                 IN THE COURT OF APPEALS OF TENNESSEE
                              AT JACKSON
                                  January 17, 2006 Session

                   IN RE: ESTATE OF JAMES W. FORD, M.D.

                 A Direct Appeal from the Probate Court for Shelby County
                   No. C-5408     The Honorable Robert Benham, Judge



                     No. W2005-01194-COA-R3-CV - Filed May 5, 2006


        This is the second appeal of this probate case in which this Court is asked to determine
whether the Appellant’s claim against the decedent’s estate should be treated as a verified claim
under the Claims Act, T.C.A. §30-2-306 et seq., as the trial court found, and controlled by the
authorities therein, and then to determine the priority of Appellant’s claim as against the Internal
Revenue Service/Appellee’s claim against the estate for decedent’s unpaid taxes. We find that
Appellant’s claim is a verified claim against the estate and, as such, is subject to the Claims Act.
Pursuant to both the Claims Act, T.C.A. §30-2-317, and the Federal Insolvency Act 31 U.S.C.
§3713, the IRS’s claim is prime. Affirmed.

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

W. FRANK CRAWFORD , P.J., W.S., delivered the opinion of the court, in which ALAN E. HIGHERS,
J. and HOLLY M. KIRBY , J., joined.

James S. Strickland, Jr., of Memphis, Tennessee and Keith Jordan of Nashville, Tennessee for
Appellant, David S. Weed

Ruby S. Wharton of Memphis, Tennessee and Kathleen N. Gomes of Memphis, Tennessee for
Appellee, Estate of James W. Ford, M.D.

John A. Nolet, Attorney (pro hac vice), Tax Division, Department of Justice, Washington, D.C.;
Jimmy L. Croom, Assistant U. S. Attorney, Jackson, Tennessee, for Appellee, The United States
Internal Revenue Service

                                            OPINION

        A full recitation of the background facts is contained in this Court’s opinion in Summers v.
Estate of Ford, 146 S.W.3d 541 (Tenn. Ct. App. 2004) (“Ford I”). For purposes of this second
appeal, we will briefly review the material facts. Dr. James W. Ford (“Ford”) founded the Children’s
Palace Learning Academy (“CPLA”), which consisted of four daycare centers for underprivileged
children. In 1994, a corporate charter for CPLA was filed with the Secretary of State pursuant to the
Nonprofit Corporations Act, T.C.A. §48-60-105. In addition, in 1994, Ford, on behalf of CPLA,
applied for a license to run the daycare centers and for a financial grant from the Tennessee
Department of Human Services (“DHS”). DHS issued the license and made payments to CPLA
totaling approximately $10.5 million from May 1994 through November 2001. Ford I at 552-54.

       Despite his filing for nonprofit status, Ford did not treat CPLA as a separate corporation.
Rather, Ford ran CPLA as a proprietorship reporting CPLA’s business activities for federal tax
purposes on his own amended individual income tax returns. Id. at 548-49. In addition, Ford
converted many of CPLA’s monies to his personal use, including purchasing real property, stock,
personal life insurance, furnishings, and other properties (many of which were titled in his name
personally). Id. at 577-79. In 1997, the Secretary of State administratively dissolved CPLA’s
corporate charter due to its failure to file an annual report as required by law.

       Ford died on November 27, 2001. Following the commencement of this probate action, the
probate court, on March 19, 2002, granted the Estate’s request seeking authorization for the co-
executrices (Ford’s sisters) to continue operation of CPLA’s daycare centers under the court’s
supervision. Id. at 543-45. On May 31, 2004, the Attorney General (“AG”), ex rel. the State of
Tennessee and CPLA, filed a “Verified Claim Against Estate” in the amount of $10,536,403.52.

