JUDGMENT AND COMPOUND INTEREST

Until this case, I always thought that post-judgment interest was "simple" interest and not compound interest. Apparently, I was wrong. The court of appeals notes in passing "the trial court determined that the effective post-judgment interest rate is 10%, compounded annually. It is from this order that the current appeal arises." But, the court does not even address the propriety of the use of compound interest as opposed to simple interest.

The case itself emphasizes an important point -- the statute of limitations on the judgment does not commence until the judgment is final. If the court of appeals remands the case for further proceedings, then the judgment is not final.

See Orlando Residence LLC v. Nashville Lodging Company, et al.

A CHRISTMAS PRESENT FOR BORROWERS - NON-JUDICIAL FORECLOSURE AND AN ACCURATE PAYOFF

In this case, a homeowner's association exercised its right under its Master Deed and conducted a non-judicial foreclosure sale to collect amounts owed by the homeowner to the association. Although the property was worth in excess of $300,000, the association purchased the property for the amount owed -- $12,000. The owner sued and asked the court to set aside the foreclosure.

In Tennessee, however, as long as the foreclosure sale is properly noticed, then "shocking inadequacy of the foreclosure sale price" is not grounds to set aside the sale. But, if sloppy bookkeeping makes it impossible to determine the correct amount owed on the date of the foreclosure sale, then the court of appeals says it is property to set aside the sale.

This case is scary for lenders as it states that the amount must be accurate. Generally, it is difficult to enjoin a foreclosure sale. But, it the lender cannot on the day of the foreclosure sale, provide an accurate accounting of the amount owed, then this case says the foreclosure sale should be set aside. Look for more lawsuits over foreclosure sales.

See Brooks v. Rivertown on the Island HOA

A BASIC PRINCIPLE OF CONTRACT LAW

If you do not make the payments required under the contract, then you "breach" the contract.

The most interesting cases seem to always involve a trailer. In this case, brother dies leaving all of this property to his sister. This property includes the trailer at issue.

Previously, brother entered into an installment sales contract with seller whereby brother agreed to make monthly payments before the 4th day of the month. Brother did not. After brother's death, sister attempted to make a lump sum payment of $2,000 to seller. Seller refused and sister filed her lawsuit. During the interim period, sister did not make any of the required monthly payments. Wrong decision.

The holding: 1. Brother was in default at time of death. Pursuant to the contract, Brother's default resulted in the contract becoming a lease.

2. Even if Brother had not been in default, Sister's failure to make the required monthly payments (or even tender them to Seller) resulted in Sister losing any rights under the contract.

3. Sister's appeal was frivolous.

The Moral of this Story: Pay your monthly payments on time or forfeit your rights.

See Smith v. Hatfield

IMPLIED DUTY IN SERVICE CONTRACT OF CARE, SKILL, DILIGENCE AND WORKMANLIKE MANNER

You hire a contractor to fix your roof. Contractor subcontracts with Bubba to do the work. Bubba sets your house on fire. It is a complete loss -- an $800,000 loss. Someone must pay, right.

Bubba obviously is negligent, but Bubba has no insurance. Contractor says that he is not liable for Bubba's negligence because Bubba is a subcontractor. And, Contractor is right. Under Tennessee law, the negligence of a subcontractor is not imputed to the principal. Of course, the parties to the contract can change that responsibility.

But wait, you say. My contract was with Contractor -- I never agreed to allow Bubba to do the work. Too bad, Contractor says. Our contract does not contain any provision that prohibits subcontracting. Therefore, Contractor can, under Tennessee law, subcontract the work and escape liability.

One last hope. According to the Tennessee Supreme Court, every contract for the performance of services contains an implied duty (not warranty) to perform the work in a "careful, skillful, diligent, and workmanlike manner." A contractor cannot escape this contractual duty by delegating the work to a third party. Of course, the parties were free to include in their contract a waiver of this "non-delegable" duty, but they did not.

This case is not the first case to recognize an implied duty in contracts -- that occurred in 1987. But, it is an important decision as it is another Tennessee Supreme Court case recognizing an implied duty.

Of course, the parties to the contract can always waive duties implied by law.

See Federal Insurance Company A/S/O Robert and Joanie Emerson v. Winters, et al.

SOCIAL MEDIA POLICY TOP 10

Don’t Prohibit Employees from using the company name, address on personal profiles.

Don’t Attempt to Regulate or Restrict an Employee’s use of Social Media from any location/device other than work locations or devices.

Do Exclude “Protected Activity” under the National Labor Relations Act.

Do Have Employees sign a separate acknowledgment of receipt of the Policy.

Do Prohibit Employees from conducting “Background” searches using Facebook/Twitter/Internet.

Do Prohibit Employees from disclosing “Confidential” information on Social Media sites.

Do define “Confidential” information.

Do Prohibit Employees from “pressuring” or otherwise harassing their co-workers to connect or “friend.”

Do respond to complaints regarding Facebook/Twitter posts quickly.

Do consider hiring 3rd parties to conduct background checks of prospective employees in sensitive positions and utilize the option to screen “protected” information (i.e., race, religion, national origin, color, veteran status, disability, genetic history).

AND, DO HAVE A POLICY ON SOCIAL MEDIA.

AG SAYS THAT COMMISSIONER OF DEPARTMENT OF REVENUE CAN IGNORE THE LAW WHEN POLITICALLY EXPEDIENT

According to the Tennessee Attorney General, the Commissioner of the Tennessee Department of Revenue has the authority to ignore the law when he or she finds it to be politically expedient. In this case, it is politically expedient for the State to have Amazon locate a warehouse facility in Tennessee; therefore, according to the Attorney General, the Commissioner can ignore the fact that Amazon should be collecting sales tax on all sales to Tennessee residents.

This opinion is one I intend to keep in my back pocket to use any time I am dealing with the State.

