McCullar v. Starnes

Filing 37

ORDER granting 13 Motion to Dismiss. Signed by Judge Samuel H. Mays, Jr on 3/30/2012.

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION

MEREDITH McCULLAR,

)
)
)
)
) No. 11-2262
)
)
)
)
)

Plaintiff,
v.
MICHAEL S. STARNES,
Defendant.

ORDER GRANTING MOTION TO DISMISS CERTAIN CLAIMS

Plaintiff
against

Meredith

Defendant

McCullar

Michael

S.

(“McCullar”)

Starnes

(“Starnes”)

brings
for

suit
fraud,

breach of contract, breach of contract implied in fact, and
breach of fiduciary duty.

(Am. Compl., ECF No. 9.)

filed a Motion to Dismiss.

Starnes has

(Def. Michael S. Starnes‟ Mot. to

Dismiss Am. Compl., ECF No. 13.)

For the following reasons,

Starnes‟ Motion is GRANTED.
I.

Background

In 2003, Starnes asked McCullar, a real estate developer
and friend,

to

join him in

(Am. Compl. ¶ 6.)

various real estate investments.

Together, they formed a variety of entities

to invest in real estate, including Church Road Associates, LLC,
Desoto Realty Investment Company, LLC, Grove Partners, LLC, MSMM
1

Realty Investment Company, MSMM Realty Investment Company, LLC,
MSMM-II Realty Investment Company and Town Square Building B,
LLC, MSMM-Realty Investment Company, and others (collectively,
the “entities”).
Starnes
Memphis,
McCullar

acquired

(Id.)
a

large

Tennessee,
contends

Through the entities, McCullar and
number

and

that

in

as

of

holdings

northern

partners

provided

that

the

funding

parties‟
and

business

credit,

in

the

experience in the real estate market.

around
(Id.)

entities,

(Id. ¶ 7.)

prospered

while

and

Mississippi.

Starnes owed each other a fiduciary duty.
asserts

in

he

McCullar

because

McCullar
(Id. ¶ 9.)

and

Starnes

provided

his

The parties

obtained loans relying on the entities‟ real estate holdings and
Starnes‟ personal wealth.

(Id. ¶ 9.)

As long as the real estate market remained strong, the
parties had easy access to credit and were able to obtain loans.
(Id. ¶ 10.)

McCullar contends that it was understood that only

Starnes

the

had

resources

to

service

the

loans

if

the

real

estate market went into a downturn that made the value of the
real estate collateral insufficient to cover the loans.

(Id.)

McCullar alleges that there was an implied contract between the
parties whereby Starnes was liable for any loans that came due
in return for McCullar‟s real estate expertise.

(Id.)

Starnes suffered a stroke in January, 2006.

(Id. ¶ 11.)

Since then, McCullar‟s contact with Starnes has been limited,
2

and

all

of

conducted
behalf.

Starnes‟

by

actions

surrogates

(Id.)

in

and

McCullar

financial

matters

representatives

asserts

that

have

acting

Starnes

is

been

on

his

unable

to

communicate or to respond rationally to questions, despite the
representations
(Id.)

of

Starnes‟

representatives

to

the

contrary.

When the parties last met, on November 17, 2009, at

Starnes‟ home, he was unable to respond to questions McCullar
posed.

(Id. ¶ 12.)

When the housing market declined in 2008, several loans on
which

McCullar

(Id. ¶ 14.)
the

loan

was

jointly

severally

liable

became

due.

McCullar was incapable of satisfying his portion of

obligations.

acknowledged

and

incapacity,

(Id.)

As

Starnes

(or

a

result

of

individuals

McCullar‟s
acting

on

behalf of Starnes) and McCullar signed a written agreement (the
“Agreement”) on or about August 15, 2008. (Id. ¶ 15; Agreement,
ECF No. 9-1.)

1

McCullar contends that Starnes played no direct

1

Ordinarily, when ruling on a motion to dismiss, the Court relies on the
plaintiff‟s complaint.
However, the Sixth Circuit has held that complaints
alleging breach of contract incorporate the contract documents into the
complaint. See Greenberg v. Life Ins. Co., 177 F.3d 507, 514 (6th Cir. 1999)
(incorporating a insurance policy submitted by the defendant into the
pleadings); Weiner v. Klais & Co., 108 F.3d 86, 89 (6th Cir. 1997)
(incorporating pension plan documents that defendant attached to motion into
the pleadings because they were central to plaintiff‟s claim for benefits).
District Courts have followed Greenberg and considered employment contracts,
home loan modification offers, and arbitration clauses to be central to a
plaintiff‟s complaint for breach of contract.
See Orton v. Johnny‟s Lunch
Franchise, LLC, No. 10-11013, 2010 U.S. Dist. LEXIS 72672, at *11 n.7 (E.D.
Mich. July 20, 2010) (reversed on other grounds in Orton v. Johnny‟s Lunch
Franchise, LLC, No. 10-2044, 2012 U.S. App. LEXIS 3344 (6th Cir. Feb. 21,
2012)); Bazzy v. IndyMac Mortg. Servs., 2010 U.S. Dist. LEXIS 15703, at *7
(E.D. Mich. Feb. 23, 2010); High v. Capital Senior Living Props. 2–
(continued . . .)

