*1 860 BANK & TRUST
SECURITY COMPANY CITY, OKLAHOMA,
OF PONCA Junction,
The Town of Grand Tennes Plaintiffs, see,
v. INC.,
FABRICATING, E.C. Holman and Bruce, E.
Charles Perry, Podrog, Caperton,
Walter L.J. J.W. Bank, Planters National all
Union
Known Bondholders of Town of Grand Date
Junction Bonds October
Defendants. Podrog,
J. Frank MANNING Walter
Representatives Bond Class of of Town of Grand
holders Junction Bonds, Dated October 1972 Inc.), Counter-Plaintiffs-Appel
(Fabricating,
lants,
v. BANK & TRUST COMPANY
SECURITY CITY, OKLAHOMA,
OF PONCA
The Town of Grand Tennes Waring,
see and Composed Partnership of Allen
Cox, Jr., Jr., Waring, Roane Erich Wil James, Cox, Robert Lee H.
liam Jerald
Sklar, Roger F. Allen D. Lewis Partner,
Fish, as General Counter-De
fendants-Appellees. Tennessee,
Supreme Court
at Jackson.
Dec. 1983. July 9,
Rehearing Denied *2 an appeal
tion the for from of bondholders of lim- Appeals, the of the Court of the “issues that ited to a consideration they as to the statutes of limitation relate the apply the class’ actions Cox, Waring, James, law firm of Sklar & Allen.”
I controversy arose out of the is- by bonds the suance industrial revenue Tennessee, Junction, for of Grand Town financing the construction purpose manufacturing plant to modular build a Half of the bonds were is- motel rooms. October, 1972, and other half sued November, 1972; their issued in de- fault occurred October Junction, Mayor of Grand Carl Jr., Dunn, by had been contacted Charles Bruce, a former resident of Grand Junction appears had It who moved Texas. Denton, Bolivar, Agnes H. Morris Thorn- family Bruce was an old friend of Dunn Bird, Bird, Maryville, ton Frank B. for enjoyed good reputation Grand a counter-plaintiffs-appellants; Denton & partner, Bruce and his E.C. Hol- Junction. Bird, Bolivar, Bird, Cary, Mary- & Navratil man, corporation form proposed to ville, of counsel. Inc., Fabricating, as which would known Jr., Bearman, Memphis, Leo counter- for operate the mentioned manufactur- above Donelson, Heiskell, defendants-appellees; ing from Town of plant on land leased Bearman, Adams, Kirsch, Williams & Mem- Junction; venture was to Grand whole phis, of counsel. through proposed be financed issuance Town, by industrial revenue bonds OPINION repaid through rents re- bonds BROCK, Justice. by proposed Town ceived from cor- pro- poration lessee. Bruce and Holman parties presently aligned, are As to, did, guarantee posed personally brought representatives is class action support guaran- of these bond issue and of a class of bondholders of the Town of ties submitted financial statements their Junction, Tennessee, against Grand the law personal condition estates and financial Cox, James, Waring, firm Sklar & Allen purported prepared to have been damages alleged resulting for from mal- Centu, H. Ac- Lester Certified Public practice. countant. in favor of the A was rendered employed firm The Town of Grand Junction against Waring
bondholders Sklar, Mr. an with the law against the Junction Jerald Town Grand & County, Waring, firm of Chancery Court for Hardeman but counsel to the Waring special firm as judgment against serve passing upon purpose of Appeals, as was Town for the reversed the Court of non-taxability proposed legality Grand judgment against the Town of issue, Junction, preparation lease dismissed for and the cause was Inc., Fabricating, and a trust indenture applica- granted defendants. We both and, litigation, September special interest in this wrote letter to all bondholders in he stated: offering circular preparation employed in the issuance and which was correspondence, telephone “The calls and merchandising including issue. The Se- inquiries, personal visit to curity & Trust of Ponca convinced me that this Bank Grand fraudulently ill-fated was. in- served as trustee under *3 such, All in and, spired from the start. involved the held the revenue bond issue promotion and ultimate sale of bonds issue and the funds received from the bond in negligent permitting at least were plant them as the was disbursed built. apparent false financial statements and purported financial statements of The forged publi- CPA certifications were attached to the Bruce and Holman cized and circulated as true. One of the offering promotion circular used in the guarantors Mayor employer Dunn’s was the bond issue. presently partner in the Tennes- and is coupons falling The due on October bond being operated in a see Pewter 1974, 1, defaulted. appar- An portion subject premises. $300,000.00 profit was made ent windfall Bruce and Holman It was learned that by guarantors and/or others. the assets reflected on their did not have n n n n n n financial statements and Lester Centu Public Accountant. was not Certified “After the total losses of bondholders determined, damages action for civil of the holders of the defaulted One Town of be filed should Beach, Podrog Walter of Palm bonds was Junction, council, Mayor, its its Grand Florida, possessed degree a law and who original underwriters and all attor- experienced