See Opinion No. 11-71

FAMILY PURPOSE DOCTRINE AND A VICTORY FOR THE INSURANCE COMPANY

The family purpose doctrine was adopted in 1918 to protect the public at large from the hazards of teenage drivers. Essentially, the head of the household is liable if a member of the household has an accident in a car owned by the family. What happens when the parents are divorced, Dad owns the car, son lives with Mom and the divorce decree requires Dad to provide son with the car. That is the question. And the answer is -- Dad is still the "head of the household" even though son does not live with him.

But wait, in an interesting twist, the Tennessee Supreme Court says that because the son does not live with Dad, and the Parenting Plan says that Mom makes all of the decisions regarding son's conduct, then Dad "may" not be responsible because he does not "control" the son. So, the case goes back to the trial court for a determination of whether Dad had the requisite amount of control. Unless Dad is a complete idiot, he will testify that he had absolutely no control over son's use of the car; his ex-wife was the one in control.

Have a great day.

See Starr v. Hill, et al.

PERFECTING YOUR MECHANIC'S LIEN

For years, the law in Tennessee was that in order for a contractor, subcontractor or supplier to have a lien for its work on real estate, the person had to comply with each and every requirement of the Mechanic's Lien Statute. For an outstanding discussion on this topic, see Andrews Distributing Co. v. Oak Square at Gatlinburg, 757 S.W.2d 663 (Tenn. 1988).

In 2007, the General Assembly amended the Mechanic's and Materialmen's Lien statutes and added the following provisions:

(a) This chapter is to be construed and applied liberally to secure the beneficial results, intents, and purposes of the chapter.

(b) Substantial compliance with this chapter is sufficient for the validity of liens arising under this chapter and to give jurisdiction to the court to enforce the liens.

(c) Any document required or permitted to be served, recorded or filed by this chapter that substantially satisfies the applicable requirements of this chapter is effective even if it has nonprejudicial errors or omissions.

This case is the first case to discuss the effect of this new law. Initially the court of appeals concludes that the new law applies because the contract at issue was executed in December, 2007 and the new law became effective in April, 2007. This issue existed because commencement of work on the project by another contractor occurred prior to April 2007.
Second, the Court of Appeals held that the following defects were not fatal to the lien:

(1) Failed to file its lien complaint under oath;

(2) Failed to timely join the successor trustee on the Deed of Trust;

(3) Failed to have an attachment issued, although an attachment was prayed for in the original complaint; and

(4) Failed to include a proper acknowledgment on its notice of lien.

Under the old law, each of these would have been fatal. Applying the new law's standard, the court of appeals held that none of these defects was fatal. Unfortunately, this opinion also leaves open the question of what defects will be fatal. Presumably, the limitations period remains absolute, but the other requirements are open to debate. This is a title insurance company's nightmare come true.

See Tri Am Construction, Inc., et al. v. J & V Development, Inc.

GUARANTORS - THE FOOLS WITH THE PEN OR THE RIGHTEOUSLY INDIGNANT

Guarantors are treated like the fools in Tennessee. In fact, courts often reference the well settled princple that "the fool with the pen is entitled to no mercy." In short, a guarantor has very few defenses to an action by the creditor. Fraud in the inducement is always a good one; however, Tennessee courts state the the lender does not have a duty to provide information. What happens when the borrower commits fraud on the lender, and the lender keeps lending money even though it knows about the fraud. That is the question in this case.

The facts are simple. The two guarantors were the owners of a trucking business. The business obtained a line of credit loan secured by accounts receivable. To draw money on the line, the company submitted draw requests that included a certification of the amount of the outstanding accounts receivable.

The owners sold the business. At the time of the sale, the balance owed on the loan was $1.5 million and the values of the accounts receivable was $1.8 million. Rather than payoff the loan, the owners allowed the loan and their guaranties to remain in place.

Rather quickly after the sale, the business ran into financial trouble. To keep the company alive, the president submitted false reports to the bank about the accounts receivable. At some point, the bank discovered that these reports were false. The bank continued to lend money to the company even though it knew that these reports were false.

Ultimately, the bank stopped lending money and the company ceased to exist. Predictably, the bank sued the guarantors for payment of the loan. In response, the guarantors asserted fraud by the bank (presumably in continuing to lend money) and breach of the implied covenant of good faith and fair dealing.

After extensive discussion of procedural issues, the court of appeals held that the findings of fact made by the trial court were contradictory and entered an order remanding the case. Thus, the court of appeals did not reach the merits of the case.

The problem is this. Guarantors are fools. Under well-settled Tennessee law, banks do not have an obligation to communicate with guarantors. There is no assertion that the bank lied to the guarantors about the loan or the collateral value of the loan. More importantly, so what? If there was fraud, that fraud was by the borrower on the bank. The bank was free to waive that fraud without contacting the guarantors. And, that is exactly what the bank did. Further, once the bank became aware that the draw requests were false, there was no longer fraud. So whether or not the company defrauded the bank is irrelevant to the issue of the enforcement of the guaranties.

Further, the court of appeals remanded the case as there was no findings of fact on the covenant of good faith and fair dealing. That covenant does not apply to guaranties -- or does it?

This decision creates a number of questions for banks even though it is all dicta. Specifically, does a lender owe a duty to the guarantor to stop lending to the borrower:

a. when the lender knows that the borrower is lying about a material fact?

b. when the lender knows that the borrower cannot repay the debt and is merely digging a bigger hole?

c. when the lender knows that the debt is increasing beyond the amount that the guarantor would have owed at a prior date?

THIS CASE SIGNALS A POSSIBLE MAJOR CHANGE IN TENNESSEE LAW.

See Securamerica Business Credit v. Schledwitz and Lynch.