3

role in negotiating the Agreement.

(Am. Compl. ¶ 16.)

Two

parties, Robert Orians and Raymond Blankenship (“Blankenship”),
signed the Agreement as Starnes‟ Attorneys in Fact.

(Agreement

8-9.)
The

Agreement

acknowledges

that

there

is

approximately

$26.5 million in debt among the entities and that they are not
capable of making the required payments.

(Id. 1.)

In its

preamble, the Agreement states that “McCullar has indicated that
he is not capable, at this time, of funding his proportionate
share” of the debt and that “Starnes has agreed to finance the
costs of funding [their] financial obligations . . . for the
time being.”

(Id.)

The terms “at this time” and “for the time

being” are not defined.

The Agreement provides that, if a party

“incurs any expense in connection with the enforcement of . . .
the

Agreement,

the

breaching

party

shall

reimburse

the

non-

breaching party for any and all expenses” incurred in enforcing
the contract.

(Id. ¶ 8(e).)

The Agreement provides that each entity is to be managed by
two Co-Managers, one appointed by McCullar and one by Starnes.
(Id. ¶ 1(a)(i).)
of

each

quarter,

It requires the Co-Managers, at the beginning
to

provide

McCullar

and

Starnes

with

a

(. . . continued)
Heatherwood, Inc., 594 F. Supp.2d 789, 796-97 (E.D. Mich. 2008); Campbell v.
Prometheus Labs, Inc., No. 3:07-0058, 2008 U.S. Dist. LEXIS 6359, at *2 (M.D.
Tenn. Jan. 28, 2008).
For purposes of deciding the Motion to Dismiss, the
Court will consider the Agreement.

4

quarterly

budget

reflecting

the

entities‟

including all debt service payments.

revenue

and

debt,

(Id. ¶ 1(a)(iv).)

The

Agreement recognizes that the entities‟ debt obligations include
a $2 million line of credit provided by BankPlus.

(Id.)

It

provides that all amounts previously loaned by Starnes to the
entities are advances on a line of credit between Starnes and
the entities, and that any advances McCullar has received from
the entities in excess of his pro rata interest as one of the
entities‟ owners is a loan to McCullar from the entities.

(Id.

¶¶ 3-4.)
The Agreement requires McCullar to take several actions to
assure

the

entities‟

financial

stability.

It

provides

that

“McCullar has received advances from Entities in excess of his
pro rata interest,” and that the advances “have been treated as
loans to McCullar from the entities.”

(Id. ¶ 4.)

The Agreement

requires McCullar to execute a promissory note to repay the
entities for these advances, payable on the later of August 31,
2010, or the date on which the entities no longer hold any real
estate assets.

(Id. ¶ 4.)

Under

Agreement,

the

McCullar

is

obligated

to

guarantee

“one-half (50%) of all amounts due under the [Line of Credit
Note], the Prior Loans [Line of Credit Note], and the River Tide
Note.”
2008.

(Id. ¶ 5.)

These three notes were signed on August 31,

(Line of Credit Note, Prior Loans Line of Credit Note,
5

and

River

Tide

Note,

No.

9-1.)

The

Line

of

Credit

Note

evidenced a $2 million loan by Starnes to the entities to “meet
any scheduled debt service payments on any loans to the Entities
or the operating costs of the Entities.”
Agreement ¶ 2.)

(Line of Credit Note;

The Prior Loans Line of Credit Note obligated

the entities to pay Starnes for cash advances they had received
from him.

(Prior Loans Line of Credit Note; Agreement ¶ 3.)

The River Tide Note evidenced a promise by River Tide Partners,
LLC

to

pay

Starnes

$510,750.

(River

Tide

Note.)

McCullar

expressly agreed to guarantee repayment of one half of Starnes‟
line of credit to the entities, one half of Starnes‟ previous
loans to the entities, and one half of Starnes‟ loan to River
Tide.

(Agreement ¶ 4.)

The Agreement

does

not include a termination date.

It

provides that it “constitutes the entire agreement between the
parties pertaining to the subject matter contained in it and
supersedes all prior and contemporaneous oral agreements.”

(Id.

¶ 8(b).)
When

the

loan

from

BankPlus

became

due,

Blankenship

arranged with Independent Bank for loans to McCullar and Starnes
in the amount of $3,000,500,
dated

November

$1,000,500.

26,

2008,

evidenced by two promissory notes,
one

(Am. Compl. ¶ 22.)

