Spirit Broadband, LLC v. Joseph Anthony Armes
M2015-00559-COA-R3-CV
| Tenn. Ct. App. | Jan 27, 2017Background
- Spirit Broadband (buyer) purchased Cumberland County Cable (CCC) assets in 2007 for ~$4.8M, delivering a $1.5M promissory note to CCC; U.S. Bank financed and received a subordination agreement from CCC preserving its priority.
- The system’s programming relied heavily on DirecTV channels; Spirit continued retransmission post-closing and later learned DirecTV claimed the signal was obtained illegally.
- Spirit previously litigated DirecTV, settled for $250,000, and refinanced loans with U.S. Bank; Spirit then sued CCC claiming breach, fraud, and a declaration that the CCC note was not yet due.
- CCC counterclaimed to collect on the (amended) promissory note; Spirit asserted equitable defenses including unclean hands and argued the subordination remained effective.
- After a bench trial the chancery court found CCC made misrepresentations about the DirecTV rights but dismissed Spirit’s affirmative claims (statute of limitations and due diligence failures); the court refused to enforce CCC’s counterclaim on the promissory note under the doctrine of unclean hands.
Issues
| Issue | Plaintiff's Argument (Spirit) | Defendant's Argument (CCC/Armes) | Held |
|---|---|---|---|
| Whether unclean hands bars enforcement of the promissory note | CCC committed fraud related to the asset sale tied to the note; equity should deny CCC relief | Unclean hands defense inapplicable; misconduct not directly related to note enforcement | Yes — court did not abuse discretion: unclean hands barred CCC’s counterclaim |
| Whether programming agreements (DirecTV) were part of the asset sale | Sale conveyed “any and all rights” and operating contracts, so programming agreements were assigned to Spirit | Schedules listing “none” show parties intended no operating contracts to transfer | Programming agreements were part of the sale; contract language construed together to include programming agreements |
| Credibility of witnesses and relation of misrepresentations to the sale | Spirit: seller and employees made material misrepresentations inducing purchase | CCC: Spirit (King) was experienced and failed reasonable due diligence; any misrepresentations were not dispositive | Trial court credibility findings upheld; evidence did not preponderate against court’s findings of seller fraud |
| Subordination agreement and interest calculation on the note | Spirit: subordination remained; equitable defenses apply; interest calculation as court determined | CCC: refinancing paid U.S. Bank note in full, freeing CCC to collect | Not reached on appeal — court’s unclean hands ruling disposed of counterclaim; no review of these issues necessary |
Key Cases Cited
- C.F. Simmons Med. Co. v. Mansfield Drug Co., 23 S.W. 165 (Tenn. 1893) (unclean hands maxim and equitable bar)
- Coleman Mgmt., Inc. v. Meyer, 304 S.W.3d 340 (Tenn. Ct. App. 2009) (standard and application of unclean hands)
- Lee Med., Inc. v. Beecher, 312 S.W.3d 515 (Tenn. 2010) (abuse of discretion standard)
- Lovlace v. Copley, 418 S.W.3d 1 (Tenn. 2013) (presumption favoring trial court’s discretionary decision)
- Guiliano v. Cleo, Inc., 995 S.W.2d 88 (Tenn. 1999) (contract interpretation principles)
- Continental Bankers Life Ins. Co. v. Simmons, 561 S.W.2d 460 (Tenn. Ct. App. 1977) (unclean hands defense to promissory note collection)