                                                                                            07/30/2020
                IN THE COURT OF APPEALS OF TENNESSEE
                            AT NASHVILLE
                                February 4, 2020 Session

          TERRELL K. RALEY, ET AL. V. CEES BRINKMAN, ET AL.

                Appeal from the Chancery Court for Davidson County
                  No. 16-196-BC     Ellen Hobbs Lyle, Chancellor


                             No. M2018-02022-COA-R3-CV


This appeal arises from a business dispute between the two members of a Tennessee limited
liability company, 4 Points Hospitality, LLC (“4 Points”), each owning a 50% interest. The
plaintiff-member, Terrell K. Raley (“Raley”), commenced this action asserting,
individually and on behalf of the LLC, inter alia, that the defendant-member, Cees
Brinkman (“Brinkman”), breached the operating agreement by failing to make a $175,000
capital contribution. Brinkman asserted counter claims, individually and on behalf of the
LLC, for breach of contract and breach of fiduciary duty, alleging that Raley
misappropriated funds for his personal benefit and that he withheld a large portion of
Brinkman’s distributions and salary. Brinkman also claimed that Raley was liable for
conversion and punitive damages. Brinkman sought to terminate Raley’s membership
interest because he willfully and persistently breached his fiduciary duty, and because it
was no longer reasonably practicable for the two men to continue operating the business.
Brinkman also claimed he was entitled to recover his attorneys’ fees in accordance with
Tenn. Code Ann. §§ 48-249-804 and -805, and the operating agreement. Upon Raley’s pre-
trial motion, the trial court summarily dismissed Brinkman’s claim for attorneys’ fees
under the operating agreement, holding that the attorneys’ fees provision only pertained to
disputes submitted to arbitration. Following a lengthy bench trial, the court ruled that (1)
Brinkman breached the operating agreement by failing to make a $175,000 capital
contribution; (2) Raley was liable for breach of fiduciary duty, breach of contract, and
conversion for underpaying Brinkman’s distributions and salary and for using 4 Points’
funds to satisfy unrelated, personal expenses; (3) Raley was not liable for punitive damages
because his conduct was not egregious; and (4) Brinkman was not entitled to attorneys’
fees under §§ 48-249-804 and -805. The court also terminated Raley’s membership interest
in 4 Points in accordance with Tenn. Code Ann. §§ 48-249-503(a)(6)(B) and (C), finding
that Raley’s wrongful conduct adversely and materially affected the business, and it was
no longer reasonably practicable for the members to continue operating the business
together. Brinkman filed a motion to alter or amend the court’s order, and the court denied
his motion in all respects but one, ruling, in accordance with Tenn. Code Ann. § 48-249-
805, that Brinkman was entitled to equitable relief in the form of attorneys’ fees. Therefore,
the court revised its order to allow half of the $240,275.59 Raley owed 4 Points as
reimbursement for personal expenses to be paid to Brinkman, individually. Brinkman then
filed notice that 4 Points intended to purchase Raley’s membership interest in accordance
with Tenn. Code Ann. §§ 48-249-505 and -506, which necessitated an evidentiary hearing
to determine the “fair value” of Raley’s interest. In preparation for the hearing, Brinkman’s
expert prepared a valuation report applying shareholder-level discounts for lack of control
and lack of marketability and adjusting 4 Points’ income for the corporate income tax.
Raley responded by filing a motion in limine to determine the meaning and components of
“fair value” under Tenn. Code Ann. § 48-249-506(3), arguing that any testimony or other
evidence relating to discounts for lack of control and marketability and the corporate
income tax should be excluded at the evidentiary hearing. In response, Brinkman submitted
the affidavit of his valuation expert, explaining the expert’s valuation methodology and the
reasons for applying a corporate income tax rate. The court ruled that because the company,
rather than a third-party, was purchasing the membership interest, the fact that the interest
was non-controlling was irrelevant to its fair value. The court also excluded evidence and
testimony on discounts for lack of marketability. As for the applicability of the corporate
income tax, the court ruled that “no entity level tax should be applied in the valuation
analysis for a non-controlling interest in an electing S corporation, absent a compelling
demonstration that independent third parties dealing at arms-length would do so as part of
a purchase price negotiation.” Following the evidentiary hearing, the court determined that
the fair value of 4 Points was $4,774,278.18, and that Raley’s 50% interest was
$2,387,139.09. Brinkman timely filed this appeal contending the trial court erred in
determining that (1) Brinkman breached the operating agreement by failing to make a
capital contribution; (2) Raley was not liable for punitive damages; and (3) Brinkman was
not entitled to attorneys’ fees pursuant to the operating agreement and/or §§ 48-249-804
and -805. As for the trial court’s valuation of Raley’s membership interest, Brinkman
contends the trial court erred in (1) disallowing discounts for lack of control and lack of
marketability and (2) determining that tax-affecting did not constitute relevant evidence of
the fair value of Raley’s membership interest in 4 Points. We affirm the trial court’s
judgment in every respect but one. We have determined that the trial court erred by failing
to consider evidence relative to tax-affecting when determining the fair value of Raley’s
membership interest, because Tenn. Code Ann. § 48-249-506 provides that relevant
evidence of fair value includes the “recommendations of any of the appraisers of the parties
to the proceeding.” Brinkman’s valuation expert stated in his affidavit that the application
of a 38% tax rate “comports with generally accepted valuation standards and methods” and
reasoned that, there is a risk of inaccurate valuation when the components of the
capitalization rate are based on after-tax values, and no tax-affecting is applied to the
income of the company. Therefore, we vacate the judgment valuing Raley’s interest and
remand for the trial court to consider evidence relative to tax-affecting in determining the
fair value of Raley’s membership interest and to enter judgment accordingly.

 Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
                     in part, Vacated in part, and Remanded
                                            -2-
FRANK G. CLEMENT JR., P.J., M.S., delivered the opinion of the Court, in which THOMAS
R. FRIERSON II, and W. NEAL MCBRAYER, JJ., joined.

W. Scott Sims and Michael R. O’Neill, Nashville, Tennessee, for the appellant, Cees
Brinkman.

Seth McInteer and Howell O’Rear, Nashville, Tennessee, for the appellee, Terrell K.
Raley.

                  I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

       When Raley and Brinkman met in 2009, Raley had been working in the restaurant
industry for a number of years, and Brinkman owned Brinkman Holdings, LLC
(“Brinkman Holdings”), which owned two commercial properties located on the corner of
McFerrin Avenue and West Eastland Avenue in East Nashville. Upon learning that
Brinkman stored used restaurant equipment at the West Eastland Avenue property, Raley
contacted Brinkman to inquire about the equipment. During their discussions, Raley
expressed an interest in starting his own restaurant, and Brinkman expressed an interest in
having a restaurant as a tenant.

      When the two men decided to go into business together, they first formed TC
Hospitality, Inc. to own and operate the Holland House Bar and Refuge (“Holland House”).
Brinkman Holdings entered into a lease with TC Hospitality and agreed to cover the cost
of converting the West Eastland Avenue property to a restaurant in exchange for
Brinkman’s 10% ownership in TC Hospitality and $5,000 in monthly rent. Holland House
opened in 2010 and was fairly successful.

      Thereafter, Brinkman and Raley decided to open a second restaurant called The
Pharmacy Burger Parlor & Beer Garden (“The Pharmacy”). They formed a separate
business entity, 4 Points, to own and operate The Pharmacy, with each of them owning a
50% membership interest in 4 Points.

        The operating agreement1 required Raley to make an initial capital contribution of
$30,000 in labor and required Brinkman to contribute $175,000 in cash. It also provided
that they would be 50/50 owners of 4 Points and that Brinkman and Raley were entitled to
an even split of net profits. Raley was designated the managing member, and the agreement
provided that he would “take responsibility for the administrative duties and ministerial

       1
         The agreement was titled “Partnership Agreement,” but the parties do not dispute that it was an
operating agreement and that 4 Points was registered with the Secretary of State as a limited liability
company.


                                                 -3-
functions” of the restaurant and “make day-to-day business decisions on his . . . own
accord, subject to Acts Requiring Majority Consent[.]” Raley’s responsibilities included,
inter alia, responsibility for expenses, payroll, and the distributions of net profits to himself
and Brinkman. The agreement also stated that both members shall maintain the books “and
shall make proper entries in such books of all sales, purchases, receipts, payments,
transactions and property” of the LLC. The operating agreement provided that “working
capital and other funds” received by the LLC be deposited in accounts “which shall be kept
separate and apart from any other individual accounts of the [members].” 4 Points elected
to be taxed as an S corporation.2

       Neither party disputes that they also entered into an oral salary agreement; however,
the terms of the salary agreement were disputed. Raley claimed that, per their agreement,
he would receive a salary of eight percent of gross sales and Brinkman would receive a
salary of four percent. Brinkman claimed that Raley would receive eight percent “gross”
and he would receive four percent “gross” with an additional four percent set aside in a
separate account for the development of other restaurants.3

       Shortly after forming the company, 4 Points and Brinkman Holdings entered into a
lease whereby 4 Points would pay a rent of $2,500 per month and Brinkman Holdings
would provide a “build to specification operational restaurant and parking.”

       The Pharmacy opened to the public in December 2011, offering full-service, casual
dining specializing in craft burgers, German wurst, beers, old-fashioned milkshakes, and
cream sodas. The Pharmacy was very successful. In its first year, it realized approximately
$1.9 million in gross income, and by 2016, its gross income rose to approximately $3.4
million. Raley and his managers primarily handled the bookkeeping of the restaurant.
Additionally, Raley hired an accountant to perform “write-up services,” which meant that
the accountant’s oversight of the company’s finances was limited.4

       The relationship between Raley and Brinkman began to deteriorate in March 2015,
shortly after Raley opened Butchertown Hall, a restaurant Raley owned separately from


        2
          The taxable income of an S corporation is “computed in the same manner as in the case of an
individual.” 26 U.S.C.A. § 1363. As such, an S corporation acts as a non-taxable “pass through” with each
owner paying taxes on the corporation’s income via his or her individual returns in accordance with the
owner’s proportionate share of the business. See 26 U.S.C.A. § 1366.

        3
           At the trial, Brinkman testified that the oral agreement was based on “gross” but did not specify
if it was based on gross sales or gross income.

        4
          Joe England, 4 Points’ accountant, testified at the trial that he was retained to provide “write-up
services,” and his oversight of The Pharmacy’s finances was limited.


                                                   -4-
Brinkman.5 Suspecting that The Pharmacy was paying Butchertown Hall’s employees and
other expenses, Brinkman questioned Raley about The Pharmacy’s finances, which led to
further conflict. Raley claimed their relationship reached an impasse when Brinkman
Holdings refused to renew The Pharmacy’s lease. After a period of time, Raley and
Brinkman quit communicating with one another and hired attorneys to speak for them.

                                          A. THE PLEADINGS

       In February 2016, Raley filed a complaint in Davidson County Chancery Court.6 In
April, Brinkman filed an answer and counter complaint.7 Raley’s Second Amended
Complaint, filed February 8, 2017, alleged, inter alia, that Brinkman breached the
operating agreement by failing to make a capital contribution of $175,000 and that
Brinkman Holdings breached the lease by failing to provide a built-to-specification
operational restaurant and parking and by unilaterally increasing the rent, resulting in
damages of at least $49,000. The complaint also included a claim for declaratory judgment
to construe the parties’ salary agreement and to award Raley damages in the amount of
$519,809.64 for underpayment of his salary.

        Brinkman’s Third Amended Counterclaim, filed on March 10, 2017, asserted claims
for breach of contract, breach of fiduciary duty, conversion, and punitive damages,
alleging, inter alia, that Raley misappropriated 4 Points’ funds and resources for Raley’s
personal benefit and his other businesses, and paid himself excessive distributions and
salary while withholding a large portion of Brinkman’s distributions and salary. Brinkman
also claimed that 4 Points failed to reimburse him for The Pharmacy build-out and initial
operating expenses in excess of his $175,000 capital contribution. Brinkman sought to
terminate Raley’s membership interest in 4 Points because he willfully and persistently
breached his fiduciary duty, and because it was no longer reasonably practicable for the
two men to continue operating the business together. Finally, Brinkman claimed he was
entitled to attorneys’ fees in accordance with Tenn. Code Ann. §§ 48-249-804 and -805,
and/or the operating agreement.

                    B. PARTIAL SUMMARY JUDGMENT – ATTORNEYS’ FEES

       Raley filed a motion to summarily dismiss Brinkman’s claim for attorneys’ fees
under the operating agreement. Raley contended that the plain language of section 24 of

        5
        Section 18 of the operating agreement allowed the owners to have separate businesses. Raley
formed Amaranth Hospitality Group, LLC to own and operate Butchertown Hall.

        6
        Raley asserted his claims as “Terrell K. Raley, individually and on behalf of 4 Points Hospitality,
LLC.” Raley also named Brinkman Holdings as a defendant.

        7
          Brinkman asserted his counter claims as “Cees Brinkman, individually and on behalf of 4 Points
Hospitality, LLC.”
                                                  -5-
the agreement provided that attorneys’ fees would be awarded to the prevailing party only
in the event the dispute was submitted to arbitration.

       In his response, Brinkman conceded that the attorneys’ fees provision required the
parties to submit disputes to arbitration. Brinkman argued, however, that “[b]oth the law
and equity dictate that . . . Raley waived any right to contend that the attorney’s fees
provision does not apply to the outcome of this case” by filing suit in chancery court.

       After a hearing, the trial court summarily dismissed Brinkman’s contractual claim
stating, in pertinent part:

       [T]he contract text must ‘specifically and expressly articulate’ that recovery
       of attorney’s fees was intended under the circumstances presented by the case
       . . . . The rules for commercial arbitration of the American Arbitration
       Association, provided for in section 24, differ from court procedures. Thus,
       the assumptions and premise on which recovery of attorney’s fees was agreed
       to by the parties in section 24 of the Partnership Agreement are not present
       in this litigation.

