                                                                                        05/26/2020
               IN THE COURT OF APPEALS OF TENNESSEE
                          AT KNOXVILLE
                               January 23, 2020 Session

  MITZI BAYNE RUTH, ET AL. v. HOME HEALTH CARE OF MIDDLE
                  TENNESSEE, LLC., ET AL.

                Appeal from the Chancery Court for Bradley County
                No. 2016-CV-257        Jerri S. Bryant, Chancellor
                      ___________________________________

                           No. E2019-01178-COA-R3-CV
                       ___________________________________

This is a breach of contract action in which Plaintiffs sought to recover the balance of a
promissory note executed to secure payment for of a deceased owner’s interest in the
defendant company and to recover on a guaranty to secure the note. Defendants
conceded that they did not pay the note according to its terms and counterclaimed,
asserting that Plaintiffs breached a separate agreement which required the deceased
owner’s estate to file amended tax returns and tender payment to the Internal Revenue
Service for taxes which had been paid on behalf of the deceased owner by the company.
The parties filed cross motions for summary judgment; the court granted Plaintiffs’
motion, denied Defendants’ motion, and dismissed Defendants’ counterclaim. Finding
no error, we affirm the judgment.

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

RICHARD H. DINKINS, J., delivered the opinion of the court, in which D. MICHAEL
SWINEY, C.J., and THOMAS R. FRIERSON, II, J., joined.

Dudley W. Taylor, Knoxville, Tennessee, for the appellants, Home Health Care of
Middle Tennessee, LLC; B. Fred Allred, III; and Brenda Allred.

C. Crews Townsend and Michael J. Dumitru, Chattanooga, Tennessee, for the appellees,
Mitzi Bayne Ruth, and Estate of Fred W. Bayne.

                                       OPINION

                       I. FACTUAL AND PROCEDURAL HISTORY

      The parties in this case come before us for the third time. Home Health Care of
Middle Tennessee, LLC, (“HHMT”) was owned by B. Fred Allred, III, and Fred W.
Bayne, with each owning a one-half membership interest. After Mr. Bayne passed away
in 2007, Mr. Allred attempted unsuccessfully to purchase Mr. Bayne’s membership
interest from his estate, leading Ms. Mitzi Bayne Ruth, executrix of the estate, to file suit
against HHC and Mr. Allred. In the opinion rendered in the first appeal, the nature and
purpose of the suit, and the events that led to the first appeal, were summarized as
follows:1

                 Mitzi Bayne Ruth, executrix of the Estate of Fred W. Bayne
          (“Executrix”), the Estate of Fred W. Bayne (“the Estate”), and Home
          Health Care of East Tennessee, Inc. (“HHC East”) sued Home Health Care
          of Middle Tennessee, LLC (“the Company”) and B. Fred Allred, III
          (“Allred”) seeking, among other things, a declaratory judgment that Fred
          W. Bayne’s death was an event triggering dissolution of the Company.
          Both plaintiffs and defendants filed motions for partial summary judgment.
          After a hearing, the Trial Court entered an order granting plaintiffs’ motion
          for partial summary judgment finding and holding, inter alia, that Fred W.
          Bayne’s death was a liquidating event triggering the dissolution of the
          Company pursuant to the Company’s Operating Agreement, and that Allred
          did not have the right pursuant to the Operating Agreement to purchase
          Fred W. Bayne’s membership interest and continue the Company business.

Ruth v. Home Health Care of Middle Tennessee, LLC, No. E2009-00845-COA-R3-CV,
2010 WL 744936, at *1 (Tenn. Ct. App. Mar. 3, 2010). We held that the Operating
Agreement was ambiguous, vacated the award of partial summary judgment, and
remanded the case for the trial court “to determine the intent of the parties to the
ambiguous Operating Agreement, and whether a dissolution of the Company is required
pursuant to the Operating Agreement.” Id. at *6.