6

for

$2,000,000

and

one

for

McCullar alleges that “[t]he promissory notes were a direct
substitution for the BankPlus lines of credit,” and that they
were “collateralized by Starnes with approximately $6 million in
personal assets.”

(Id. ¶ 22.)

The promissory notes provide

that McCullar and Starnes are jointly and severally liable, and
each note has a maturity date of November 25, 2009.

(Id. ¶ 23.)

McCullar

notes,

admits

that

he

signed

the

promissory

but

contends that it was understood by both McCullar and Starnes
that the maturity date would be extended if needed, given that
the collateral available was twice the value of the notes.

(Id.

¶¶ 22-23.)
McCullar alleges that the promissory note for $2,000,000 to
Independent Bank is referred to in the Agreement as the “two
million dollar line of credit provided by Bank Plus.”
Compl. ¶ 24; Agreement ¶ 1(a)(iv).)

(Am.

The Agreement provides that

the entities‟ debt obligations include “all loans by financial
institutions made directly to an Entity, all loans by Starnes to
an Entity or to the Entities as set forth herein and that Two
Million Dollar Line of Credit provided by BankPlus.”
1(a)(iv).)

(Id. ¶

McCullar concedes that “[t]he Agreement does not

state specifically how the $2,000,000 Debt Obligation . . . was
to be serviced,” but alleges that servicing was to be determined
by the “Co-Managers of the Entities, of which [he] was one.”
(Id. ¶ 24.)

Paragraph 1(a)(iv) provides that BankPlus‟ two
7

million

dollar

obligations.
$1,000,500

line

of

credit

is

one

(Agreement ¶ 1(a)(iv).)

promissory

note

was

of

the

entities‟

debt

McCullar alleges that the

used

to

finance

MM

Cutting

Horses, LTD. (Id. ¶ 25.)
McCullar alleges that it was understood between McCullar
and Starnes that, contrary to the language of the promissory
notes, McCullar would be not be expected to pay the promissory
notes on November 25, 2009, or in the foreseeable future.
Compl. ¶ 27.)

(Am.

The parties assumed that Independent Bank would

extend the maturity date of the promissory notes as a matter of
course

and

that

Starnes

would

obligation if it did not.

personally

assume

the

entire

(Id.)

Starnes created a new entity, Starnes Family Office, LLC
(“SFO”), on April 6, 2009.
Starnes

is

an

officer

(Id. ¶ 28.)

of

SFO,

McCullar alleges that

which

is

managed

by

SFO

Management, Inc., where Starnes is the CEO and on the Board of
Directors.

(Id.)

McCullar contends that Starnes plays a major

role in the management and direction of SFO.

(Id.)

On August

21, 2009, SFO purchased the promissory notes from Independent
Bank.

(Id. ¶ 29.)

McCullar contends that SFO then sought

repayment from McCullar for one half of the notes‟ value in
violation of the Agreement.

(Id.)

SFO sued McCullar for repayment of the promissory notes on
March

18,

2010.

(Id.

¶

30);

Starnes
8

Family

Office,

LLC

v.

Meredith McCullar v. Michael S. Starnes, No. 10-2186, 2011 U.S.
Dist.

LEXIS

109581,

at

*20-28

(W.D.

Tenn.

Sept.

1,

2011).

McCullar contends that the use of SFO as a proxy constitutes a
breach

of

the

Agreement,

the

parties‟

Starnes‟ fiduciary duty to McCullar.

implied

contract,

and

(Am. Compl. ¶ 30.)

McCullar brings suit for fraud, breach of contract, breach
of contract implied in fact, and breach of fiduciary duty.
Compl. ¶¶ 34-41.)

He seeks indemnification “for any and all

sums that may be adjudged against McCullar.”
II.

(Am.

(Id. ¶¶ 42-43.)

Jurisdiction and Choice of Law

McCullar is a citizen of Texas.
Tennessee.

The

amount

in

Starnes is a citizen of

controversy

exceeds

$75,000.

Jurisdiction is proper pursuant to 28 U.S.C. § 1332.
The substantive law governing a diversity case is state
rather than federal law.
(1938).

Erie R.R. Co. v. Tompkins, 304 U.S. 64

A federal court must apply the “choice of law” rules of

the state in which it sits.

Klaxon Co. v. Stentor Elec. Mfg.

Co., 313 U.S. 487, 496 (1941); accord Menuskin v. Williams, 145
F.3d 755, 761 (6th Cir. 1998) (citations omitted); Girgis v.
Countrywide Home Loans, Inc., 733 F. Supp. 2d 835, 850-51 (N.D.
Ohio 2010) (citations omitted).
For contract claims, Tennessee follows the rule of lex loci
contractus, which provides that a contract is presumed to be
governed

by

the

law

of

the

jurisdiction
9

in

which

it

was

executed,

absent

a

contrary

intent.

