THOMAS R. FRIERSON, II, Judge.
In the present consolidated action, the plaintiff sought a determination from the trial court that he was the sole owner of a corporation and two limited partnerships based on the deaths of the other shareholders/partners. The trial court found that the plaintiff had failed, pursuant to the terms of the respective partnership agreements and the corporate buy-sell agreement, to assert his right to purchase the decedents' interests within a reasonable time after their deaths. The trial court concluded that the plaintiff had waived his right to purchase those interests and was barred from now asserting such claim. The plaintiff has appealed that ruling. We affirm the trial court's ruling regarding ownership of the corporate shares and partnership interests, although on different grounds. Determining that the corporate shares and partnerships interests are held by the personal representatives as assets of the decedents' estates, we modify the trial court's judgment to remove the designation of the personal representatives as assignees.
Eastowne Partners I, Ltd. ("Eastowne I") and Eastowne Partners II, Ltd. ("Eastowne II") are Tennessee limited partnerships formed in 1985. Eastowne I was established with the intent of developing a retirement center on a 7.8-acre tract of land in Knoxville. This development never occurred, but Eastowne I maintains ownership of the acreage. Eastowne II was created for the purpose of developing an apartment complex on a nearby tract of land. The apartment complex, Eastowne Village Apartments, was constructed and continues to be owned by Eastowne II.
Both limited partnerships initially were formed with two general partners, Eastowne Village, Inc. ("EVI") and First Tennessee Development Company, Inc. Both partnerships also originally had four limited partners: David G. Brown, John B. Fowler, Brown Ayres, and the plaintiff, Paul T. Coleman. In 1988, Mr. Ayres sold his interests in both partnerships and his stock in EVI to Mr. Brown. First Tennessee Development Company, Inc. subsequently withdrew as a general partner. Thereafter, the ownership interests of each partnership were as follows:
Likewise, EVI's only shareholders were Mr. Brown (50%), Mr. Coleman (25%), and Mr. Fowler (25%).
Also in 1988, Eastowne II entered into a management agreement with Brown, Brown & West, a realty management company solely owned by David Brown. This agreement provided that Brown, Brown & West would manage the Eastowne Village Apartments and collect rent in exchange for 4.5% of the monthly gross receipts. Billie Brown, Mr. Brown's wife, worked for Brown, Brown & West as a property manager.
During the late 1990s, there occurred a "falling out" between Mr. Coleman and the other two limited partners, Mr. Brown and Mr. Fowler. While the exact nature of their dispute is unclear, the record does contain a November 4, 1996 letter from Mr. Brown to Mr. Coleman, which states in pertinent part:
On August 8, 2003, Mr. Coleman filed a complaint against EVI, Mr. Brown, and Mr. Fowler, alleging breach of fiduciary duty and other claims. In February 2004, Mr. Coleman filed three additional court actions against Mr. Brown, Mr. Fowler, EVI, Eastowne I, and Eastowne II. The initial action was voluntarily nonsuited without prejudice in 2005.
Mr. Brown died on June 23, 2006. Mr. Fowler died on July 5, 2006. Following their deaths, Mr. Coleman instituted another action against the estates of Mr. Brown and Mr. Fowler. Subsequently, in September 2010, Mr. Coleman filed a motion to consolidate the four pending cases. He also named as defendants Jennifer Fowler, Ms. Brown, and David Brown, Jr. As Ms. Brown continued doing business as Brown, Brown & West after her husband's death, she also continued managing the Eastowne Village Apartments. David Brown, Jr. is Mr. Brown's son and Mrs. Brown's stepson. Ms. Brown and Mr. Brown, Jr. are co-personal representatives of Mr. Brown's estate. Ms. Fowler is the surviving spouse of Mr. Fowler and the personal representative of his estate.
Upon considering the motion, the trial court granted approval for the pending matters to be consolidated. Mr. Coleman thereafter filed two amended and restated complaints, alleging, inter alia, claims of breach of fiduciary duty, breach of contract, conversion, and conspiracy. Mr. Coleman sought an accounting for all three business entities and a declaratory judgment that neither Ms. Fowler, Ms. Brown, nor Mr. Brown, Jr., were lawful partners, shareholders, or directors. The trial court later granted a joint motion for an evidentiary hearing to determine the shareholders of EVI and the partners of Eastowne I and II.
At trial, Mr. Coleman claimed that he was the sole remaining shareholder of EVI pursuant to the terms of the corporate buy-sell agreement. He further asserted that he was the sole remaining limited partner in both Eastowne I and II pursuant to the terms of the limited partnership agreements. Concerning these issues, the trial court noted:
The trial court disagreed with Mr. Coleman's claims of ownership. Incorporating by reference its Memorandum Opinion dated October 5, 2012, the trial court entered an interlocutory Judgment of Dismissal as to Plaintiff's Claim for Declaratory Relief and Granting Judgment for Declaratory Relief as to Ownership of the Eastowne Entities. Regarding the ownership of the capital stock and limited partnership interests in dispute, the court concluded as follows:
The trial court reserved other issues for further hearing. Following the entry of this interlocutory order, the parties filed a joint motion for final order and requested a dismissal of all remaining claims in the consolidated action. On May 29, 2013, the trial court entered the final order. Mr. Coleman timely appealed.
