property of the Lessor and subject to this Lease.” Id. We call

this the “option to replace” clause. Fifth and finally, the lease provides that Falls as lessee “shall

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insure the equipment in an amount of at least $2,500,000.” Id. We call this the “insurance”

clause.

A court attempting to interpret a contract must strive to construe “all . . . provisions of a

contract . . . as in harmony with each other, if such construction can be reasonably made, so as to

avoid repugnancy between the several provisions.” Bank of Com. & Tr. Co. v. Nw. Nat’l Life

Ins. Co., 26 S.W.2d 135, 138 (Tenn. 1930). But at the same time, the contract terms should not

be given “a strained or unnatural interpretation.” EVCO, 528 S.W.2d at 23.

Because these clauses involve contrary obligations, it is difficult to harmonize them

completely. By the terms of the lease, the lessor undertakes at his cost to repair and maintain the

equipment,14 but at the same time the lessee promises to return it at the end of the lease term at

his own expense. The lessee assumes the risk of any damage, but if damage or loss occurs, the

lessor has the option to require the lessee to repair or replace (such replaced equipment becoming

subject to the lease). Finally, the lessee is required to insure.

It seems clear that where a lease expressly requires one party to procure insurance, the

proceeds of that insurance policy are presumed to benefit both parties absent some indication to

the contrary. See id. at 23–24. Neither Brown nor Falls separately protected their respective

interests in the equipment “wholly apart from the lease provisions.” Id.15 EVCO read an

insurance clause as support for its conclusion that lessors were required to bear the cost of

replacement, and left the ultimate disposition of the funds up to another court on remand, as the

lease was nearly up. Id.; see also Tate v. Trialco Scrap, Inc., 908 F.2d 974, at *3 (6th Cir. 1990)

(table) (applying Tennessee law and discussing EVCO and St. Paul)16; Doramus v. Rogers Grp.,

14

And this language, which mentions “material” and “parts” and distinguishes reasonable wear and tear,

does not necessarily refer only to minor repairs.

15

Brown had his own separate insurance policy on this BPP. Hanover did not have to pay out under the

policy, as determined in Hanover I, because of Brown’s unlawful insurance acts.

16

Trialco confronted the distinct question whether, where a lessee causes loss to insured property by

negligence, the insurance company can recover from the lessee, or if instead, because required insurance was “for

the benefit” of both lessor and lessee, the negligent lessee was an “implied coinsured” against whom the insurance

company could not recover by subrogation. 908 F.2d 974 at *2–3, *6. In that case, “the burden of the insurance

provision [was] on the lessor while the burden of the repair provision [was] on the lessee.” Id. at *3 (emphasis

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Inc., No. M1998-00918-COA-R3-CV, 2001 WL 196974, at *14 (Tenn. Ct. App. Feb. 28, 2001).

It also seems clear, based on this disposition in EVCO, and on the Court of Appeals’s allocation

in St. Paul, that where insurance proceeds are to be used to replace insured property under a

lease, but time has intervened since the loss in question, a court may allocate them to effectuate

this intent and compensate the parties for the interests at stake.

Here, if the lease had not contained TME’s general promise to repair and maintain the

equipment, the intent of the parties might be to require Falls to obtain insurance for the sole

purpose of fulfilling his obligation under the return clause or, alternatively, under the assumption

or damage clauses. And then, with the insurance obtained only for that purpose, it would seem

proper to allocate the funds either to Falls with the requirement that they be used to replace the

equipment, or, following St. Paul, entirely to Brown. But that is not the situation before us.

Falls did not obtain insurance for the sole purpose of fulfilling his obligation under the

return, assumption, or damage clauses. In fact, the lease includes an unqualified covenant for

Brown to maintain and repair the equipment—such an express inclusion is a contractual

departure from the default rule that the lessor is not responsible for repairs. See EVCO, 528

S.W.2d at 23. Further, Falls’s obligation in at least the return clause, and potentially the

assumption clause, only applies at the termination of the lease, while Brown/TME’s obligation in

the repair clause applies continuously. While the option to replace clause could come into

operation during the term of the lease, it (1) expressly applies only “[u]nless otherwise

provided,” (2) does not require replacement absent a request by Brown; and (3) contemplates

that the replaced property would become subject to the lease. Because the policy served to

protect both parties’ interests, including the ability to fulfill Falls’s own obligations under the

lease, we can reasonably conclude that the policy was obtained for the mutual benefit of both

Brown and Falls. In other words, Falls and Brown intended the policy to insure both of their

interests under their respective lease obligations.

omitted). This court determined that the insurance was for the benefit of both parties, meaning the lessee was a

coinsured, which prevented the insurance company from recovering from the lessee.