        On June 17, 2002, the Estate filed a detailed Exception to the AG’s Claim, alleging, inter
alia, that CPLA had never been a valid nonprofit corporation and that Ford had run CPLA as a sole
proprietorship. On August 16, 2002, the AG also filed an action in the Chancery Court of Davidson
County, seeking judicial dissolution of CPLA on the grounds of misappropriation and waste of
nonprofit assets, and the appointment of a receiver to oversee operation of the daycare facility. Id.
at 561. On August 20, 2002, the chancery court issued an order appointing David Weed (“Receiver,”
or “Appellant”) as Receiver. The order, however, was held in abeyance pursuant to a joint order of
the Davidson County Chancery Court and the Shelby County Probate Court entered on September
10, 2002. Id.

        On December 17, 2002, the probate court issued a memorandum opinion and order. As
relevant to the instant proceedings, the probate court ruled that CPLA is a not-for-profit corporation
under Tennessee law, that the daycare business and other specific business property used in its
operation, “including the tangible assets, streams of income from the State, the goodwill, and the
things listed as business assets,” belonged to CPLA, while other property acquired by Ford and now
in the possession of his Estate (i.e. “real estate, bank stocks, individual stocks, and furnishings”)
were not subject to the AG’s claim regardless of the fact that such property may have been acquired
in part with checks drawn on CPLA accounts. Id. at 562-69. The probate court specifically held that
this other property was not held by the Estate in a constructive trust for the benefit of CPLA. The
probate court found that Ford had operated CPLA in good faith, albeit in a disorganized,
nonbusiness-like manner, that Ford had no notice of an adverse claim, that there was no indication
of fraud or other reason to impose a constructive trust, and that the CPLA monies received by Ford
represented repayments of loans or compensation to him. Id.


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       Both the AG and the Estate appealed from the probate court’s order. On March 17, 2004,
this Court issued its opinion in Ford I. Although this Court upheld the lower court’s finding that
CPLA was a nonprofit corporation, we determined that the probate court erred in allowing the co-
executrices of the Estate to continue operating CPLA, to wit:

               [W]e hold that the probate court's orders allowing for the continuation
               of business under the direction of the Co-Executrices and the
               authority and supervision of the probate court are hereby reversed.
               These orders are in direct opposition to the statutory authority vested
               in the Receiver and authority granted to him by Order of the Davidson
               County Chancery Court. In addition, the probate court's effort to
               convert the structure of CPLA to an LLC is impractical insomuch as
               CPLA's licenses and properties may not be transferred to these new
               entities. We also find that the Receiver, pursuant to the authority
               given him by statute and by the Davidson County Chancery Court,
               should be substituted for, or joined with, the AG in its Claim against
               the Estate, and that he should, under that same authority, be given
               access to any and all records compiled on behalf of, or by, the daycare
               centers, both prior to and after the opening of the Estate....

Id. at 574

In addition, this Court concluded that the probate court was correct in finding that daycare assets,
including tangible and intangible business assets, are assets of CPLA, and we ordered that this
property be placed under the control and supervision of the Receiver. Id. at 579. We further held
that:

               We reverse the Final Order to the extent that it grants real estate, bank
               stock, individual stocks, and furnishing paid for with CPLA money
               to the Estate. Any funds traceable from CPLA for the purchase of real
               estate, bank stocks, individual stocks, furnishings, and any other
               property purchased in the name of, or for the benefit of, any
               individual or entity other than CPLA, are part of the AG/Receiver's
               Claim. In addition, CPLA checks made to "Cash" and to Ford
               personally are charged against the Estate as the evidence
               preponderates against the trial court's findings that these funds were
               for repayment of loans and/or for compensation.

Id. at 579. The case was remanded to the probate court for further proceedings consistent with Ford
I. On July 23, 2003, the Estate filed a notice of insolvency, and, on January 25, 2005, the probate
court issued an order declaring the Estate’s insolvency.