Mr. Coleman presents the following issues for our review, which we have restated slightly:
The standard of review is de novo with a presumption of correctness as to the trial court's findings of fact unless the preponderance of the evidence is otherwise. Tenn. R. App. P. 13(d); McCarty v. McCarty, 863 S.W.2d 716, 719 (Tenn. Ct. App. 1992). No presumption of correctness attaches to the trial court's legal conclusions. Union Carbide Corp. v. Huddleston, 854 S.W.2d 87, 91 (Tenn. 1993).
The "cardinal rule" of contract interpretation is to ascertain the intent of the parties and effectuate same, consistent with legal principles. See Frizzell Constr. Co. v. Gatlinburg, LLC, 9 S.W.3d 79, 85 (Tenn. 1999). When the language of the agreement is plain and unambiguous, courts determine the intent of the parties from the four corners of the document and enforce it as written. See Int'l Flight Ctr. v. City of Murfreesboro, 45 S.W.3d 565, 570 (Tenn. Ct. App. 2000). If the agreement's provisions are "susceptible to more than one reasonable interpretation," however, the terms of the contract are rendered ambiguous. See Planters Gin Co. v. Fed. Compress & Warehouse Co., Inc., 78 S.W.3d 885, 890 (Tenn. 2002). "Where the terms of the contract are ambiguous, the intention of the parties cannot be determined by a literal interpretation of the language, and the courts must resort to other rules of construction." Id. "[W]hen a contractual provision is ambiguous, a court is permitted to use parol evidence, including the contracting parties' conduct and statements regarding the disputed provision, to guide the court in construing and enforcing the contract." Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 612 (Tenn. 2006).
Mr. Coleman asserts that the trial court erred in holding that he is not the sole remaining shareholder of EVI pursuant to the terms of the corporation's buy-sell agreement. The buy-sell agreement, signed by all shareholders at the time the corporation was formed, states in relevant part:
As the trial court observed, Mr. Coleman's position at the hearing was that the shares of each shareholder maintained a negative book value on the date of the deaths of Mr. Brown and Mr. Fowler, such that the corporation had no obligation to take any action in order to acquire their shares. According to Mr. Coleman's theory, as there was no value to be paid to the decedents' personal representatives for the shares sub judice, ownership of the shares should have automatically vested in the corporation. In the alternative, Mr. Coleman argued at trial that if the corporation failed to act to purchase the decedents' shares, that right passed to him as surviving shareholder, with no time limit upon his ability to purchase. Therefore, Mr. Coleman contends that his September 1, 2011 letter to the personal representatives of the decedents purporting to exercise such right to purchase was effective to transfer ownership of the decedents' shares to him.
The trial court's memorandum opinion states in pertinent part:
We agree with the trial court that the provisions of the buy-sell agreement are unambiguous and do not mandate an automatic transfer of the stock belonging to the deceased shareholders either to the corporation or to the surviving shareholder. The agreement provides that such stock shall be
The buy-sell agreement further provides that if the corporation is unable or unwilling to purchase the deceased shareholder's stock, that obligation will be assumed by the surviving shareholder. In this case, the surviving shareholder is Mr. Coleman. Mr. Coleman, however, failed to act upon this contractual right for more than five years from the date of the decedents' deaths. Although the buy-sell agreement does not provide a specific time limit for the exercise of this right by the surviving shareholder, we agree with the trial court's conclusion that a reasonable time should be implied. As this Court stated in Minor v. Minor, 863 S.W.2d 51, 54 (Tenn. Ct. App. 1993):
In Minor, this Court was asked to rule upon the enforceability of a reconciliation and property settlement agreement signed by the parties twelve years prior to their divorce. Id. at 53. The agreement recited that the parties were estranged and desired to reconcile. Should the reconciliation fail, the parties' property and alimony rights upon divorce would be controlled by the agreement. Id. The parties reconciled and remained married for twelve years. Upon their eventual divorce, the husband sought to enforce the agreement. Id. The trial court enforced the reconciliation agreement, but this Court reversed, holding that the delay of twelve years was unreasonable for enforcement of the agreement based upon the circumstances. Id. at 54.
