Condominium Management Associates, Inc. (CMA) initiated a lawsuit against Fairway Village Owner’s Association, Inc. (Fairway Village) for unpaid management fees and property repairs. Fairway Village counterclaimed against CMA and its president, Robert Willingham, alleging fraud. The chancery court dismissed Fairway Village's claims, citing insufficient proof, and ruled in favor of CMA for management fees and repairs, while granting a reduced attorney fee but denying prejudgment interest. The appellate court affirmed the chancery court's findings regarding CMA's lack of fiduciary duty to Fairway Village, the exclusion of an accountant's testimony, and the awarded attorney fees. However, it reversed the denial of prejudgment interest, remanding the case to determine the amount owed to CMA for both prejudgment interest and appellate attorney fees. The case originated from a management agreement where CMA was to provide services for $44,984.04 annually. Disputes arose when Fairway Village claimed it had been overcharged for services it believed were not rendered, leading to a termination of the agreement and subsequent litigation. The chancery court had previously appointed a special master to investigate financial discrepancies related to Fairway Village's funds.
CMA and Robert Willingham filed a joint motion for partial summary judgment regarding CMA's breach of contract claim on October 24, 2003, arguing that Fairway Village's breach was evident, either by failing to terminate the contract for cause or by not providing CMA with the requisite notice and 90-day cure period as stipulated in the Management Agreement. The motion was denied after a hearing. Special Master Thompson submitted his report on February 17, 2006, which included findings based on an analysis by CPA David A. Morris, III. The report concluded that Fairway Village had $120,686.90 in undocumented transfers but did not overstate its income by approximately $36,000. CMA and Willingham later sought to modify or set aside Thompson's report, claiming they had submitted over 400 pages of supporting documents that Morris had not reviewed. An affidavit revealed that Morris had not received these documents, prompting him to issue a Supplemental Report on November 30, 2007, which found only $3,748.67 of the alleged undocumented disbursements lacked documentation. A consent order reflecting the Supplemental Report was entered on April 8, 2008. The case proceeded to trial on October 6, 2008, where the court found that Fairway Village had notified CMA of the contract's termination on June 16, 1998, and communicated deficiencies that needed to be corrected within the 90-day cure period.
Willingham did not receive the May 18, 1998 letter until it was attached to a facsimile sent on June 26, 1998. Although the letter was intended to be mailed on May 18, Fairway Village’s representative, Thomas Jobe, could not confirm its mailing. CMA requested payment of $22,492.02 for outstanding fees under the Management Agreement for 1998, which Fairway Village refused to pay. CMA had been authorized by Fairway Village to make necessary repairs to the condominium units, including roofs, balconies, and concrete walkways, beginning in 1980, due to defects in the original construction. From 1980 to 1998, CMA repaired about 90 balconies and addressed other defects, with the work monitored by Fairway Village's Board members. All invoices for this work were approved and paid until the Management Agreement's termination in June 1998. Despite CMA completing authorized repairs on a concrete walkway and certain balconies, Fairway Village refused to pay the outstanding balance of $6,990.94. CMA's total damages amount to $29,482.96, plus attorneys’ fees, expenses, and prejudgment interest. The Management Agreement stipulates that Fairway Village indemnifies CMA against claims arising from CMA’s performance, barring negligence, and also covers collection fees if CMA needs legal assistance to recover annual fees. According to the Master Deed, CMA operated under the direction of Fairway Village's Board, which was responsible for overseeing CMA’s work. Monthly financial reports provided by CMA included balance sheets, income statements, and expenditure schedules, with supporting invoices available at Board meetings.
Fairway Village's Board regularly reviewed financial reports from CMA during monthly meetings, approving them as part of the Treasurer's Report. CMA provided requested information for these reviews, and Fairway Village engaged a certified public accountant yearly to audit its financial statements. Audits from 1991 to 1997 confirmed that CMA's financial records were free of material misstatements, with no unaccounted expenses or revenues. All CMA expenditures were pre-approved by Fairway Village, which also later approved payments at Board meetings. Thomas Jobe, Fairway Village's representative, testified that the 1998 audit revealed no fund misappropriation and that he was unaware of any discrepancies. There was no evidence of misappropriation of Fairway Village funds by CMA or others, and all funds were used as authorized.