      Following the remand, the trial court conducted an evidentiary hearing, the
outcome of which was summarized in the decision rendered in the second appeal:

          The Trial Court concluded that the above summarized evidence showed
          that Bayne and Allred intended to keep their interest at 50% each and to
          part ways upon a member’s death. The Court also found the evidence also
          showed that the parties intended that neither party would ever hold a
          majority interest, thus Allred did not hold the “majority interest” required
          under the Operating Agreement to purchase Bayne’s membership interest
          and to continue to operate the Company. Based on these findings of fact as
          to the intent of the parties, the Trial Court held that the Operating
          Agreement requires that HHC–MT must be dissolved. The Court retained
          continuing jurisdiction to supervise the dissolution of the Company and

1
    Mr. Allred and HHC were the appellants in the first appeal.
                                                    -2-
          ordered the defendants to render an accounting of the operations of the
          Company from February 9, 2007 forward and the Court stated that, if
          needed, it would conduct a second trial to address any issues that arise from
          the accounting. Although this judgment was not final, the Trial Court
          granted the parties permission “to seek an interlocutory appeal with respect
          to the Court’s order regarding dissolution ... and the Court’s findings of fact
          and conclusions of law regarding the parties intent under the Operating
          Agreement with respect to dissolution.[”]

Ruth v. Home Health Care of Middle Tennessee, LLC, No. E2011-02681-COA-R3CV,
2012 WL 4483005, at *3 (Tenn. Ct. App. Oct. 1, 2012). We affirmed the trial court’s
judgment and remanded the case for further proceedings.

       The suit was resolved when the parties entered into a Redemption, Liquidation and
Settlement Agreement (“the Agreement”) on March 31, 2014. The Agreement provided
that HHMT and the Allreds (collectively, “Defendants”) would purchase the Estate’s
(collectively, with Ms. Ruth, “Plaintiffs”) interest in HHMT for $4.9 million, with $3.5
million to be paid immediately, and the remaining $1.4 million to be paid in three
installments: $400,000 to be paid by July 31, 2014; $500,000 to be paid by January 31,
2015; and $500,000 to be paid by July 31, 2015. The balance of the purchase price was
memorialized in a Promissory Note executed by HHMT and secured by a Guaranty
Agreement executed by Fred and Brenda Allred.

       Defendants failed to make the final payment that was due on July 31, 2015, as a
result of which Plaintiffs filed this action on December 15, 2016, alleging breach of
contract. Defendants answered, admitting to nonpayment, and filed a counterclaim,
asserting that Plaintiffs breached sections 11(c) and (d) of the Agreement, which
addressed how the parties would proceed regarding tax matters.2 In due course, Plaintiffs
2
    Section 11, entitled “Tax Matters”, of the Agreement provides, in pertinent part:

          (a) Amendment of Company Returns. HHMT shall timely prepare and file, or cause to be
          timely prepared and filed, amended Form 1065 federal income tax returns for HHMT for
          all taxable periods ending after the date of death of Fred W. Bayne, including any short
          period tax return, up to and through the taxable year ending December 31, 2013, in a
          manner consistent with the Bayne Estate being an owner of fifty percent (50%) of the
          membership interests of HHMT and entitled to a distributive share of fifty percent (50%)
          of all items of income, gain, deduction or loss attributable to HHMT. Company shall
          permit the Bayne Estate to review and comment on each such amended tax return not
          heretofore filed with the IRS at least twenty (20) days prior to filing and all reasonable
          comments provided with respect to such tax returns by the Bayne Estate shall be
          incorporated in the amended tax return.