Similarly, Mr. Coleman's right to purchase the decedents' shares pursuant to the buy-sell agreement should be subject to a reasonable time limitation. Based on the circumstances of the parties and the subject matter to which the agreement relates, we conclude that Mr. Coleman's attempt to exercise his right to purchase the shares of capital stock more than five years after the deaths of Mr. Brown and Mr. Fowler was not within a reasonable time. The corporation at issue was an ongoing business entity responsible for the management of an apartment complex, thus affecting the lives of a multitude of tenants. It was unreasonable for Mr. Coleman to wait more than five years to attempt to acquire the corporate shares of the decedents, meanwhile doing nothing to participate in the day-to-day operations of EVI or the property it controlled.
For similar reasons, we also conclude that enforcement of the buy-sell agreement is barred by the doctrines of laches and equitable estoppel rather than waiver.
Laches, on the other hand, "does not depend on the intent of the party against whom it is asserted." Id. As this Court has explained:
Id. See also Jansen v. Clayton, 816 S.W.2d 49, 52 (Tenn. Ct. App. 1991) (laches involves "an inexcusably long delay coupled with injury to the rights of another resulting from the delay," and such injury can include death of witnesses, loss of evidence, and payment of taxes made by the defendants).
In the case at bar, Mr. Coleman waited more than five years after the deaths of Mr. Brown and Mr. Fowler to attempt to exercise his right to purchase their shares of capital stock in EVI. As the trial court found, this constituted an unreasonable delay. During that period of time, Ms. Brown and Ms. Fowler assumed the roles previously filled by their deceased spouses in order to conduct the corporation's business. They performed yearly corporate filings with the state, and Ms. Brown, through Brown, Brown & West, continued to manage the apartment complex and handle corporate affairs. Ms. Fowler testified at trial that she attempted to call a shareholders' meeting for EVI with no success. Both Ms. Brown and Ms. Fowler testified that their efforts to "maintain the status quo" were met with absolutely no assistance or support from Mr. Coleman. Additionally, Ms. Brown testified that she had no knowledge of the buy-sell agreement prior to its production by Mr. Coleman in 2011 during the course of the instant litigation.
The proof is undisputed that Mr. Coleman is a business and tax attorney and that he not only maintained possession of the buy-sell agreement but also drafted it. Mr. Coleman admitted that although he was aware that Ms. Brown and Ms. Fowler were managing the corporation and filing documents to perpetuate its existence following the deaths of their husbands, he took no action. Mr. Coleman claimed that he had forgotten about the existence of the buy-sell agreement until he saw a reference to it on a stock certificate during the pendency of the present action.
Upon the facts and circumstances above outlined, we conclude that based on the doctrine of laches, Mr. Coleman should be barred from now enforcing his contractual rights as surviving shareholder under the buy-sell agreement. Waiting over five years to assert his rights constituted an unreasonable delay, and the evidence demonstrated that Ms. Brown and Ms. Fowler were prejudiced thereby. It would be unjust to allow Mr. Coleman to claim the benefit of the buy-sell agreement at this point when Ms. Brown and Ms. Fowler have been working for more than five years to maintain EVI as a viable business entity.
Similarly, equitable estoppel is proven through the action or inaction of a party who misleads another into changing her position to her detriment, regardless of whether ill motive or intent is shown. See E & A Ne. Ltd. P'ship v. Music City Record Distrib., Inc., No. M2005-01207-COA-R3-CV, 2007 WL 858779 at *7 (Tenn. Ct. App. Mar. 21, 2007); Smith v. Smith, No. M2004-00257-COA-R3-CV, 2005 WL 3132370 at *6 (Tenn. Ct. App. Nov. 22, 2005). This Court has generally defined such estoppel as:
E & A Ne. Ltd. P'ship, 2007 WL 858779 at *7 (quoting Beazley v. Turgeon, 772 S.W.2d 53, 58 (Tenn. Ct. App. 1988)). This Court has further defined the required elements of equitable estoppel as follows:
Smith, 2005 WL 3132370 at* 7 (citing Osborne v. Mountain Life Ins. Co., 130 S.W.3d 769, 774 (Tenn. 2004)). "To give rise to estoppel by silence or inaction, there must be not only an opportunity to speak or act, but also an obligation to do so." E & A Ne. Ltd. P'ship, 2007 WL 858779 at *7.
In the case at bar, Mr. Coleman failed to act for over five years upon his right to purchase the corporate shares of the deceased shareholders as provided in the buy-sell agreement. As the trial court found, this delay was unreasonable. Mr. Coleman drafted the buy-sell agreement and maintained it in his files, and there was no showing that either Ms. Brown or Ms. Fowler had any knowledge of its existence. By waiting so long to exercise his right or otherwise make known that the buy-sell agreement existed, Mr. Coleman induced Ms. Brown and Ms. Fowler to continue sustaining the corporation and its assets without his assistance or participation. Ms. Brown and Ms. Fowler obviously relied upon Mr. Coleman's silence and inaction, and they continued to expend their time and effort to maintain the viability of EVI. As stated previously, to permit Mr. Coleman now to assert his right to purchase the deceased shareholders' shares, thereby profiting from the efforts of Ms. Brown and Ms. Fowler to their detriment, would be inequitable. We agree with the trial court that Mr. Coleman's rights pursuant to the buy-sell agreement should not be enforced to that end. Therefore, the shares of capital stock of the deceased shareholders are held by the personal representatives as assets of the respective estates for proper administration.