                                                 -3-
        On May 14, 2004, the Internal Revenue Service (“IRS,” or “Appellee”) filed a proof of claim
in the amount of $765,789.04 for Ford’s unpaid 1998-2001 federal income taxes.1 The IRS’s claim
referred to 31 U.S.C. §3713 (the Federal Insolvency Statute), which provides that:

                    (a)(1) A claim of the United States Government shall be paid first
                    when--
                            (A) a person indebted to the Government is insolvent
                            and--
                                    (i) the debtor without enough property
                                    to pay all debts makes a voluntary
                                    assignment of property;
                                    (ii) property of the debtor, if absent, is
                                    attached; or
                                    (iii) an act of bankruptcy is
                                    committed; or

                             (B) the estate of a deceased debtor, in the custody of
                             the executor or administrator, is not enough to pay all
                             debts of the debtor.


                    (2) This subsection does not apply to a case under title 11.

                    (b) A representative of a person or an estate (except a trustee acting
                    under title 11) paying any part of a debt of the person or estate before
                    paying a claim of the Government is liable to the extent of the
                    payment for unpaid claims of the Government.2

From the record, it appears that the IRS’s claim was uncontested by the Estate.

      In February 2005, the probate court held a second hearing in this matter to carry out the
mandate of this Court on remand. On May 3, 2005, the trial court entered its Findings and
Memorandum Opinion. Concerning the real property, the trial court found as follows:

         •          4404 Elvis Presley: The trial court found that $175,000 was paid to acquire the
                    property. The court found that none of the funds used to purchase this property were
                    traceable to CPLA funds.


         1
             The Estate of James W . Ford is also an Appellee in this appeal.

         2
           Although the IRS’s claim was filed beyond the time limit for filing of claims by creditors under T.C.A. §30-2-
307(a), the IRS’s tax claim is not subject to that time limitation. See J.W . Robinson & J. Mobley, Pritchard on the Law
of Wills and Administration of Estates § 787 (5 th ed. 1994).

                                                           -4-
       •       657 Chelsea: The trial court found that $85,000 was paid to acquire this property.
               All of the $85,000 was traceable to CPLA funds and, consequently, 100% of this
               property was subject to the Receiver’s claim.

       •       3673 S. Third: The trial court found that $335,000 was paid to acquire this property.
               Of that amount, $227,107 was traceable to CPLA funds. Consequently, 68% of the
               property was subject to the Receiver’s claim.

       •       2451 Summer: The trial court found that $68,400 was paid to acquire this property.
               All of that amount was traceable to CPLA funds. Therefore, 100% of the property
               was subject to the Receiver’s claim.

       •       831 North Thomas: The trial court found that $180,000 was paid to acquire this
               property. All of that amount was traceable to CPLA funds. Therefore, 100% of the
               property was subject to the Receiver’s claim.

       •       441 Tennessee Street: The trial court found that no CPLA funds were used to procure
               this property.

Concerning personalty, the trial court found that Ford had purchased antiques and oriental rugs for
$27,055 and $10,795, respectively. Because the funds used to purchases these items were traceable
to CPLA, the trial court ruled that these items, or their value, were part of the Receiver’s claim. In
addition, the trial court found that a stock account at Memphis First, and the proceeds from
liquidation of the Pershing account, were part of the Receiver’s claim because the funds used to
purchase the stock in those accounts were traceable to CPLA.

       The probate court found that the following amounts were paid either to cash or to Ford
personally, or were used to pay third parties for Ford’s benefit:

               Payee                                          Amount

               Ford                                           $849,331.93
               Cash                                           $332,233.73
               Emmitt Ford                                    $ 40,750.00
               Ophelia Ford                                   $ 2,000.00
               Dorthea Goodin                                 $100,714.00
               Vector Medical                                 $ 50,000.00

Of this $1,376,029.66, the trial court found that $637,500 was paid to Ford as compensation for
services he provided to CPLA. The trial court concluded that the balance of $738,529.66 was for
Ford’s personal benefit and not for the benefit of CPLA. Consequently, this $738,529.66 was part
of the Receiver’s claim. The Receiver raises no issue on appeal concerning the correctness of the
trial court’s factual findings in regard to the amount of property in the Estate traceable to CPLA


                                                 -5-
funds. Because appellate review generally extends only to issues presented for review, see Tenn. R.
App. P. 13(b), we will not address these findings.