ARBITRATION AGREEMENT AND SUBJECT MATTER JURISDICTION

In Tennessee, a person can be compelled to arbitrate a dispute if he or she is a party to an agreement providing for arbitration. Is the owner of a corporation or LLC bound by the company's agreement to arbitrate disputes. Of course not. That is one of the benefits of incorporation. In this case, the Court noted that "the owner is not a signatory to the contract; in fact, his name does not appear anywhere in the contract. Moreover, the owner did not negotiate the contract with the Plaintiffs. The fact that the owner owned the company which was dissolved a year later in August 2008, may or may not make him liable for certain obligations of the company but it does not make him a party to the agreement to arbitrate at issue here. As an aside, the court states that this is an issue of subject matter jurisdiction that cannot be waived.

See Lee Brown and Guttershutter of Nashville, LLC v. David Styles, LLC

COMPARATIVE FAULT AND ADDING ADDITIONAL PARTIES

This case highlights a nuance of civil procedure that only civil procedure geeks like me would enjoy. As with all good stories, it involves alcohol and minding your own business.

On July 22, 2006, the Manns were in their car minding their own business when a car operated by Mr. Callicutt (a student at the University of Memphis and a member of the ATO fraternity) crossed the centerline and hit the Manns' car head on. As a result of this accident, the Manns were injured.

On July 17, 2007, the Manns filed a lawsuit alleging that immediately prior to the accident, Mr. Callicut consumed alcoholic beverages at an ATO social gathering conducted at a private home. As the lawsuit was filed within one year of the accident, the statute of limitations had not run. Of course, I am shocked that alcoholic beverages would be consumed at a fraternity social gathering, especially the ATO house at my alma mater. But, on to the story.

The Manns sued the Mr. Callicut, his parents who owned the car, the ATO chapter and the owners of the residence at which the alcohol was allegedly served. The homeowners, in their answer, denied serving alcohol at the party and deny any knowledge of alcohol consumption by Mr. Callicut at their home. The ATO chapter also denied providing alcoholic beverages at the party, but admitted that a "social gathering" took place. The ATO chapter's answer identified all of the chapter's members.

In response, the plaintiffs filed an amended complaint adding some of the individual ATO members as defendants. Even though this amended complaint was filed within 90 days of the filing by ATO of its answer identifying the chapter members, the individual members filed a motion to dismiss asserting that the statute of limitations had run. In an interesting twist of civil procedure, the defendants won.

Tennessee adopted the doctrine of "comparative fault" in 1991. Under the doctrine of comparative fault, a defendant can assert in his or her answer that a portion of fault was attributable to the negligence of another person who was not a defendant. Tennessee Code Annotated section 20-1-119 gives the plaintiff the right to file an amended complaint adding this new person as a defendant. The key is that the amended complaint must be filed "within ninety (90) days of the filing of the first answer or first amended answer alleging that person's fault." If the Plaintiff does so, the amended complaint relates back to the date of the original complaint for statute of limitations purposes.

In this case, the answer identified these individuals as members, but it did not assert that fault should be apportioned to any of them. Therefore, the answer did not trigger the provisions of section 20-1-119.

Then, the ATO chapter filed an amended answer that asserted the comparative fault of the individual members. The plaintiffs filed an amended complaint adding the individual members as defendants. Problem solved? WRONG.

When the second amended complaint was filed, the individual chapter members were "parties" to the lawsuit. The statute clearly states that the statute of limitations relates back only for persons who are not parties to the lawsuit. Because the trial court did not make its ruling on the motion to dismiss final for purposes of Rule 54, the members remained parties to the action. Therefore, section 20-1-119 does not apply.

So, the question is what would you have done? This case also highlights that the use of "John Doe" is ineffective in Tennessee.

See Mann v. Alpha Tau Omega Fraternity, et al.

DON'T BEAR ALL ON THE ANTIQUE ROADSHOW -- TITLE TO STOLEN PROPERTY

Davy Crockett was "king of the wild frontier." The hero of the Alamo served as a Congressman from Tennessee and has been the subject of television shows, movies, books and magazines. He is a true "American Idol."

But, Davy's misfortunes in life were not limited to being in the wrong place at the wrong time." His love life, alas, is worthy of a Lifetime movie. It seems that Davy fell in love with a married woman. That relationship ended because divorce was not an option. Then, Davy fell in love with Margaret. The couple became engaged. In fact, The relationship was so serious that the couple obtained a marriage license from the Jefferson County Clerk. The marriage, however, never took place. Alas, Margaret ran off with someone else. Davy consoled his loss by marrying another Margaret one year later.

Why the history lesson? Davy returned the marriage license -- the one never consummated -- to the Jefferson County Clerk. That license remained in the courthouse until sometime in the 1930s when it was removed. Some 60 years later, the story and the marriage license was featured on an episode of the Antique Roadshow. In response, this litigation ensued.
The present holder contended that her uncle retrieved the license from the trash where it had been deposited during the course of cleaning out of the archives. He then presented the document to her father as a gift. Jefferson County, Tennessee asserted that it had been removed without permission (a/k/a stolen) and remained the property of the County.

This case reveals a number of issues that were not discussed by the Court of Appeals. The holder of the document lived in Florida. Although a motion to dismiss for lack of personal jurisdiction denied by the trial court, this issue was not presented to the court of appeals. Second, the court of appeals' opinion relies upon a statute enacted in 1989. How can one violate a statute in 1938 that was not enacted until 1989?

In fact, the court of appeals' decision reflects a point of common law that is fairly well developed. One cannot gain good title to "stolen" property. In this case, the "stolen" property was the marriage license. So, the case is closed.

MORAL OF THIS STORY: Don't brag on the Antique Roadshow about how your father obtained a historical document unless you have a copy of the receipt.

See Jefferson County, Tennessee v. Margaret V. Smith.