                                C. OTHER PRETRIAL RELIEF

       Pending trial, Brinkman filed a motion to appoint a custodian to protect the assets
of 4 Points. In his response to the motion, Raley contended that 4 Points was a highly
profitable business, and thus, it did not need a custodian to manage its finances. The trial
court determined that while 4 Points did not require the harsh remedy of a custodian, there
was enough evidence of mismanagement to necessitate some degree of fiscal monitoring.
Accordingly, the court appointed a fiscal agent on September 15, 2016, with instructions
to perform independent monitoring of 4 Points’ finances; to review fiscal operations,
protocols, accounting and bookkeeping, and to suggest necessary changes; and to file
monthly reports with the court regarding the results of the financial monitoring.

       The fiscal agent filed monthly reports with the court, which detailed the agent’s
findings and recommendations regarding The Pharmacy’s compliance with generally
accepted accounting procedures. In the meantime, Raley hired a different accountant to
ensure proper oversight of The Pharmacy’s finances in the future, and Raley reimbursed 4
Points a portion of non-Pharmacy-related expenses. In an order entered on January 9, 2017,
the court determined that the fiscal agent “has been beneficial in providing clarity as to the
finances of the business,” and “many of the recommendations/protocols/procedures from




                                            -6-
the Fiscal Agent have been or are in the process of being implemented.” In an order entered
on January 25, 2017, the court concluded the fiscal agent’s appointment.8

                                            D. BENCH TRIAL

       Beginning on May 15, 2017, a bench trial was held over the course of eight days
where a number of witnesses testified, including Raley, Brinkman, and 4 Point’s original
accountant, Joe England. On July 17, 2017, the trial court entered a thorough, 65-page
decision. Below, we summarize the rulings that are pertinent to this appeal.

        1. Distributions, Salary, and Non-Pharmacy-Related Expenses

        The court determined that, under the operating agreement, Brinkman and Raley
would each receive an equal share of the company’s distributions. Additionally, the oral
salary agreement provided that Raley would receive a salary of up to eight percent of gross
income, and Brinkman would receive a salary of four percent. The court found that the
salary agreement did not include, as Brinkman contended, another four percent to be set
aside in a separate account for the development of other restaurants. The court determined
that, though Raley received less than eight percent of his salary over the years, Raley was
not underpaid, as he claimed, because the agreement called for Raley to receive up to eight
percent.

       The court found in favor of Brinkman on his claims against Raley for breach of
contract, breach of fiduciary duty, and conversion, ruling:

        [T]he evidence was that as the LLC managing member, with a fiduciary duty
        of loyalty to maintain accurate and complete records and to account for LLC
        transactions, and duties under the Operating Agreement, the following
        occurred on Plaintiff Raley’s watch from 2012 until the February 2016 filing
        of the lawsuit:

                — $227,445.33 underpaid distributions to Brinkman


        8
           A dispute arose concerning intellectual property rights owned by The Pharmacy. Upon
Brinkman’s motion, the court entered an order enjoining the transfer of any intellectual property rights of
4 Points to Raley or his other business and enjoining Raley from opening a second Pharmacy restaurant.
Thereafter, Raley filed an amended complaint, wherein he requested that the court declare that Raley, rather
than 4 Points, held rights to the intellectual property associated with The Pharmacy. However, Raley and
Brinkman later entered into a “Stipulation and Joint Notice of Voluntary Dismissal of Intellectual Property
Claims with Prejudice” whereby Raley agreed to a dismissal with prejudice of his claims to The Pharmacy’s
intellectual property. And the parties agreed to stipulate that 4 Points owned and controlled the intellectual
property rights associated with The Pharmacy. Thus, The Pharmacy’s intellectual property is not at issue
in this appeal.
                                                    -7-
             — $371,244.79 underpaid salary to Defendant Brinkman

             — $315,551.86 in unexplained expenses which appear on their
               face to be personal expenses of Plaintiff Raley or for his other
               businesses.

      Thus, the greater weight and preponderance of the evidence established
      systemic/persistent and material breaches of fiduciary duty and breach of the
      Operating Agreement by Plaintiff Raley . . . . These breaches also constitute
      conversion . . . .

      2. Punitive Damages

       The trial court found that Brinkman had proven by a preponderance of the evidence
that Raley was “gross and willful in persistently failing to monitor and keep separate the
property and funds of 4 Points from his personal funds and his other businesses.” But the
court found that the instant success of the business and pressure to meet demand made
bookkeeping and financial consulting an afterthought for Raley. It also found that, during
the course of litigation, Raley reimbursed 4 Points $75,276.27 for non-Pharmacy-related
expenses, and he retained a different accountant to ensure proper oversight of The
Pharmacy’s finances in the future. Based on these and other findings, the court determined
that the evidence was not clear and convincing that Raley acted “with malice or the intent
to steal or take from Defendant Brinkman.” Therefore, Raley was not liable for punitive
damages.

      3. Brinkman’s Capital Contribution

       At the trial, Brinkman testified that Raley orally waived his $175,000 capital
contribution just before Brinkman signed the operating agreement. As further proof of
waiver, Brinkman claimed that Raley never once asked him for the capital contribution in
the five years preceding litigation and did not deduct the capital contribution from
Brinkman’s distributions and salary.

       The trial court determined that the operating agreement was unambiguous, and the
parol evidence rule did not permit the court to consider an oral agreement made prior to
contracting “to alter, vary, or qualify the plain meaning” of the unambiguous operating
agreement. As for Brinkman’s waiver defense, the trial court ruled as follows:

      Defendant Brinkman’s other defense is that Plaintiff Raley waived the
      $175,000 capital contribution. The defense is dismissed for insufficient
      proof. To overcome the explicit terms of the Operating Agreement with a
      defense of waiver it is the burden of the proponent of the defense to show
      waiver by clear, unequivocal and decisive actions.

                                          -8-
                                          .       .       .

       Applying the law of waiver to the record, the Court accredits Plaintiff Raley’s
       testimony that it was not his intent to waive Defendant Brinkman’s $175,000
       capital contribution. The Court accredits the testimony of Plaintiff Raley that
       he confronted Defendant Brinkman about the capital contribution twice after
       the build out was completed, and expected and awaited payment. In the face
       of this credible testimony the Court finds that the facts of Plaintiff Raley, as
       managing member, paying distributions to Defendant Brinkman, without
       deducting the capital contribution, is insufficient to prove waiver.

Therefore, the court determined that Brinkman breached the operating agreement by failing
to make a $175,000 capital contribution.

       The court also dismissed Brinkman’s claim seeking reimbursement from 4 Points
for the amounts he paid to build out the restaurant. The court determined that Brinkman
Holdings was obligated to cover the build-out expense as part of the lease agreement.9

       4. Attorneys’ Fees

       In addition to having asserted a claim to recover his attorneys’ fees based on
language in the operating agreement, Brinkman claimed to be entitled to recover his
attorneys’ fees in accordance with Tenn. Code Ann. §§ 48-249-804(a), -804(b), and/or -
805.

       Tennessee Code Annotated, section 48-249-804(a) provides that on termination of
a derivative proceeding, the court may award attorneys’ fees to a defendant “if it finds that
the proceeding was commenced without reasonable cause.” The court denied Brinkman’s
request for attorneys’ fees in accordance with this section finding, in pertinent part:

       There was reasonable cause for Plaintiff Raley to file this lawsuit. There was
       uncertainty and confusion about the terms of the parties’ agreements and the
       performance required . . . which needed to be determined. Further, the parties
       had reached an impasse in their ability to deal with each other. The parties
       were at an impasse in making key decisions about the business as
       demonstrated by the disputes referred to above which surfaced in the
       litigation, such as renewal of the lease, and hiring and firing of key
       employees, and in carrying on the business. The alternative of filing a lawsuit
       to obtain clarity was appropriate and reasonable.

       9
           The court also dismissed Raley’s claim that Brinkman Holdings failed to provide a build-to-
specification restaurant and parking.
                                                -9-
        Tennessee Code Annotated section 48-249-804(b) affords the trial court the
discretion to award attorneys’ fees to the prevailing party in a derivative proceeding. The
court denied Brinkman’s request for attorneys’ fees in accordance with this section finding,
in pertinent part:

          Brinkman has not been entirely the prevailing party. He has prevailed on
          some claims but has been found to have breached the Operating Agreement
          by not making his capital contribution; he caused confusion about the amount
          of the lease payments The Pharmacy was to make to [Brinkman Holdings];
          and he has been found to have been mistaken about the existence, as part of
          the salary agreement, of a 4% reserve fund for future development.

The court also denied attorneys’ fees in accordance with § 48-249-805, which gives the
trial court the discretion to award equitable relief in the form of attorneys’ fees and
expenses in the event one of the members of the LLC violates a provision in Tennessee’s
Revised Limited Liability Company Act (the “LLC Act”), Tenn. Code Ann. § 48-249-101
to -1133.

          5. Termination of Raley’s Membership Interest

      The court terminated Raley’s membership interest in accordance with Tenn. Code
Ann. §§ 48-249-503(a)(6)(B) and (C), finding:

          The evidence established that the personal and business relationship of the
          parties has been destroyed. Because of the significant dollar amounts and
          property that Plaintiff Raley and /or those working under his control and
          supervision mixed in with his personal funds and those of [his other
          business], when he was performing the duty as the managing member as a
          fiduciary, Defendant Brinkman no longer trusts Plaintiff Raley, and the
          parties no longer speak to or deal with each other. . . .

          The impact of this lack of communication and trust is exponential in this case
          because Defendant Brinkman is the landlord of the premises where The
          Pharmacy is located. That the parties are no longer working together but are
          suspicious and at odds has also destroyed the landlord/tenant relationship.

       Acting pursuant to Tenn. Code Ann. § 48-249-505(c), the court then ordered
Brinkman to file notice stating whether 4 Points intended to continue the business without
Raley,10 which would be determinative of whether the court would need to hold a hearing

10
     Tennessee Code Annotated, section 48-249-505(c) provides:


                                                  - 10 -
to ascertain the fair value of Raley’s membership interest. See Tenn. Code Ann. §§ 48-249-
505 and -506.11

                                 E. MOTION TO ALTER OR AMEND ORDER

       Brinkman moved the trial court to revise its order as to Raley’s liability for punitive
damages and Brinkman’s entitlement to attorneys’ fees in accordance with Tenn. Code
Ann. § 48-249-804(a) & (b) or § 48-249-805.12

      The court denied Brinkman’s motion in every respect but one. In regard to
Brinkman’s request for attorneys’ fees, the court found:

          The part of Defendant Brinkman’s motion to recover fees which does have
          merit is that although Brinkman obtained termination of Raley’s membership
          interest in 4 Points, and Raley breached fiduciary duties to the LLC and
          Brinkman, Raley’s termination is accompanied by 4 Points being required
          by law to pay Raley fair value for his membership interest upon his



          (c) Purchase at fair value. If the existence and business of the LLC are continued following
          the termination of a membership interest under § 48-249-503(a) . . . regardless whether
          such termination of membership interest was wrongful, any member whose membership
          interest has so terminated . . . is entitled . . . to receive from the LLC the fair value of the
          terminated membership interest as of the date of termination of such membership interest,
          calculated as set forth in § 48-249-506, in consideration for all such membership interest.

11
     Tennessee Code Annotated, section 48-249-506(3)(B) provides:

          If an LLC is required or elects to purchase a membership interest at fair value under § 48-
          249-505, then:

          (B) In a proceeding brought to determine the fair value of a membership interest in an LLC,
          the court:
          (i) Shall enforce any governing terms in the LLC documents as to the amount of fair value
          and other terms of payment as provided in subdivision (2);
          (ii) In the absence of any such governing terms in the LLC documents, shall determine the
          fair value of the membership interest, considering, among other relevant evidence, the
          going concern value of the LLC, any other agreement among any members fixing the price
          or specifying a formula for determining value of membership interests for any other
          purpose, the recommendations of an appraiser appointed by the court, if any, the
          recommendations of any of the appraisers of the parties to the proceeding, and any legal or
          financial constraints on the ability of the LLC to purchase the membership interest[.]

          12
               Brinkman did not address the trial court’s failure to award prejudgment or post judgment interest.



                                                       - 11 -
        expulsion. Thus, as a 50% member of the LLC, Brinkman receives only 50%
        value for the LLC recovery at trial yet bears 100% of the cost of the recovery.

Therefore, in accordance with Tenn. Code Ann. § 48-249-805, the court granted equitable
relief to Brinkman by revising its order to allow half of the $240,275.5913 that Raley owed
4 Points as reimbursement for non-Pharmacy-related expenses to be paid to Brinkman,
individually.

                       F. VALUATION OF RALEY’S MEMBERSHIP INTEREST

      Because Brinkman filed notice that 4 Points would continue the business and buy
out Raley’s membership interest pursuant to Tenn. Code Ann. § 48-249-505 and -506, it
was necessary to have an evidentiary hearing to determine the fair value of Raley’s 50%
membership interest in 4 Points.

        Prior to the hearing, Raley filed a motion to determine the meaning and components
of fair value under Tenn. Code Ann. § 48-249-506(3). Raley filed his motion in response
to the valuation report prepared by Brinkman’s expert, wherein the expert discounted
Raley’s membership interest for lack of marketability and lack of control and applied a
corporate income tax rate to 4 Points’ income.