        Upon remand from this Court, the trial court was also faced with the question of whether the
Receiver’s filing against the Estate constituted a claim against the Estate, which would be paid
according to the Claims Act, T.C.A. §30-2-306 et seq., or whether, as the Receiver argued, it
constituted a constructive trust upon the property in the Estate for the benefit of the Receiver. In its
Order, the trial court concluded that this Court, in Ford I, intended the Receiver’s filing to be treated
under the Claims Act.

        The Receiver appeals from this Order and raises one issue for review as stated in his brief:

                 Is the Receiver’s interest limited to a “claim” under Tenn. Code Ann.
                 §30-2-317, placing him behind administrative expenses and the
                 Internal Revenue Service, or can he recover corporate assets
                 converted by Dr. James Ford to personal use?

        We first note that the trial court’s decision that the Receiver’s claim is to be treated under the
priority provisions of the Claims Act is a question of law. As such, we review that decision de novo
upon the record with no presumption of correctness. See Tenn. R. App. P. 13(d); Waldron v. Delffs,
988 S.W.2d 182, 184 (Tenn. Ct. App. 1998); Sims v. Stewart, 973 S.W.2d 597, 599-600 (Tenn. Ct.
App. 1998).

       As discussed above, litigation on behalf of the AG/Receiver was commenced by the filing
of a “Verified Claim Against the Estate of James W. Ford, M.D.” In the “Notice of Appearance and
Nature of Claim,” the AG/Receiver contends that CPLA is a nonprofit corporation, and states that:

                 It appears that some assets of this Estate may be assets of the
                 nonprofit corporation. These assets may include the retained earnings
                 of the corporation (essentially funds received from the Department of
                 Human Services less expenses), the going concern business value of
                 the daycare centers, and any personalty or realty of the corporation.

Ford I at 545.

        In Ford I, this Court affirmed the trial court’s finding that CPLA was in fact a corporation
and that the going concern as such is subject to the Receivership proceedings now under the
jurisdiction of the Davidson County Chancery Court. The remaining language of the AG/Receiver’s
claim, i.e. “any personalty or realty of the corporation,” is the subject of the issue presented in the
present appeal. As discussed by this Court in Ford I, and as determined by the probate court upon
remand, there is no question that Ford used CPLA funds to acquire assets for his own benefit. That
being said, we have reviewed the initial pleadings of the AG/Receiver and find that nowhere in those
pleadings did the AG/Receiver specifically request that a constructive trust be imposed on those


                                                   -6-
assets. Rather, from the pleadings, it appears that the AG/Receiver chose as its remedy a standard
claim against the Estate under the Claims Act. Nonetheless, at the initial trial (i.e. that giving rise
to Ford I), the probate court did address the possibility of a constructive trust, to wit:

                39. The law in Tennessee is that a constructive trust cannot be
                imposed against a party who receives property in good faith and
                without notice of an adverse claim. A constructive trust may only be
                imposed against one who by fraud, action, duress or abuse of
                confidence, by commission of wrong or by any form of
                unconscionable conduct or by concealment or questionable means has
                attained an interest in property he ought not in equity or good
                conscience retain.

                40. The Court feels that Dr. Ford operated in good faith, that there
                was no notice of an adverse claim, and that the State has not carried
                its burden of proof. The Court can find no fraud or other means by
                which to impose a constructive trust....