CRYE-LEIKE: SALE BUT NO COMMISSION

In this case, the court of appeals held that Crye-Leike was not entitled to a commission because of the plain language of its listing agreement. Specifically, the purchaser was not "shown or submitted" to the purchasers prior to August 21 (the date the listing agreement expired). Interestingly, the purchaser saw the property the day after the listing agreement expired.

The facts are simple. Out of town buyers contacted a real estate agent in Memphis to schedule viewings of homes for sale. The buyers apparently surfed the internet and found the house on an "unidentified website." The agent scheduled a viewing for August 22 through Crye-Leike's offices. The listing agreement, however, expired the day before.

The buyers, being crafty, then fired their real estate agent and contacted the homeowner directly. In the interim, the homeowner (who had no knowledge that the buyers had even visited the property) refused to extend Crye-Leike's listing agreement and insisted that Crye-Leike remove its sign. [The real estate agent testified that the owner "orally" agreed to extend the listing agreement, but that extension was not put into writing.) In any event, the buyers and the homeowner entered into a contract for the property.

On appeal, the court of appeals held that the homeowner did not owe anything to Crye-Leike because:

a. The listing agreement required all amendments to be in writing.

b. The terms "shown or submitted" did not include "internet" advertisements to the general public prior to the expiration of the agreement. Instead, those words required that the real estate agent provide "access" to the Property or "an opportunity to view the Property."

The Moral of this Story:

Change your contract today to make specify that internet advertising is clearly included.

See Crye-Leike, Inc. v. Sarah A. Carver.

YOU MAY NOT FEAR THE REAPER: But you should always fear the Joker

Any employer’s worst nightmare is the “Joker.” This is the person, normally a male, who takes great pride in adding laughter to the workplace. In the good old days, he was the one who went office to office telling the “dirty” joke or exhibiting the dirty cartoon. With the advent of e-mail, you could count on him to circulate the tacky e-mail. Most employers have muzzled the “Joker” with workplace rules against porn on the computer. However, no matter how hard you try, you can never eliminate the “Joker.”

I submit for your consideration the case of Dalton Hughes, an employee of the Metro Fire Department.

One day in 2004, Mr. Hughes was walking innocently in a parking lot at his place of employment when the “Joker” happened upon him. The Joker, an employee of the Metro Public Works Dept., was returning a front end loader to the Public Works facility. As it was the end of the day, the Joker was looking for some entertainment. He spotted Mr. Hughes who unfortunately had his back to the Joker. You, of course, never ever want to be caught with your back to the Joker. But, I digress. The Joker quickly identified his victim, plotted his moves and put his plan into action. The Joker “revved the engine and dropped the bucket of the loader to the pavement, thereby making a loud, scraping noise.”

The Joker planned to scare Mr. Hughes, and he was wildly successful. Mr. Hughes was scared to death. In fact, Mr. Hughes was so scared that he jumped over a guardrail in order to get out of the way. But, Mr. Hughes apparently was not very agile. He landed with a thud. When he looked up, he was the Joker “sitting on the loader with a big grin on his face.” Mission Accomplished!

Thanks to the Joker, Mr. Hughes spent the next several weeks recovering from his injuries. In fact, he had rotator cuff surgery and double knee replacement surgery. The Joker’s laugh cost Mr. Hughes $80,000 in medical bills and $23,500 in lost wages.

Normally, a claim for injuries caused by another employee are covered by the employer’s worker’s compensation benefits. But, unfortunately for Mr. Hughes, Metro (like several counties and cities) has opted out of the Tennessee Workers’ Compensation Act. So, Mr. Hughes filed a claim against Metro and the Joker under the Governmental Tort Liability Act.

Metro asserted defenses to this claim; however, only two are really relevant for this discussion. First, Metro asserted that the Joker was acting outside of his “scope of employment.” In essence, Metro said that we did not give permission to the Joker to play practical jokes. In fact, Metro said we have work rules that prohibit practical jokes. Therefore, we are not responsible.

With respect to this issue, the Tennessee Supreme Court adopted the simplified approach set forth in the Restatement (Third) of Agency. That simplified statement is:

An employee acts within the scope of employment when performing work
assigned by the employer or engaging in a course of conduct subject to the
employer’s control. An employee’s act is not within the scope of employment
when it occurs within an independent course of conduct not intended by the
employee to serve any purpose of the employer.

The Court concluded that the Joker’s primary job was to operate and then return the front-end loader to the Metro facility. As the Joker was doing that at the time of the incident, his “joke” could not be deemed to be a “purely personal” activity.

Metro also claimed that it was immune from liability because the Joker’s actions were not negligent. They were in fact intentional. The Joker was not negligent, he intended to scare Mr. Hughes. As the Governmental Tort Liability Act specifically states that a governmental entity is not liable for the intentional torts of its employees, if the action was in fact intentional, Metro remains immune.

On that question, Mr. Hughes luck continued. The Tennessee Supreme Court acknowledged that an assault occurs for criminal purposes when someone intentionally, knowingly or recklessly causes: (a) bodily injury, (b) a reasonable fear of imminent bodily injury or (c) physical contact with another that a reasonable person deems extremely offensive or provocative.

For civil purposes, the Court concluded that an assault occurs when someone “intends to create an apprehension of harm.” In this case, the court stated that the Joker intended to scare Mr. Hughes. Therefore, the Joker was guilty of assault.

Seven (7) years after the accident, Mr. Hughes is told by the Tennessee Supreme Court that his lawsuit against the Joker may proceed, but his lawsuit against Metro is dismissed.

For employers, this case emphasizes the dangers of the Joker and his actions. The Tennessee Supreme Court’s simplified approach to determining whether the Joker is acting in the “course and scope” of his employment makes it easier for the victims to allege and prove that requirement. Metro was able to avoid liability because of sovereign immunity – something that private employers do not possess.

