Afzali v. Etemadi

KABIR AFZALI ET AL. v. SHIRZAD ETEMADI

No. M2019-01769-COA-R3-CV

COURT OF APPEALS OF TENNESSEE AT NASHVILLE

August 5, 2020 Session

October 21, 2020

Appeal from the Chancery Court for Davidson County

No. 18-1053-II

Anne C. Martin, Chancellor

This appeal concerns a trial court's dismissal under Tennessee Rule of Civil Procedure 12.02(6) based on the affirmative defenses of res judicata and waiver. This is the second action between the parties involving the same real property. In the first action, the plaintiffs sought to enforce an option to purchase property they were leasing from the defendant. While the action was pending, the defendant recorded a document with the Davidson County Register of Deeds that purported to create an ingress-egress easement across the property to an adjoining tract he owned. During the pendency of the first action, the parties entered into a settlement agreement, pursuant to which the defendant agreed to sell the property to the plaintiffs, and the parties released all claims against each other. After the first action was dismissed, the plaintiffs discovered the purported easement, which prompted them to file a motion to set aside the dismissal. Meanwhile, the parties set a deadline for closing, and the defendant prepared a warranty deed that reserved the same easement he previously attempted to create. The plaintiffs insisted that the deed be rewritten without the easement. When the defendant refused, they proceeded with the closing. Shortly after the closing, the trial court denied the motion to set aside the dismissal of the first action. The plaintiffs recorded a Notice of Acceptance of Deed under Protest the day after the deed was recorded and commenced this action three weeks later. The complaint asserted that the defendant clouded the property's title by filing a defective easement and breached the settlement by delivering a deed that did not describe the property as bargained for. On the defendant's motion to dismiss, the trial court found the matter had been adjudicated in the first action and that the plaintiffs waived their claims by closing on the property. We have determined that neither the doctrine of res judicata nor the doctrine of waiver applies. Accordingly, the judgment of the trial court is reversed, and this matter is remanded for further proceedings consistent with this opinion.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed and Remanded

FRANK G. CLEMENT JR., P.J., M.S., delivered the opinion of the Court, in which ANDY D. BENNETT and W. NEAL MCBRAYER, JJ., joined.

Robert John Notestine, III, Nashville, Tennessee, and David Mitchell Jones, Franklin, Tennessee, for the appellants, Kabir Afzali and Mirwais Afzali.

Christopher English Hugan, Nashville, Tennessee, for the appellee, Shirzad Etemadi.

OPINION

FACTS AND PROCEDURAL BACKGROUND

This is the second action commenced by Kabir Afzali and Mirwais Afzali (collectively, "Plaintiffs") against Shirzad Etemadi ("Defendant") concerning real property at 2204 Nolensville Pike in Nashville, Tennessee ("the Property").

I. PRIOR ACTION TO ENFORCE OPTION TO PURCHASE

In June 2016, Plaintiffs commenced an action to enforce a lease agreement in which Plaintiffs had the option to purchase the Property from Defendant.¹ Defendant answered the complaint and filed counterclaims. On July 14, 2016, Plaintiffs recorded a lien lis pendens on the Property. The parties subsequently agreed that Plaintiffs would remit lease payments to the Clerk's Office and the Clerk would hold the funds pending further orders.

The case was set to be tried in June 2018. On March 5, 2018, Defendant filed with the Davidson County Register of Deeds a document titled "CREATION OF EASEMENT AND/OR RIGHT-OF-WAY FOR INGRESS-EGRESS," which purportedly created a two-lane access road extending from Nolensville Pike to an adjacent tract of land Defendant owned. Plaintiffs were not informed of this recording and remained unaware of the purported easement until late May 2018.

On May 25, 2018, a few days before trial, Plaintiffs and Defendant entered into a written Settlement Agreement pursuant to which Plaintiffs agreed to voluntarily dismiss their complaint and authorize the Clerk to remit the withheld lease payments to Defendant in exchange for Defendant's agreement to sell the Property to Plaintiffs.² In pertinent part, Defendant agreed to convey "good title" to the Property via "general warranty deed" for $525,000. Additionally, each party agreed to release the other from claims "as to breach of the [lease] and option to purchase, and all other claims related to or arising from similar transactions or occurrences." Acting in reliance on the Settlement Agreement, Plaintiffs filed their notice of voluntary dismissal, and the settlement was announced in open courtimmediately prior to the scheduled trial.³ Thereafter, Defendant's attorney informed Plaintiffs about the purported easement. Plaintiffs then filed a motion to set aside the dismissal and requested relief from the "easement."⁴ Defendant opposed the motion, arguing that the matter should be litigated in a new action based on the Settlement Agreement.

