Dermon-Warner Properties, LLC v. Steve H. Warner, W2016-02051-COA-R3-CV

Dermon-Warner Properties, LLC (DWP), a two-member Tennessee LLC, kept capital accounts per its operating agreement; Warner owned 50% and withdrew on December 31, 2010 with a $399,657 negative capital-account balance.
DWP issued a 2011 Schedule K-1 to Warner showing an ending capital account of $0 and income of $399,657; DWP’s CPA explained the K-1 reported the negative balance as taxable income when a departing member leaves without repaying the deficit.
DWP demanded payment in February 2012; when Warner did not pay or timely dispute, DWP sued in June 2012 for breach/unjust enrichment; the trial court later granted DWP partial summary judgment finding Warner obligated to repay the deficit under the operating agreement.
Warner counterclaimed that the 2011 Schedule K-1 constituted forgiveness of the debt and asserted equitable estoppel and set-off; cross-motions for summary judgment followed.
The trial court denied Warner’s summary-judgment motion and granted DWP’s final summary judgment, finding no evidence DWP discharged or forgave the debt and that Warner failed to prove the elements of equitable estoppel.
Warner appealed; the Court of Appeals affirmed, concluding a Schedule K-1 does not, by itself, demonstrate debt forgiveness and Warner failed to show a prejudicial change in position (no proof of tax liability) or any false representation by DWP.

Issue	Warner's Argument	DWP's Argument	Held
Whether the 2011 Schedule K-1 discharged Warner's capital-account debt	The K-1 showed a zero ending capital account and income equal to the deficit, which Warner says indicates forgiveness and he relied on it for tax reporting	K-1 is a tax-reporting mechanism reflecting flow-through income; it does not evidence an intent to forgive the debt and DWP continued to demand payment	K-1 did not establish discharge; no evidence DWP forgave the debt, summary judgment for DWP affirmed
Whether equitable estoppel bars DWP from collecting the debt	DWP should be estopped because Warner relied on the K-1, reported it as income, and incurred tax consequences	Warner bore the burden to prove false representation, reliance, and prejudicial change; record lacked evidence DWP intended to forgive or that Warner suffered tax liability	Warner failed to prove essential estoppel elements (no false representation and no proof of prejudicial tax liability); estoppel defense rejected

Martin v. Norfolk S. Ry. Co., 271 S.W.3d 76 (Tenn. 2008) (de novo review of summary judgment and standards for appellate review)
CAO Holdings, Inc. v. Trost, 333 S.W.3d 73 (Tenn. 2010) (cross-motions for summary judgment analyzed individually)
Rye v. Women’s Care Ctr. of Memphis, MPLLC, 477 S.W.3d 235 (Tenn. 2015) (nonmoving party must produce specific facts to show a genuine issue)
Blair v. W. Town Mall, 130 S.W.3d 761 (Tenn. 2004) (summary judgment review principles)
Tenn. Farmers Mut. Ins. Co. v. Farrar, 337 S.W.3d 829 (Tenn. Ct. App. 2009) (burden on party asserting equitable estoppel)
Consumer Credit Union v. Hite, 801 S.W.2d 822 (Tenn. Ct. App. 1990) (elements of equitable estoppel)