THE MORAL OF THIS STORY: YOU MAY NOT FEAR THE REAPER, BUT YOU SHOULD ALWAYS FEAR THE JOKER.

For the rest of this story, see: Dalton Reb Hughes v. The Metropolitan Government of Nashville and Davidson County, Tennessee, M2008-02060-SC-R11-CV (Tenn. May 24, 2011).

THE NEW TENNESSEE CIVIL JUSTICE ACT

Now that the school children have had their field trip, the General Assembly has completed its business and adjourned. One of its parting shots was the law mislabeled ad the Tennessee Civil Justice Act of 2011. This bill received more attention than Taylor Swift in a shopping mall. It was poked and prodded by all sides. Even that esteemed New York City District Attorney Fred Thompson applied some of his smooth talking to this one. At the end of the day, you would assume that there would be no surprises. Certainly, everyone should know by now what is or is not in this bill. Here are some that I found:

Biggest surprise. Tennessee now allows a successful plaintiff to recover attorney's fees in tort lawsuits. If you are a plaintiff in a lawsuit and you win, you can now recover your attorney's fees. The new law specifically allows the plaintiff in a "tort action" to recover his or her "economic damages." The new law defines "economic damages" to include "other objectively verifiable monetary losses." Attorney's fees are objectively verifiable and they sure are monetary. This surprise is not limited to "personal injury" lawsuits. This provision applies to business tort cases. So, be sure to allege a tort. Tenn. Code Ann. section 29-39-103.

Second surprise. You cannot sue Federal Express in Memphis. Federal Express is a Delaware corporation. Its registered agent in the State of Tennessee is in Knox County. Under the new law, a corporation, partnership or limited liability company that is formed in another state can only be sued in the county where its registered agent for service of process is located. So, you cannot sue Federal Express in Shelby County. Instead, you must sue Federal Express in Knox County -- a difference of 380 miles. Tenn. Code Ann. section 20-4-104. There is an exception to this rule. You can sue Federal Express in Memphis if "all or a substantial part of the events or omissions giving rise to the cause of action accrued in Shelby County. So, if the Fed Ex van hits you in Shelby County, you can sue in Memphis. I predict a lot of litigation over this one.

Third surprise. No Appeal Bonds. You win your lawsuit and the court enters a judgment. In the old days -- that would be yesterday -- you could begin collecting on the judgment immediately. If the losing party wanted to avoid collection, it could post an appeal bond. Typically, the appeal bond is a letter of credit, a certificate of deposit or a surety bond issued by an insurance company. If during the three (3) years or so that the appeal is pending, you win, you do not need to worry about collection. You merely call the bank or the insurance company and say pay me my money.

Now, the loser does not need to post a bond to avoid collection. All the loser needs to do is show that if he loses the appeal, and the bank or insurance company comes after the loser, then loser will be insolvent. In Tennessee, a person is insolvent if (a) the value of your assets does not exceed your liabilities or (b) you are unable to pay your debts when they are due. For most people, paying a judgment for even $10,000 makes them insolvent.

The statute directs the trial court to set a "bond in an amount that would allow the appeal of the judgment to proceed." Tenn. Code Ann. section 27-1-124(e). Presumably, this is the amount that will permit the loser to remain "solvent." So, you don't need to worry about the loser filing bankruptcy until after the appeal is over.

Fourth surprise. The law does not take effect until October 1, 2011. What is that about? The law specifically states that it applies to "liability actions for injuries, deaths and losses covered by this act which accrue on or after that date." So, you may want to accrue before October 1 or you may want to accrue after October 1. The issue will be those cases in which the cause of action accrues before October 1, but the lawsuit is not filed until January 1.

My Prediction. This one will be amended.

See Amendment No. 1 to HB2008.

STOCK RESTRICTIONS AND EFFECT OF VIOLATION

Some quick concepts.

1. Tennessee Code Annotated 48-16-208 authorizes corporations and their shareholders to agree to restrictions on the transfer or sale of the corporation's stock.

2. Banks and other lenders often include in their loan agreements covenants that restrict the sale of transfer of the corporation's stock.

3. Lawyers are paid to figure out how to avoid all of these restrictions.

With that background, here is the story.

In 1992, Mr. and Mrs. Baugh decide they want to be owners and not employees. They approach the owner of the company, and he agrees to sell the company's assets to a new company formed by the Baughs for that purpose. In short, the transaction is pretty typical.

Like many people, they did not have the cash in their pockets to pay to the owner the full purchase price. The owner agreed to finance the purchase price. In turn, the Baughs pledged the stock in the new company to the owner, now lender, to secure the payment of the loan. In addition, the Baughs agreed in a loan agreement that they would not transfer the stock of the new company without the owner/lender's consent. Again, all of this is pretty standard.

Three years later, the Baughs decided that they wanted to add a partner. They found two very willing partners in their neighbors -- the Novaks.

The Baughs asked the owner/lender to consent to the sale of 50% of the company's stock. The owner/lender requested financial statements and other information about the Novaks, and that information was provided. For reasons unknown, the owner/lender never granted its consent.

Not to be delayed, the Baughs instructed their attorney to draft a stock purchase agreement that did not require the consent of the owner/lender. This agreement included an agreement by the Novaks to indemnify the Baughs from 50% of all of the company's debts and 50% of the balance remaining on the original purchase price of the stock. There is no question that the Novaks knew about the loan restrictions and decided to go forth with the purchase.

As with all partnerships, life was good until the money ran out. Apparently, the company lost one of its key customers and was never able to recover financially. Ultimately, the parties agreed to close the company. Unfortunately, there was not enough money to pay all of the debts, including the debt to the seller/lender. The Baughs paid those debts and then, remembering the indemnity agreement, asked the Novaks for their portion of the debt. At this point, the friendship ended.

