Earlene Gregory v. Michael Melhorn

IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

October 7, 2013 Session

EARLENE GREGORY v. MICHAEL MELHORN ET AL.

Appeal from the Chancery Court for Roane County

No. 16777 Frank V. Williams, III, Chancellor

No. E2012-02417-COA-R3-CV - Filed December 27, 2013

Earlene Gregory brought this action against Michael Melhorn and his wife, Cynthia Melhorn,

sellers of a house and real estate, alleging that the defendants falsely stated in their Tennessee

Residential Property Disclosure statement that they were unaware of any defects in the

exterior walls or basement or any flooding or drainage problems. The contract for sale of the

property, executed and signed by plaintiff and defendants, provided that the warranty deed

was to be made in the name of Earlene Singleton Gregory.1 During discovery, the parties

discovered that the deed actually listed the plaintiff’s three sons as grantees. After

defendants moved for summary judgment on the ground that plaintiff lacked standing

because she did not own the property, plaintiff moved to amend the complaint to include a

claim for reformation of the deed to reflect her intention at the time of sale, i.e., to retain a

life estate in the property with a remainder interest in her sons. Plaintiff also filed a motion

to allow her sons to intervene as plaintiffs on the ground that they held legal title to the

property. The trial court denied plaintiff’s motions and granted defendants summary

judgment, holding that plaintiff lacked standing because she did not own the property. The

court further held that the proposed intervening plaintiffs, even if allowed to intervene, would

lack standing because they were not parties to the contract. We vacate the trial court’s

summary judgment. We hold that the trial court abused its discretion in refusing to allow

plaintiff to amend her complaint under Tenn. R. Civ. P. 15.01, and by refusing to allow the

plaintiff’s sons to intervene, as was their right under Tenn. R. Civ. P. 24.01.

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

Vacated; Case Remanded

C HARLES D. S USANO, J R., P.J., delivered the opinion of the Court, in which D. M ICHAEL

S WINEY and T HOMAS R. F RIERSON, II, JJ., joined.

1

“Earlene Gregory” and “Earlene Singleton Gregory” are one and the same person.

Mark N. Foster, Rockwood, Tennessee, for the appellants, Earlene Singleton Gregory, David

L. Singleton, William E. Singleton, and John A. Singleton.

Sharon L. Reynolds, Kingston, Tennessee, for the appellees, Michael Melhorn and Cynthia

Melhorn.

OPINION

I.

On August 6, 2009, the parties to this litigation executed a contract for the sale of the

defendants’ real estate located at 139 Cunningham Boulevard in Harriman. The contract

provided that the warranty deed conveying the property was “to be made in the name of

Earlene Singleton Gregory.” The sale closed on August 20, 2009. On August 20, 2010,

Plaintiff filed her complaint alleging fraud and negligent misrepresentation, among other

things. The complaint alleged that defendants knowingly made false statements on their

Tennessee Residential Property Disclosure form when they stated that they were unaware of

any (1) defects or malfunctions in the house’s exterior walls and basement; (2) flooding,

drainage or grading problems; and (3) past or present water intrusions or standing water

within the foundation or basement. The complaint further alleged as follows:

While Defendants owned the property, Defendants became

aware of water leakage in the finished basement of the house.

Defendants attempted to repair this water leakage by replacing

certain wall studs with treated lumber and painting the inside of

a concrete block exterior wall with a sealant. Defendants then

covered these repairs with drywall, finished the drywall, and

repainted the area an almost identical color, all for the purpose

of making it appear that no repair had ever been performed.

* * *

After purchasing the home from Defendants, Plaintiff suffered

water damage in her basement. Plaintiff has been damaged

because she has purchased a home that was prone to water

damage and subsequently incurred such water damage, because

Plaintiff’s home is not in the condition represented by

Defendants[.]

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(Numbering in original omitted.) For relief, plaintiff requested rescission of the sale of the

property or, in the alternative, compensatory and punitive damages.

During plaintiff’s deposition, the following colloquy took place between plaintiff and

defendant’s counsel regarding the ownership of the property:

Q: Does your son own the property, or is it just you?

A: Just –

Q: Just you. Okay.