       Raley argued that a shareholder-level discount for lack of marketability and lack of
control should not apply when the court’s task is to determine the fair value, rather than
the fair market value, of the membership interest. He contended that, because the
company, rather than a third-party, was purchasing the membership interest, the fact that
the interest was non-controlling and had no ready market was irrelevant. Raley also
contended that the application of a corporate income tax rate to 4 Points’ income stream, a
valuation consideration known as “tax-affecting,” was inappropriate “as a matter of law”
because 4 Points does not pay a corporate income tax. Raley based his contention in large
part on the U.S. Tax Court’s reasoning in Gross v. Comm’r IRS, 272 F.3d 333, 335 (6th
Cir. 2001).14

       Conversely, Brinkman argued that lack of marketability, lack of control, and tax-
affecting were relevant in determining the fair value of 4 Points. Specifically, Brinkman
argued that the shareholder-level discounts were necessary to punish and deter Raley’s
wrongful conduct. In arguing that tax-affecting constituted relevant evidence of the fair

        13
           The court determined that Raley was liable to 4 Points for $315,551.86 in personal expenses.
However, pre-trial, Raley reimbursed 4 Points $75,276.27, which the trial court credited to Raley when
calculating the final total of $240,275.59 in personal expenses.

        14
             In Gross, the court’s task was to determine “the fair market value” of stock in an S corporation
for gift tax purposes. See Gross, 272 F.3d at 335. The court determined that the application of a zero percent
tax rate to the subject corporation’s income best reflected the tax benefits of an S corporation. Id. at 346.
                                                   - 12 -
value of Raley’s membership interest, Brinkman submitted the affidavit of Thomas M.
Price, an accountant and valuation expert. Mr. Price testified, inter alia, that the application
of a 38% tax rate “was entirely appropriate and comports with generally accepted valuation
standards and methods.” Mr. Price explained in considerable detail the reasoning behind
the application of a 38% tax rate to 4 Points’ income stream under the income approach to
valuation. Among other things, he stated that because “all of the components of the
Capitalization Rate are based on after-tax values or after-tax income data, the income
stream to which the Capitalization Rate is applied in the Income Approach must also be an
after-tax amount in order to be comparing apples to apples.”15 Mr. Price further stated:

        If taxes were not factored into the income stream, the value of the stream
        would be greater. But, correspondingly, if taxes were not factored into the
        various components of the Capitalization Rate, the Capitalization Rate would
        be higher and, thus, its discounting effect would be greater. While that would
        also be an apples-to-apples comparison, it is not permissible to inflate the
        income stream by disregarding taxes but depress the Capitalization Rate by
        considering taxes, which is the result Raley is arguing for in this case.

        After considering the arguments of the parties and the affidavit of Brinkman’s
expert16, the court decided to exclude any testimony or evidence pertaining to discounts for
marketability and lack of control. It also determined that the application of a corporate
income tax rate to 4 Points’ income stream would not be appropriate in determining the
fair value of Raley’s membership as a matter of law.

       First, the court reasoned that “fair value” was a more flexible term than “fair market
value,” and thus, the term “fair value” as that term is used in Tenn. Code Ann. § 48-249-
506 did not necessarily “preclude the application of discounts for lack of marketability or
control.” However, the court reasoned that, under the undisputed facts of this case,
discounts for lack of control and marketability were inapplicable.

       In making its determination that a discount for lack of control was not appropriate,
the court relied on other jurisdictions holding that when a shareholder who is already in
control of a corporation elects to purchase the shares of the dissenting shareholder, the fact
that those shares are non-controlling is irrelevant. Thus, the court determined that because
Brinkman will be the controlling member of 4 Points after the buy-out, the value of Raley’s
interest should not be reduced for lack of control.



        15
           Generally, “capitalization rate” is “[t]he interest rate used in calculating the present value of
future periodic payments.” Interest Rate, Black’s Law Dictionary (11th ed. 2014).

        16
           Raley retained an expert witness, Stephen Maggart, but Mr. Maggart did not submit an affidavit
in support of Raley’s motion.
                                                  - 13 -
       The court also declined to apply a reduction for lack of marketability. The court
contended that, in most jurisdictions, “reductions for lack of marketability are not . . .
applied in LLC membership valuation,” unless extraordinary circumstances exist. This is
due, in part, because the market is irrelevant in such cases. Furthermore, the court declined
to apply a shareholder-level discount to punish and deter Raley’s wrongful behavior,
because Tenn. Code Ann. § 48-249-505 provides that the member whose membership
interest is terminated is entitled to receive the fair value of his membership interest
“regardless whether such termination of membership interest was wrongful.”

        As for the corporate tax adjustment, the court ruled:

        The Court adopts the authorities cited by Plaintiff Raley and reasoning that
        “no entity level tax should be applied in the valuation analysis for a non-
        controlling interest in an electing S corporation, absent a compelling
        demonstration that independent third parties dealing at arms-length would do
        so as part of a purchase price negotiation.” [Citation omitted17]. In so
        concluding, the Court rests primarily on the reasoning that the LLC elected
        to be taxed as an S-corporation. As a nontaxable pass-through, the LLC does
        not pay federal income taxes on their entity level earnings; the taxes are paid
        by the individual owners on their own returns. Thus, even for the purpose of
        establishing a correlation, as asserted by Defendant Brinkman’s expert, the
        Court nevertheless concludes as a matter of law this would not be
        appropriate. The Court also, to a lesser extent, is guided by Gross v. Comm’r
        IRS, 272 F.3d 333, 347 (6th Cir. 2001) although, as pointed out by Defendant
        Brinkman, the context of Gross is the fair market value of gifted stock for
        federal income tax purposes, and it is not on point but only analogous.



        17
           In reaching its decision, the court relied on a job aid for IRS valuation analysts submitted by
Raley entitled, Valuation of Non-Controlling Interests in Business Entities Electing to be Treated as S
Corporations for Federal Tax Purposes, prepared by representatives of the Large Business and
International Division NRC Industry, Engineering Program and the Small Business/Self-Employed
Division Estate and Gift Tax Program, dated October 29, 2014. In the final summary, it states:

        With respect to the question of pass-through taxation, no entity level tax should be applied
        in the valuation analysis of a non-controlling interest in an electing S corporation, absent a
        compelling demonstration that independent third parties dealing at arms-length would do
        so as part of a purchase price negotiation. In a similar manner, the personal income taxes
        of a potential interest buyer or interest seller are not relevant in determining fair market
        value of an interest in an electing S corporation.

We note that on the bottom of each page of the job aid, it states: “This job aid is not Official IRS position
and was prepared for reference purposes only; it may not be used or cited as authority for setting any legal
position.” (Emphasis added).


                                                   - 14 -
        Having ruled on the issues presented by Raley’s pretrial motion, the court held an
evidentiary hearing on August 13 and 14, 2018, to determine the value of Raley’s
membership interest. A number of witnesses testified at the valuation hearing, including
Brinkman’s expert, Thomas M. Price, and Raley’s expert, Stephen M. Maggart, both of
whom are certified public accountants, certified valuation analysts, certified in financial
forensics, and accredited in business valuation. After considering the testimony of both
Raley’s and Brinkman’s experts as well as other witnesses, the court determined that the
fair value of Raley’s 50% membership interest was $2,387,139.09.

       It first determined that “the weighted average net income of 4 Points—pretax for
value purposes—is $930,525.” The court then calculated the capitalization rate using the
build-up method, based on values published by Duff & Phelps, and arrived at a
capitalization rate of 18.63%. The court concluded:

       The result, then, of the Court’s 18.63% cap rate for $930,525 average net
       income weighted at 95% is $4,745,028.18. Added to that is $29,250.00 (5%
       for $402,000 Book Value Method and $183,000 Adjusted Asset Method).
       Thus, the total fair value of a 100% interest in 4 Points at July 17, 2017 was
       $4,774,278.18. A 50% fair value interest, i.e. the value of Plaintiff Raley’s
       membership as of July 17, 2017, was $2,387,139.09.

       Upon Brinkman’s motion, the court amended its order on October 9, 2018, and
allowed Brinkman to offset the amount of Raley’s interest by $290,279.10 based on the
previous damage award against Raley. The court also ordered 4 Points to make an initial
installment payment of $500,000 by November 6, 2018. And when Raley received the first
installment, the court required him to “deliver an instrument of transfer of his membership
interest to the LLC pursuant to Tennessee Code Annotated section 48-249-506(3)(B)(iv).”

      This appeal followed. But before Brinkman filed his brief, Raley filed a motion to
dismiss the appeal.

                            II. MOTION TO DISMISS APPEAL

       Shortly after the notice of appeal was filed, Raley filed a motion with this court to
dismiss the appeal on the ground of waiver. He contends Brinkman waived his right to
appeal by paying the first installment of $500,000 and accepting the transfer of Raley’s
membership interest. Stated another way, Raley contends Brinkman is estopped from
challenging the unfavorable aspects of the trial court’s judgment because Brinkman
“accepted and took advantage of substantial benefits” of the trial court’s July 2017 order
terminating Raley’s membership interest and the court’s valuation order determining the
value of Raley’s interest.



                                           - 15 -
       Brinkman argues that he did not waive his right to appeal and moves this court to
consider post-judgment facts, specifically, an email from Brinkman’s attorney, Scott Sims,
sent to Raley’s attorneys, Seth McInteer and Howell O’Rear, on November 1, 2018, and
the accompanying affidavit of Scott Sims. In the email, Mr. Sims acknowledges that
Brinkman made a wire transfer of $500,000 on that day. He also states that the payment
“should not be construed as a waiver of any of Brinkman’s issues with respect to the trial
court’s valuation of Raley’s membership interest or any of the other proceedings in the trial
court.”18 Neither party disputes the authenticity of the email, but Raley argues that we
should not consider it because, when read in its entirety, it is capable of more than one
interpretation.

       Rule 14 of the Tennessee Rules of Appellate Procedure states:

       (a) Power to Consider Post-Judgment Facts. The Supreme Court, Court
           of Appeals, or Court of Criminal Appeals on its motion or on motion of
           a party may consider facts concerning the action that occurred after
           judgment. Consideration of such facts lies in the discretion of the
           appellate court. While neither controlling nor fully measuring the court’s
           discretion, consideration generally will extend only to those facts,
           capable of ready demonstration, affecting the positions of the parties or
           the subject matter of the action such as mootness, bankruptcy, divorce,
           death, other judgments or proceedings, relief from the judgment
           requested or granted in the trial court, and other similar matters. . . .

We have determined that the email submitted by Brinkman is “capable of ready
demonstration” and affects the positions of the parties; therefore, we will consider it in
determining whether to dismiss the appeal. See id.

       On this issue we find the Tennessee Supreme Court’s decision in Catlett v.
Indemnity Insurance Company of North America, 914 S.W.2d 76 (Tenn. 1995) is
instructive. In Catlett, the trial court awarded the plaintiff over $140,000 in damages. Id.
The defendant appealed. While the appeal was pending, the defendant paid the plaintiff
$77,988.77 in satisfaction of certain aspects of the judgment. Id. The defendant included a
letter with the payment which stated that the payment was in compliance with the trial

       18
            The email reads, in its entirety, as follows:

       I am informed that Brinkman made the $500,000 wire transfer today. As such, we will
       expect to receive the signed transfer instrument on Monday and all money be held in trust
       until we have that document. Please confirm receipt of the wire.

       The payment was made to comply with the court’s order. It should not be construed as a
       waiver of any of Brinkman’s issues with respect to the trial court’s valuation of Raley’s
       membership interest or any of the other proceedings in the trial court.
                                                     - 16 -
court’s order and was made pending the outcome of the appeal. Id. The plaintiff filed a
motion to dismiss the appeal on the grounds the judgment had been satisfied. Id. The
Tennessee Supreme Court denied the motion, heard the appeal, and reversed the trial
court’s decision. Id. at 77.

       On remand, the defendant filed a motion to compel the plaintiff to repay the funds.
The trial court denied the motion, and the defendant, again, appealed. Id. The plaintiff
argued that the payment was a “voluntary and unconditional satisfaction of the trial court’s
judgment which she should be entitled to keep.” Id. However, the Court found in favor of
the defendant:

       The transmittal letter accompanying the payment made it clear that the
       money was being paid “pending the outcome of . . . appeal,” that the
       employer intended to pursue its rights on appeal, and that counsel was
       presently preparing the appeal. The [defendant] contested plaintiff’s motion
       to dismiss the appeal and also questioned the underlying legal basis for
       plaintiff’s recovery.

       Under these circumstances, we hold that the employer is entitled to recover
       the funds paid to plaintiff. Our conclusion is consistent with the general rule:

              A party who voluntarily acquiesces in, ratifies, or recognizes
              the validity of, a judgment, order, or decree against that [party],
              or otherwise takes a position which is inconsistent with the
              right to appeal therefrom, thereby impliedly waives, or is
              estopped to assert, [the] right to have such judgment, order, or
              decree reviewed by an appellate court[.]

                                           .            .   .

              In order to be a bar of the right of appeal on the ground of
              acquiescence, the acts relied on as a waiver . . . must be such
              as to clearly and unmistakably show an inconsistent course of
              conduct or an unconditional, voluntary, and absolute
              acquiescence, with the intent to ratify or confirm the judgment,
              and to acquiesce and abandon the right of appeal.

Id. at 78 (emphasis added).

       Thus, to dismiss the appeal based on waiver, Brinkman’s act of paying the first
installment of $500,000 and accepting the transfer of Raley’s membership interest must
“clearly and unmistakably show . . . the intent to ratify or confirm the judgment, and to
acquiesce and abandon the right to appeal.” See id. Considering that the email plainly states

                                               - 17 -
that Brinkman’s payment should not be construed as a waiver, Raley has failed to clearly
and unmistakably show that Brinkman intended to ratify the judgment and abandon the
right to appeal. Accordingly, we deny Raley’s motion to dismiss the appeal.