The trial court found the indemnity agreement enforcable and granted a judgment to the Baughs. So, why is this case even worthy of mention. Well, the court of appeals reversed the judgment holding that the stock purchase agreement was intended to avoid the transfer restrictions (and admittedly it was). As Tennessee Code Annotated 48-16-208 authorizes restrictions of this type, the court concluded that the stock purchase agreement violated public policy and therefore was unenforceable.

The Tennessee Supreme Court in a very lengthy opinion concluded that the agreement did not violate public policy and reversed the court of appeals' decision. Essentially, the Court held that Tennessee Code Annotated section 48-16-208 merely authorizes restrictions. It does not contain the type of provisions designed to protect the general public as a whole, the buyer or the seller that make a breach of those restrictions an offense against the public. In short, the transfer of stock in violation of a stock restriction may be a breach of contract, but it is not void.

Like all supreme court decisions, the real "holding" of the case is not quite so apparent. Those holdings are:

1. The right to contract is an inherent right of liberty and property -- a fool with a pen is exercising his constitutional rights.

2. Tennessee courts should interpret all contracts in a manner that makes the subject matter legal, if possible.

3. If a contract cannot be interpreted so as to be legal, then the court should use a scalpel and not a sledgehammer to remove the offending provisions.

4. Finally, if you buy stock knowing that the transfer is restricted, you become subject to those same restrictions.

This is actually a classic case of who was harmed? The purchasers received all of the benefits of the deal -- it just was not as beneficial as they wanted. The owner/lender was not harmed because he still had his security interest in the stock. The public was not harmed because the public has no interest in this type of private transaction.

See Baugh, et al. v. Novak, et al.

WHAT STATUTE OF LIMITATIONS APPLIES TO STATE LICENSURE PROCEEDINGS?

This is an issue of major concern for all persons who possess a license issued by the State of Tennessee. What statute of limitations applies to a disciplinary proceeding by the state?

The Answer, according to the Tennessee Attorney General's office in Opinion 11-43, is that no statute of limitations applies. Therefore, a doctor, lawyer, barber or massage therapist may lose his or her license for something that occurred five years ago, ten years ago or even 40 years ago. And, because the State's position is that the doctrine of laches does not apply to the sovereign, the fact that witnesses have disappeared or other evidence is not relevant.

This is not a hypothetical question as evidenced by the activities of the Tennessee Department of Commerce and Insurance in a recent case. The Department initiated disciplinary proceedings against a person who held an insurance producer's license in the last days of the prior administration for an act that occurred in 2001.

In 2001, the person entered into a consent order with the Insurance Commissioner of another state admitting violation of a regulation in that state. The producer reported the consent order in his annual report to the State of Tennessee in 2002. In January of 2011, the Department initiated licensure revocation proceedings against this person based upon entry of this consent order -- eleven years after the fact. Even scarier -- the act upon which the violation was predicated did not violate Tennessee law. It was a true "technical" violation.
This opinion emphasizes that the State has no boundaries of time if it wishes to pursue a licensure proceeding. As those proceedings are administrative and not judicial, no statute of limitations applies.

See Attorney General Opinion No. 11-43.

STUDENT DUE PROCESS RIGHTS AND SHORT TERM SUSPENSIONS

A student drives his car into a crowd of other students. He is suspended for ten (10) days. In the old days, he would have been afraid to go home. Today, his parents incur over $25,000 in attorney's fees challenging the suspension. The question -- what process is due process. The answer:

In short-term suspension cases “once administrators tell a student what they heard or saw,
ask why they heard or saw it, and allow a brief response, a student has received all the
process that the Fourteenth Amendment demands.”

The court, however, did not address any potential claims under the Tennessee Constitution -- presumably because the parents did not raise those claims. In addition, the Court limited its holding to short-term suspensions.

Next the Court addressed the issue of whether the disciplinary coordinator could act as prosecutor and decision maker during the course of the student's appeal. With respect to that issue, the court of appeals stated that it is not grounds for automatic disqualification. Instead, he stated that the student must show that "a risk of actual bias is intolerably high." As the student received the requisite due process hearing before his principal, the bias of the disciplinary coordinator on appeal was moot. Again, the Court did not address the Tennessee Constitution or any provision of the School Board Policy.

For now, students in public schools may be suspended for 10 days or less with the only hearing being the hearing before the school administrator.

See Heyne, et al. v. Metro Nashville Board of Education.

WHO IS THE DEVELOPER?

For many years, I have wondered about this question. It is not an uncommon scenario.

A developer buys a parcel of property. The developer begins development of the property. The developer records a subdivision plat for some, but not all, of the property. Typically, the plan is to develop the subdivision in phases or sections. Therefore, the plat only relates to a small portion of the property. Likewise, the developer records a declaration of covenants, conditions and restrictions for the platted property. The declarations give the developer supermajority rights with respect to all votes so that the developer maintains control of the development of the property.

The developer sells some lots. Then, normally for financial reasons, the developer sells the remaining lots and the undeveloped land to another entity. Is the buyer now the developer? Does the buyer have all of the rights (and all of the obligations) of the developer? Can the buyer change the development plan for the property?

Thankfully, the Court of Appeals has answered these questions in Hughes v. New Life Development Corporation, No. M2010-00579-COA-R3-CV (Tenn. Ct. App. April 29, 2011).

First, is the buyer now the developer? Unless the deed limits the estate conveyed, Tennessee law presumes that the deed includes all of the grantor’s interest in the property. In this case, the deed did not limit the interest conveyed. Likewise, the Restrictive Covenants defined the developer as “Developer, and its successor and assigns.” Therefore, the court concluded that the buyer was now the Developer.

Second, can the buyer as the Developer use its supermajority power to amend the Declarations and homeowners’ association charter to change the development plan? The answer is a qualified yes. The Developer may make changes as long as those changes are “reasonable.” In making that determination, the court considers:

(1) the original intent of the contracting parties,
(2) whether purchasers knew that amendments could be made,
(3) the materiality of the change of character of the development, and
(4) the totality of the circumstances.

