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IN THE COURT OF APPEALS OF TENNESSEE AT JACKSON
July 19, 2007 Session MILAN BOX CORPORATION v. DONNA HARDY, ET AL.
Direct Appeal from the Circuit Court for Gibson County No. 8076 Clayburn Peeples, Judge

No. W2006-02478-COA-R3-CV - Filed September 26, 2007

Plaintiff Milan Box filed this lawsuit against former employee Donna Hardy and her husband, Billy Hardy, alleging fraud, embezzlement, conversion, and unjust enrichment. During discovery the Hardys submitted responses to written interrogatories, but subsequently asserted their fifth amendment rights against self-incrimination during deposition and moved the court to stay litigation pending criminal proceedings. The Hardys subsequently withdrew the motion to stay; nevertheless, the trial court denied the motion to stay when the Hardys failed to execute deeds of trust to real property in favor of Milan Box as security. The trial court granted Milan Box's motion for summary judgment, and the Hardys appeal. We affirm summary judgment against Donna Hardy but modify the award of damages, reverse the award of summary judgment against Mr. Hardy, and remand for further proceedings. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed in part as Modified; Reversed in part; and Remanded DAVID R. FARMER , J., delivered the opinion of the court, in which HOLLY M. KIRBY , J. and DAVID G. HAYES, SP . J., joined. C. Timothy Crocker, Michael A. Carter and Daniel E. King, Jackson, Tennessee, for the appellants, Donna Hardy and Billy Hardy. M. Taylor Harris, Jr. And W. Kerby Bowling, Milan, Tennessee, for the appellee, Milan Box Corporation. OPINION This appeal arises from a complaint filed in the Circuit Court for Gibson County in April 2005 by Plaintiff/Appellee Milan Box Corporation ("Milan Box") alleging that its former employee, Defendant Donna Hardy (Ms. Hardy), embezzled funds in excess of $600,000, and that she did so with the knowledge and consent of her husband, Defendant Billy Hardy (Billy Hardy; collectively, "the Hardys"). During discovery, the Hardys provided sworn written answers to interrogatories, but

subsequently moved the court to stay proceedings pending a criminal investigation and asserted their Fifth Amendment rights against self-incrimination when deposed by Milan Box. The trial court ordered the Hardys to execute deeds of trust in favor of Milan Box as security pending the stay, which the Hardys failed to do. The trial court accordingly denied the stay notwithstanding the Hardys' motion to withdraw their motion to stay. Milan Box moved for summary judgment, asserting there were no genuine issues of material fact where it offered evidence of the Hardys' culpability and where the Hardys "refusal to answer [was] additional evidence of their liability as testified by Plaintiff's witness." The trial court granted Milan Box's motion for summary judgment, refusing to consider the Hardys' affidavits attached to their response to summary judgment. The Hardys filed a timely notice of appeal to this Court. We affirm against Ms. Hardy as modified, reverse summary judgment against Mr. Hardy, and remand. Issues Presented On appeal, the Hardys present the issues as follows: (1) The trial court erred in refusing to consider Donna Hardy's Response to Interrogatories when making its decision on Plaintiff's Motion for Summary Judgment. The trial court erred in refusing to consider the Affidavits of Donna Hardy and Billy Hardy when making its decision on Plaintiff's Motion for Summary Judgment. The trial court erred in granting Plaintiff a summary judgment. (A) The trial court erred in granting Plaintiff a summary judgment against Defendants as the Plaintiff's claims, by their nature, were not appropriate for disposition on summary judgment. The trial court erred in granting Plaintiff a summary judgment against Donna Hardy and Billy Hardy as Plaintiff failed to carry its burden to establish that no genuine issues of material fact existed. The trial court erred in granting Plaintiff a summary judgment against Defendant Billy Hardy because Plaintiff failed to carry its burden to establish that no genuine issues of material fact existed in relation to its claim against Defendant Billy Hardy. Even assuming Plaintiff carried its burden to establish that no genuine issues of material fact existed, the trial court erred in granting Plaintiff a summary judgment against Defendants because Defendants

(2)

(3)

(B)

(C)

(D)