                                         III. ISSUES

        In this appeal, Brinkman contends that the trial court erred in determining that (1)
Brinkman breached the operating agreement by failing to make a capital contribution, (2)
Raley was not liable for punitive damages, (3) discounts for lack of control and lack of
marketability were inapplicable to the valuation of Raley’s membership interest, (4) tax-
affecting did not constitute relevant evidence of the fair value of Raley’s membership
interest, and (5) Brinkman was not entitled to attorneys’ fees pursuant to the operating
agreement and/or §§ 48-249-804 and -805. Brinkman also argues that the trial court erred
in failing to award prejudgment and post-judgment interest. Additionally, both parties
argue that they are entitled to attorneys’ fees on appeal.

                                       IV. ANALYSIS

                A. BRINKMAN’S BREACH OF THE OPERATING AGREEMENT

       Brinkman contends the trial court erred in ruling that he breached the operating
agreement by failing to make the alleged $175,000 capital contribution. Brinkman insists
that Raley orally waived his capital contribution just before they signed the operating
agreement. Brinkman also contends that Raley’s acts and omissions after they executed the
operating agreement constitute a waiver of Brinkman’s obligation to contribute $175,000.

        “In all actions tried upon the facts without a jury, the court shall find the facts
specially and shall state separately its conclusions of law and direct the entry of the
appropriate judgment.” Tenn. R. Civ. P. 52.01. If the trial court makes the required findings
of fact, appellate courts review the trial court’s factual findings de novo upon the record,
accompanied by a presumption of the correctness of the findings, unless the preponderance
of the evidence is otherwise. Kelly v. Kelly, 445 S.W.3d 685, 692 (Tenn. 2014) (citing
Tenn. R. App. P. 13(d)). “For the evidence to preponderate against a trial court’s finding
of fact, it must support another finding of fact with greater convincing effect.” State ex rel.
Flowers v. Tennessee Trucking Ass’n Self Ins. Grp. Trust, 209 S.W.3d 595, 599 (Tenn.
Ct. App. 2006). Our review of a trial court’s determinations on issues of law is de novo,
without any presumption of correctness. Lind v. Beaman Dodge, Inc., 356 S.W.3d 889, 895
(Tenn. 2011).

       1. Parol Evidence Rule

       Brinkman contends the trial court erred by determining that the parol evidence rule
did not permit the court to consider an oral agreement made before contracting “to alter,

                                            - 18 -
vary, or qualify the plain meaning” of the written contract. More specifically, Brinkman
contends the trial court erred in determining that the parol evidence rule applied because
parol evidence is admissible to establish a waiver of a contractual provision. In response,
Raley argues that Brinkman is not offering parol evidence to support the affirmative
defense of waiver; rather, he is impermissibly offering it to alter an unambiguous term of
the operating agreement.

       Generally, the parol evidence rule provides that an oral agreement made prior to or
contemporaneous with the execution of a written contract cannot add to, vary, or contradict
the unambiguous terms of the contract. Individual Healthcare Specialists, Inc. v. BlueCross
BlueShield of Tennessee, Inc., 566 S.W.3d 671, 694–95 (Tenn. 2019). In Tennessee, courts
“give primacy to the contract terms, because the words are the most reliable indicator—
and the best evidence—of the parties’ agreement when relations were harmonious, and
where the parties were not jockeying for advantage in a contract dispute.” Id. at 694
(quoting Feldman, 21 Tenn. Practice § 8:14). The foregoing notwithstanding, the
Tennessee Supreme Court commented in Individual Healthcare Specialists that the parol
evidence rule is unfortunately named in several respects. Id. at 695.

       First, it encompasses more than simply parol (i.e., oral) evidence of pre-
       contract negotiations. Second, even though it is sometimes expressed as a
       rule of evidence relating to the “admissibility” of parol evidence, the parol
       evidence rule is more accurately characterized as a rule of substantive law.
       This means that even evidence of pre-contract negotiations that is admitted
       without objection is “incompetent and ineffective” to alter the terms of a
       written agreement.

Id. at 695–96 (citations omitted). The court concluded its discussion of the parol evidence
rule stating, “The question is not really whether evidence can be admitted which might
vary the written document, but whether, if the evidence is admitted, it will have the legal
effect of varying the document.” Id. at 696. (citing P.S. Atiya, An Introduction to the Law
of Contract 161-62 (3d ed. 1981) (quoted at Black’s Law Dictionary 1292 (10th ed. 2014)).

        Significantly, “the parol evidence rule is most restrictive when the contract at issue
is fully or completely integrated—that is, when it is intended to be the complete and
exclusive statement of the parties’ agreement.” Id. In such cases, “the parol evidence rule
does more than prohibit the use of pre-contract negotiations to contradict the contract’s
terms; it also prohibits the use of pre-contract negotiations . . . in a way that would
supplement or limit its terms, even if that evidence is consistent with the written terms of
the contract.” Id. (emphasis in original).

       We begin our analysis by noting that the 4 Points operating agreement is fully
integrated and states as follows:


                                            - 19 -
       31. ENTIRE AGREEMENT

              This instrument contains the entire Agreement of the Partners relating
       to the rights granted and obligations assumed in this Agreement. Any oral
       representations or modifications concerning this instrument shall be of no
       force and effect unless contained in a subsequent written modification signed
       by the Partners hereto.

As the trial court correctly determined, the operating agreement unambiguously provides
that Brinkman is to make a $175,000 capital contribution in cash:

       4. INITIAL CAPITAL CONTRIBUTIONS

       The Partners shall make the following initial contributions (the “Initial
       Capital Contributions”) to the Partnership. Any actual money spent before
       the Effective Date by any of the Partners shall be reimbursed from the
       Partnership’s capital as soon as possible after processing by the Partnership’s
       accounting staff.

       Name of Partner                 Contribution Type             Value

       Terrell Kristen Raley           Labor                         $30,000
       Cees Brinkman                   Cash                          $175,000

      At the trial, Brinkman testified that just before he signed the agreement, he and
Raley discussed his capital contribution, and Raley told Brinkman that he would not require
Brinkman to pay it. Specifically, Brinkman testified:

       I did not study the entire operating agreement, but I opened it up and I saw—
       it said that Terrell had 30,000 in labor and almost 175,000 that I had to put
       in. I was like, “I put in way more than 175,000 and I also put a lot of labor
       in.” He’s like, “Yeah, yeah. Don’t worry about 175-. I know you put in way
       more than that.” So that was the end of it and we never talked about the
       175,000 ever again until the litigation started—until I got the lawsuit on me.

       The 4 Points Operating Agreement was fully integrated and, as the trial court
correctly determined, unambiguously provided that Brinkman was to contribute $175,000
in cash. Thus, the evidence Brinkman proffered to establish an oral agreement made prior
to contracting cannot alter, contradict, or for that matter, supplement or limit the terms of
the written operating agreement. While Brinkman’s testimony regarding the oral
agreement was admitted at the trial, it is “incompetent and ineffective” evidence. Id. at 696
(“[E]ven evidence of pre-contract negotiations that is admitted without objection is

                                           - 20 -
“incompetent and ineffective” to alter the terms of a written agreement.) Therefore, we
affirm the trial court’s ruling.

       2. Waiver

       Brinkman also contends that Raley’s actions or omissions after executing the
operating agreement constitute waiver of Brinkman’s contractual obligation to make a
capital contribution of $175,000. Specifically, he argues that Raley waived Brinkman’s
capital contribution by continuing to pay Brinkman’s distributions and salary for the five
years preceding the litigation without deducting Brinkman’s capital contribution. We
disagree.

       This court’s decision in GuestHouse International, LLC v. Shoney’s North America
Corporation, 330 S.W.3d 166, 201 (Tenn. Ct. App. 2010) is instructive. GuestHouse
concerned a contract dispute between a restaurant chain and a motel chain. Id. at 171.
Shoney’s restaurants had a licensing agreement with ShoLodge that allowed ShoLodge to
use Shoney’s service marks. Id. When Shoney’s restaurants encountered significant
financial difficulties years later, ShoLodge decided that the use of the Shoney’s name was
more of a burden than a benefit. Id. at 172–73. In a letter to its shareholders, the ShoLodge
CEO wrote of “the plan to convert all of the Shoney’s brand properties to the GuestHouse
brand and [the] intention to franchise only the GuestHouse name in the future.” Id. at 173.
ShoLodge also communicated those intentions directly to Shoney’s, and over the next
several years, ShoLodge systematically rebranded its motels. Id.

       In the interim, another entity bought Shoney’s assets, intending to breathe new life
into the Shoney’s brand. Id. at 175. This prompted ShoLodge (which had been bought out
by Settle Inn) to re-launch the Shoney’s Inn motels in accordance with the licensing
agreement that was still in effect. When ShoLodge informed Shoney’s of its intentions,
Shoney’s notified the motel chain that it was rescinding and terminating the licensing
agreement. Id. at 176. Thereafter, ShoLodge commenced an action against Shoney’s
restaurants, and in response, Shoney’s asserted, as an affirmative defense, that ShoLodge
waived its rights under the licensing agreements. Id. at 201. We discussed the scope and
application of the doctrine of waiver as follows:

       A waiver ... is generally defined as a voluntary and intentional
       relinquishment of a known right.... [T]here are few, if any, more erroneous
       definitions known to the law. For one thing, waiver is far more multifaceted
       than this definition would allow for. Moreover, even as far as it goes, it is
       totally misleading. It strongly implies that the waiving party intends to give
       up a right. In reality, many, if not most waivers are unintentional and
       frequently do not involve a “right” that the party is aware of. Finally,
       contractual rights are not waivable, conditions are. In general, the doctrine
       of waiver is “an excuse for nonperformance of contractual duties or

                                           - 21 -
       conditions ... based in large part on the policies against forfeiture and unjust
       enrichment.” It is “designed to prevent the waiving party from lulling another
       into a belief that strict compliance with a contractual duty will not be
       required, and then either suing for noncompliance or demanding compliance
       for the purpose of avoiding the transaction.” For this reason, the doctrine of
       waiver “applies primarily to conditions which may be thought of as
       procedural or technical, or to instances in which the non-occurrence of
       a condition is comparatively minor.”

Id. (citations omitted) (footnotes omitted) (emphasis added).

        In GuestHouse, we identified the Tennessee Supreme Court’s decision in Chattem,
Inc. v. Provident Life & Accident Insurance Company, 676 S.W.2d 953 (Tenn. 1984) as an
example of an appropriate application of the waiver defense. In Chattem, the insurance
contract provided that the insurance company would pay a disability insurance claim if the
employee filed proof of disability within one year of the employee’s termination.
GuestHouse, 330 S.W.3d at 202. The employee filed proof of disability more than a year
following termination, and the insurance company denied the claim. Id. The Tennessee
Supreme Court held that the insurance company waived its right to enforce this condition
in the contract because the insurance company previously waived the condition in seven
out of 11 claims filed by the employee. Id. at 203. Therefore, the insurance company was
obligated to pay the claim. Id.

        Considering Chattem and other relevant authorities, we reasoned that “Shoney’s
does not assert waiver as to a comparatively minor procedural or technical condition, but
rather, as to ‘a material part of the agreed exchange,’ indeed, the very object of the license
agreements at issue.” Id. at 203.Therefore, the court held that waiver was not applicable.
Id.

       As discussed, the operating agreement required Brinkman to contribute $175,000 in
cash as his capital contribution. As such, Brinkman’s obligation to make a capital
contribution was “a material part of the agreed exchange;” consequently, it could not be
waived by any act or omission of Raley. See id. at 202 (“[A] waiver of a material part of
the agreed exchange is ineffective.”)

        Even if the affirmative defense of waiver did apply, the trial court correctly
determined that Brinkman’s proof was insufficient. “[W]aiver is proven by a clear,
unequivocal and decisive act of the party.” Id. The fact that Raley failed to deduct the
$175,000 capital contribution from Brinkman’s salary or distributions does not constitute
a clear and unequivocal act establishing waiver. Moreover, the trial court credited Raley’s
testimony that he asked Brinkman twice for his capital contribution to no avail.
“[A]ppellate courts will not re-evaluate a trial judge’s assessment of witness credibility
absent clear and convincing evidence to the contrary.” Wells v. Tennessee Bd. of Regents,

                                            - 22 -
9 S.W.3d 779, 783 (Tenn. 1999). And we find no clear and convincing evidence to the
contrary.

       Therefore, we affirm the trial court’s determination that Brinkman breached the
operating agreement by failing to make a $175,000 capital contribution.

                           B. CLAIM FOR PUNITIVE DAMAGES

        Brinkman contends that the trial court’s denial of punitive damages wholly
contradicted its finding that Brinkman proved that Raley underpaid Brinkman’s salary and
distributions, and that Raley willfully and persistently used The Pharmacy’s income to pay
his personal expenses and the expenses of his other business. For his part, Raley asserts
that liability for punitive damages requires clear and convincing evidence of intentional,
fraudulent, malicious, or reckless conduct, and the record contains no such evidence.

       Unlike compensatory damages, which seek to make the plaintiff whole, punitive
damages are intended to punish the defendant and to deter him from committing similar
acts in the future. Goff v. Elmo Greer & Sons Const. Co., 297 S.W.3d 175, 187 (Tenn.
2009). “Punitive damages are thus appropriate only in the most egregious cases and,
consequently, a verdict imposing such damages must be supported by clear and convincing
evidence that the defendant acted intentionally, fraudulently, maliciously, or recklessly.”
Id. Clear and convincing evidence “leaves ‘no serious or substantial doubt about the
correctness of the conclusions drawn.’” Id. (quoting Hodges v. S.C. Toof & Co., 833
S.W.2d 896, 901 n. 3 (Tenn. 1992)).