A: I have their names on it, but –

Q: Your sons are owners of the property?

A: I – yes, but mainly I’m on – I mean, I’m the –

Q: When did you convey an interest to your sons?

A: When I bought the house.

Q: Okay. So did you have their names put on the deed?

A: I’m sure I did.

Q: Okay. I’ll double-check that. But they’re not a party to this

lawsuit, right?

A: No.

Q: Okay. And what are your sons’ names?

A: William E. Singleton.

Q: And did you say you had two sons?

A: Three sons.

Q: Three sons?

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A: John A. Singleton, David L. Singleton.

Q: And all three boys are on the deed, you think?

A: I think.

It appears that, at the time of plaintiff’s deposition, neither plaintiff nor defendants were

aware of, or had an accurate recollection of, whose names were actually on the deed as

grantees. The record does not demonstrate why this was the case in view of the fact that the

deed had been recorded. In any event, when the parties discovered that the warranty deed

listed the plaintiff’s three sons as the sole grantees, defendants filed a motion for summary

judgment, arguing that plaintiff did not have standing because she did not own the property.

Plaintiff’s response was twofold: first, she filed a motion asking the trial court to

allow her to amend her complaint “to assert that at the closing of the transaction that is the

subject of this matter, the property was by mistake conveyed to Plaintiff’s sons, rather than

the intended conveyance of the property to Plaintiff for Plaintiff’s life, with an equal share

of the remainder interest conveyed to each son, and to seek reformation of said deed.”

Second, she filed, along with her sons, a motion to allow her three sons to intervene as

plaintiffs. In support of these motions and in opposition to summary judgment, plaintiff filed

her affidavit, which stated as follows:

I entered into a contract with the Defendants in this action to

purchase property at 139 Cunningham Boulevard in Harriman,

Tennessee (“Property”). I paid for this purchase using my own

funds. . . .

It was my instructions and intention that at the closing of the

sale of the Property the Property be conveyed to me, with a

remainder interest only going to my sons.

Any deed prepared conveying the property to my sons alone

without a conveyance of an interest to me was incorrect, and

should be corrected.

My sons have each given me documents regarding the

correction of the deed, true and accurate copies of which are

attached[.]

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(Numbering in original omitted.) Plaintiff attached a statement from each of the Singleton

sons. The statements were identical: “I . . . agree that the [property] was purchased by and

is solely owned by my mother, Earlene Singleton Gregory” and “I am in full agreement that

the deed . . . be corrected to reflect [plaintiff] as the true and rightful owner of the property.”

After a hearing on the defendants’ motion, the trial court granted them summary

judgment. The court premised its decision on dual grounds: (1) plaintiff lacked standing

because she was not the record owner of the property, and (2) the proposed intervenors, her

sons, even if allowed to intervene, would lack standing because they were not parties to the

contract. The trial court denied plaintiff’s motion to amend her complaint without specifying

the reasoning for its ruling. Plaintiff timely filed a notice of appeal.

II.

Plaintiff has raised three issues: whether the trial court erred in denying her motion

to amend her complaint; whether the court erred in denying the motion to allow her sons to

intervene; and whether the court erred in granting defendants summary judgment.

III.

We first address the trial court’s denial of plaintiff’s motion to amend her complaint

to seek reformation of the deed. Amendments to pleadings are governed by Tenn. R. Civ.

P. 15.01, which provides in pertinent part as follows:

A party may amend the party’s pleadings once as a matter of

course at any time before a responsive pleading is served or, if

the pleading is one to which no responsive pleading is permitted

and the action has not been set for trial, the party may so amend

it at any time within 15 days after it is served. Otherwise a party

may amend the party’s pleadings only by written consent of the

adverse party or by leave of court; and leave shall be freely

given when justice so requires.

(Emphasis added.) “The grant or denial of a motion to amend a pleading is discretionary

with the trial court.” Cumulus Broad., Inc. v. Shim, 226 S.W.3d 366, 374 (Tenn. 2007).