In its initial appeal in Ford I, the AG/Receiver raised no issue concerning the correctness of the trial
court’s findings on the issue of a constructive trust. Consequently, in Ford I, this Court did not
address the trial court’s findings regarding the possibility of a constructive trust. Rather, and in
accordance with the AG/Receiver’s own pleadings, this Court treated the AG/Receiver’s filing
against the Estate as a verified claim. In this second appeal, the Receiver now argues that “(1) the
corporate funds were to be held in constructive trust by Dr. Ford and, because they were commingled
with personal assets, the assets may be recovered by Receiver from the limited assets remaining in
the Estate and (2) the action filed by the State was not limited to a statutory claim, but was a pleading
seeking return of corporate assets.” We disagree.

       In Memphis Publishing Company v. Tennessee Petroleum Underground Storage Tank
Board, 975 S.W.2d 303 (Tenn.1998), our Supreme Court stated:

                         The phrase "law of the case" refers to a legal doctrine which
                generally prohibits reconsideration of issues that have already been
                decided in a prior appeal of the same case. 5 Am.Jur.2d Appellate
                Review § 605 (1995). In other words, under the law of the case
                doctrine, an appellate court's decision on an issue of law is binding in
                later trials and appeals of the same case if the facts on the second trial
                or appeal are substantially the same as the facts in the first trial or
                appeal. Life & Casualty Ins. Co. v. Jett, 175 Tenn. 295, 299, 133
                S.W.2d 997, 998-99 (1939); Ladd v. Honda Motor Co., Ltd., 939
                S.W.2d 83, 90 (Tenn.App.1996). The doctrine applies to issues that
                were actually before the appellate court in the first appeal and to
                issues that were necessarily decided by implication. Ladd, 939


                                                   -7-
S.W.2d at 90 (citing other authority). The doctrine does not apply to
dicta. Ridley v. Haiman, 164 Tenn. 239, 248-49, 47 S.W.2d 750,
752-53 (1932); Ladd, 939 S.W.2d at 90.

        The law of the case doctrine is not a constitutional mandate
nor a limitation on the power of a court. 5 Am.Jur.2d Appellate
Review § 605 (1995); Ladd, 939 S.W.2d at 90. Rather, it is a
longstanding discretionary rule of judicial practice which is based on
the common sense recognition that issues previously litigated and
decided by a court of competent jurisdiction ordinarily need not be
revisited. Ladd, 939 S.W.2d at 90 (citing other cases). This rule
promotes the finality and efficiency of the judicial process, avoids
indefinite relitigation of the same issue, fosters consistent results in
the same litigation, and assures the obedience of lower courts to the
decisions of appellate courts. Ladd, 939 S.W.2d at 90; 5 Am.Jur.2d
Appellate Review § 605 (1995); 1B James W. Moore, Moore's
Federal Practice P0.404[1] (2d ed.1995); 18 Charles A. Wright,
Arthur R. Miller & Edward H. Cooper, Federal Practice and
Procedure § 4478, at 790 (1981).

         Therefore, when an initial appeal results in a remand to the
trial court, the decision of the appellate court establishes the law of
the case which generally must be followed upon remand by the trial
court, and by an appellate court if a second appeal is taken from the
judgment of the trial court entered after remand. Miller, supra,
P0.404[1]. There are limited circumstances which may justify
reconsideration of an issue which was decided in a prior appeal: (1)
the evidence offered at a trial or hearing after remand was
substantially different from the evidence in the initial proceeding; (2)
the prior ruling was clearly erroneous and would result in a manifest
injustice if allowed to stand; or (3) the prior decision is contrary to a
change in the controlling law which has occurred between the first
and second appeal. See generally 5 Am.Jur.2d Appellate Review §§
611-613 (1995 & 1998 Supp.); Miller, supra, P0.404[1]; Wright, et
al., supra, § 4478, at 790; see e.g. Jett, 175 Tenn. at 299, 133 S.W.2d
at 999 ("The former opinion of the Court of Appeals was the law of
the case on the second trial, and the evidence being the same, the
circuit judge could not have done otherwise than to submit this issue
of sound health to the jury...."); Clingan v. Vulcan Life Ins. Co., 694
S.W.2d 327 (Tenn.App.1985) (The initial appeal did not establish the
law of the case because the facts in the second appeal were not
substantially the same as the facts in the prior appeal); Arizona v.
California, 460 U.S. 605, 618, n. 8, 103 S.Ct. 1382, 1391, n. 8, 75