       Whether the record contains clear and convincing evidence establishing liability for
punitive damages is a question of law, which we review de novo with no presumption of
correctness accorded to the trial court’s decision. White v. Empire Exp., Inc., 395 S.W.3d
696, 721 (Tenn. Ct. App. 2012). Under the clear and convincing standard,

      the appellate court must “distinguish between the specific facts found by the
      trial court and the combined weight of those facts.” The facts as found by the
      trial court are reviewed de novo on the record, presuming those findings to
      be correct unless the evidence preponderates otherwise. Findings of fact
      based on witness credibility are given great deference and will not be
      disturbed absent clear evidence to the contrary. Whether the combined
      weight of the facts, either as found by the trial court or supported by a
      preponderance of the evidence, establish clearly and convincingly that
      [punitive damages are warranted] is a question of law, subject to de novo
      review with no presumption of correctness.

Id. (quoting In re Samaria S., 347 S.W.3d 188, 200 (Tenn. Ct. App. 2011)).


                                          - 23 -
       Brinkman’s claim for punitive damages is based on two distinct categories of
wrongful acts and omissions by Raley, all of which the trial court found Brinkman had
proven by a preponderance of the evidence: (1) Raley underpaid Brinkman’s salary and
distributions; and (2) Raley willfully and persistently used The Pharmacy’s income to pay
his personal expenses and the expenses of his other business. We will consider the evidence
pertinent to each category separately to determine whether Brinkman proved by “clear and
convincing evidence that [Raley] acted intentionally, fraudulently, maliciously, or
recklessly” and whether his conduct was “egregious.” See Goff, 297 S.W.3d at 187.

       1. Underpayment of Salary and Distributions

        It is undisputed that Brinkman did not receive the salary and distributions to which
he was entitled as required by the operating and salary agreements. Nevertheless, Raley
testified that, initially, he did not understand the difference between salary and
distributions, and it was his understanding that Brinkman would receive half of the
distribution that Raley received, i.e., an eight percent/four percent division. It was not until
2014 that Joe England, 4 Points’ accountant, informed Raley that, under S corporation
rules, distributions had to be made in accordance with membership interests. In the case of
4 Points, this meant a 50/50 division. According to Raley’s testimony, Mr. England
explained to him how to manipulate the numbers in order to honor the agreement to an
eight percent/four percent division and still comply with S corporation rules. Raley testified
as follows:

       A. The advice that [Mr. England] gave me was to be able to maintain the 8/4
          split and satisfy S-corp tax rules.

       Q. What did he – What advice did he give you?

       A. Essentially by taking the same 8 percent in earned income to me and 4
       percent in earned income to Mr. Brinkman, the 8/4 split. However, his advice
       was for me to take 4 percent less salary so that my income is split between
       salary and distributions. And that Mr. Brinkman’s distributions that would
       match mine at 4 percent, that would take care of the even distributions that
       the S-corp requirements dictate. Therefore, my salary is 4 percent and Mr.
       Brinkman’s is zero, which explains why he didn’t get salary in the years in
       which he discusses in his complaint.

                                        .      .       .

       Essentially [Mr. England] was saying to me to maintain—he was going off
       an 8/4 split. So if I took 4 percent in salary and 4 percent in distribution, that
       would be my 8 percent. And then Mr. Brinkman, because his distributions
       had to match mine, would also be 4 percent, so he would be at zero in salary.

                                             - 24 -
        So it would be 8/4. However, I misinterpreted that sometimes, because if you
        add zero, if you look at the formula the way he had recommended, it was 8/4,
        which means 2/1. So sometimes say if there was more money in the operating
        account, I would do 8 and then zero and then 8 and 8.

      Likewise, Mr. England testified, “It was my understanding . . . [Mr. Raley] and Mr.
Brinkman had an agreement whereby Mr. Brinkman got 50 percent of the distribution that
[Mr. Raley] got. [Mr. Brinkman] got half the distribution that Mr. Raley received.” Mr.
England further testified:

        So, you know, I didn’t want to do any—I didn’t want to do a tax return like
        2013, again. Okay. So he said that –Mr. Raley said that he and Mr. Brinkman
        wanted to continue the 8 percent/4 percent arrangement and how could they
        structure it to accomplish that and still make the distributions even. So I said,
        simply make the distributions equal, make your additional amount to get you
        to the twice as much as Mr. Brinkman, take it out as salary.

       The testimony and evidence also indicates that Brinkman was equally confused
about the difference between salary and distributions. In an email from Brinkman to Mr.
England, Brinkman indicated that he should receive half of the distribution that Raley
received. Brinkman wrote, “It should be half the amount that Terrell pulled out. I went for
half or 4 percent to save up in the business account for our next business venture.”
Brinkman testified as follows:

        A.     I received, about every other, week a check and I assumed that it was
        the same—or that Terrell’s check was double the amount. So I assumed that
        we were both pulling out the same checks and his was based on 8 percent
        and mine was based on the 4 percent. So all of those checks that came to me,
        I thought it was okay. It was good.19

        Q. All right. And there were times where you would receive checks through
        [payroll]?

        A. Once in a while.

        Q. And there were times where you would receive just written checks to you;
        correct?

        A. The checks for [payroll] were deposited into my bank account, so I didn’t
        get checks.

        19
           According to the testimony at the trial, distributions were made by written checks, and salary
was directly deposited into the parties’ accounts through payroll.
                                                 - 25 -
        Q. Right. I understand. But in all of these years you were receiving
        substantial amounts of money on a regular basis; correct?

        A. Correct.

        Q. And did you understand the difference between a salary and a distribution
        at that time?

        A. No.

        In addition to the above, Peter Reicciardi, an accountant who reviewed The
Pharmacy’s finances, testified that Raley never paid himself the full eight percent of his
salary in any given year although there was more than enough revenue to do so. Therefore,
while Raley underpaid Brinkman’s salary, he did not overpay himself.

       Considering all of the evidence relevant to this claim, we agree with the trial court’s
finding that the evidence fails to clearly and convincingly establish that in withholding
salary and distributions from Brinkman, Raley intended to steal from Brinkman. The
foregoing evidence indicates that Raley—and Brinkman for that matter—misunderstood
the terms of their agreement, and that Raley was attempting to comply with the agreement,
as he understood it, while also complying with S corporation rules. Furthermore, we do not
find Raley’s actions to be egregious.

        2. Payment of Raley’s Personal Expenses and Expenses of Other Businesses

       Brinkman contends the trial court’s finding that Raley was “gross and willful in
persistently failing to monitor and keep separate the property and funds of 4 Points from
his personal funds and his other businesses” justifies an award of punitive damages.

       Raley acknowledged that The Pharmacy’s assets were improperly used to pay some
expenses of Raley’s other businesses, such as a sign for Butchertown Hall. But Raley
explained that The Pharmacy’s bookkeeping was somewhat complicated by the fact that
Holland House, Butchertown Hall, and The Pharmacy shared employees, used similar
inventory and equipment, and the managers of the restaurants were insured under an
umbrella policy.20 For example, Raley testified that he emailed the invoice for Butchertown

        20
            According to Raley’s testimony, the managers of all three restaurants were placed on the same
health insurance plan. Raley’s testimony on the health insurance issue provides a good example of the
difficulties Raley faced with the bookkeeping for all three restaurants. This is because there were instances
when Pharmacy was mistakenly billed for the entire insurance premium and the charges had to be parsed
out. Raley testified:



                                                   - 26 -
Hall’s sign installation to Ben Albert, who was being groomed as the regional manager for
all three restaurants. The email entered into evidence merely states: “Please mail a check
to Joey from the operating account today.” Raley sent the email from his Pharmacy email
address, and Albert mistakenly paid for the sign out of The Pharmacy’s account. But there
was no evidence that Raley explicitly asked Albert to pay for the sign out of The
Pharmacy’s account.

        Raley also acknowledged that he improperly used the debit card occasionally but
stated that he intended to reimburse The Pharmacy. For example, he testified to using the
4 Points debit card to purchase products from Electronic Express:

      ….And for some reason that day—and I remember that particular store. It
      was just a lot of chaos, and I waited a good hour just to get to the line. And
      my card was not working. I would assume because my card wasn’t
      authorized at the time for that big of a balance to be charged. So instead of
      having to go through the trouble of calling the bank, I just used the 4 Points
      card with the intent of reimbursing it immediately, which I did.

(Emphasis added). The testimony further shows that Raley reimbursed the company but
only after Mr. England brought the improper charge to Raley’s attention.

      To explain and mitigate some of his bookkeeping mistakes, Raley testified that he
thought that Mr. England was closely monitoring the accounts, and thus, he believed that
Mr. England would bring any improper charges to his attention:

      A.    I was under the assumption that [Mr. England] could pull that
      information off of the bank statements.

      Q. Well, if any of the other individuals who had a debit card at The Pharmacy
      and made charges on that debit card, would he have been provided that
      information?

      A. That wasn’t really—as we’ve stated before, this was a very excessively
      casual company. So I guess we assumed that he was getting a lot of that
      information. And as it turns out, he wasn’t.


      . . . I know that according to my records that that particular circumstance occurred for a
      total of three periods in which we were billed, three billing periods. In those three billing
      periods, it was—it was some confusion. The general manager and myself, Mandi Allen,
      had to basically chop out each individual for each particular restaurant. And then we would
      figure out what that was, and Pharmacy paid the bill. We would reimburse for each
      restaurant subsequently. Once that was cleared up, we started getting billed separately, but
      that was only for three billing cycles.
                                                 - 27 -
        Raley also explained that he attempted to rectify his bookkeeping mistakes prior to
trial by reimbursing 4 Points a portion of the non-Pharmacy-related expenses and by hiring
a different accountant to provide more oversight of The Pharmacy’s accounts in the future.
The evidence shows that, in its first five years in business, The Pharmacy realized
approximately $14 million in gross income, with a little over $300,000 of that amount
going to Raley’s non-Pharmacy-related expenses. Thus, the improper expenditures
represented a small fraction of the funds that were under Raley’s control.

       The trial court determined that Brinkman proved by a preponderance of the evidence
that Raley breached his fiduciary duty by underpaying Brinkman’s salary and distributions
and that Raley was “gross and willful in persistently failing to monitor and keep separate
the property and funds of 4 Points from his personal funds and his other businesses.” The
court further determined that these breaches of his fiduciary duty also constituted
conversion. And we agree with these determinations. However, to recover punitive
damages, Brinkman had to prove by “clear and convincing evidence that [Raley] acted
intentionally, fraudulently, maliciously, or recklessly” and that his conduct was
“egregious.” Goff, 297 S.W.3d at 187 (emphasis added). The trial court determined that the
evidence did not clearly and convincingly establish the essential elements required to
support a claim for punitive damages. We agree with this determination as well.

      Therefore, we affirm the trial court’s ruling on punitive damages.

                   C. THE PROCEEDING TO DETERMINE “FAIR VALUE”

       Brinkman contends the trial court erred when it ruled that the application of
discounts for marketability and lack of control were inappropriate under the facts of this
case. Brinkman also contends the trial court erred when it determined, that the application
of a corporate tax rate to 4 Points’ income stream (“tax-affecting”) was inappropriate as a
matter of law.

       A trial court’s decision to admit or exclude evidence is within the trial court’s
discretion, and we review decisions regarding the admissibility of evidence under an abuse
of discretion standard. White v. Vanderbilt Univ., 21 S.W.3d 215, 222 (Tenn. Ct. App.
1999) (citing Seffernick v. Saint Thomas Hosp., 969 S.W.2d 391, 393 (Tenn. 1998); Otis v.
Cambridge Mut. Fire Ins. Co., 850 S.W.2d 439, 442 (Tenn.1992)).

      [We] review a [trial] court’s discretionary decision to determine (1) whether
      the factual basis for the decision is properly supported by evidence in the
      record, (2) whether the [trial] court properly identified and applied the most
      appropriate legal principles applicable to the decision, and (3) whether the
      [trial] court’s decision was within the range of acceptable alternative
      dispositions. When called upon to review a [trial] court’s discretionary
      decision, the reviewing court should review the underlying factual findings

                                          - 28 -
       using the preponderance of the evidence standard contained in Tenn. R. App.
       P. 13(d) and should review the [trial] court’s legal determinations de novo
       without any presumption of correctness.

Lee Med. Inc. v. Beecher, 312 S.W.3d 515, 524 (Tenn. 2010) (internal citations omitted).

                             1. “Fair Value” Under the LLC Act

      Before we address the arguments concerning the applicability of discounts for
marketability and lack of control and whether “tax-affecting” is relevant evidence in
determining the fair value of Raley’s membership interest, we find it necessary to address
the meaning of the term “fair value” as it applies to this case.

       Tennessee Code Annotated, section 48-249-505 provides:

       (c) Purchase at fair value. If the existence and business of the LLC are
       continued following the termination of a membership interest under § 48-
       249-503(a) . . . regardless whether such termination of membership
       interest was wrongful, any member whose membership interest has so
       terminated . . . is entitled . . . to receive from the LLC the fair value of
       the terminated membership interest as of the date of termination of such
       membership interest, calculated as set forth in § 48-249-506, in consideration
       for all such membership interest.

(Emphasis added). In a proceeding to determine the fair value of a membership interest in
an LLC, the court:

       (i) Shall enforce any governing terms in the LLC documents as to the amount
       of fair value and other terms of payment as provided in subdivision (2);
       (ii) In the absence of any such governing terms in the LLC documents, shall
       determine the fair value of the membership interest, considering, among
       other relevant evidence, the going concern value of the LLC, any other
       agreement among any members fixing the price or specifying a formula for
       determining value of membership interests for any other purpose, the
       recommendations of an appraiser appointed by the court, if any, the
       recommendations of any of the appraisers of the parties to the proceeding,
       and any legal or financial constraints on the ability of the LLC to purchase
       the membership interest[.]