In Shim, the Supreme Court reaffirmed that a trial court’s discretion in ruling on a motion

to amend is tempered by the plain language of Tenn. R. Civ. P. 15.01, stating:

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In Branch v. Warren, 527 S.W.2d 89 (Tenn. 1975), we

discussed the effect of Rule 15.01 of the Tennessee Rules of

Civil Procedure:

The new Rules of Civil Procedure, in this regard

“come not to destroy the old law, but to fulfill.”

They were designed to simplify and ease the

burden of procedure under the sometimes harsh

and technical rules of common law pleading.

Accordingly, Rule 15.01 provides that leave (to

amend) shall be freely given when justice so

requires. This proviso in the rules substantially

lessens the exercise of pre-trial discretion on the

part of a trial judge. Indeed, the statute (§ 20-

1505, T.C.A.) which conferred a measure of

discretion on trial judges was repealed and Rule

15 stands in its place and stead. That rule needs

no construction; it means precisely what is says,

that “leave shall be freely given.”

Id. at 91-92 (emphasis added). Later, in Gardiner v. Word, 731

S.W.2d 889, 891 (Tenn. 1987), this Court confirmed that

Branch required trial courts to be liberal in allowing pretrial

motions to amend.

Shim, 226 S.W.3d at 374-75 (emphasis in original).

This Court has set forth the following factors a trial court should consider in ruling

on a motion to amend a pleading:

Despite the liberality implicit in Tenn. R. Civ. P. 15.01, the

courts have identified a number of circumstances that, singly or

in combination, could warrant denying a motion to amend a

pleading. These circumstances include: (1) undue delay in

seeking the amendment, (2) lack of notice to the opposing party,

(3) bad faith or dilatory motive of the moving party, (4) repeated

failure by the moving party to cure deficiencies in earlier

amendments, (5) futility of the proposed amendment, and (6)

undue prejudice to the opposing party.

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Hardcastle v. Harris, 170 S.W.3d 67, 81 (Tenn. Ct. App. 2004); accord Shim, 226 S.W.3d

at 374.

When a trial court denies a motion to amend, the court “must give a reasoned

explanation for its action.” Shim, 226 S.W.3d at 374; Henderson v. Bush Bros. & Co., 868

S.W.2d 236, 238 (Tenn. Workers’ Comp. Panel 1993). The trial court’s order states, in

pertinent part, as follows:

the Court FINDS that there are no genuine issues regarding the

following material facts:

The Plaintiff . . . is not the titled owner of the real property . . .

which is the subject of this lawsuit;

The Plaintiff . . . knew that she was not the owner of the real

property at issue in this lawsuit when she filed her claim in this

Court;

The Plaintiff . . . testified in her deposition in May, 2011 that she

knew that her sons[’] names . . . were listed as owners of the real

property on the Warranty Deed . . .

The Plaintiff . . . did not include [the Singleton sons] as

Plaintiffs in this cause of action;

The Plaintiff . . . did not seek to amend this lawsuit after

Plaintiff’s counsel became aware of the fact that the ownership

of the real property in this lawsuit was called into question by

the Defendants in May, 2011 at the deposition of the Plaintiff;

The Plaintiff . . . did not file a Motion to Amend until August

31, 2012[,] over one year after the Plaintiff’s deposition and

some two months after the Defendant’s Motion for Summary

Judgment was filed and scheduled for hearing[.]

The trial court’s ground for denying plaintiff’s motion to amend appears to be undue delay,

although the order does not expressly use that language. The record, however, shows that

plaintiff was not guilty of undue delay in this case. She moved to amend her complaint

roughly two months after defendants’ motion for summary judgment. The Court in

Henderson, vacating the trial court’s denial of a motion to amend, stated the following:

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We note that the trial judge stated in his order that “the motion

to amend comes too late,” but we do not consider that as being

a consideration of the motion or a reasoned explanation for his

action. There is no time limit that would apply to the motion to

amend in the present case.

868 S.W.2d at 238.

Furthermore, there is no basis in the record for the trial court’s dual conclusions (1)

that it is undisputed plaintiff “knew that she was not the owner of the real property at issue

in this lawsuit when she filed her claim” and (2) that “the ownership of the real property in

this lawsuit was called into question by the Defendants” at plaintiff’s deposition. Although

defendants suggest that these conclusions are “credibility findings,” no one testified live

before the trial court; the court had only plaintiff’s deposition and her affidavit. Plaintiff’s

deposition testimony on this point, to the extent that she was allowed to finish a thought, is

entirely inconclusive:

Q: Does your son own the property, or is it just you?