                                  -8-
               L.Ed.2d 318 (1983) (The doctrine does not apply if the court is
               "convinced that [its prior decision] is clearly erroneous and would
               work a manifest injustice."); Sherley v. Commonwealth, 889 S.W.2d
               794, 798 (Ky.1994) (The law of the case doctrine does not apply
               where there has been an intervening change of controlling authority.)

Memphis Publ'g Co., 975 S.W.2d at 306.

        As discussed above, the AG/Receiver elected to advance its position on the basis of a Claim
against the Estate. In Ford I, this Court proceeded accordingly and treated the AG/Receiver’s case
as a verified claim against Ford’s Estate. Upon remand, the trial court stated that: “[T]he trial
court[,] under the LAW OF THE CASE DOCTRINE, is holding that a ‘Claim’ is governed by the
Claims Act and that as a matter of law, the trial court’s prior findings of no constructive trust is now
final.” We agree. Although there are limited circumstances which may justify reconsideration of
an issue that was decided in a prior appeal, see Memphis Publ’g Co., 975 S.W.2d at 306, supra, we
find that no such circumstances exist in this case. Consequently, under the law of the case doctrine,
this Court is bound to treat the AG/Receiver’s case as a claim against the Estate in this second
appeal.

       As a claim against the Ford Estate, the AG/Receiver’s claim is governed by the Claims Act,
T.C.A. §30-2-306 et seq. T.C.A. §30-2-317 (2001) governs the priority of claims against an estate
and reads, in pertinent part, as follows:

               (a) All claims or demands against the estate of any deceased person
               shall be divided into the following classifications, which shall have
               priority in the order shown:
                       (1) First: Costs of administration, including, but not
                       limited to, premiums on the fiduciary bonds and
                       reasonable compensation to the personal
                       representative and the personal representative's
                       counsel;
                       (2) Second: Reasonable funeral expenses;
                       (3) Third: Taxes and assessments imposed by the
                       federal or any state government or subdivision
                       thereof; and
                       (4) Fourth: All other demands which may be filed as
                       aforementioned within four (4) months after the date
                       of notice to creditors.

Likewise, the Federal Insolvency Act, 31 U.S.C. §3713, supra, gives priority to claims filed by the

United States when, as in this case, the estate of a decedent is insolvent. See also United States v.
Key, 397 U.S. 322, 324 (1970). In analyzing § 3713, the United States Supreme Court has noted


                                                  -9-
that the priority created by the statute is based upon a public policy recognizing the necessity of
securing an adequate revenue to provide for the public welfare, and that the statute has been applied
with this purpose in mind for almost 200 years. United States v. Moore, 423 U.S. 77 (1975).
Likewise, it is well-settled that in order to effectuate its purpose, § 3713 is to be construed and
applied liberally. Id.; United States v. Key, 397 U.S. 322 at 324. The Supreme Court has further
noted that, in cases of insolvency, § 3713 expressly confers an absolute priority to federal claims,
permitting on its face no exceptions to that priority. United States v. State of Vermont, 377 U.S.
351(1964). Consequently, under both the federal and state statutes, the claim of the IRS would have
priority over the claim of the Receiver.

       For the foregoing reasons, we affirm the Order of the trial court. We remand the case for
such further proceedings as may be necessary consistent with this Opinion. Costs of this appeal are
assessed against the Appellant, David S. Weed, and his surety.




                                              __________________________________________
                                              W. FRANK CRAWFORD, PRESIDING JUDGE, W.S.




                                                -10-