          ***

          (c) Amendment of Bayne Estate Returns. The Bayne Estate shall timely prepare and file
                                                     -3-
answered the counterclaim. Defendants thereafter moved to amend the counterclaim; the
motion was granted by agreed order. Defendants then moved for summary judgment,
supporting the motion with a Rule 56.03 statement of material facts and fifteen exhibits.3
Plaintiffs also moved for summary judgment, supporting their motion with a Rule 56.03
statement of material facts and eleven exhibits.4 The court held a hearing on the motions
on January 9, 2019, and entered an order on May 31 granting Plaintiffs’ motion and
dismissing Defendants’ counterclaim, and denying Defendants’ motion. Defendants
appeal, contending that Plaintiffs are not entitled to summary judgment because there is a
genuine issue of fact as to whether they filed the amended return and paid the taxes; in
addition, Defendants contend that they are entitled to judgment on their counterclaim.

                                        II. STANDARD OF REVIEW

       A party is entitled to summary judgment only if the “pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits…show that
there is no genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law.” Tenn. R. Civ. P. 56.04. We review a trial court’s ruling on
a motion for summary judgment de novo, without a presumption of correctness. Bain v.
Wells, 936 S.W.2d 618, 622 (Tenn. 1997); see also Abshure v. Methodist Healthcare–
Memphis Hosp., 325 S.W.3d 98, 103 (Tenn. 2010). In Rye v. Women’s Care Ctr. of
Memphis, MPLLC, 477 S.W.3d 235 (Tenn. 2015), our Supreme Court adopted the
standard applicable to summary judgment practice under Federal Rule 56, holding that:

                [I]n Tennessee, as in the federal system, when the moving party does
          not bear the burden of proof at trial, the moving party may satisfy its
          burden of production either (1) by affirmatively negating an essential

          or cause to be prepared and filed amended income tax returns for the Bayne Estate
          reporting any revised distributive share amounts related to HHMT for all taxable periods
          for which the statute of limitations remains open and, subject to the Bayne Estate’s rights
          under subsection (e) below, shall pay, or provide for the payment of, the taxes shown as
          due on such tax returns.

          (d) Tax Reporting. The parties shall each file all required federal, state, and local income
          tax returns and related returns and reports in a manner consistent with the foregoing
          provisions of this Section 11. In the event a party does not comply with the preceding
          sentence, the non-complying party shall indemnify and hold the other party harmless
          from all cost, liability, and damage that such other party may incur (including, without
          limitation, incremental tax liabilities, legal fees, accounting fees, and other expenses) as a
          consequence of such failure to comply.
3
 Defendants filed two supplements to the motion, both of which included a supplement to the statement
of material facts.
4
    Plaintiffs also supplemented their motion.

                                                      -4-
       element of the nonmoving party’s claim or (2) by demonstrating that the
       nonmoving party’s evidence at the summary judgment stage is insufficient
       to establish the nonmoving party’s claim or defense. . . . “[W]hen a motion
       for summary judgment is made [and] . . . supported as provided           in
       [Tennessee Rule 56],” to survive summary judgment, the nonmoving party
       “may not rest upon the mere allegations or denials of [its] pleading,” but
       must respond, and by affidavits or one of the other means provided in
       Tennessee Rule 56, “set forth specific facts” at the summary judgment
       stage “showing that there is a genuine issue for trial.” Tenn. R. Civ. P.
       56.06. . . . [S]ummary judgment should be granted if the nonmoving party’s
       evidence at the summary judgment stage is insufficient to establish the
       existence of a genuine issue of material fact for trial. Tenn. R. Civ. P.
       56.04, 56.06.

Id. at 264-65 (emphasis in original). “Whether the nonmoving party is a plaintiff or a
defendant—and whether or not the nonmoving party bears the burden of proof at trial on
the challenged claim or defense—at the summary judgment stage, ‘[t]he nonmoving party
must demonstrate the existence of specific facts in the record which could lead a rational
trier of fact to find in favor of the nonmoving party.’” TWB Architects, Inc. v. The
Braxton, LLC, 578 S.W.3d 879, 889 (Tenn. July 22, 2019) (quoting Rye, 477 S.W.3d at
265)).