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established there were indeed genuine issues of material fact to be determined by the trier of fact. Standard of Review Summary judgment is appropriate only when the moving party can demonstrate that there are no disputed issues of material fact, and that it is entitled to judgment as a matter of law. Tenn. R. Civ. P. 56.04; Byrd v. Hall, 847 S.W.2d 208, 214 (Tenn. 1993). The party moving for summary judgment must affirmatively negate an essential element of the nonmoving party's claim, or conclusively establish an affirmative defense. McCarley v. West Quality Food Serv., 960 S.W.2d 585, 588 (Tenn. 1998). In determining whether to award summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor. Staples v. CBL & Assocs., 15 S.W.3d 83, 89 (Tenn. 2000). The court should award summary judgment only when a reasonable person could reach only one conclusion based on the facts and the inferences drawn from those facts. Id. Summary judgment is not appropriate if there is any doubt about whether a genuine issue of material fact exists. McCarley, 960 S.W.2d at 588. We review an award of summary judgment de novo, with no presumption of correctness afforded to the trial court. Guy v. Mut. of Omaha Ins. Co., 79 S.W.3d 528, 534 (Tenn. 2002). Analysis We begin our analysis by noting that, as characterized by the parties, this lawsuit implicates the effects on a civil action of a defendant's assertion of the protection against self-incrimination provided by the Fifth Amendment of the United States Constitution.1 Milan Box urges us to affirm the trial court's award of summary judgment in its favor, asserting the Hardys' response to its motion for summary judgment failed to address "a single one of the specific, documented findings of wrongdoing in the Daniels [independent audit] Report." Milan Box further submits that the Hardys' reliance on the Fifth Amendment during deposition, including their refusal to provide deposition testimony regarding the truthfulness of their answers to interrogatories, "created evidentiary presumptions that they conspired to embezzle the money from Milan Box . . . ." The Hardys, on the other hand, assert the trial court erred by refusing to consider their response to interrogatories,
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The Fifth Amendment provides:

Amendment V. Grand Jury Indictment for Capital Crimes; Double Jeopardy; Self-Incrimination; Due Process of Law; Just Compensation for Property No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a grand jury, except in cases arising in the land or naval forces, or in the militia, when in actual service in time of war or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation. U.S. Const. amend. V

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provided under oath before they learned of the criminal investigation, when granting Milan Box's motion for summary judgment. They further assert that although the decision to invoke Fifth Amendment rights may result in a negative inference against them, case law supports their assertion that the trial court failed to engage in a balancing analysis when it refused to consider their answers to interrogatories and affidavits denying Milan Box's allegations. They also assert that, because they gave Milan Box notice of their intent to invoke the Fifth Amendment pending a ruling on their motion to stay before Milan Box took their depositions, if Milan Box was prejudiced by their assertion it was prejudiced as a result of its own actions. The Hardys also submit that they subsequently gave notice that they would provide deposition testimony without asserting their Fifth Amendment rights, and that summary judgment was inappropriate where Milan Box failed to carry its burden to demonstrate that no genuine issues of material fact existed where the Hardys' affidavits and answers to interrogatories raised an issue of fact and where their assertion of Fifth Amendment rights created only an inference and not a presumption sufficient for the purposes of summary judgment. We note, as an initial matter, that a defendant's assertion of the constitutionally protected right against self-incrimination in a civil action does not raise a presumption of culpability. Rather, unlike a criminal action, where no inference of guilt may be drawn from a defendant's refusal to testify, in a civil action the trier of fact may draw an adverse inference against a party "when they refuse to testify in response to probative evidence offered against them[.]" Mitchell v. U.S., 526 U.S. 314, 328, 119 S.Ct. 1307 (1999)(quoting Baxter v. Palmigiano, 425 U.S. 308, 318, 96 S.Ct. 1551, 47 L.Ed.2d 810 (1976)). The United States Supreme Court has noted: In ordinary civil cases, the party confronted with the invocation of the privilege by the opposing side has no capacity to avoid it, say, by offering immunity from prosecution. The rule allowing invocation of the privilege, though at the risk of suffering an adverse inference or even a default, accommodates the right not to be a witness against oneself while still permitting civil litigation to proceed. Another reason for treating civil and criminal cases differently is that "the stakes are higher" in criminal cases, where liberty or even life may be at stake, and where the government's "sole interest is to convict." Id. (quoting Baxter, 425 U.S., at 318-319, 96 S. Ct. 1551). Despite the considerable arguments presented by the parties with respect to the effect of the Hardys' invocation of their Fifth Amendment rights in this case, upon review of the record we find that little discussion of the implications of the Fifth Amendment is necessary to our disposition of this matter on appeal. Rather, as Milan Box submits, the Hardys' response to Milan Box's motion for summary judgment in the trial court was insufficient to demonstrate the existence of genuine issues of material fact. We therefore turn to the facts and procedural history giving rise to this appeal.