CMA's repair work and grounds maintenance were regularly monitored by Fairway Village Board members, who questioned CMA about financial reports and reviewed invoices. CMA did not control Fairway Village's finances. Lee Hood, a CPA, prepared a Report of Findings on accounting records but did not audit them. Hood lacked access to CMA's comprehensive financial reports and requested additional documentation from Fairway Village to clarify around $180,000 in unexplained transfers, but none was provided. He could not ascertain whether these expenditures were authorized or unauthorized. Hood did not consult CMA and maintained no definitive position on the Special Master’s findings regarding overstated bank balances.
There was no evidence that any checks reported missing were ever cashed or deposited. Outstanding checks referenced by Hood had been voided or replaced, with no indication that wire transfers were misappropriated. Fairway Village’s Board had authorized telephone transfers previously. Except for a small amount linked to CMA's management fee, all transfers from Fairway Village to CMA related to approved invoices for work performed. The Modified Special Master’s Report concluded that of claimed undocumented disbursements between January 1993 and December 1997, only a minor portion lacked documentation.
Mr. Morris identified $3,748.67 in undocumented disbursements as the management and grounds fee for August 1995. The Special Master's Reports confirmed that all disbursements were authorized by Fairway Village, which allowed Board members and Mr. Willingham to sign checks, requiring two signatures. Monthly, Board members received meeting minutes, repair lists, Treasurer’s Reports, and homeowner complaints, all discussed in detail at meetings, where they approved the Treasurer’s Report and CMA’s payments. Between 1992 and 1998, the Board ratified all expenditures by CMA and Fairway Village through annual audits. No evidence suggested fraud or misappropriation of funds by Mr. Willingham or CMA, and Fairway Village did not suffer damages from their actions. The trial court awarded CMA $22,492.02 for amounts owed under a breached Management Agreement and $6,990.94 for authorized but unpaid concrete and balcony repairs. Fairway Village's counterclaims were dismissed with prejudice due to insufficient proof. CMA was awarded attorney fees, to be determined later, and its mechanic’s and materialman’s liens for $6,990.94 were enforced. The court declined to award CMA prejudgment interest due to the prolonged case duration. CMA’s attorney claimed fees of $173,849.75 and expenses of $16,136.20, which Fairway Village contested as unnecessary and unreasonable. After a supplemental affidavit with billing details was submitted, the trial court awarded CMA reduced attorney fees of $60,000.00 and expenses of $16,136.20. CMA appealed, raising issues regarding the denial of prejudgment interest, the reduction of attorney fees, and entitlement to fees for defending Fairway Village's appeal. Fairway Village also appealed, questioning whether CMA owed a fiduciary duty, whether an accountant's testimony should have been allowed, and the judgment's alignment with evidence. The chancery court's findings were affirmed, including the absence of a fiduciary duty and the exclusion of the accountant's testimony. The court found no error in the judgment weight but reversed the denial of prejudgment interest, awarding CMA attorney fees for the appeal, and remanded the case to determine prejudgment interest and appellate attorney fees owed to CMA.
On appeal, trial court factual findings are presumed correct and can only be overturned if the evidence preponderates against those findings. To preponderate against a finding, the evidence must support a more convincing alternative finding. If a trial court lacks specific factual findings, the appellate court reviews the record to assess where the preponderance of evidence lies. Great deference is given to trial court determinations regarding witness credibility unless there is clear and convincing evidence to the contrary. Legal conclusions by the trial court are reviewed de novo without any presumption of correctness.
Regarding fiduciary duty, Fairway Village argues that CMA was obligated to demonstrate proper management of its funds, but the trial court determined that CMA did not exert dominion and control over Fairway Village. Under Tennessee law, fiduciary relationships are classified as either fiduciary per se (e.g., guardian-ward, attorney-client) or those that become fiduciary through one party exercising dominion and control over another, termed a "confidential relationship." Establishing such a relationship requires proof of dominion and control. Courts have been cautious in defining "confidential relationships," emphasizing the need to evaluate the specific facts and circumstances of each case to determine the presence of dominion and control.
Equity acknowledges the possibility of valid transactions between parties in a fiduciary relationship but raises a presumption against the validity of transactions where the dominant party benefits. The burden of proof falls on this party to demonstrate compliance with equitable standards. This presumption applies to all transactions where the dominant party gains an advantage. The trial court found no fiduciary relationship existed between CMA and Fairway Village, noting that CMA did not exert control over Fairway Village. The existence of a fiduciary relationship is a factual question with a presumption of correctness.