                                           III. ANALYSIS

       Plaintiffs moved for summary judgment to collect the balance on the Promissory
Note; Defendants moved for summary judgment on Plaintiffs’ claim and their
counterclaim. Defendants also contended in their opposition to Plaintiffs’ motion that
there is a genuine issue of material fact as to whether Plaintiffs filed an amended return
and paid the appropriate taxes on their portion of the income from HHMT. The common
question presented by both motions is whether the Estate filed the amended return and
paid the appropriate taxes in accordance with the Agreement; the question before us is
whether the evidence as to that question conflicts. If so, we deny Plaintiffs’ motion and
proceed to address the counterclaim; if not, we affirm the grant of summary judgment to
Plaintiffs.

      The basis of Defendants’ counterclaim as well as their opposition to Plaintiffs’
motion was predicated on Defendants’ contention that Plaintiffs breached the
Agreement.5 To sustain their dual burden — as movant for summary judgment on their
5
  In the original counterclaim, the Allred Defendants asserted that Plaintiffs breached the Agreement by
not paying taxes on the Estate’s portion of income from HHMT for 2009, and that the failure deprived the
Allreds from receiving a reimbursement of the taxes HHMT paid on the Estate’s portion of the 2009
income; they sought to recover from the Estate the amount of taxes the Estate should have paid.
Defendants moved to amend the counterclaim on September 13, 2018, and an order allowing the
                                                 -5-
counterclaim and as opponent of Plaintiffs’ motion to demonstrate a genuine issue of
material fact — Defendants filed the affidavit of their attorney, Dudley Taylor, along
with the following exhibits: email correspondence between Mr. Taylor and his assistant,
Joyce Fahl; the Agreement; a copy of certified mail envelope to the Internal Revenue
Service from Mr. Taylor; the United States Court of Appeals decision in the case brought
by the Allreds against the Internal Revenue Service to recover a refund of taxes paid by
HHC as referenced in paragraph 3 of the counterclaim6; the Estate’s K-1 Schedules for

amendment was entered on October 29. Defendants filed another motion to amend the counterclaim on
January 18, 2019; the record does not contain an order allowing this amendment. Consequently, our
analysis considers the counterclaim as amended on October 29, 2018, which states in pertinent part:

                ***
                2.      The Plaintiff Estate is in breach of its obligations under the Settlement
       Agreement, as set forth above in Defendants’ Answer. The Allred Defendants therefore
       seek to recover judgment against the Plaintiff Estate for the damages sustained by them.

                3.        The Allred Defendants were unable to recover their refund for the year
       2009, along with interest, that would have been recoverable under the mitigation
       provisions if the Estate had paid taxes on the income of HHMT allocable to it for the year
       2009. The amount therefore recoverable by the Allred Defendants, including accrued
       interest, is in excess of $500,000.

                4.      Alternatively, the Allred Defendants are entitled to recover from the
       Plaintiff Estate the amount of taxes which the Estate should have paid (before any
       distribution deduction) with respect to the income of HHMT allocable to it under the
       Settlement Agreement for the years 2007, 2008, and 2009. This amount is unknown to
       the Allred Defendants at this time.

                ***
                6.       The Settlement Agreement obligates the Plaintiff Estate to file amended
       tax returns reporting 50% of the income of HHMT and to “pay, or provide for the
       payment of, the taxes shown as due on such tax returns.” The Settlement Agreement
       further provides that a party failing to comply with the requirements of the Agreement
       relating to the tax matters “shall indemnify and hold the other party harmless from all
       costs, liability, and damage that such other party may incur (including, and without
       limitation, incremental tax liabilities, legal fees, accounting fees and other expenses) as a
       consequence of such failure to comply.”

                7.      In light of the above, and the failure of the Plaintiff to pay taxes on 50%
       of the income allocable to it by HHMT on the amended return, the individual Defendants
       were deprived of their right to a refund of $416,000 with interest accrued for more than 3
       years. The Defendant Allreds therefore seek indemnification from Plaintiff with respect
       to the loss of this recovery of taxes with accrued interest and their legal and other fees
       and expenses incurred as a consequence of such failure.
6
  The IRS denied as untimely the Allreds’ claim for a refund of taxes paid on HHC’s income for 2009;
the lawsuit contested the IRS determination and sought the refund.