general obligation both neys in their and sale involved $10,- and revenue bonds. As the owner of bonds, purchasers, due to bonds, Mr. 000.00 worth of the defaulted per- negligence the carelessness and began personal investigation into Podrog negligent statements mitting fraudulent reasons for the default. He contacted published and circulated.” Sklar, attorney the defendant Jerald Johnson, original complaint The in this action was attorney for the Trus- Charles 10, 1975, bank, February Chancery filed on Larry Stephenson, tee President bank, Security Bank & Trust Com- Mayor Dunn and others. On Court 1975, and the pany of Ponca May Podrog Mr. wrote a letter to Junction, Tennessee, plain- he con- Town of Grand Johnson which Charles Inc., tiffs, corpora- Town, against Fabricating, Mayor, the coun- tended that tion, Holman and E. cil, and E.C. Charles Waring, firm of the law Bruce, Allen, guarantors of the industrial aware of the two and others were Sklar & issued the Town guarantors, Bruce revenue bonds the true character of the Junction, 1, 1972, and Holman, check into Grand dated October but had failed to sought statements, complaint This much to the seri- November their financial Then, of monies due the Bank as reimbursement ous detriment bondholders. 21, 1975, issue when the issue Podrog wrote a letter trustee of July on guarantors refused to make recommending that failed and the to the Trustee bank guaranty. com- good on of all on their civil suit be instituted behalf bond- Town, plaint twice and in the second Mayor, was amended against holders Cox, council, Waring, complaint filed on November firm of amended the law Harris, defend- James, Allen, were named Ewing the bondholders & ants, class, Bank and the Trustee as a general counsel for the Town of Grand declaratory judgment Junction, Tennessee, sought and the underwriters Bank, agents, its taken causing the loss suf- actions issue for administering later, attorneys employees by the bondholders. Still fered $250,000.00 approved by controlling the assets total of which was bond trust Chancery Court. proper and lawful. estate had been Eventually, all that remained trial individual an- Bondholder filed an claim of class was the the bondholder complaint second swer to this amended attorneys the bond and the Town did coun- January but not file In addition of Grand Tennessee. ter, cross, third-party complaint at that malpractice the claim of made Bondholders, Manning J. time. Frank counsel, alleged class bondholder Podrog, appointed representa- Walter counsel and the Town of Grand that bond and, as tives of the class of bondholders had violated the Tennessee Munic- Junction such, amend- filed an answer the second § 1972, T.C.A., 9- Act of ipal Securities third-party complaint ed and also filed a seq. 1401 et firm, against the law complaint defendant James, Cox, found the issues favor Waring, Sklar & Chancellor *4 a de- of the bondholder class and awarded thereof various acts alleging members against in in its favor the defendant at- part cree negligence on of Mr. Sklar torneys and the Town of Grand Junction in performing his duties as counsel with $491,000.00 interest, plus the amount respect particularly to the bond issue $505,716.78. making a total respect offering with to the circular which in published was circulated to assist the de- The Court reversed promoting pri- the sale of the The bonds. and dismissed the cree of Chancellor mary allegation was should that that, bondholders, concluding of the action falsity have discovered the of the financial counsel, respect with to bond bondhold- promoters guaran- statements of the by action was barred the statute of ers’ bonds, that tors of the Mr. “Centu” § T.C.A., 28-3-104, stated in limitations CPA, not that underwriters of against attor- requires “actions question bond issue were under investi- brought malpractice” neys for must be gation re- by government agencies with year of the accrual of the cause within one spect to their activities in with connection further, concluding with re- of action other securities and that Mr. failure Sklar’s spect to the Town of Grand and other discover disclose these failed that the Town the evidence to show proximate was a deficiencies direct and provisions of the Tennes- had violated by of the loss cause suffered bondhold- Municipal and Securities Act see filing § The date of the cross-ac- ers. of this 9-1401, T.C.A., seq. et against tion November Sklar firm was granted application of Court 24, 1976. appeal, class to limited bondholder concerning consideration of issues class At the same time the bondholder the statute of limitations which Security defense of filed a counterclaim Ap- by sustained the Court had been City, Bank Trust of Ponca & peals. Oklahoma. the Trustee brought by suits II
Bank and the Town of Grand Junction
Clearly, the cause of action asserted
Inc.,
promot-
against Fabricating,
and the
Holman,
attorneys is one for
against the defendant
guarantors,
ers
Bruce and
their
malpractice
performance
A
filed
suit was
were dismissed.