Vantage

Tech.,

LLC

v.

Cross, 17 S.W.3d 637, 650 (Tenn. Ct. App. 1999) (citing Ohio
Cas.

Ins.

(Tenn.

Co.

v.

1973));

Hospitality
(observing

see

Corp.,
that

contractus.”).

Travelers

420

Co.,

493

Southeast

also

Indem.

Tex.

Inns,

F.3d

“Tennessee

666,

adheres

672
to

n.8
the

S.W.2d
Inc.

(6th
rule

465,

467

v.

Prime

Cir.

2006)

of

lex

loci

“If the parties manifest an intent to instead

apply the laws of another jurisdiction, then that intent will be
honored provided certain requirements are met”: (1) the choice
of law provision must be executed in good faith, (2) the chosen
jurisdiction must bear a material connection to the transaction,
(3) the basis for the choice of law must be reasonable, and (4)
the choice of “another jurisdiction‟s law must not be „contrary
to a fundamental policy of a state having a materially greater
interest and whose law would otherwise govern.‟”

Id. (citations

omitted).
The contract was entered into in the state of Tennessee and
includes a choice of law provision that it “shall be construed
in accordance with and governed by the laws of the State of
Tennessee.”

(Agreement

5.)

Choice

of

law

provisions

honored so long as they were executed in good faith.

are

Messer

Griesheim Indus. v. Cryotech of Kingsport, Inc., 131 S.W.3d 457,
475 (Ten. Ct. App. 2003).

One of the parties is a Tennessee

citizen, and much of their interaction took place in Tennessee.
10

Tennessee substantive law applies to McCullar‟s contract claims.
See Vantage Tech., 17 S.W.3d at 650.
contract,

it

was

executed

in

If there was an implied

Tennessee,

where

the

parties

conducted most of their business, where Starnes resides, and
where

the

Compl.)

parties
Tennessee

engaged
law

in

financial

applies

to

the

transactions.
claim

for

(Am.

breach

of

implied contract.
McCullar contends that Starnes committed fraud by seeking
to avoid the contract through the use of his proxy.

For tort

claims, Tennessee follows the “most significant relationship”
rule, which provides that “the law of the state where the injury
occurred will be applied unless some other state has a more
significant

relationship

to

the

litigation.”

McKinley, 830 S.W.2d 53, 59 (Tenn. 1992).

Hataway

v.

To determine which

state has the “most significant relationship,” Tennessee courts
consider seven factors:
(a) the
systems,

needs

of

the

interstate

and

international

(b) the relevant policies of the forum,
(c) the relevant policies of other interested states
and the relative interests of those states in the
determination of the particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field
of law,

11

(f) certainty,
result, and

predictability,

and

uniformity

of

(g) ease in the determination and application of the
law to be applied.
Timoshchuk

v.

Long

of

Chattanooga

Mercedes-Benz,

No.

E2008-

01562-COA-R3-CV, 2009 WL 3230961, at *10 (Tenn. Ct. App. Oct. 8,
2009) (quoting

Restatement (Second) of Conflict of Laws

§ 6

(1971)).
When applying those factors, courts must consider: “(a) the
place where the injury occurred, (b) the place where the conduct
causing

the

injury

occurred,

(c)

the

domicile,

residence,

nationality, place of incorporation and place of business of the
parties, [and] (d) the place where the relationship, if any,
between

the

parties

is

centered.”

Id.

at

*10-11

(quoting

Restatement (Second) of Conflict of Laws § 145 (1971)); accord
Hataway,

830

S.W.2d

at

59.

“[T]hese

contacts

are

to

be

evaluated according to their relative importance with respect to
the particular issue.”

Timoshchuk, 2009 WL 3230961, at *11;

accord Hataway, 830 S.W.2d at 59.
The parties appear to agree that Tennessee law applies to
McCullar‟s claim for fraud.
harm

occurred

properties

at

Mississippi.
in

accordance

in

(Mem. to Dismiss 6.)

Tennessee,

issue

were

where

located

Starnes
in

either

The alleged

resides.
Tennessee

The
or

The Agreement provides that it is to be construed
with

Tennessee

law.
12

The

parties‟

business

relationship was centered in Tennessee.

Therefore, the Court

will apply Tennessee law to McCullar‟s claim for fraud.
III. Standard of Review
In addressing a motion to dismiss for failure to state a
claim under Federal Rule of Civil Procedure 12(b)(6), the court
“must construe the complaint in the light most favorable to
plaintiffs, accept all well-pled factual allegations as true and
determine whether plaintiffs undoubtedly can prove no set of
facts consistent with their allegations that would entitle them
to

relief.”

Bredesen,

League

2007

WL

of

United

2416474,

at

Latin
*2

(6th

American
Cir.

Citizens

2007)

v.

