765 F. Supp. 2d 1036
W.D. Tenn.2011Background
- SFO sues McCullar as co-maker on two promissory notes seeking over $1.5 million.
- McCullar asserts he and Starnes understood Starnes would fund his share and that McCullar would be released if Independent Bank did not extend the notes; McCullar signed the notes relying on that understanding.
- In 2008–2009, real estate values fell, causing the entities’ debts to exceed collateral; August 2008 Agreement provided Starnes would finance the entities for a period with no fixed termination date.
- BankPlus line of credit was refinanced when Independent Bank loaned about $3 million to McCullar and Starnes; the notes were executed November 26, 2008, with Starnes providing $6 million in personal collateral.
- SFO was created April 6, 2009; purchased the notes from Independent Bank on August 21, 2009; the notes matured with no payments by McCullar; diversity jurisdiction and Tennessee choice-of-law provisions apply; McCullar also asserts claims against Starnes and SFO through third-party claims.
- Procedural posture includes multiple motions to strike, a motion to dismiss the third-party complaint, and a motion to strike allegations about Starnes’ competence; rulings follow in Part III–VI of the opinion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether McCullar’s affirmative defenses and counterclaims are legally sufficient | SFO contends defenses are legally insufficient and should be struck; no plausible bases. | McCullar argues defenses and counterclaims are viable under Tennessee law. | Yes; defenses struck and counterclaims dismissed. |
| Whether SFO and McCullar’s conduct warrants piercing the corporate veil to defeat SFO’s standing | SFO argues SFO is a separate entity; veil piercing not warranted. | McCullar seeks veil piercing due to Starnes’ alleged misconduct. | No piercing of the corporate veil; SFO remains a distinct entity; defense-strike sustained. |
| What law governs the dispute (choice of law)? | Notes’ choice-of-law provision points to Tennessee law; Tennessee has substantial connection. | (Implicitly) contest that another state's law could apply. | Tennessee substantive law applies, including contract and tort theories. |
| Whether McCullar’s jury demand should be struck due to waiver in the Notes | Waiver clause in the Notes bars jury trial. | Unclean hands argument fails; waiver should be enforced. | Jury demand struck based on valid contractual waiver. |
| Whether McCullar’s third-party claims against Starnes are proper under Rule 14 | Claims are derivative or dependent on main action; not proper under Rule 14. | Some claims may be independent; indemnification claim is proper. | Third-party claims for fraud, breach of contract, and breach of fiduciary duty are dismissed; indemnification claim remains. |
Key Cases Cited
- Erie R. Co. v. Tompkins, 304 U.S. 64 (U.S. 1938) (applies state substantive law in diversity actions)
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (U.S. 1941) (requires applying state choice-of-law rules in federal courts)
- Hataway v. McKinley, 830 S.W.2d 53 (Tenn. 1992) (most significant relationship for torts under Restatement (Second))
- Lindsey, Bradley & Malloy v. Media Mktg. Sys., Inc., 2000 WL 1875882 (Tenn. Ct. App. 2000) (discusses piercing corporate veil considerations (Tenn. context))
- S.E.A., Inc. v. Southside Leasing Co., No. E2000-00631-COA-R3-CV, 2000 WL 1449852 (Tenn. Ct. App. 2000) (discusses piercing the corporate veil in reverse (Tenn.))