different
thus,
counsel;
the statute of
as bond
duties
in an
Bruce and Holman in Texas
applied
is that contained
limitations
guaranty
their
to enforce
contract of
effort
§ 28-3-104,
T.C.A.,
provides:
in the
Prior to the trial
the bonds.
attorneys
cause,
Bank & Trust
Security
“... actions
suits
instant
actions are
malpractice
settled
whether said
Company of Ponca
tort,
grounded
for a
or based in contract
liability
class
with
bondholder
thereof,
year
commenced within one
... shall be
interest
outcome
become a
and, therefore,
party
real
in interest
after cause of action accrues.”
bound
by
Here,
rendered therein.
See,
Club,
Hill,
Ameraccount
Inc. v.
however,
counsel
did not have such
Tenn.,
holder class was not commenced until No
ties
interest” at the time Mr.
24, 1976,
filing by
the date of the
vember
filed his
to the
answer
second amended
third-party
the bondholders of their
com
complaint
January
filing
plaint against
the defendant bond attor
running
that answer did not toll the
neys.
they
by
brought
Until
ser
statute of limitations in their favor.
process
third-party
vice of
under the
com
plaint,
third-party
attorneys
defendant
When
this cause of action
did
accrue?
action; therefore,
parties
were not
We now consider whether or not the
argument
of the bondholders that the
plaintiffs’ cause of action accrued within
running of the statute of limitations was
filing
third-party
year
one
of their
January
tolled
complaint
1976. This
on November
Podrog of
answer
bondholder
his individual
recently
has had occasion in several
Court
complaint
amended
filed
second
aspects
decided cases to consider various
original plaintiffs
in which he made
*5
problem
determining
the
of
the date on
generalized
against
claims for relief
plaintiff’s
a
of action has ac-
which
cause
original plaintiffs,
sustained;
cannot be
sufficiently
running
crued
to start
of
Podrog’s individual answer cannot be con
See,
the statute of limitations.
Teeters v.
asserting
as
claim
strued
whatever
Tenn.,
(1974);
518
512
Currey,
S.W.2d
they were
bond counsel because
McCroskey
Bryant
Conditioning
v.