Tenn. Code Ann. § 48-249-506(3)(B).

     Neither the operating agreement nor the LLC Act define the term “fair value.”
Moreover, “[t]he plain language itself, ‘fair value’, is not immediately instructive either

                                           - 29 -
because, as other courts have observed, it is ‘a term that does not have a commonly
accepted meaning in ordinary usage, much less in the business community.’” Shawnee
Telecom Res., Inc. v. Brown, 354 S.W.3d 542, 551 (Ky. 2011) (citation omitted). Therefore,
the resolution of this issue requires us to construe “fair value” under the applicable statutes
in the LLC Act, which is a question of law that we review de novo with no presumption of
correctness accorded to the trial court’s decision. See Wells v. Tennessee Bd. Of Regents,
231 S.W.3d 912, 916 (Tenn. 2007).

        When construing statutes, our role “is to ascertain and effectuate the legislature’s
intent.” Kite v. Kite, 22 S.W.3d 803, 805 (Tenn. 1997). If the language in a statute is
unambiguous, “we must apply its plain meaning without a forced interpretation that would
limit or expand the statute’s application.” State v. Walls, 62 S.W.3d 119, 121 (Tenn. 2001);
see Gleaves v. Checker Cab Transit Corp., 15 S.W.3d 799, 803 (Tenn. 2000) (reasoning
that “it is not for the courts to alter or amend a statute”). When the statute is ambiguous,
“we may reference the broader statutory scheme, the history of the legislation, or other
sources.” Lind, 356 S.W.3d at 895.

       The parties have not cited and we are unaware of any Tennessee cases defining “fair
value” under the LLC Act, but the Tennessee Supreme Court has construed the term “fair
value” as it is used in dissenters’ rights statutes in the Tennessee Business Corporation
Act21:

        It is worth noting that dissenters’ rights statutes use the term “fair value,” not
        “fair market value.” “Fair value” in this context is not the same as fair market
        value. “Fair market value is typically defined as the price at which property
        would change hands between a willing buyer and a willing seller when
        neither party is under an obligation to act.” “However, in a dissenters’ rights
        action, the dissenting shareholder is not in the same position as a willing
        seller on the open market—he is an unwilling seller with little or no
        bargaining power.” Moreover, “‘[f]air value’ carries with it the statutory
        purpose that shareholders be fairly compensated, which may or may not
        equate with the market’s judgment about the stock’s value. “This is
        particularly appropriate in the close corporation setting where there is
        no ready market for the shares and consequently no fair market value.”
        Perhaps because minority shareholders in a publicly traded corporation can
        readily sell their shares for market value, shares that are traded on an



        21
            A limited liability company is “a hybrid which ‘incorporates certain beneficial aspects of a
partnership with certain beneficial aspects of a corporation.’” ARC LifeMed, Inc. v. AMC-Tennessee, Inc.,
183 S.W.3d 1, 27 (Tenn. Ct. App. 2005) (quoting Anderson v. Wilder, E2003-00460-COA-R3-CV, 2003
WL 22768666, at *3-4 (Tenn. Ct. App. Nov. 21, 2003)). Therefore, we may look to relevant case law
interpreting the Tennessee Business Corporation Act for guidance. See id.
                                                 - 30 -
        organized security exchange are not subject to minority shareholders’ right
        to dissent and obtain “fair value.”

Athlon Sports Commc’ns, Inc. v. Duggan, 549 S.W.3d 107, 119 (Tenn. 2018) (citations
omitted) (emphasis added).

        Similar to the circumstances addressed by dissenters’ rights statutes, the member
who sells his or her membership interest in accordance with Tenn. Code Ann. § 48-249-
505 “is not in the same position as a willing seller on the open market,” because the
company is purchasing the membership interest pursuant to a judicially-ordered sale. See
id. Moreover, a limited liability company, like a close corporation, is privately owned, and
thus, the market is often irrelevant. See Sandra K. Miller, What Remedies Should be Made
Available to the Dissatisfied Participant in a Limited Liability Company, 44 Am. U. L.
Rev. 465, 527 (1994).22 Accordingly, we conclude that, in the context of Tenn. Code Ann.
§ 48-249-505, “fair value” is not “the price at which property would change hands between
a willing buyer and a willing seller.” See Athlon Sports Commc’ns, 549 S.W.3d at 119.

        While the applicable statutes do not explicitly define “fair value,” Tenn. Code Ann.
§ 48-249-506 provides that “the going concern value of the LLC” constitutes relevant
evidence of fair value. Consistent with the language in our statute, the Delaware Supreme
Court defined “fair value” in Delaware’s Corporation Act as the shareholder’s
proportionate interest in the business valued as a going concern. Tri-Cont’l Corp. v. Battye,
74 A.2d 71, 72 (Del. 1950); Cavalier Oil Corp. v. Harnett, 564 A.2d 1137, 1144 (Del.
1989). By using the term “fair value” rather than “fair market value” and by specifically
listing the going concern value of the LLC as relevant evidence, the General Assembly
expressed its intent that fair value should, generally, be determined based on the value of
the business as a going concern and not the market price.23 See Athlon Sports Commc’ns,
549 S.W.3d at 119. Therefore, we shall apply Delaware’s definition of fair value and hold
that fair value pursuant to Tenn. Code Ann. §§ 48-249-505 to -506 is the member’s


        22
           Miller writes that because “[t]he limited liability company acts largely as a vehicle for the
conduct of a wide variety of [privately-owned] small businesses, . . . the remedies fashioned in response to
the problems of fraud, oppression, or prejudice faced by minority shareholders of close corporations are
highly relevant in the context of limited liability companies.”

        23
            The foregoing notwithstanding, we do not hold that the statute necessarily precludes market data
in determining the fair value of the membership interest because the statute does not limit relevant evidence
of fair value to the evidence listed therein. See Tenn. Code Ann. § 48-249-506 (In the proceeding brought
to determine fair value, the court “shall determine the fair value of the membership interest, considering,
among other relevant evidence . . . the recommendations of any of the appraisers of the parties to the
proceeding . . . .” (Emphasis added)). Valuation experts may find that market data is useful in determining
the going concern value of an LLC.



                                                   - 31 -
proportionate interest in the company valued as a going concern. See Tri-Cont’l Corp., 74
A.2d at 72; see also Athlon Sports Commc’ns, 549 S.W.3d at 122.24

                        2. Discounts for Lack of Marketability and Control

        Brinkman contends that discounts for lack of marketability and control are relevant
to determining the value of Raley’s interest because Raley should not receive more for his
interest than he could have received had he sold it to a third party. Additionally, Brinkman
argues that, considering Raley’s wrongful conduct, failing to apply discounts to Raley’s
membership interest would “offend the fundamental concepts of fairness and equity that
this court is bound to consider” in determining “fair value.” In response, Raley contends
that a vast majority of jurisdictions have concluded that “fair value,” does not encompass
discounts for lack of marketability or control.

       For many years, courts equated “fair value” with “fair market value,” and as an
appraisal remedy under their dissenters’ rights statutes, identified a quasi-market price for
the dissenting shareholder’s block of shares. Shawnee Telecom, 354 S.W.3d at 554.
Because a non-controlling block of shares would sell for less, courts sometimes applied a
discount for lack of control, also known as a minority discount. Id. And similarly, courts
applied a discount for marketability to account for the fact that the shares in a privately-
held corporation had no ready market. Id. Significantly, courts applied these discounts at
the shareholder level and not at the entity level. 25 Id.

      This practice began to change in 1989 with the Delaware Supreme Court’s decision
in Cavalier Oil Corporation v. Harnett. Id. at 554–55. There, the Delaware Supreme Court
reasoned:

        The application of a discount to a minority shareholder is contrary to the
        requirement that the company be viewed as a “going concern” . . . . Where
        there is no objective market data available, the appraisal process is not
        intended to reconstruct a pro forma sale but to assume that the shareholder
        was willing to maintain his investment position, however, slight, had the
        merger not occurred. Discounting individual shareholdings injects into the

        24
           The Tennessee Supreme Court adopted the holding in Weinberger v. UOP, Inc., 457 A.2d 701,
712 (Del. 1983), determining that the Delaware Block Method was not the exclusive method of valuing a
dissenting shareholder’s interest in a corporation. Significantly, Weinberger based its determination on its
definition of “fair value,” which is the shareholder’s proportionate interest in the corporation valued as a
going concern. Weinberger, 457 A.2d at 712.

        25
           Shareholder-level discounts are “discounts that apply to share value”; entity-level discounts
apply to “the value of the company as a whole.” Shawnee Telecom Res., Inc., 354 S.W.3d at 554 (citing
Shannon P. Pratt, Business Valuation Discounts and Premiums 3 (2001)). Only entity-level discounts are
“meant to account for factors that affect the value of the going concern.” Id.
                                                  - 32 -
        appraisal process speculation on the various factors which may dictate the
        marketability of minority shareholdings. More important, to fail to accord to
        a minority shareholder the full proportionate value of his shares imposes a
        penalty for lack of control, and unfairly enriches the majority shareholders
        who may reap a windfall from the appraisal process by cashing out a
        dissenting shareholder, a clearly undesirable result.

564 A.2d at 1145. The Court also noted that, because the corporation’s lack of
marketability can be accounted for at the entity level, there is no need to “apply further
weighing factors at the shareholder level.” Id. at 1144.

        Since Cavalier Oil, a majority of courts disallow shareholder-level discounts when
fashioning an appraisal remedy pursuant to dissenters’ rights statutes because (1)
shareholder-level discounts are antithetical to viewing the company as a going concern, (2)
the discounts are contrary to valuing the company as a whole, or at the entity-level, and
(3) discounts for marketability and lack of control would have an undesired effect of merely
transferring, without compensation, a portion of the minority interest to the majority.
Shawnee Telecom, 354 S.W.3d at 555.

      Reflecting the view of a majority of jurisdictions, the American Law Institute
provides:

        (a) The fair value of shares under § 7.21 (Corporate Transactions Giving Rise
            to Appraisal Rights) should be the value of the eligible holder’s
            proportionate interest in the corporation, without any discount for
            minority status or, absent extraordinary circumstances, lack of
            marketability….

2 ALI Principles, § 7.22, at 30226 (emphasis added).

26
  “Extraordinary circumstances” are further explained in comment (e) to § 7.22(a), at 312, which reads in
pertinent part:

        Under a very limited exception to the principles set forth in § 7.22(a), the court may
        determine that a discount reflecting the lack of marketability of shares is appropriate in
        “extraordinary circumstances.” Such circumstances require more than the absence of a
        trading market in the shares; rather, the court should apply this exception only when it finds
        that the dissenting shareholder has held out in order to exploit the transaction giving rise to
        appraisal so as to divert value to itself that could not be made available proportionately to
        other shareholders….[I]t would be inappropriate to apply a marketability discount…if the
        shareholder was dissenting to a fundamental corporate change such as a merger, rather than
        a relatively minor matter.

Here, the trial court found that extraordinary circumstances did not exist.


                                                    - 33 -
       Because limited liability companies are relatively new, there is very little case law
addressing shareholder-level discounts as a part of an appraisal remedy pursuant to states’
LLC Acts. See Sandra K. Miller, Discounts and Buyouts in Minority Investor LLC
Valuation Disputes Involving Oppression and Divorce, 13 U. Pa. J. Bus. L. 607, 621
(2011). That said, the circumstances addressed by dissenters’ rights statutes are similar to
those addressed by the LLC Act because each provide for a judicially-ordered sale at “fair
value,” and the primary purpose is to compensate a member for the “involuntary
deprivation of an investment.” See Miller, supra, at 639; see also Tenn. Code Ann. § 48-
249-505.

       As we concluded in the previous section, under § 48-249-506, fair value is
ascertained by determining the member’s proportionate interest in the company valued as
a going concern. Therefore, the appraisal process under § 48-249-505 and -506 does not
seek “to reconstruct a pro forma sale but to assume that the shareholder was willing to
maintain his investment position.” See Cavalier Oil, 564 A.2d at 1145. Because discounts
for lack of control and marketability are premised on a theoretical sale to a third party, they
are contrary to the foregoing principles.

       Moreover, a shareholder-level discount for lack of control is unnecessary because,
under the applicable statutes, it is the company, not a third party, who is buying the
membership interest. See Charland v. Country View Golf Club, Inc., 588 A.2d 609, 612
(R.I. 1991) (“When a corporation elects to buy out the shares of a dissenting shareholder,
the fact that the shares are noncontrolling is irrelevant.”); see also Hansen v. 75 Ranch Co.,
957 P.2d 32, 41 (Mont. 1998). And a shareholder-level discount for marketability is equally
unnecessary because, when valuing the company at the entity level, courts and valuation
experts can and do account for the company’s lack of marketability. Cavalier Oil, 564 A.2d
at 1144; see Brown v. Brown, 792 A.2d 463, 475 (N.J. App. Div. 2002).27 Therefore, these
discounts have the undesired effect of merely transferring, without compensation, a portion
of the member’s interest to the company. Shawnee Telecom, 354 S.W.3d at 555. As such,

       27
          For example, when applying the income approach to valuation, valuation experts consider lack
of marketability when calculating the capitalization rate:

       There is a recognized risk of double-counting by an expert, that is, of duplicative reductions
       in the value of a minority interest in a closely-held business, as a result of increasing the
       capitalization rate (and decreasing the valuation multiple) to account for limited
       marketability, and then in addition applying a “marketability discount” to the value derived
       from capitalizing income.

Brown, 792 A.2d at 475.




                                                  - 34 -
they impose a penalty on the member whose interest has been terminated. Cavalier Oil,
564 A.2d at 1145.