Third, can notations on a plat with respect to property owned by the original developer, but not otherwise the subject of the plat, restrict that property? The answer is again a qualified yes. That notation on a plat for adjoining land can provide “actual notice” of the existence of the restriction to the buyer.

So, developers in Tennessee win and lose. More importantly, this case emphasizes that once a developer records restrictions or a subdivision plat, the developer’s ability to change those documents is limited regardless of the terms of the document. Finally, purchasers of land within the development possess rights that the developer and any successors must honor.

MY CONTRACT HAS A FINANCING CONTINGENCY, BUT DO I REALLY NEED TO DO ANYTHING?

Most residential real estate purchase contracts possess a “financing” contingency. This contingency allows the buyers to cancel the contract if they are unable to obtain financing. And, buyers are not always able to obtain financing. Sellers are not always willing to accept the excuse. Usually, this leads to a dispute with respect to who receives the earnest money.

When a contract is conditioned upon financing, Tennessee law requires the buyer to use “reasonable efforts” to obtain that financing. Whether or not a buyer used reasonable efforts is almost always a question of fact. In Wright v. Dixon, the Tennessee Court of Appeals discussed one situation and concluded that the buyer had used “reasonable efforts.” In that case, the buyer:

· Applied to four different lenders
· Spoke by telephone to one lender
· Made an application by telephone to that lender
· Provided tax returns and other information to the lender
· Was denied 100% financing because of his income level by that lender
· Applied to another lender on the internet
· Contacted and met with a mortgage broker who made inquiries to 6 or 7 other lenders
· Could not obtain 100% financing

These efforts, the court concluded, documented “reasonable efforts” to obtain financing.

The court distinguished this case from another case. In that case, the buyers made general inquiries about a loan, but waited almost 3 months to fill out an application. The testimony also included testimony from third persons that “the buyers were not concerned because they knew they could ‘get out of’ the contract.” That statement, together with the delay in making the application, doomed those buyers.

A buyer in Tennessee is not necessarily required to make more than one (1) application. In one case, the court of appeals found a buyer used reasonable efforts where she made only one application and was denied a loan due to her high debt to income ratio. In another case, the court of appeals concluded that the buyers acted reasonably by applying only to two banks. The key ingredient in those cases, and in the Wright case, was that there was no suggestion that the buyers were trying to “get out” of the contract.

The Moral of this Story: The more applications you make, the better your chances of success both in and outside of Court.

For more of this story, see Wright v. Dixon, E2010-0147-COA-R3-CV (Tenn. Ct. App. May 2, 2011).

FAILURE TO NOTIFY INSURANCE COMPANY DOOMS INSURED

Generally, insurance policies include a requirement that the insured notify the insurance company of a claim “as soon as practicable. For many reasons, the insured may fail to do so. Sometimes, the insured wants to avoid an increase of premiums. At other times, the insured believes that the incident is not worth bothering the insurance company. And, at times, the insured does not know that it has coverage. For whatever reason, delay in notifying the insurance company can be hazardous to financial health.

RMG owns 61 restaurants. On September 20, 2007, an elderly gentleman trips after stepping in a hole at one of the restaurants, and the man is hospitalized. On that same day, the injured man’s wife calls the restaurant and informs the manager about the incident. RMG attempts to investigate the case internally in order to save money. In January, 2008, the injured man hires an attorney who sends a demand letter to RMG. RMG notifies the insurance company of the claim on February 22, 2008. Between September 20, 2007, and February 22, 2008, RMG repaired the parking lot.

Generally, timely notice means at the time of the incident. The fact that customers often trip and fall, but do not file lawsuits, does not excuse this notice requirement. In addition, the fact that the insured may be able to settle the case for less than the deductible does not excuse the notice requirement.

In Tennessee, even if notice of a claim is untimely, the insurance company does not automatically escape coverage; if there is no prejudice by virtue of the delay. In this case, the prejudice is obvious -- the scene of the accident was altered.

So, delay notice to the insurance company at your own risk. But, if notice is delayed, remember that delay does not always result in prejudice.

See Everest National Insurance Company v. Restaurant Management Group, LLC, No. E2010-01753-COA-R3-CV (Tenn. Ct. App. April 25, 2011).

A SETTLEMENT AGREEMENT IS ENFORCEABLE EVEN IF IT IS NOT IN WRITING

The lawyers negotiate the settlement of a case by e-mail. Then, when it is time to execute the written settlement agreement, the plaintiff backs out. Is there a binding agreement? The answer is – of course. A settlement agreement is a contract – it does not need to be in writing to be enforceable.

But wait, the lawsuit involves the purchase of real property. Every lawyer knows that the Statute of Frauds requires a contract to purchase real estate to be in writing to be enforceable.

But, the Court of Appeals says, although the underlying lawsuit involves real estate, the settlement is an agreement to settle a lawsuit. That agreement is not subject to the statute of frauds.

Actually, this case could have been decided on another basis. There was no dispute with respect to the attorney’s authority to settle the case on behalf of the client. The opinion shows that the attorneys exchanged e-mails during the course of settlement negotiations, and the final confirmation of the settlement was sent by e-mail. Therefore, the e-mails satisfied the requirements of the Statute of Frauds for a memorandum in writing signed by the party or a lawfully authorized representative.

See Waddle v. Elrod, M2009-02142-COA-R3-CV (Tenn. Ct. App. Apr. 29, 2011)

BUYER BEWARE: Noncompliance with Building Codes is not a Breach of Contract

You decide to build your dream house. You check on builders in the area and one builder receives rave reviews. You sign his standard form contract where the builder agrees to build the house according to “good building practices.” The house is built and is everything that you hoped for – and more.