Air
defendant,
parties, plaintiff
not
or
at that
Tenn.,
(1975);
Company,
865 financial statements mitting of an ac- fraudulent consequences as injurious effects published and circulated.” wrong. Taylor Clayton Mobile v. tionable Tenn., Homes, Inc., 72 516 S.W.2d clear, then, that, at least as It is knew September the bondholders injury to the bondholders The date of they injury had sustained an and were established, next being must deter- thus we of their claim for knew, of the existence aware or in the mine when the bondholders against bond malpractice negligence should have reasonable care exercise of failing the fraudulent to discover counsel known, alleged negligence or mal- statements of of the financial nature part of counsel and practice on the promoters-guarantors which were attached injury suffered its causal relation offering circular. the bondholders. Court showed that the evidence concluded that they argue that were The bondholders no later knowledge acquired than such malprac- not aware of certain evidence of Mr. the date Pod- September until part tice of the bond counsel bondholders, all the other rog’s letter to March, deposition in they Mr. Sklar’s took quoted. In is hereinabove portion which but, be, out pointed That as we that “... all involved that letter he asserts supra, in Hoffman, sale of ultimate bonds only in ‘discovery’ apply “The rule would negligent permitting at false least dis- plaintiff does not cases where apparent financial statements forged ex- reasonably could not be cover publicized and circu- CPA certificates right pected he to discover that has as lated true.” Furthermore, is action. statute only period during tolled when Earlier, July letter in a- dated wrong plaintiff knowledge no has Larry Mr. had written to Ste- occurred, and, per- has reasonable Security phenson, President Bank & put inquiry.” v. son not Company, Trust Ponca Hoffman Inc., 652 Hospital Affiliates, S.W.2d he stated: wherein at 344. (all “I to consult with them bond- want holders) if majority agree and see prov- not argued have but have Plaintiffs *6 immediately: we with me that should counsel concealed en that defendant bond
Junction, Mayor, cetera, (5) all [*] institute bondholders due sfc its civil suit for n the Town of Grand its [*] negligence, council, damages n War- n to et learned been exercised plaintiffs’ cause of action. tiffs deposition in learned much earlier if due March, upon by plaintiffs. taking could have been Whatever diligence of Sklar’s plain- had ing, Ewing complaints Sklar & have examined other We Harris, Hamilton and In- find them by appellants-plaintiffs J. Brothers made but Associates of America for fail- merit. vestors be without ing verify guarantors’ financial is judgment of the Court The statements, cetera, cetera.” et et in are Costs incurred this Court affirmed. appellants-bondholders. taxed September to all In his letter of bondholders, has of the other COOPER, DROWOTA, HARBISON and recommended: Justice, JJ., WALKER, Special concur. is “After total losses to bondholders determined, damages civil action for PETITION TO REHEAR OPINION ON filed Town should be BROCK, council, Justice. Junction, Mayor, its Grand underwriters, and all attor- I neys and sale involved (bondholder class) bonds, have appellants purchasers due The in cause per- petition filed a to rehear this negligence in the carelessness and granted we and find in which have considered decree the trial court in favor of Accordingly, petition without merit. the bondholder class.
rehear filed
the bondholder class is de-
juris-
Our research indicates that in other
nied.
exercise discretion in con-
dictions courts
not,
sidering whether or
and to what ex-
II
tent,
any,
application
if
an
for allowance of
firm,
appellees,
The
the Sklar
have re-
premiums
stay
supersedeas
for
such
40(d), T.R.A.P.,
quested, pursuant to Rule
granted
should be
or denied.
bonds
See
an
the Court authorize as
item of Annot.,
867
(10) days
ten
appellee
Mut.
as it desires and the
Giemza v. Allied American
Fire Ins.
Co.,
(1960);
appellant’s proof
10
N.W.2d 609
receipt
Wis.2d
from
in which
Kemper
Co., 193
Hackenjos v.
proof.
Chevrolet
A decision of this
opposing
to file
(1934),petition
Minn.
bond was permit meaning code section
ting expenditures. of such Al recovery case,
though court su Giemza stay premium
pra, allowed be costs, included an item of it as recoverable C. CLEMENTS wife Daniel clearly recognized validity princi Clements, Rosalind C. for ple premium that in order such a Plaintiffs-Appellees, must appellant allowed as costs show reasonably stay that the bond was neces v. sary. Upon presented, facts there Eugene Lucy wife W. AUSTIN and C. rejected appel- court contention Austin, Defendants-Appellants. premium lee that the should not be recov undertaking stay ered exe because Tennessee, Court stating unnecessary, cution was that it suf Eastern Section. ficiently appeared plaintiff-appel- that the 14, 1983. Oct. had attorney lee’s informed the defendant- appellant’s that execution would Application Appeal for Permission taken, appeal if an that be issued by Supreme Denied Court adequate showing an for need Dec. stay undertaking an execution. stay pre hold that We before
miums should be awarded recoverable appeal
costs on under the authorization set 40(c)
out in Rule the Tennessee Rules of Procedure,
Appellate applying appel necessity
lant should show there was a obtaining stay pending
for of execution appeal. ne requirement Since
cessity had shown not been announced application
prior to instant appellant’s costs, just deem it
for allowance we
proper opportunity to allow further *8 appellant necessity such demonstrate appellee
and for the class to demonstrate necessity, by
the lack such affidavits or In with the time
otherwise. accordance T.R.A.P., 40(d), out
schedule set Rule (15) days
appellant allowed from fifteen opinion proof to file such