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In sum, the intent of the parties, as far as we can ascertain it, was that, whether Falls

could seek repair from Brown under the repair provision, or Brown could seek replacement from

Falls under the option to replace provision, the lease would not terminate in the event of damage

to the equipment. Instead, the lease would continue in force, with equipment repaired and

maintained by Brown or replaced by Falls and still covered by the continuing lease. The lease

and insurance arrangement is thus best read as protecting both Falls’s valuable leasehold interest

and Brown’s interest in eventually receiving equipment back at the ultimate termination of the

lease, potentially after years of reasonable wear and tear. And because the policy, which was to

be paid jointly as interests might appear, protected both parties’ interests, the payout could

permissibly be allocated between them, as the district court did here.

If, on the other hand, we determined that the clauses could not be reconciled and that the

contract was ambiguous, we would look to “extrinsic evidence” to ascertain the intent of the

parties at the time of the lease, and our conclusion would be the same. See Cummings, Inc. v.

Dorgan, 320 S.W.3d 316, 333 (Tenn. Ct. App. 2009). The extrinsic evidence bolsters our

conclusion. Brown had his own separate insurance on the BPP. At trial in this case, Brown

testified that he expected the proceeds of the Falls policy to be paid to him, “because restoring

the studio was definitely the plan, building it back, and putting all the gear back into it”—

although, somewhat contradicting this belief, he also testified that he did not understand the lease

to oblige him to repair or replace. DE 156, Trial Tr., Page ID 4364, 4366–67. Falls, for his part,

testified that all parties expected the studio to reopen, and that the lease required him to return

the equipment “whenever” the lease terminated. Id. at Page ID 4438, 4443–44. The parties

intended their working relationship to extend far into the future, regardless of whether loss

intervened. Where the studio was never rebuilt, this state of affairs supports a division today of

these proceeds reflecting the interpretation that with this policy, Falls had insured a highly

valuable leasehold over many years, subject to a promise eventually to return the used equipment

(potentially repaired at Brown’s expense) to Brown.

Although the district court relied on the wrong lease and focused on termination to the

exclusion of the intent of the parties, we hold that this error was harmless. We agree with its

ultimate determination of the question that an allocation of the funds between Falls and Brown

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based on a valuation of the leasehold, rather than a complete award to either one or the other,

was correct under Tennessee law.

D.

We turn now to the valuation of the interests at stake. During the bench trial, the court

heard testimony as to the value of the leasehold from Pete Matthews, an audio engineer, and

Robert Vance, an accounting expert. Vance was the only witness who directly testified as to the

value of the leasehold. Matthews testified that similar recording equipment to that in Studio B

could be rented out for $8,570 a day in Memphis, and that Falls’s reported income of $201,000

to 249,000 a month from renting out the studio and equipment was reasonable. Vance, in turn,

testified as to the longer-term value of the leasehold and relied in part on Matthews’s

estimations. Vance first took Falls’s reported revenue for renting out the Studio B space along

with the equipment for a 220-day period in 2015, then annualized it and subtracted expenses to

arrive at a net profit of $304,000 a year. Vance then relied on Matthews’s estimate that a long-

term commercial lease of equivalent equipment (i.e., if Falls had had to replicate the equipment

lease on the open market) would have cost about $22,500 a month. In that hypothetical situation,

with that number drastically increasing his expenses, Falls would only be making $52,481 in

yearly net profit. The value of the leasehold was calculated to be the difference between Falls’s

advantageous deal and the market conditions—$252,000 per year.

Vance then mapped out a model of slightly increasing revenue over time (complete with

modeling the dip and recovery from the COVID-19 shutdowns) discounted future profits after a

2022 trial date to a present value, and subtracted the $500,000 that Falls had already received in

lost business income coverage, out of a willingness to be conservative and fair. Vance’s estimate

assumed lease renewals through 2030, when Falls will be 50 years old. In sum, Vance

concluded that the leaseholds in both the Studio B space and in the equipment (the interest in

which is at stake here) were worth $2,295,797. Finally, Vance discounted this figure by a factor

of .926 to capture only the equipment leasehold, as distinct from the studio space.17

17

This discount figure compared the warranty deed value of the entire studio premises ($200,000) with the

$2.5 million value of the insured equipment. The equipment was worth much more than the premises.

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The district court found that this valuation was reasonable but reduced it further, relying

on a factor of .9 based on Falls’s testimony at trial, which estimated a value split between the

BPP and Studio B space as “90/10 in favor of the equipment.” DE 164, District Court Op., Page

ID 4596–97 (quoting DE 156, Trial Tr., Page ID 4438). The final figure, allocating the

$2,500,000, was $2,066,217.30 to Falls and $433,782.70 to Brown. This valuation method,

which used both an income and market comparison approach, was permissible.