Mr. Coleman asserts that the trial court erred in its interpretation of the limited partnership agreements for Eastowne I and II because these agreements demonstrate the partners' intent that the interests of a deceased partner be liquidated and not inherited by his heirs. Mr. Coleman contends that the partnership agreements did not require any affirmative action in order for the limited partnerships to acquire the interests of the decedents. The partnership agreements for the two partnerships are substantially similar in language. Both agreements contain a provision included at section 7.1, which states:
Both agreements also contain a provision at section 7.3, which states:
(Emphasis added.)
With reference to the limited partnerships, the trial court found:
As the trial court found, Mr. Coleman did nothing upon the deaths of Mr. Brown and Mr. Fowler to effectuate the provisions of the limited partnership agreements. The partnership agreements unambiguously provide that the "Partnership shall pay to the estate of the deceased or bankrupt Partner" the formula price for the deceased partner's interest within nine months of the deceased partner's death. Assuming, arguendo, that the formula price was calculated to be zero, as Mr. Coleman contends, the agreements clearly mandate some affirmative act by the respective partnership to liquidate the deceased limited partner's interest. If the intent of the parties was that the partnership agreements would provide that such liquidation and transfer of the deceased partner's interest be automatic upon death, the agreements should have specifically so stated. Instead, the limited partnership agreements provide that the interest of a deceased partner is "subject to liquidation."
For the reasons explained above with regard to EVI, we likewise conclude that upon the deaths of Mr. Brown and Mr. Fowler, Mr. Coleman was required to act within a reasonable time on behalf of the partnerships to liquidate the interests of the deceased limited partners in Eastowne I and II. Having failed to do so, he cannot now seek to liquidate those interests to the detriment of Ms. Brown and Ms. Fowler, who have acted on behalf of the limited partnerships for over five years to maintain the partnerships' assets. As with EVI, to allow Mr. Coleman to assert his right to liquidate the deceased partners' interests at this point in time, thereby profiting from the efforts of Ms. Brown and Ms. Fowler to sustain the viability of the partnerships' assets to their detriment, would be inequitable. The trial court properly held that the decedents' ownership interests in the partnerships could not now be liquidated by Mr. Coleman. Instead, those partnership interests are held by the personal representatives of the respective estates for proper administration.
Mr. Coleman contends that the trial court erred by placing the burden on him at trial to prove that the defendants were not lawful partners. Mr. Coleman mischaracterizes the trial court's comments. A review of the trial court's memorandum opinion demonstrates that the trial court thoroughly reviewed and considered the provisions of the partnership agreements and concluded that Mr. Coleman had failed to fulfill his duty as an officer/director of the corporate general partner or as a surviving limited partner to ensure that the interests of the deceased partners were properly liquidated within a reasonable time frame. As such, the trial court determined that Mr. Coleman could not now undertake such action and, for the reasons stated above, we agree.
In reaching the previous conclusions, we note, however, that the trial court did not determine that the heirs of Mr. Brown and Mr. Fowler are now limited partners in the partnerships. We likewise make no such determination. The Tennessee Uniform Limited Partnership Act in effect in 1985 when these partnership agreements were executed clearly provided that a "limited partner's interest in the partnership is personal property," and that ownership or assignment of a limited partner's interest did not necessarily lead to the conclusion that the owner or assignee was a limited partner. See Tenn. Code Ann. § 61-2-118, 119
Mr. Coleman has raised other issues with regard to the trial court proceedings; however, the trial court's final order clearly expresses that only the ownership interests in the corporation and limited partnerships were being adjudicated. We therefore hold that any other issues raised are not yet ripe for appeal. See Dorrier v. Dark, 537 S.W.2d 888, 890 (Tenn. 1976) (holding that appellate courts are "limited in authority to the adjudication of issues that are presented and decided in the trial courts"); see also Hayes v. Gentry, No. 03A01-9303-CH-00120, 1993 WL 191999 at *2 (Tenn. Ct. App. June 8, 1993) ("[S]ince this issue was not adjudicated in the trial court, we cannot consider it on appeal.").
The judgment of the trial court delineating the respective ownership interests of the parties in EVI and Eastowne I and II is affirmed with the modification that the personal representatives are not designated as assignees. Costs on appeal are taxed to the appellant, Paul T. Coleman. This case is remanded to the trial court, pursuant to applicable law, for further proceedings consistent with this opinion.