(citing

Kottmyer v. Maas, 436 F.3d 684, 688 (6th Cir. 2006)).
This standard requires more than bare assertions of legal
conclusions.

Bovee v. Coopers & Lybrand C.P.A., 272 F.3d 356,

361 (6th Cir. 2001).

Plaintiff must provide the grounds for his

entitlement to relief and this “requires more than labels and
conclusions, and a formulaic recitation of the elements of a
cause of action.”

Bell Atlantic Corp. v. Twombly, 127 S.Ct.

1955, 1964-65 (2007).

“The factual allegations, assumed to be

true, must do more than create speculation or suspicion of a
legally cognizable cause of action; they must show entitlement
to relief.”

Bredesen, 2007 WL 2416474, at *2 (citing Twombly,

127 S.Ct. at 1965).

13

To state a valid claim, “a complaint must contain either
direct or inferential allegations respecting all the material
elements to sustain recovery under some viable legal theory.”
Id. (citing Twombly, 127 S. Ct. at 1969).

“To survive a motion

to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to „state a claim to relief that is plausible
on its face.‟”

Ashcroft v. Iqbal, 129 S. Ct. 1397, 1949 (2009)

(quoting Twombly, 550 U.S. at 570).
“When the terms of a written interest are unambiguous, the
interpretation of a contract is a matter of law for the Court,
and it is the Court‟s duty to enforce the contract according to
its plain terms.”

Paterson v. Anderson, No. 3:10-cv-0464, 2012

U.S. Dist. LEXIS 4835, at *20 (M.D. Ten. Jan. 17, 2012) (citing
Whitehaven Community Baptist Church v. Holloway, 973 S.W.2d 592,
596 (Tenn. 1998)).

“If the contract language is unambiguous,

then the parties‟ intent is determined from the four corners of
the contract.”

Ray Bell Constr. Co. v. State, No. E2009-01803-

SC-R11-CV, 2011 Tenn. LEXIS 1143, at *6 (Tenn. Dec. 12, 2011).
IV.

Analysis

Starnes argues that McCullar‟s claims for indemnification,
for fraud, and for breach of express or implied contract should
be dismissed because: 1) his indemnity claim is duplicative of
his indemnity claim in Starnes Family Office; 2) he has failed
to

plead

fraud

with

particularity;
14

and

3)

Starnes

had

no

contractual
Agreement

obligation,

to

guaranteed.

protect

expressed

McCullar

or

from

implied,

under

the

debts

assumed

he

the
or

(Def. Michael S. Starnes‟ Mem. in Supp. of Mot. to

Dismiss, ECF No. 6-1 (“Mem. to Dismiss”).)2
A. Whether the Indemnity Claim is Duplicative
McCullar seeks “indemnification from Starnes for any and
all sums that may be adjudged against [him], as well as any
attorneys‟

fees

independently

of

and
any

expenses
damages

breach of the Agreement.

incurred,
he

in

receives

(Am. Compl. ¶ 43.)

the

SFO

lawsuit”

based

on

Starnes‟

McCullar relies on

Paragraph 1(a)(i) of the Agreement, which provides that the CoManagers “shall be indemnified and exculpated to the maximum
extent provided by statute.”

In Starnes Family Office, McCullar

“demand[ed] indemnification from Starnes for any and all sums
that may be adjudged against McCullar” in favor of SFO based on
the parties‟ contract.
ECF

No.

19,

indemnification

(Starnes Family Office, Am. Compl. ¶ 17,

10-2186.)
claim

against

The

Court

Starnes

on

denied
September

McCullar‟s
1,

2011.

Starnes Family Office, 2011 U.S. Dist. LEXIS 109581, at *20-28.
The Court concluded that “McCullar‟s claim for indemnification

2

Starnes has filed a second motion to dismiss in response to McCullar‟s
amended complaint. (Def. Michael S. Starnes‟ Mot. to Dismiss Am. Compl., ECF
No. 13.) In it he states he relies on his original Motion to Dismiss and the
arguments in his reply to McCullar‟s Response to his original Motion to
Dismiss. (Id. 1.) Starnes adopts no new arguments in his second Motion to
Dismiss.
The Court relies on the arguments Starnes advanced in his first
Motion to Dismiss and in his Reply.

15

is not plausible because he has not alleged facts showing that
Starnes agreed to assume McCullar‟s obligation.”
McCullar

contends

that

his

Id. at *27.

indemnification

claim

in

this

matter is different, because it “now includes reference to the
express

indemnification

Paragraph 1(a)(i).”

provision

(Resp. 3.)

found

in

the

Agreement

at

The same Agreement was at issue

in Starnes Family Office, and the Court cited that paragraph in
concluding

that

“the

plain

language

of

the

indemnification

provision applies only to Co-Managers‟ liability for management
of the entities.”