                                                  -6-
the years 2007 to 2010; a log of correspondence that was created by Scott Ruth, Mitzi
Bayne Ruth’s husband, between the Estate and the Internal Revenue Service (Exhibit A-
7); and Internal Revenue Service Account Transcripts for the Estate, containing notations
of activity in the Estate’s account for each tax year (Exhibit A-8). Defendants argued that
Exhibit A-7, which states “None” under the “Amended Form” column for January 31,
2009, shows that the Estate did not file an amended return as required by Section 11 of
the Agreement.

       To support their motion, Plaintiffs submitted the responses of HHMT and the
Allreds to Plaintiffs’ First Requests for Admission. Pertinent to this issue are the
following responses:

      Defendant Home Health Care of Middle Tennessee, LLC (“HHCMT”), by
      and through undersigned attorney and pursuant to Rule 36 of the Tennessee
      Rules of Civil Procedure, hereby responds as follows to the Plaintiffs’ First
      Requests for Admission, all as follows:

      1. Admit Defendant B. Fred Allred, III signed the Promissory Note in his
      capacity as Managing Member of Defendant HHMT.
             Response: Admit.

      2. Admit that you did not pay the Bayne Estate $500,000 on or before July
      31, 2015.
             Response: Admit.

      Defendants B. Fred Allred III and Brenda Allred (collectively, the
      “Allreds”), by and through undersigned attorney and pursuant to Rule 34 of
      the Tennessee Rules of Civil Procedure, hereby responds as follows to the
      Plaintiffs' First Requests for Admission:

      1. Admit Defendant B. Fred Allred, III signed the Promissory Note in his
      capacity as Managing Member of Defendant HHMT.
             Response: Admit.

      2. Admit you signed the Guaranty.
            Response: Admit.

      3. Admit you did not direct HHMT to pay the Bayne Estate $500,000
      before July 31, 2015.
             Response: Admit.

      4. Admit you have not paid the Bayne Estate the $500,000 payment due on
      July 31, 2015 under the Guaranty.
                                        -7-
                   Response: Admit, but subject to the fact that $100,000 was
           tentatively paid toward this obligation by the Allreds’ attorney

       In response to Defendants’ motion, Plaintiffs filed the declarations of Mr. Ruth
and Ansley T. Moses, an attorney employed by the firm that represented the Plaintiffs;
correspondence between the Estate and the IRS that was attached to Plaintiffs’ Rule
56.03 statement of material facts; and the complaint and the district court and court of
appeals opinions filed in the Allreds’ suit against the IRS.

       In his declaration, Scott Ruth stated that he created and maintained Exhibit A-7 “to
record all correspondence with the IRS regarding the Estate’s amended tax returns filed
in accordance with the Agreement”; that “[th]e word ‘None’ under the ‘Amended Form’
column corresponding with the tax year ending January 31, 2009 [was] [his] shorthand
for noting that [] no additional taxes were assessed for that tax year [] and the Estate
received no correspondence from the IRS pertaining specifically to that tax year”; and
that he had “personal knowledge that the Estate did file an amended return for the tax
year ending January 31, 2009, because [he] assisted with the preparation of the return.”