The Management Agreement delineates the relationship between CMA and Fairway Village, outlining CMA's responsibilities for operating and maintaining the property, hiring personnel, preparing service specifications, obtaining bids, and reporting to the Board of Directors. CMA is restricted from spending over $500 for repairs or making structural changes without Board approval. An addendum, the 'CMA Complete Management Package,' details CMA's obligations to maintain daily bookkeeping, issue monthly reports to the Board, manage accounts receivable, and provide the Treasurer with specific financial information, including delinquent accounts and disbursements.
CMA is required to submit account payable checks with attached invoices to the Board of Directors for verification, along with a check ledger for the Treasurer. Delinquent accounts from residents must be reported to the Board at the end of each month, accompanied by recommendations. CMA must negotiate service contracts at least 30 days before their renewal for Board approval. The organization will process insurance claims for the Association and unit owners to ensure proper repair oversight. Monthly correspondence will be sent to the Secretary to maintain complete records. An operating budget must be prepared and submitted to the Board at least 30 days prior to the annual budget meeting. The addendum outlines CMA's responsibilities for grounds, pool, and preventative maintenance.
In a related appeal, Fairway Village argues that CMA has a fiduciary duty because it was entrusted to manage all affairs for Fairway, implying that CMA's operations were under the personal control of Willingham. Fairway cites various cases indicating that corporate officers owe fiduciary duties. However, the court rejects the assertion that CMA assumed responsibilities of Fairway's Board of Directors, clarifying that CMA operated under the Board's oversight and thus did not owe a fiduciary duty as a corporate officer. Fairway's reliance on case law regarding fiduciary relationships is deemed inapplicable, as CMA did not exercise dominion or control over Fairway Village, and the relationship was characterized as an arm’s length business transaction without fiduciary status.
Fairway Village contests the trial court's judgment, claiming it was against the weight of the evidence by allowing CMA a double recovery and relying on Willingham's testimony, which it deems invalid. Fairway Village disputes the $22,492.02 awarded to CMA for unpaid management fees, arguing that disbursement reports indicated CMA had received more than owed. However, the Morris Supplemental Report clarifies that only $3,748.67 lacked documentation, potentially covering CMA’s management fees. Additionally, Fairway Village challenges a $6,990.94 award for concrete and balcony repairs, asserting CMA had previously recovered $7,418.30 for these repairs. This argument is rejected due to lack of supporting evidence.
Fairway Village further claims the judgment is unsupported because CPA Morris’s report identified $78,076.01 in undocumented transfers, and Willingham failed to explain the missing checks. The trial court's credibility assessments of witnesses are given substantial deference, and since Willingham had no knowledge of missing checks, which were not presented for payment, this does not undermine the judgment. Furthermore, CPA Morris indicated that the $78,000 figure stemmed from discrepancies between provided documents and the disbursement list, suggesting that while there were related transactions, direct matching was absent. The court finds that Fairway Village’s criticisms of Willingham’s testimony do not contradict established facts, indicating the judgment is well-supported. This concludes that Fairway Village's arguments lack merit.
Accountant Lee Hood was hired by Fairway Village to analyze CMA's accounting practices due to suspicions of wrongdoing. In his initial report dated October 20, 1998, Hood identified undocumented telephone transfers totaling $9,766.34, $21,898.60 in uncashed checks, and an unknown deposit of $4,860.51, concluding that CMA owed Fairway Village $6,208.45 as of June 30, 1998. A subsequent report on July 6, 1999, revealed undocumented transfers of $180,981.12 and an overstatement of Fairway Village's bank account balance by $36,319.57. During the trial, CMA objected to questioning Hood about his initial report, asserting it was not properly identified as a basis for his testimony. Fairway Village had only attached the second report to its discovery responses. Though Fairway Village claimed the initial report was shared with CMA, the trial court disallowed questioning on it, leading Fairway Village to argue that this omission significantly impacted its case regarding the right to withhold payments to CMA pending a full accounting. Fairway Village contended that any procedural violation in discovery was harmless, given CMA's prior knowledge of the initial report. CMA countered that Hood's comprehensive testimony on financial records mitigated any error, and emphasized that the trial court has broad discretion over expert testimony matters, which can only be overturned if abused.
The trial court did not abuse its discretion by disallowing Hood's testimony concerning the initial report from October 20, 1998. Fairway Village's claim of anticipatory breach fails due to its inability to demonstrate wrongdoing by CMA, rendering Fairway's motives for terminating the Management Agreement irrelevant.