       Brinkman acknowledges the punitive effect of these discounts but argues that it is
appropriate in this case considering Raley’s wrongful conduct. He relies on a New Jersey
Supreme Court decision, Balsamides v. Protameen Chemicals, Inc., 734 A.2d 721, 738
(N.J. 1999), wherein the Court determined that the discount for marketability was
necessary to deter the seller’s oppressive conduct. But this is not the purpose of the
appraisal remedy as outlined in Tenn. Code Ann. § 48-249-505, which provides:

       If the existence and business of the LLC are continued following the
       termination of a membership interest under § 48-249-503(a) . . . regardless
       whether such termination of membership interest was wrongful, any
       member whose membership interest has so terminated . . . is entitled . . . to
       receive from the LLC the fair value of the terminated membership interest. .
       ..

(Emphasis added).

       Therefore, we hold that under § 48-249-506, fair value is ascertained by determining
the member’s proportionate interest in the company valued as a going concern. Id. §
505(3)(b)(ii). This means that the appraisal process under § 48-249-505 and -506 does not
seek “to reconstruct a pro forma sale but to assume that the shareholder was willing to
maintain his investment position.” See Cavalier Oil, 564 A.2d at 1145. As such, the term
“fair value” in Tennessee’s LLC Act does not comport with shareholder-level discounts
for lack of marketability or control. Accordingly, we affirm the decision of the trial court
to exclude these discounts in determining the fair value of Raley’s membership interest.

                                   D. TAX-AFFECTING

        Brinkman contends that Mr. Price’s application of a corporate tax to 4 Points’
income stream (“tax-affecting”) was appropriate when valuing 4 Points because an S
corporation’s income is taxed on its owners’ individual tax returns. Additionally, he
contends that valuation experts commonly use after-tax income values to calculate the
capitalization rate under the income approach to valuation. For these reasons, he contends
the trial court erred when it determined, as a matter of law, that tax-affecting did not
constitute relevant evidence of the fair value of Raley’s membership interest in 4 Points in
accordance with Tenn. Code Ann. § 48-249-506. In response, Raley argues that the
application of a corporate income tax is inappropriate, as a matter of law, because the S
corporation does not pay a corporate income tax.

        The income approach to valuation, which is most applicable here, “uses either the
direct capitalization method or the [discounted cash flow] method to convert the anticipated

                                           - 35 -
economic benefits that the holder of the interest would stand to realize into a single present-
value amount.” Estate of Jones v. Comm’r of Internal Revenue, T.C. Memo. 2019-101,
2019 WL 3913293, at *10 (Aug. 19, 2019). The problem with applying the income
approach to the valuation of an S corporation is that the approach “is structured to discount
cash flows of C corporations,” which are taxed at the entity level and at the shareholder
level. See Courtney Sparks White, S Corporations: A Taxing Analysis of Proper Valuation,
37 Cap. U. L. Rev. 1117, 1119 (2009). As Raley correctly pointed out, an S corporation’s
income is taxed only at the shareholder level. Id. at 1122; see also, generally, 26 U.S.C.A.
§ 1366. The difficulties of applying the income approach to the valuation of an S
corporation has led one court to comment that “the science of valuing closely held [S
corporations] usually results in a ‘gross terminal logical [sic] inexactitude.’” Jones, 2019
WL 3913293, at *14 (quoting Winston Churchill).

        The foregoing notwithstanding, our task, here, is not to determine the most accurate
way to value 4 Points. Our task is to decide whether tax-affecting constitutes relevant
evidence of its fair value. According to Tennessee Rule of Evidence 401, relevant evidence
is “evidence having any tendency to make the existence of any fact that is of consequence
to the determination of the action more probable or less probable than it would be without
the evidence.” Stated another way, relevant evidence is any evidence that assists the court
in resolving a question of fact. White v. Beeks, 469 S.W.3d 517, 527 (Tenn. 2015). That
said, our decision is guided by Tenn. Code Ann. § 48-249-506, which provides that “the
going concern value of the LLC” and “the recommendations of any of the appraisers of the
parties to the proceeding” are relevant to the fair value determination.

                                1. Going Concern Value of the LLC

       The trial court held that “no entity level tax should be applied in the valuation
analysis for a non-controlling interest in an electing S corporation, absent a compelling
demonstration that independent third parties dealing at arms-length would do so as part of
a purchase price negotiation.” Thus, the trial court applied the fair market value standard.
In reaching its decision, the trial court relied, in part, on Gross v. Commissioner of Internal
Revenue, 78 T.C.M. (CCH) 21, 1999 WL 549463 (T.C. 1999), aff’d Gross, 272 F.3d 333
(6th Cir. 2001).

       The court’s task in Gross was to determine the fair market value of shares in an S
corporation for gift tax purposes. Id. at *3. In Gross, one expert applied a 40% C
corporation tax rate to the subject corporation’s income, and the other expert applied a zero
percent tax rate in an attempt to account for the tax benefits of the S corporation. Id.
Presented with two extremes—a zero percent tax rate and a 40% tax rate—the court chose
to apply the zero percent tax rate, because it more accurately reflected the tax attributes of
an S corporation. Id. at *10–11. In so doing, the court did not hold that tax-affecting was
irrelevant in determining the value of an S corporation. The court merely decided not to
tax-affect based on the limited evidence it had before it.

                                            - 36 -
        Here, in deciding that tax-affecting was irrelevant, the trial court applied the fair
market value standard, as the Gross court did. However, the correct standard to be applied
in this case is the fair value standard. To better appreciate tax-affecting as it relates to the
fair value standard, we turn to the decision of the Delaware Chancery Court in Delaware
Open MRI Radiology Associates, P.A. v. Kessler, 898 A.2d 290 (Del. Ch. 2006). Because
the court’s task in Kessler was to determine the going concern value of an S corporation,
we find it more persuasive than Gross. Kessler, 898 A.2d at 327.

       In Kessler, the trial court considered the “proper manner to tax affect the earnings”
of an S corporation. Id. at 326. One expert witness used tax-affecting as if the business
were a C corporation, and the other did not tax-affect the earnings at all. Id. The court
ultimately concluded “that neither of the experts [took] the most reasonable approach to
valuing [the business].” Id.

        The court in Kessler reasoned that application of the corporate tax rate denied the
sellers of “the value they would have received as continuing S corporation stockholders in
[the corporation] and, therefore, ensured that the merger price was lower than fair value.”
Id. at 327. On the other hand, the court noted that the “failure to tax affect [the
corporation]’s earnings at all result[ed] in an artificial inflation of the value of S
corporation status.” Id. (emphasis added). More specifically, the court explained:

       The Internal Revenue Code states that “[t]he taxable income of an S
       corporation shall be computed in the same manner as in the case of an
       individual....” This tax, though assessed at individual rather than corporate
       tax rates, is dependent solely upon the corporation’s net earnings. Even if
       Delaware Radiology were to retain 100% of its earnings annually, its
       stockholders still would owe taxes on Delaware Radiology’s income even
       though they received no distributions. Affording a remedy to the Kessler
       Group that denies the reality that each shareholder owes taxes on his
       proportional interest in Delaware Radiology would result in the Kessler
       Group receiving a higher per share value from the court than it could ever
       have realized as a continuing shareholder.

Id. at 328 (footnote omitted).

       The court “recognized that an S corporation structure can produce a material
increase in economic value for a stockholder and should be given weight in a proper




                                             - 37 -
valuation of the stockholder’s interest.” Id. at 327. Ultimately, the court applied an effective
tax rate of 29.4% to Delaware Radiology’s earnings.28 Id. at 330.

       The Delaware Chancery Court’s reasoning in Kessler has persuaded us that
evidence of tax-affecting was relevant to the present case. As in Kessler, the trial court’s
task in this case was to determine “the going concern value in an S corporation.” See id.
at 327. Because the shareholder or member pays taxes on the corporation’s income via his
or her individual returns, tax-affecting would assist the court in determining “what the
investor ultimately can keep in his pocket,” assuming the investor maintains his investment
position. Id. at 327–28 (quoting In re Radiology Assocs., 611 A.2d 485, 495 (Del. Ch.
1991)). Thus, tax-affecting assists the court in determining the going concern value of the
S corporation to the shareholder or member.

                                    2. Recommendations of Appraiser

       Under Tenn. Code Ann. § 48-249-506, “the recommendations of any of the
appraisers of the parties to the proceeding” constitutes relevant evidence of fair value.
(emphasis added). Mr. Price’s affidavit established that tax-affecting is a generally
accepted factor for determining the fair value of an S corporation, and it is relevant to the
fair value of Raley’s membership interest in 4 Points. According to the affidavit of Mr.
Price—a certified public accountant and certified valuation analyst who was also certified
in financial forensics and accredited in business valuation—his valuation model used an
income based on after-tax values because his capitalization rate was based on after-tax
values. Thus, application of a tax to 4 Points’ income was necessary to compare “apples to
apples.” He opined that it would be inappropriate “to inflate the income stream by
disregarding taxes but depress the Capitalization Rate by considering taxes.”

        Significantly, Mr. Price’s methodology is consistent with that of the U.S. Tax Court.
For example, when the Gross court applied a zero percent tax rate to the subject
corporation’s income, it also disregarded taxes when calculating the discount rate. Gross,
1999 WL 549463, at *11. In so doing, the court opined that if “in determining the present
value of any future payment, the discount rate is assumed to be an after-shareholder-tax
rate of return, then the cash-flow should be reduced (‘tax affected’) to an after-
shareholder-tax amount.” Id. (emphasis added). And in a more recent case, Jones, the U.S.
Tax Court noted that, in order to accurately value a pass-through entity, it was important
to treat the cash flow and the discount rate consistently by using after-tax or pre-tax values



        28
           The Delaware Chancery Court’s approach is similar to an accepted method of valuation of
minority interests in S corporations called the Van Vleet model. See Charles J. Russo & James A.
DiGabriele, “Impact of the Tax Cuts and Jobs Act on the Valuation of S Corporations,” Journal of Forensic
& Investigative Accounting, Vol. 10: Issue 2, Special Issue 2018.


                                                 - 38 -
for both. 2019 WL 3913293, at *11 n.5. Therefore, we find that, for the purpose of
correlation, tax-affecting was relevant to the fair value determination of 4 Points.

        While we have determined that tax-affecting was relevant in this case, we do not
suggest the use of one valuation methodology over another. As previously stated, our task
is not to decide the most accurate way to value 4 Points. We only hold that evidence of tax-
affecting should be “part of the factual mix and weighed as such.” See Weinberger, 457
A.2d at 714. Generally, valuation “is a question of fact,” Wallace v. Wallace, 733 S.W.2d
102, 107 (Tenn. Ct. App. 1987), and it is incumbent on the trial court to “weigh all relevant
evidence of value and draw appropriate inferences.” Kress v. United States, 382 F. Supp.
3d 820, 831 (E.D. Wis. 2019) (quoting Estate of Adell v. Comm’r of Internal Revenue, 108
T.C.M. (CCH) 107, 2014 WL 3819046, at *42 (T.C. 2014)). On remand, the trial court
may place a value on Raley’s interest in 4 Points “that is within the range of evidence
submitted.” See Wallace, 733 S.W.2d at 107.

       Therefore, we vacate the trial court’s judgment valuing Raley’s membership interest
in 4 Points and remand to allow the parties to present evidence relative to tax-affecting.

                                   E. ATTORNEYS’ FEES

       Brinkman contends he is entitled to attorneys’ fees pursuant to section 24 of the
operating agreement and pursuant to Tenn. Code Ann. §§ 48-249-804 and -805.

       Tennessee adheres to the American rule, which provides that litigants are
responsible for their own attorneys’ fees unless “(1) a contractual or statutory provision
creates a right to recover attorney fees; or (2) some other recognized exception to the
American rule applies. . . .” Cracker Barrel Old Country Store, Inc. v. Epperson, 284
S.W.3d 303, 308 (Tenn. 2009). Brinkman claims both a contractual and a statutory right to
attorneys’ fees; therefore, we will consider each in turn.

                                      1. Contractual Claim

        The trial court summarily dismissed Brinkman’s claim for attorneys’ fees under the
operating agreement, construing the relevant provision in the agreement to provide for
attorneys’ fees only if the parties submitted the dispute to arbitration. Brinkman argues
that, because Raley chose to file suit in chancery court, he waived any right to contend that
section 24 of the operating agreement did not apply. Raley contends that section 24 of the
operating agreement clearly provides that attorneys’ fees are only warranted when the
dispute is submitted to arbitration, and neither party moved the court to compel arbitration.

     This court reviews a trial court’s decision on a motion for summary judgment de
novo without a presumption of correctness. Rye v. Women’s Care Ctr. of Memphis,
MPLLC, 477 S.W.3d 235, 250 (Tenn. 2015). Accordingly, this court must make a fresh

                                           - 39 -
determination of whether the requirements of Tenn. R. Civ. P. 56 have been satisfied. Id. In
so doing, we consider the evidence in the light most favorable to the nonmoving party and
draw all reasonable inferences in that party’s favor. Godfrey v. Ruiz, 90 S.W.3d 692, 695
(Tenn. 2002). The issue presented here is a question of law because the material facts are
undisputed.

        Our Supreme Court holds that “[i]n the context of contract interpretation, Tennessee
allows an exception to the American rule only when a contract specifically or expressly
provides for the recovery of attorney fees.” Cracker Barrel, 284 S.W.3d at 309 (emphasis
in original). Thus, a litigant has a contractual right to attorneys’ fees under the particular
circumstances specified in the contract. See Individual Healthcare Specialists, 566 S.W.3d
at 704.

       Section 24 of 4 Points’ operating agreement states:

       24. DISPUTE RESOLUTION

       If a dispute between the Partners arises under this Agreement, such dispute
       shall be settled by arbitration in accordance with the rules for commercial
       arbitration of the American Arbitration Association (or similar
       organization)….