Starnes Family Office, 2011 U.S. Dist. LEXIS

109581,

McCullar

at

*24.

already considered.

relies

on

language

the

Court

has

He seeks indemnification under the same

provision he did in Starnes Family Office.

“It is within a

district court‟s power to dismiss a suit that is duplicative of
another federal court suit.”

Lawson v. United States, No. 08-

cv-11, 2008 U.S. Dist. LEXIS 7287, at *4 (E.D. Tenn. Jan. 31,
2008) (citing Colorado River Water Conservation Dist. v. United
States, 424 U.S. 800, 817 (1976)).

“„[P]laintiffs have no

right to maintain two actions on the same subject in the same
court, against the same defendant at the same time.‟”

Hahn v.

Tarnow, No. 06-12814, 2006 U.S. Dist. LEXIS 52383, at *23 (E.D.
Mich. July 31, 2006) (quoting Curtis v. Citibank, N.A., 226 F.3d
133, 139 (2d Cir. 2000)).
subject

to

dismissal,

if

“A suit is duplicative, and thus
the

claims,
16

parties,

and

available

relief do not significantly differ between the two actions.”
Harrington v. Stegall, No. 02-0573, 2002 U.S. Dist. LEXIS 3967,
at *3 (E.D. Mich. Feb. 28, 2002).

McCullar‟s indemnification

claim, based on the same language in the same contract against
the same defendant as the claim in Starnes Family Office, is
duplicative.

It is DISMISSED.

B. Whether the Claim of Fraud Must Be Dismissed for
Lack of Particularity
Starnes argues that McCullar has not alleged fraud with
sufficient

particularity

because

“[n]owhere

in

the

Complaint

does McCullar quote Starnes, allege that Starnes said specific
words, or refer to any communication occurring at any specific
time or location.”

(Mem. to Dismiss 4.)

Starnes contends that

McCullar merely alleges that it was “always understood” that
McCullar would never be called on to pay any of the promissory
notes he executed or guaranteed.

(Id. 5.)

Federal Rule of Civil Procedure 9(b) requires that fraud be
pled with “particularity,” although “malice, intent, knowledge,
and

other

conditions

generally.”

of

a

person‟s

mind

may

be

alleged

A plaintiff‟s complaint need only contain “a short

and plain statement of the claim showing that the pleader is
entitled to relief.”
particularity

Fed. R. Civ. P. 8(a)(2).

requirement

does

not

[eliminate]

“„Rule 9(b)‟s
the

general

principles set out in Rule 8; rather, the two rules must be read

17

in harmony.‟”
873,

876

(6th

Sanderson v. HCA-The Healthcare Co., 447 F.3d
Cir.

2006)

(quoting

Michaels

Bld.

Co.

v.

Ameritrust Co., N.A., 848 F.2d 674, 679 (6th Cir. 1988)).

A

plaintiff must “„allege the time, place, and content of the
alleged

misrepresentations

on

which

he

or

she

relied;

the

fraudulent scheme; the fraudulent intent of the defendants; and
the injury resulting from the fraud.‟”

Id. (quoting Yuhasz v.

Brush Wellman, Inc., 341 F.3d 559, 563 (6th Cir. 2003)).

Under

Tennessee law, a plaintiff must prove five elements to sustain a
claim of fraud in the inducement of a contract:
(1) [the existence of] a false statement concerning a
fact material to the transaction; (2) knowledge of the
statement‟s falsity or utter disregard for its truth;
(3) intent to induce reliance on the statement; (4)
reliance under circumstances manifesting a reasonable
right to rely on the statement; (5) an injury
resulting from the reliance.
Blackburn & McCune, PLLC v. Pre-Paid Legal Servs., Inc., No.
M2009-01584-COA-R3-CV, 2010 WL 2670816, at *11 (Tenn. Ct. App.
June 30, 2010) (quoting Lamb v. MegaFlight, Inc., 26 S.W.3d 627,
630 (Tenn. Ct. App. 2000)).
McCullar has identified no false statements.

He argues

that Starnes is guilty of fraud because he breached the “implied
contract, and the terms of the written Agreement.”
¶ 35.)

(Am. Compl.

Any implied contract created by the “course of dealing

and business conduct with McCullar over three years” before the
Agreement

was

signed

was

superseded
18

by

the

parties‟

written

Agreement.

(Id.

¶

39.)

The

only

fraudulent

act

McCullar

identifies is SFO‟s suit against McCullar for payment of his
obligations on the parties‟ promissory notes, which he signed
after the Agreement.

(Id.)

McCullar also argues that SFO‟s purchase of the promissory
notes was a fraudulent act designed to avoid the understanding
between Starnes and McCullar.
rejected

that

argument.

(Id.)

McCullar

The Court has already

argued

in

Starnes

Family

Office, LLC v. McCullar that SFO was being used for an improper
purpose and could not sue on the notes.
1049 (W.D. Tenn. 2011).