        Mr. Moses’ declaration stated that he assisted with the filing of the Estate’s
amended tax returns; and that, on June 10, 2014, he mailed a packet to the Internal
Revenue Service, that “included a summary transmittal letter, original amended Forms
1041 for Estate’s 2007-2012 taxable years (the “Amended Returns”) and checks from the
Estate for payments calculated as due and owing in connection with the Amended
Returns.”7 A copy of the packet that Mr. Moses sent to the IRS was attached as Exhibit 1
to his declaration, and the certified mail receipt, showing that the IRS received the packet
from Mr. Moses, was attached as Exhibit 2.8

       Plaintiffs also relied on an April 16, 2015 letter from the IRS which begins with a
confirmation that the IRS received the packet from Mr. Moses along with a payment of
$301,103.03 on June 13, 2014; the letter goes on to state that: “[t]he law provides a
limited period of time for [the IRS] to charge and collect additional tax on [Estate’s]
Form 1041”; that the “legal period expired for the tax period shown above [January 31,
2010]”; that the IRS “will not assess tax for the additional income [] reported after the
expiration date”; and that the IRS will “return [Estate’s] payment . . . in a separate letter.”

       The complaint and orders entered in Allreds’ suit against the IRS were attached to
Plaintiffs’ Rule 56.03 statement of material facts. Pertinent to the issue before us, the
Allreds asserted in the complaint that the “Estate had filed amended returns for the years
7
    The transmittal letter was attached as Exhibit F to Plaintiffs’ Rule 56.03 statement.
8
  The record shows that Exhibit 1 was filed under seal pursuant to an agreed protective order; the exhibit
is not included in the record on appeal.

                                                      -8-
2007 to 2013, in which the Estate reported 50% of the income realized by [HHC] for
each of these years and have paid the increased taxes, accordingly”; that “refunds have
been allowed and paid to [the Allreds] for all years but 2009”; and that as a result of the
IRS denying the Allreds’ refund claim, “the [Allreds] and the Bayne Estate have
collectively paid federal income taxes on 150% of the income realized by [HHC] for the
year 2009.” The district court held that the Allreds failed to demonstrate that they timely
filed their 2009 amended return, granted the IRS’ motion to dismiss for lack of subject
matter jurisdiction, and granted the IRS’ motion to dismiss for failure to state a claim for
relief; the court of appeals affirmed.9

       The evidence submitted by Plaintiffs shows that they filed the amended return,
made the necessary payment for the year at issue, and that the IRS rejected their payment;
this demonstrates that there was no issue of material fact for trial and effectively negated
the essential element of Defendants’ counterclaim that Plaintiffs breached Section 11 of
the Agreement. In their answer to the complaint, in their response to Plaintiffs’ Requests
for Admission, and in their response to Plaintiffs’ Rule 56.03 statement, Defendants
admitted that they did not make the $500,000 payment they were obliged to make, thus
there was no issue of fact for trial as to their breach of the Promissory Note and Guaranty
Agreement, and Plaintiffs were entitled to judgment on both motions.




9
 The district court also denied the Allreds’ motion to amend the complaint to allow them to add the
Estate as a defendant and to enter a judgment against the Estate for breach of contract; in denying the
motion, the court stated:

                  In plaintiffs’ memorandum in support of their motion to amend the Complaint,
        they note that, pursuant to their agreement with the Bayne Estate, plaintiffs and the Bayne
        Estate agreed to file amended tax returns for the years 2007 through 2013. Plaintiffs
        allege the Bayne Estate did not perform under the agreement because it did not reimburse
        plaintiffs. But, that is not a term of the parties’ contract. The Court notes that the
        agreement, a portion of which was filed as an exhibit to plaintiffs’ memorandum, calls for
        the Bayne estate to “timely prepare and file” amended tax returns for the relevant years.
        The agreement does not, however, require the Bayne Estate to pay any amount to
        plaintiffs should those returns be rejected by the IRS. Plaintiff concedes the Bayne Estate
        did file the returns, which fulfilled its obligation.

(Internal docket citations omitted)
                                                   -9-
                                 IV. CONCLUSION

       For the foregoing reasons, we affirm the judgment of the trial court granting
Plaintiffs’ motion for summary judgment, dismissing Defendants’ counterclaim, and
denying Defendants’ motion for summary judgment.




                                                _________________________________
                                                RICHARD H. DINKINS, JUDGE




                                       - 10 -