Regarding prejudgment interest, CMA argued it was entitled to such interest as its claim was liquidated. Tennessee law, specifically Tenn. Code Ann. § 47-14-109, supports the entitlement to interest on liquidated or settled accounts, determined by simple computation at the start of the action. Precedents indicate that written instruments signed by the debtor, promising to pay a definite sum at a specified time, qualify for this interest.
Fairway Village contended that the trial court's decision on prejudgment interest was discretionary, citing delays caused by CMA in the case's prosecution. However, if the claim is liquidated, as it is in this instance, the plaintiff is entitled to prejudgment interest as a right. The Management Agreement specified CMA's obligation to provide management services for an annual fee, payable in monthly installments, and CMA completed authorized repairs for which Fairway Village subsequently refused payment.
CMA submitted invoices to Fairway Village for $6,990.94 owed for concrete and balcony repairs and filed a Sworn Statement of Notice of Lien with the Register’s Office of Shelby County, Tennessee. The contract between CMA and Fairway Village is classified as a liquidated account, necessitating the award of prejudgment interest on the amount owed, which the trial court incorrectly denied. The applicable interest rate is established by Tennessee Code Annotated § 47-14-103, and the case is remanded to the trial court to calculate the prejudgment interest on a total of $29,482.96, which includes both the $22,492.02 from the Management Agreement and the $6,990.94 from repair costs.
CMA also contested the trial court's award of only $60,000 in attorney fees from a claimed total of $175,482.25. While courts grant discretion to determine attorney fee awards, CMA's entitlement is based on the Management Agreement, which stipulates indemnification for reasonable attorney fees incurred due to claims related to CMA's performance, barring negligence. The trial court recognized CMA's right to attorney fees for claims against it under the Management Agreement but reduced the awarded amount, referencing the case's prolonged history dating back to 1998.
The case originated as a minor collection matter involving $130,000 but became protracted due to a counterclaim, resulting in significant legal fees for both parties. Fairway Village contended that the Agreement did not permit recovery of CMA's attorney fees incurred in defending against the counterclaim but did not pursue this argument on appeal. The trial court ruled on February 18, 2009, incorporating its oral ruling into a final judgment, noting that cases typically do not extend for a decade. Both parties blamed each other for the delays, with Fairway Village alleging that CMA failed to provide necessary documentation and delayed prosecution, while CMA claimed the counterclaim was the primary cause of the extended litigation. CMA inaccurately asserted that the trial court's only reason for reducing its attorney fees was the duration of the case; however, the court found both parties contributed to the delays. CMA argued that the trial court improperly considered the case's length in determining the reasonableness of its fees, asserting that only specific factors from Connors v. Connors and Supreme Court Rule 8 should be considered. Additionally, CMA contended that the trial court erred by reducing the fee award based on the proportionality to the damage award, but this was deemed without merit as the court did not base its decision on disproportionality.
Key factors influencing the determination of reasonable attorney fees include time limitations set by the client or circumstances, the nature and duration of the professional relationship, the experience and reputation of the attorneys involved, whether the fee is fixed or contingent, previous fee advertisements by the attorney, and the existence of a written fee agreement. The trial court, following Rule of Professional Conduct 1.5(a), appropriately evaluated the time and labor necessary for the case but impliedly found that the time reported by CMA’s attorneys was excessive given the circumstances. The court rejected CMA’s argument that it was constrained to specific factors, affirming that it could consider all relevant facts in determining a reasonable fee, as established in Hennessee v. Wood Group Enters. Inc. The court found no error in its determination that both parties contributed to the prolonged litigation and supported the reduction of attorney fees accordingly. CMA's request for attorney fees on appeal was recognized as valid under the Management Agreement, leading to a remand for the trial court to ascertain a reasonable fee. The chancery court's ruling that CMA owed no fiduciary duty to Fairway Village, its exclusion of accountant Hood’s testimony, and the award of attorney fees to CMA were affirmed. The court’s judgment was upheld as not against the weight of the evidence, while its denial of prejudgment interest was reversed. CMA was awarded its attorney fees on appeal, with a remand for the trial court to resolve issues related to prejudgment interest and appellate attorney fees. Costs of the appeal are charged to Fairway Village Owner’s Association, Inc., with execution permitted if necessary.