765 F. Supp. 2d 1036,

The Court reasoned that, “[o]utside the

parent-subsidiary context, there is no authority [in Tennessee]
for piercing the corporate veil in reverse.”
cannot be ignored.”
entitled

under

Id.

Id.

“SFO‟s form

SFO is a separate legal entity and is

Tennessee

law

to

sue

on

debts

it

is

McCullar has not pled grounds for fraud with particularity.

owed.
His

claim must be DISMISSED.
C. Whether the Claim for Breach of Express or Implied
Contract Should Be Dismissed
Starnes

contends

express or implied.
delay

repayment

that

there

McCullar

was

no

breach

of

contract,

argues that Starnes agreed to

indefinitely.

McCullar

relies

on

the

Agreement‟s preamble, which states that “Starnes has agreed to
finance the costs of funding the financial obligations of the

19

Entities

.

.

.

for

the

time

being,”

because

“McCullar

has

indicated that he is not capable, at this time, of funding his
proportionate share of any capital contribution.”
1.)

(Agreement

McCullar argues that this language shows that the parties

agreed

that

Starnes

obligations.”

would

“finance

the

costs

of

[their]

(Am. Compl. ¶ 18.)

McCullar‟s reliance on the preamble is not well taken.
is

a

basic

contract

principle

generally

of

serve

contract
to

law

introduce

that
the

It

"preambles

contract‟s

in

a

subject

matter rather than set forth the specific rights and obligations
of the parties.”

Cain Restaurant Co. v. Carrols Corp., 273 F.

App‟x 430, 434 (6th Cir. 2008); see also Ohio Farmers Ins. Co.
v.

Special

LEXIS

Coatings,

103685,

Tennessee

at

law

L.L.C.,

No.

(M.D.

Tenn.

*55

and

Cain

3:07-1224,
Dec.

Restaurants

28,

2008

U.S.

2008)

and

Dist.

(applying

holding

that,

“[c]onstruing the [] agreement as a whole, the Court concludes
as a matter of law that the preamble . . . did not state any
particular condition of the contract.”); Grynberg v. FERC, 71
F.3d

413,

principle

416
of

(D.C.
contract

Cir.
law

1995)

(recognizing,

“that

a

Whereas

as

a

general

clause,

while

sometimes useful as an aid to interpretation, cannot create any
right

beyond

document.”)

that

arising

(internal

from

quotation

the
marks

operative
omitted);

terms

of

accord

the
S.M.

Williamson & Co. v. Ragsdale, 95 S.W.2d 922, 924-25 (Tenn. 1936)
20

(concluding that a preamble in a contract is “merely descriptive
of

[a]

transaction”);

Interpretation

(2002)

Murray

on
the

(“where

Contracts,
preamble

§

88:

and

Rules

remainder

of
are

both clear but inconsistent with each other, the remainder of
the writing will control.”).
McCullar points to no provision in the Agreement that was
breached.

The Agreement does not provide that he will not be

liable for any subsequent debt the parties might undertake.
two

promissory

November
signed.

26,

notes,
2008,

(Am.

totaling

several

Compl.

¶

$3,000,500,

months

23.)

after

McCullar

were
the

The

executed

Agreement

concedes

on
was

that

the

promissory notes, as written, make him jointly and severally
liable.

(Id. ¶ 14.)

They are separate, unambiguous contracts,

which must be interpreted based on the language in them.

Kiser

v. Wolfe, 353 S.W.3d 741, 748 (Tenn. 2011).
To the extent the parties‟ course of dealing can be used to
interpret

the

Agreement,

their

course

does

not

show

that

McCullar would never have agreed to assume debt to ensure the
entities‟

viability.

Efird

v.

Clinic

of

Plastic

7

Reconstructive Surgery, P.A., 147 S.W.3d 208, 223 (Tenn. Ct.
App. 2003).
responsible

The Agreement provides that the entities will be
for

the

$2

(Agreement ¶ 1(a)(iv).)

million

BankPlus

line

of

credit.

It also provides that McCullar will

guarantee various loans by Starnes to the entities.
21

(Id. ¶ 4.)

When the BankPlus line of credit expired, McCullar and Starnes
voluntarily

agreed

to

pay

it

with

the

proceeds

of

loans

evidenced by the November 26, 2008 promissory notes, on which
they were jointly and severally liable.

(Am. Compl. ¶¶ 14, 23.)

This was nothing new.

The Agreement already required McCullar

to

loans

guarantee

several

(Agreement ¶ 4.)

Starnes

made

to

the

entities.

The November 26, 2008 promissory notes do not

represent an unusual practice for the parties.

There was no

breach of contract when SFO sought to require McCullar to pay
his

contractually

“more

than

unlawfully.”

a

agreed

sheer

liability.

possibility

that

McCullar
a

has

not

shown

defendant

has

acted

Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).