A: Just –

Q: Just you. Okay.

A: I have their names on it, but –

Q: Your sons are owners of the property?

A: I – yes, but mainly I’m on – I mean, I’m the –

Q: When did you convey an interest to your sons?

A: When I bought the house.

This testimony arguably establishes only that plaintiff thought, but was not necessarily sure,

that she and her sons were listed on the deed. Her belief that she owned the property was

supported by the language of the purchase and sale agreement, which states, “[d]eed to be

made in the name of Earlene Singleton Gregory.” Furthermore, in response to defendants’

Tenn. R. Civ. P. 56.03 statement of undisputed facts alleging that “[p]laintiff . . .was aware

at the onset of this litigation that she was not the sole owner and/or was not the owner of the

property,” plaintiff stated “[t]his statement of fact is disputed,” citing her deposition

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testimony and her affidavit, which clarified her “intention that at the closing of the sale of

the Property the Property be conveyed to me, with a remainder interest only going to my

sons.”

We have observed that, of the factors that “could warrant denying a motion to amend

a pleading . . . the most important is the proposed amendment’s potential prejudicial effect

on the opposing party.” Hardcastle, 170 S.W.3d at 81. In this case, there is no prejudice to

defendants that would result from the amendment – they will only have to defend the same

lawsuit that was initially brought by plaintiff. In Wynn v. La Maruja Realty Corp., No.

M2008-01511-COA-R9-CV, 2009 WL 2957922 at *3 (Tenn. Ct. App. M.S., filed Sept. 15,

2009), we stated,

This court has described the kinds of circumstances when a trial

court would be justified in denying a motion to amend a

pleading because of prejudice to the opposing party. These

include situations when the amendment will cause additional

expense and the burden of a more complicated or lengthy trial,

when it will require the opposing party to engage in additional

pre-trial preparation, when it will unduly increase the discovery

required, or when it will unduly delay the trial. Hardcastle v.

Harris, 170 S.W.3d at 81. None of these apply to the case

before us. Simply being forced to defend a pending claim is not

normally considered the sort of prejudice that would justify

declining a plaintiff’s motion to amend a complaint.

(Emphasis added.) In this case, none of the other factors listed by Hardcastle and Shim that

would legally justify the court’s decision to deny plaintiff’s motion to amend her complaint

are present.

The Wynn Court also pointed out an important principle that has a significant bearing

on our decision: “Tennessee law and policy have always favored permitting litigants to

amend their pleadings to enable disputes to be resolved on their merits rather than on legal

technicalities.” 2009 WL 2957922 at *4 (quoting Hardcastle, 170 S.W.2d at 80); see also

Webb v. Nashville Area Habitat for Humanity, Inc., 346 S.W.3d 422, 432 (Tenn. 2011)

(noting “the strong preference embodied in the Tennessee Rules of Civil Procedure that cases

stating a valid legal claim brought by Tennessee citizens be decided on their merits”); Jones

v. Prof’l Motorcycle Escort Serv., L.L.C., 193 S.W.3d 564, 572 (Tenn. 2006) (“The

Tennessee Rules of Civil Procedure are intended ‘to insure that cases and controversies be

determined upon their merits and not upon legal technicalities or procedural niceties.’”)

(quoting Karash v. Pigott, 530 S.W.2d 775, 777 (Tenn. 1975)). We hold that the trial court

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abused its discretion in denying plaintiff’s motion to amend, and that the motion should be

granted upon remand.

IV.

We likewise conclude that the trial court erred in denying the motion to allow the

Singleton sons to intervene. Motions to intervene are governed by Tenn. R. Civ. P. 24,

which provides:

Rule 24.01. Intervention as of Right. Upon timely application

anyone shall be permitted to intervene in an action: (1) when a

statute confers an unconditional right to intervene; or (2) when

the applicant claims an interest relating to the property or

transaction which is the subject of the action and the applicant

is so situated that the disposition of the action may as a practical

matter impair or impede the applicant’s ability to protect that

interest, unless the applicant’s interest is adequately represented

by existing parties; or (3) by stipulation of all the parties.