In the interim, Defendant's counsel prepared a warranty deed in which he reserved the same ingress-egress easement that Defendant purportedly created in March 2018. In addition, the deed exempted the easement from its covenant against encumbrances. When the deed was presented to Plaintiffs two days before the scheduled closing date of August 31, 2018, Plaintiffs insisted that the deed be rewritten, but Defendant refused. Choosing to proceed with the closing under protest, Plaintiffs tendered the purchase money, and Defendant delivered the executed warranty deed on August 31, 2018.

A few days later, the trial court entered an order denying Plaintiffs' motion to set aside the voluntary dismissal, and on September 6, 2018, Plaintiffs recorded the deed. The next day, Plaintiffs recorded a "Notice of Acceptance of Deed Under Protest." The document provided, inter alia, that Plaintiffs had "accepted delivery of the deed with protest and objection to the defective . . . easement."

Plaintiffs commenced the present action three weeks later, on September 28, 2018.

II. ACTION FOR BREACH OF SETTLEMENT AGREEMENT, REFORM DEED, ETC.

The civil action at issue on appeal was commenced on September 28, 2018. As amended, the complaint asserts claims for Declaratory Relief to Quiet Title, Slander of Title, Reformation of the Defective Warranty Deed, Breach of Settlement Agreement, Request for Recovery Under Theory of Promissory Estoppel, and Injunctive Relief. Generally stated, the complaint asserts that Defendant slandered the Property's title by recording the "easement." It does not allege a breach of the option to purchase set forth in the lease agreement. Instead, it asserts that Defendant breached the sale terms set forth in the Settlement Agreement by delivering a title that reserved a right-of-way.

Plaintiffs contend they bargained for "good title," an unencumbered title, as it was when they filed their lien lis pendens on July 14, 2016, and Defendant's recording of the "easement" in March 2018 was a fraudulent conveyance because Defendant acted in anticipation of a judgment against him. Plaintiffs request an order voiding the March 2018filing; an order removing all reference to the right-of-way from the deed; an injunction to prevent Defendant from using the right-of-way; and an award of damages for the cost of litigation.

Defendant responded to the complaint by filing a Tenn. R. Civ. P. 12.02(6) motion to dismiss for failure to state a claim upon which relief can be granted. Defendant asserted, inter alia, the affirmative defenses of res judicata and waiver. Defendant argued that Plaintiffs could have litigated the easement dispute in the prior lawsuit because the Settlement Agreement arose out of the lease and purchase-option dispute. Relatedly, Defendant argued that Plaintiffs waived all matters "arising out of" the lease agreement and relinquished their claims by closing on the Property.

After a hearing, the trial court agreed with Defendant's arguments about res judicata and waiver:

[T]he Chancellor [in the prior litigation] . . . took up the issue of the Easement in [Plaintiff]s' motion to [set aside]. Thus, that Court had the opportunity to rule on the exact same issue [Plaintiffs] present to this Court, and it has been fully adjudicated. They are not entitled to be reheard on the same issue[.]

Second, . . . [Plaintiffs] waived their right to challenge the Easement, or any other existing dispute between them, when they closed on the sale of the Property on August 31, 2018. The Court appreciates [Plaintiffs'] position that they felt compelled to close, or otherwise lose the Property, but when they did so they waived their opportunity to dispute the Easement or further litigat[e] with [Defendant] regarding the Property per the express terms of the Settlement Agreement.

Accordingly, the trial court granted Defendant's motion and dismissed Plaintiffs' complaint. This appeal followed.

ISSUES

Plaintiffs raise three issues on appeal:

1. Whether the trial court erred in dismissing Plaintiffs' complaint pursuant to Tenn. R. Civ. P. 12.02(6) by not considering whether the doctrine of equitable estoppel saved Plaintiffs' action from the bar of Res Judicata.

2. Whether the trial court erred in dismissing Plaintiffs' complaint pursuant to Tenn. R. Civ. P. 12.02(6) by not considering whether the doctrine of equitable estoppel saved Plaintiffs' action from the bar of waiver.

3. Whether the trial court erred in dismissing Plaintiffs' complaint pursuant to Tenn. R. Civ. P. 12.02(6) in concluding that Plaintiffs contractually waived their right to contest the easement when they closed on the Property.

For his part, Defendant asks this court to affirm the trial court on all issues or, alternatively, to affirm on a different ground, under the doctrine of merger of...