Lemuel Lewis v. Lynn Moore, M2015-02473-COA-R3-CV

In June 2012 Lewis bought a vacant lot from Moore for $300,000 and (for $10) an agreement that entitled him to 10% of Moore’s monthly cash withdrawals from her sole proprietorship, Moore Media, effective July 1, 2012.
The contract stated that if Moore dissolved Moore Media and reopened a new, majority-owned-by-her entity in the same/similar business, Lewis would receive 10% of draws/profits from that successor; the clause limited continuation to successor companies in the same or similar business.
Moore sold the Monroe Lane property later in 2012, repurchased the lot from Lewis, and paid Lewis 10% of withdrawals through early 2014; Lewis refused Moore’s 2013 offer to repurchase his interest.
In April 2014 Moore closed Moore Media and formed Sandcliffs Media, LLC, in which she held 49% and Steven Leh 51%; Moore told Lewis he was not entitled to 10% because she was not a majority owner of the new LLC.
Lewis sued for breach of contract and breach of the implied covenant of good faith and fair dealing, alleging Sandcliffs was a sham to evade the contract; the trial court found for Moore, concluding Lewis had no ownership interest in the sole proprietorship, Moore could close it unilaterally, Sandcliffs was not a sham, and the contract’s terms did not entitle Lewis to 10% from Sandcliffs.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Lewis acquired an ownership interest in Moore Media that restricted Moore from dissolving it	Lewis: sale of "10% of Moore Media" created an ownership interest enforceable against Moore	Moore: Moore Media was a sole proprietorship; Lewis could not buy a fractional ownership in her person/business	Held: No ownership interest; a sole proprietorship has no separate legal existence, so Moore could unilaterally close it
Whether Lewis is entitled to 10% of draws/profits from Sandcliffs Media, LLC	Lewis: Contract required 10% continuing payments if Moore reopened a new entity in the same business; Sandcliffs is a successor created to evade obligation	Moore: Contract only preserves payments if she is a majority owner of the new entity; she is 49% in Sandcliffs so no continued entitlement	Held: Contract language controls; entitlement terminated because Moore did not retain majority ownership in the new LLC
Whether Moore breached the covenant of good faith and fair dealing or created a sham entity to evade the contract	Lewis: Forming Sandcliffs and transferring assets was done in bad faith to avoid payments; Sandcliffs is a sham	Moore: Formation reflected legitimate business collaboration with Leh; structure reflected Leh’s greater contributions and was not intended as an illegitimate dodge	Held: No breach of good faith; factual record did not show Sandcliffs was a sham and courts will not rewrite clear contractual terms

Koch v. Koch, 874 S.W.2d 571 (Tenn. Ct. App. 1993) (sole proprietorship has no separate legal existence)
Ferguson v. Jenkins, 204 S.W.3d 779 (Tenn. Ct. App. 2006) (sole proprietorship and owner are one and the same)
Dick Broad. Co. v. Oak Ridge FM, Inc., 395 S.W.3d 653 (Tenn. 2013) (good faith in contract performance is a question of fact)
Vargo v. Lincoln Brass Works, Inc., 115 S.W.3d 487 (Tenn. Ct. App. 2003) (courts will not remake clear contracts for parties)
Wallace v. Nat’l Bank of Commerce, 938 S.W.2d 684 (Tenn. 1996) (duty of good faith does not extend beyond agreed contractual terms)
Allmand v. Pavletic, 292 S.W.3d 618 (Tenn. 2009) (clear, unambiguous contract language controls)
Rawlings v. John Hancock Mut. Life Ins. Co., 78 S.W.3d 291 (Tenn. Ct. App. 2001) (standard for when evidence preponderates against trial court findings)
Kaplan v. Bugalla, 188 S.W.3d 632 (Tenn. 2006) (appellate review of conclusions of law is de novo)