Rule 24.02. Permissive Intervention. Upon timely application

anyone may be permitted to intervene in an action: (1) when a

statute confers a conditional right to intervene; or (2) when an

applicant’s claim or defense and the main action have a question

of law or fact in common. In exercising discretion the court

shall consider whether or not the intervention will unduly delay

or prejudice the adjudication of the rights of the original parties.

(Bold headings in original.)

In the leading case interpreting Rule 24, the Supreme Court held that “[t]he standard

of review on appeal for the denial of intervention as of right is de novo, except for the

timeliness of the application which is reviewed under an abuse of discretion standard. The

standard of review for the denial of permissive intervention is abuse of discretion.” State v.

Brown & Williamson Tobacco Corp., 18 S.W.3d 186, 191 (Tenn. 2000) (internal citation

omitted). Plaintiff’s motion to intervene did not specify whether the Singleton sons were

seeking to intervene as of right or by permission. The trial court’s order did not include a

Rule 24 analysis, concluding only that “even if [the Singleton sons] were to be allowed to

intervene and/or the lawsuit to be amended to name these owners as Plaintiffs, neither John

Singleton, David Singleton nor William Singleton, would have standing to bring any of the

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causes of action . . . as no one or more of them are in privity of contract with either of the

Defendants[.]”

We conclude that the Singleton sons were entitled to intervene as a matter of right.

As the Brown & Williamson Court observed,

A party seeking to intervene as of right under Rule 24.01 must

establish that (1) the application for intervention was timely; (2)

the proposed intervenor has a substantial legal interest in the

subject matter of the pending litigation; (3) the proposed

intervenor’s ability to protect that interest is impaired; and (4)

the parties to the underlying suit cannot adequately represent the

intervenor’s interests. Grubbs v. Norris, 870 F.2d 343, 345 (6th

Cir.1989). The intervenor has the burden of establishing all four

of these elements or else the motion to intervene will be denied.

Id. In the case of permissive intervention, the party seeking to

intervene must show that there is a common question of law or

fact between the intervenor’s claim and the main action. Tenn.

R. Civ. P. 24.02. Permissive intervention is generally not proper

when the intervenor seeks to raise new claims or issues against

the existing parties. See Arizona v. California, 460 U.S. 605,

614, 103 S.Ct. 1382, 75 L.Ed.2d 318 (1983).

Id., 18 S.W.3d at 190-91. Because the Singleton sons are the owners of the property as the

listed grantees on the deed, they obviously “claim[] an interest relating to the property or

transaction which is the subject of the action.” Tenn. R. Civ. P. 24.01. Regarding the

timeliness of the motion, “[t]he timeliness of an intervention is governed by equitable

principles, and is determined by the facts and circumstances of each particular case.”

Holland v. Holland, No. E2011-00782-COA-R3-CV, 2012 WL 1691498 at *4 (Tenn. Ct.

App. E.S., filed May 15, 2012) (quoting Am. Materials Techs., LLC v. City of

Chattanooga, 42 S.W.3d 914, 916 (Tenn. Ct. App. 2000)). We do not find that the Singleton

sons were guilty of such unwarranted delay or untimeliness as to warrant denial of their

motion to intervene in this case.

Simply stated, allowing the Singleton sons to intervene and allowing plaintiff to

amend her complaint will put all of the proper parties before the trial court and allow for the

resolution of the issues fairly raised in the complaint, in keeping with Tennessee law and

policy favoring a disposition on the merits instead of dismissal based on formal or procedural

technicalities. As already noted, defendants are caused no additional prejudice by this ruling

beyond addressing the issues and defending the lawsuit filed against them in the first place.

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V.

The trial court’s judgment is vacated and the case is remanded for further proceedings,

consistent with this opinion. Costs on appeal are assessed to the appellees, Michael Melhorn

and Cynthia Melhorn.

__________________________________________

CHARLES D. SUSANO, JR., PRESIDING JUDGE

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