       The prevailing Partner shall be awarded all of its attorneys’ fees and related
       costs. The non-prevailing party shall bear all cost of the arbitration
       proceeding including any amounts paid for subpoenas, depositions,
       transcripts and witness fees….

        Like the trial court, we construe section 24 to award attorneys’ fees to the prevailing
party in the context of an arbitration proceeding. Considering that the primary goal of
arbitration is to avoid the expense and delay of ordinary litigation, Arnold v. Morgan
Keegan & Co., 914 S.W.2d 445, 449 (Tenn. 1996), the trial court correctly reasoned that
“the assumptions and premise on which recovery of attorney’s fees was agreed to by the
parties in section 24 of the Partnership Agreement are not present in this litigation.”

        Relying on Meyer v. Hatto, 198 P.3d 552 (Wyo. 2008), Brinkman argues that,
because Raley filed this action in chancery court, rather than submit it to arbitration, it
would be inequitable to allow Raley to avoid the attorneys’ fees provision. In Meyer, the
court dismissed the plaintiffs’ case for lack of personal jurisdiction, and the defendants
claimed they were entitled to attorneys’ fees under the contract. Id. at 558. Similar to this
case, however, the contract between the parties provided for attorneys’ fees if the dispute
was submitted to arbitration. Id. Thus, the plaintiffs argued that the defendants were not
entitled to attorneys’ fees. Id. But the Wyoming Supreme Court held that the plaintiffs


                                            - 40 -
“could not use their attempt to litigate instead of arbitrate as a shield against the attorney’s
fees and other expenses provision of the arbitration clause.” Id.

       In essence, Brinkman asks this court to apply equitable principles to rewrite the
operating agreement. “However, the strong strain of textualism in Tennessee caselaw
demonstrates resolve to keep the written words as the lodestar of contract interpretation.”
Individual Healthcare Specialists, 566 S.W.3d at 694. In Tennessee, the parties cannot use
the courts as “a fallback mechanism . . . to ‘make a new contract’” when, under the
circumstances, they suddenly become dissatisfied with their agreement. Id.

       Therefore, we affirm the trial court’s decision to summarily dismiss Brinkman’s
claim for attorneys’ fees under the operating agreement.

                                        2. Statutory Claims

       Brinkman also seeks to recover his attorneys’ fees pursuant to Tenn. Code Ann. §§
48-249-804(a), -804(b), and -805. He contends he is entitled to statutory attorneys’ fees
because he “overwhelmingly” prevailed in the litigation and recovered, on behalf of 4
Points, its valuable intellectual property and $315,551.86 in non-Pharmacy-related
expenses. He also contends he is entitled to attorneys’ fees because Raley breached his
fiduciary duty in violation of the LLC Act, costing Brinkman and 4 Points hundreds of
thousands of dollars, and Brinkman has not been made whole as a result of the litigation.
This is because, while Brinkman proved that Raley was liable for $961,819 in damages as
a result of the breach, Brinkman incurred legal and expert witness fees of approximately
one million dollars.

        Raley argues that Brinkman did not “overwhelmingly” prevail because Raley also
recovered on behalf of 4 Points by succeeding on his claim for Brinkman’s $175,000
capital contribution and by successfully defending against Brinkman’s claim to a reserve
fund as part of the salary agreement. Raley also notes that the court did award some relief
to Brinkman in accordance with § 48-249-805, and by doing so, the trial court acted within
its discretion.

        Because Tenn. Code Ann. §§ 48-249-804 and -805 state that the trial court “may”
award attorneys’ fees, whether to award attorneys’ fees is within the sound discretion of
the trial court, subject only to the specific limitations outlined in each statute. See Rock Ivy
Holding, LLC v. RC Properties, LLC, 464 S.W.3d 623, 644 (Tenn. Ct. App. 2014).
Therefore, we review the trial court’s decision to grant or deny attorneys’ fees pursuant to
these statutes under the abuse of discretion standard discussed earlier. Id.

       (a) Tenn. Code Ann. § 48-249-804(a).



                                             - 41 -
       Tennessee Code Annotated section 48-249-804(a) provides that on termination of a
derivative proceeding, “the court may require the plaintiff to pay any defendant’s
reasonable expenses, including attorneys’ fees, incurred in defending the proceeding, if it
finds that the proceeding was commenced without reasonable cause.” A plaintiff acts
without reasonable cause if “(1) plaintiff’s claims in the lawsuit are not warranted by
existing law or a good faith argument for the extension, modification, or reversal of existing
law; or (2) plaintiff’s allegations in the suit are not well grounded in fact after reasonable
inquiry.” Rock Ivy Holding, LLC, 464 S.W.3d at 645 (quoting Brady v. Calcote, No.
M2003-01690-COA-R3-CV, 2005 WL 65535, at *8 (Tenn. Ct. App. Jan. 11, 2005)).

       Although Raley did not prevail on all of his claims following the trial, the trial court
determined that it was necessary for Raley to file his action because the parties disputed
the terms of the salary, lease, and operating agreements, and as a consequence, could not
effectively operate the business together. The court found in favor of Raley on his claim
that Brinkman breached the operating agreement by failing to make a capital contribution.
The court also found that Brinkman caused confusion regarding 4 Points’ rent obligation
and that both parties were mistaken about the terms of their salary agreement.

       We have determined that the factual basis for the trial court’s findings is properly
supported by evidence, and the court properly identified and applied the applicable legal
principles. The record supports the trial court’s determination that Raley had reasonable
cause to file his action. Accordingly, we affirm the trial court’s decision to deny
Brinkman’s claim for attorneys’ fees in accordance with Tenn. Code Ann. § 48-249-804(a).

       (b) Tenn. Code Ann. § 48-249-804(b)

       Tennessee Code Annotated, section 48-249-804(b) provides in pertinent part:

       If a derivative proceeding is successful in whole or in part, or if anything is
       received by the plaintiff as a result of a judgment, compromise or settlement
       of any such proceeding, the court may award the plaintiff its reasonable
       expenses, including reasonable attorneys’ fees.

       When Brinkman moved the trial court to alter or amend its July 2017 order, he
requested that the court include an award for attorneys’ fees under Tenn. Code Ann. § 48-
249-804(b). The trial court denied Brinkman’s request, reasoning:

       [T]he record established that as to Defendant Brinkman recovering
       $371,244.79 in underpaid salary and $227,445.33 in distributions, that inures
       to him personally. Thus, of the total findings of mispayments by Plaintiff
       Raley of $914,241.98, only $240,275.59 or 26% inure to the benefit of the
       LLC. The greatest percentage, 74% is recovery to Brinkman individually and
       $18,500 to his company, Brinkman Holdings, LLC as Landlord.

                                            - 42 -
       ….[Brinkman] has been found to have been mistaken about the existence, as
       part of the salary agreement, of a 4% reserve fund for future development,
       that would have cost the LLC hundreds of thousands of dollars to fund. Also
       there is the $175,000 that Plaintiff Brinkman has to pay as a capital
       contribution which was recovered for the LLC by Plaintiff Raley for breach
       of contract.

       Furthermore, Defendant Brinkman sought the remedy of expelling Plaintiff
       Raley. That remedy comes with the risk of lower performance by the
       business in the future. Defendant Brinkman did not seek the remedy for
       Plaintiff Raley to buy Brinkman’s membership which would have eliminated
       future performance risk to Brinkman.

        The record supports the trial court’s determination that “[t]he greatest percentage,
74% is recovery to Brinkman individually and $18,500 to his company, Brinkman
Holdings, LLC as Landlord,” not to 4 Points. Moreover, although the derivative claim was
successful in part, and “something was received by the plaintiff as a result of a judgment,”
the trial court had the discretion to award attorneys’ fees under those circumstances. See
Tenn. Code Ann. § 48-249-804(b). Having concluded that the factual basis for the trial
court’s findings is properly supported by the evidence and the court properly identified and
applied the applicable legal principles, we affirm the trial court’s decision to deny
Brinkman’s claim for attorneys’ fees in accordance with Tenn. Code Ann. § 48-249-804(b).

       (c) Tenn. Code Ann. § 48-249-805.

      Tennessee Code Annotated, section 48-249-805 affords the trial court the discretion
to award equitable relief in the form of attorneys’ fees and expenses in the event one of the
members of the LLC violates a provision in the LLC Act. Specifically, it provides:

       If an LLC, or any officer, manager, director or member, as applicable, of the
       LLC, or other person with the authority to act for the LLC, violates a
       provision of this chapter, a court in this state may, in a proceeding brought
       by a member or holder of financial rights of the LLC, grant any equitable
       relief it considers just and reasonable in the circumstances, and, award
       expenses, including attorneys’ fees and disbursements, to the member or
       holder of financial rights, as applicable.

Id.




                                           - 43 -
         The trial court found that, although Brinkman proved that Raley breached his
fiduciary duty and was liable for over $900,000 in damages, only $240,275.5929 of that
amount inured to the benefit of 4 Points. Nevertheless, the trial court acknowledged that
“as a 50% member of the LLC, Brinkman receives only 50% value for the LLC recovery
at trial yet bears 100% of the cost of the recovery.” Thus, the court exercised its discretion
under Tenn. Code Ann. § 48-249-805 to allow half of $240,275.59 to be paid to Brinkman
individually. Finding no error, we affirm the trial court’s decision.

                          F. PREJUDGMENT AND POST-JUDGMENT INTEREST

        Brinkman contends the trial court erred by not awarding prejudgment interest or
post-judgment interest. He contends he properly raised the request in his Third Amended
Counterclaim in the general prayer for relief. Raley argues Brinkman waived the issues by
failing to properly raise them.

     1. Prejudgment Interest.

      The decision to award prejudgment interest is discretionary and controlled by Tenn.
Code Ann. § 47-14-123, which provides:

         Prejudgment interest, i.e., interest as an element of, or in the nature of,
         damages, as permitted by the statutory and common laws of the state as of
         April 1, 1979, may be awarded by courts or juries in accordance with the
         principles of equity . . . .

        The Tennessee Supreme Court has held that a prayer for general relief is sufficient
to raise the issue of prejudgment interest. Mitchell v. Mitchell, 876 S.W.2d 830, 831 (Tenn.
1994). However, Rule 36(a) of the Tennessee Rules of Appellate Procedure provides:

         Nothing in this rule shall be construed as requiring relief be granted to a party
         responsible for an error or who failed to take whatever action was reasonably
         available to prevent or nullify the harmful effect of an error.

        The trial court did not address prejudgment interest in its orders following the trial.
Therefore, it was incumbent upon Brinkman to bring that issue to the trial court’s attention.
Brinkman filed a motion to alter or amend the order with regard to attorneys’ fees and
liability for punitive damages, but he did not raise the issue of prejudgment interest.30


         29
              As previously stated, this amount does not include the $75,276.27 Brinkman repaid prior to the
trial.
         30
            In his brief, Brinkman does not cite to the record showing where he brought the error to the trial
court’s attention, and we find nothing in the record to indicate that he did.
                                                    - 44 -
Because Brinkman did not take “whatever action was reasonably available to prevent or
nullify” the alleged error, we consider the issue waived. See Tenn. R. App. P. 36(a).

   2. Post-Judgment Interest.

      The award of post-judgment interest is controlled by Tenn. Code Ann. § 47-14-122,
which provides:

       Interest shall be computed on every judgment from the day on which the jury
       or the court, sitting without a jury, returned the verdict without regard to a
       motion for a new trial.

        “The purpose of post-judgment interest is to compensate a successful plaintiff for
being deprived of the compensation for its loss between the time of the entry of the
judgment awarding the compensation until the payment of the judgment by the
defendants.” State v. Thompson, 197 S.W.3d 685, 693 (Tenn. 2006) (quoting Varnadoe v.
McGhee, 149 S.W.3d 644, 649 (Tenn. Ct. App. 2004)). Interest on judgments in Tennessee
is statutorily mandated. See Tenn. Code Ann. § 47-14-121. “The failure of any court to
expressly provide such interest in its judgment does not abrogate the statute.” Tallent v.
Cates, 45 S.W.3d 556, 563 (Tenn. Ct. App. 2000) (citing Inman v. Inman, 840 S.W.2d 927,
932 (Tenn. Ct. App. 1992)).

      Therefore, on remand, the trial court should award post-judgment interest in
accordance with the statute.

                             G. ATTORNEYS’ FEES ON APPEAL

        Both parties request attorneys’ fees on appeal in accordance with the operating
agreement and/or the LLC Act. We decline to award attorneys’ fees to either party on
appeal for the same reasons we affirmed the trial court’s decision to deny attorneys’ fees
in the trial court. Thus, we have determined that: (1) because the operating agreement only
allows attorneys’ fees in the context of an arbitration proceeding, neither party has a
contractual right to attorneys’ fees; (2) Raley had reasonable cause to file this action, and
Brinkman had reasonable cause to file this appeal; therefore, we decline to award either his
attorneys’ fees in accordance with Tenn. Code Ann. § 48-249-804(a); and (3) on appeal,
like in the trial court, each party prevailed on some issues and not on others, id at § 804(b).
Moreover, neither party provided reasoning or authority to support his entitlement to
attorneys’ fees on appeal in accordance with Tenn. Code Ann. § 48-249-805, and we see
no reason to award equitable relief under that statute. Thus the parties will be responsible
for their own attorneys’ fees on appeal.

                                      IN CONCLUSION


                                            - 45 -
       The judgment of the trial court is affirmed in part, vacated in part, and this matter is
remanded for further proceedings consistent with this opinion. Costs of appeal are assessed
equally against Terrell K. Raley and Cees Brinkman.


                                                     ________________________________
                                                     FRANK G. CLEMENT JR., P.J., M.S.




                                            - 46 -