McCullar‟s claim for breach of express contract is DISMISSED.
Starnes also contends that McCullar‟s claim for breach of
contract implied in fact should be dismissed because any implied
agreement was superseded by the express agreement.
Dismiss 9.)

(Mem. to

McCullar alleges that he and Starnes had an implied

contract in which Starnes assumed McCullar‟s debt in return for
McCullar‟s expertise.

(Am. Compl. ¶¶ 38-39.)

McCullar bases

his argument on the parties‟ course of conduct for three years
before

the

signing

of

the

Agreement.

(Am.

Compl.

¶

21.)

Relying on the parties‟ “mutual understanding and long standing
course of dealing and business conduct,” he alleges that Starnes
knew McCullar would not be liable.
22

(Id. ¶ 39.)

McCullar‟s attempt to establish an implied in fact contract
is unavailing because “„an implied contract or quasi-contract
will

not

exists.‟”

be

imposed

where

an

express

contract

or

agreement

Scipio v. Sony Music Entertianment, Inc., 173 F.

App‟x 385, 397 n. 12 (6th Cir. 2006) (quoting Tenn. Juris.,
Contracts § 98)); accord Daily v. Gusto Records, Inc., 14 F.
App‟x 579, 587 (6th Cir. 2001) (relying on Tennessee law to find
that “a contract cannot be implied at law when a valid contract
exists on the same subject matter.”).
Any implied contract was superseded by the Agreement and
the

November

26,

2008

promissory

notes.

The

Agreement

“constitutes the entire agreement between the parties pertaining
to the subject matter contained in it and supersedes all prior
and

contemporaneous

oral

agreements,

understandings of the parties.”
provides

that

“McCullar

shall

representations,

(Agreement 5.)
guarantee

and

It explicitly

one-half

(50%)”

of

Starnes‟ line of credit and previous advances to the entities
and that McCullar will pay back all advances he received from
the entities by “the later of August 31, 2010 or the date on
which the Entities no longer hold any real estate assets.”
3.)

(Id.

If the parties had a prior understanding that McCullar

would not be liable, it was superseded by his express agreement
to guarantee Starnes‟ loans to the entities and to repay the
advances.
23

The promissory notes also supersede any implied contract.
When McCullar signed the November 26, 2008 promissory notes, he
affirmed that he was jointly and severally liable.
¶ 14.)

(Am. Compl.

The November 26, 2008 promissory notes were an express,

written transaction.

See Ann Taylor Realtors, Inc. v. Sporup,

No. W2010-00188-COA-R3-CV, 2010 Tenn. App. LEXIS 755, at *14
(Tenn. Ct. App. Dec. 3, 2010) (holding that a promissory note is
a

“formal,

written

agreement.”).

“[W]hen

parties

have

an

express contract dealing with a transaction, there can be no
recovery [in] implied contract.”

Frederic R. Harris, Inc. v.

Metro Gov‟t of Nashville & Davison Cnty., No. M2000-02421-COAR3-CV, 2001 Tenn. App. LEXIS 774, at *8 (Tenn. Ct. App. Oct. 22,
2001).

Because

he

has

not

pled

a

valid

implied

contract,

McCullar‟s claim for breach of implied contract is DISMISSED.3
V.

Conclusion

For the foregoing reasons, the Court GRANTS Starnes‟ Motion

3

Starnes also contends that any implied contract would be barred by the
Statute of Frauds.
(Mem. to Dismiss 11-12.)
Because the Court concludes
that there was no implied contract, it need not address whether any implied
contract would be barred by the Statute of Frauds. The Court has noted that
“[u]nder Tennessee‟s statute of frauds, „any special promise to answer for
the debt . .. of another person‟ must be „in writing, and signed by the party
to be charged therewith.‟”
Starnes Family Office, 2011 U.S. Dist. LEXIS
109581, at *25 (citing Tenn. Code Ann. § 29-2-101(a)(2-5)).
Although in
Tennessee co-guarantors may apportion liability orally despite the statute of
frauds, Squibb v. Smith, 948 S.W.2d 752, 756 (Tenn. Ct. App. 1997), “McCullar
and Starnes are co-makers of the Notes who undertook a joint and severable
direct obligation, not co-guarantors of an obligation who agreed to apportion
their contingent liability in a particular way.” Starnes Family Office, 2011
U.S. Dist. LEXIS 109581, at *27.

24

to Dismiss.
breach

of

DISMISSED.

McCullar‟s claims for fraud, breach of contract,
contract

implied

in

fact,

and

indemnification

are

His claim for breach of fiduciary duty remains.

So ordered this 30th day of March, 2012.

/s Samuel H. Mays, Jr.
SAMUEL H. MAYS, JR.
UNITED STATES DISTRICT JUDGE

25