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Background and Procedural History Ms. Hardy worked as a bookkeeper and accountant for Milan Box from 1981 to 2004. She also worked as a bookkeeper for The Dedmon Company, which owned the property on which Milan Box's manufacturing facility was located. She had check-writing authority with The Dedmon Company and at some point prior to 2004 was given check-writing authority at Milan Box. In 2002, The Dedmon Company merged into Milan Box and ceased to exist as a separate entity. In its April 2005 complaint, Milan Box alleged Ms. Hardy had failed to close The Dedmon Company bank accounts, had transferred funds from Milan Box to The Dedmon Company without authorization, and had embezzled those funds by writing checks to herself from The Dedmon Company. Milan Box further alleged that the embezzled funds were used by the Hardys to purchase or to increase the equity in real and personal property located in Gibson County and Henry County. Additionally, Milan Box alleged the Hardys maintained joint bank accounts at Union Planters Bank, AmSouth Bank, and BanCorp South, and that if Milan Box or The Dedmon Company opened an account with a new bank, the Hardys also would establish an account with that bank. According to Milan Box's complaint, audits revealed that Ms. Hardy concealed her embezzlement activity by "doctoring the books and records of Milan Box." Milan Box alleged Ms. Hardy transferred funds from Milan Box's accounts into The Dedmon Company's account, and then wrote checks to herself from The Dedmon Company. Milan Box asserted Ms. Hardy made false entries on the books of Milan Box in the form of manual journal entries . . . enter[ing] a credit (i.e. reduction) of the cash account for the check written or money transferred. She made offsetting debits and/or credits to other accounts which generally had no relationship to the cash transaction. Milan Box further asserted that Ms. Hardy altered bank statements that were returned to her as plant accountant for Milan Box; that she falsified monthly and quarterly financial statements; that she falsified tax returns; and that she made false representations to Crain and Company, the independent accounting firm which audited Milan Box during the relevant period and which apparently failed to detect Ms. Hardy's alleged activities. Milan Box submitted it discovered Ms. Hardy's activities during the course of a 2004 legal audit of its Human Resources and management processes and functions. According to Milan Box, at the time of the audit, Ms. Hardy received a salary of $42,000 per year and was overseeing all accounting functions and also performing some human resources and management duties. Following an audit interview at which Ms. Hardy complained of the work load, she was informed that some of her accounting duties would be transferred to outside independent accountants. Milan Box further asserted that, shortly thereafter, Ms. Hardy complained that she did not like the direction in which the company was moving, and stated that she had another position and would leave Milan Box following the regular year-end audit. Milan Box alleged Ms. Hardy "demanded" $150,000 in severance benefits, as well as a "release with respect to all accounting matters including anything relating to the year-end audit." According to Milan Box, Ms. Hardy's behavior "raised a red flag," -5-

and an independent CPA was engaged to perform an investigation. Milan Box attached a copy of the CPA's investigation results to its complaint. According to the investigator, for fourteen years Ms. Hardy wrote numerous unauthorized checks to move money from Milan Box bank accounts to The Dedmon Company bank accounts by utilizing a facsimile stamp of the signatures of corporate officers of Milan Box. Additionally, Donna Hardy used transfers (other than checks) to move funds from various bank accounts of Milan Box into bank accounts owned by The Dedmon Company. In its complaint against the Hardys, Milan Box alleged fraud, embezzlement and defalcation while acting in a fiduciary capacity within the meaning of 11 U.S.C.

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