Hanover argues that Vance’s calculations are too speculative because the lease

terminated sometime before 2030—as set out above, either before the fire, because of the fire, or

after the fire. But as we have shown, the parties’ intent regarding repair and replacement

controls distribution of insurance funds. And the probability of a leasehold’s being renewed is

properly considered a question of fact as to its value. At least one Tennessee court has stated, in

the condemnation context, that evidence of the probability of a lease’s renewal or cancellation is

relevant to that question. City of Johnson City v. Outdoor West, Inc., 947 S.W.2d 855, 859–60

(Tenn. Ct. App. 1996); cf. Eller Media Co. v. City of Memphis, No. W2007-02751-COA-R3-CV,

2008 WL 5330431, at *6 (Tenn. Ct. App. Dec. 22, 2008) (citing Outdoor West, 947 S.W.2d at

855–59). The district court did not err by valuing the leasehold as if it would have been renewed

absent the fire: in these circumstances, it is proper to consider the probability of renewal as a

component of the leasehold’s value.

In this case, the evidence supports a conclusion that the advantageous leasehold would

have been renewed. And such a likelihood was not impermissibly “remote or speculative.”

Outdoor West, 947 S.W.2d at 859. Falls testified that the equipment lease was a “ridiculously

good deal,” that Brown and Falls thought they “were trying to build something substantial,” and

that “the hope was to be there as a permanent fixture.” DE 156, Trial Tr., Page ID 4360, 4390,

4431, 4433. Brown testified that, at least immediately after the fire, “restoring the studio was

definitely the plan.” Id. at Page ID 4367; see also Hanover I, 974 F.3d at 771 (recognizing that

Falls and Brown both felt that they had a “‘spectacular’ working relationship”). And although

Hanover is correct to cite Norton v. McCaskill for the proposition that “in the absence of a

specific time designation in the lease, an option to renew remains effective only during the term

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of the lease,” this principle is not incompatible with valuing the leasehold as if it would have

been properly renewed before termination by these parties. 12 S.W.3d 789, 790–91 (Ten. 2000).

We may affirm the district court on any grounds supported by the record. Garza v.

Lansing Sch. Dist., 972 F.3d 853, 877 (6th Cir. 2020). We hold that the district court’s findings

as to the valuation of the leasehold were not clearly erroneous.

E.

The final issue in this case is the argument that was explicitly preserved in Hanover I:

whether because of Tennessee equity principles, Brown’s insurance-related misdeeds mean that

any funds allocated to him need not be paid by Hanover. Hanover cites Box v. Lanier for this

proposition. 79 S.W. 1042, 1045 (Tenn. 1904) (“No one shall be permitted to profit by his own

fraud, or to take advantage of his own wrong, or to found any claim upon his own iniquity, or to

acquire property by his own crime.” (citation omitted)). In Box, the wrong, iniquity, and crime

was murder, and the court made an analogy to someone recovering insurance money after

committing arson. Id. In this case, the jury in Hanover I found that Brown had made material

misrepresentations as to the loss with intent to deceive and had made unlawful claims for

payment. Hanover I, 974 F.3d at 773–74. Brown has also pled guilty to a federal mail fraud

charge in connection with these insurance acts. No. 2:20-CR-20245, DE 63 (W.D. Tenn. Sept.

20, 2023); DE 96 (W.D. Tenn. Oct. 17, 2024).

Brown argues that the jury found only that he had made misstatements in connection with

the insurance policies for Studio A, and that he had nothing to do with the Studio B policies at

issue in this case. This is not the case. Although Brown and Falls signed separate proofs of loss,

they pulled from the same list of lost or damaged property, which became Exhibit 32 in the

Hanover I trial. Hanover I, 974 F.3d at 772. Brown admitted on the stand that he had added

“false” vendor information to theft claims for the BPP in Studio B to this list. No. 2:16-CV-

02817, DE 318, Trial Tr., Page ID 8720. Brown’s “forgery . . . on a grand scale” bars him from

recovering insurance proceeds when he made false statements as to the lost value in BPP.

Hanover I, 974 F.3d at 773. We affirm the district court on this point.

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IV.

This is a difficult case, but it follows from the decision and verdict in Hanover I, the

application of Tennessee law to the unusual agreement at stake, and the district court’s

assessment of the testimony in this case. We affirm the district court’s decisions that Hanover is

precluded from making contractual interpretation arguments as to Falls, that the loss payee

clauses do not require that all money flow to Brown, that the fire did not prevent Falls from

recovering on his leasehold interest, that there was no clear error in the leasehold valuation, and

that Tennessee public policy prevents recovery by Brown of the funds allocated to him.

We affirm the district court’s decision.