After you move in during the dry summer, the winter rains come. Your windows leak and water spots appear on your walls. The builder tries to fix the problems, but nothing works. So, you bring in another contractor to look at the problem. To quote that great American folk hero – SURPRISE, SURPRISE, SURPRISE. The house does not have flashing and the brick veneer does not have weepholes. If it did, you would not have any of these problems. AND, these are by the local Building Code.

This case is a no-brainer – a classic breach of contract case. WRONG!

In Tennessee, the building codes are enforced by the codes officials. The consumer has no right to sue to enforce those codes even though the consumer is the one intended to be protected.

To add insult to injury, unless your contract required the house to be built in strict compliance with the building codes, the builder did not breach the contract. The term “good building practices” means the practices that prevail in the community. In this community, the codes officials did not require weepholes and flashing, even though their own code required those items. And, builders customarily did not build houses with weepholes and flashing because the codes officials did not require it.

So, you are the owner now have your dreamhouse with some problems. Oh, by the way, now that you know that the house does not comply with the building codes, you must disclose that fact when you sell the house under the Tennessee Residential Disclosure Act.

THE MORAL OF THIS STORY: NEVER RELY ON GOVERNMENT OFFICIALS TO DO THEIR JOB.

For more on this story, see Wilkes v. Shaw Enterprises, LLC, Case No. M2010-00105-COA-R3-CV (Tenn. Ct. App. May 4, 2011).

BEWARE: CARE V. DOLLARS IN THE NEW HEALTHCARE WORLD

Accountable Care Organizations are the new buzz word in healthcare. ACOs are a centerpiece of the Healthcare Reform law. ACOs are intended to reduce Medicare costs by paying bonuses to doctors for “better” care. Essentially, doctors, hospitals and other providers form a partnership – the ACO. Medicare sets a target cost for all patients to be seen by the ACO partners. The ACO partners receive a bonus if the actual costs paid by Medicare are less than the target. The flip side is that the ACO partners must pay Medicare the amount over the target. How many are going to sign up for that program?

The concept of paying doctors bonuses based upon savings is not new. Sometimes called “gainsharing,” the principle is to incentivize doctors to practice medicine with cost always on their mind. In essence, the physician has a monetary reason to order a CT scan rather than the more expensive MRI. In an ACO, the ACO partners are expected to hold each other partners accountable for practicing conservative (i.e., cheap) medicine.

What happens when conservative medicine results in the failure to diagnose a condition? A clue, however, is offered by the Tennessee Court of Appeals in Poteet v. National Healthcare of Cleveland, Inc. formerly Cleveland Community Hospital. In that case, the court of appeals stated:

1. The existence of the bonus incentive plan whereby the physician received a bonus based upon reducing the number of MRIs ordered did not, in and of itself, make the hospital liable.

2. If the physician had been found guilty of malpractice because he failed to order an MRI, then the existence of the bonus incentive plan would have been significant fact. In that case, a jury could reasonably infer that the bonus incentive plan “increased the risk of misdiagnosis.”

In Poteet, the patient possessed a known history of alcohol abuse. In fact, he was in the local county jail for driving under the influence when he began suffering from a seizure. The jail personnel transported the patient to the emergency room. A CT scan was performed which showed no blood clots. The patient was then admitted to the hospital for treatment. At the hospital, the treating physician was a hospitalist – a physician employed by the hospital.

During the course of the hospital treatment, the physician did not order an MRI or a diagnostic catheter angiogram even though the hospital had the capability to perform both tests. The patient received treatment based upon the results of the CT scan.

Almost three days later, the patient’s condition significantly worsened. At that time, an MRI was ordered. That MRI showed that the patient had suffered a basilar artery stroke due to the presence of a clot. The patient was transferred to another hospital for treatment. Although the patient did not die, the stroke caused him to be paralyzed from the nose down.

In his lawsuit, the patient asserted that if an MRI had been performed timely, the effects of the stroke could have been minimized. The patient further asserted that the hospitalist did not order an MRI because his contract with the hospital provided for a bonus based upon reducing the number of MRIs ordered. In other words, if he ordered less MRIs, the hospital paid the doctor more money.

As noted, the court of appeals held that the mere existence of the bonus incentive plan could not make the hospital independently liable. As the jury found that the physician was not guilty of malpractice, the hospital could not be guilty of malpractice. But, the court also stated that if the physician had been found guilty of malpractice because he failed to order an MRI, then the existence of the bonus incentive plan would have been significant fact for consideration by the jury. In that case, a jury could reasonably infer that the bonus incentive plan “increased the risk of misdiagnosis.” As a corollary, the hospital could have been found, upon comparative fault principles, guilty of negligence by virtue of its contribution to that failure.

For physicians looking at whether to join an ACO, this decision is significant. Depending upon the type of organizational structure used, the ACO, its Board of Directors, its officers and even the individual participants could be liable under this “increased risk of misdiagnosis” theory. Further, this decision emphasizes the risks inherent in rewarding physicians and other healthcare providers for underutilization of diagnostic tests.

For more information on this decision, see Bennie Joe Poteet, II, v. National Healthcare of Cleveland, Inc., No. E2009-01978-COA-R3-CV (Apr. 19, 2011).

LAWSUITS AGAINST SURVEYORS

This is the reason we have a court of appeals. The statute of limitations for claims against a surveyor is four years under Tenn. Code Annotated section 28-3-114. In this case, the defendant surveyor argued that the general statute for claims for damage to real property -- Tenn. Code Ann. section 28-3-105 -- should be applied. That statute provides a three year statute of limitations for injury to property. The trial court agreed and granted the surveyor's motion to dismiss. When I read this case, I asked myself how the statute for injury to real property applies when the sole allegation is that the surveyor "prepared" the survey. A survey, in and of itself, does not change the boundary line. Arguably, it creates a "cloud" on the title, but is a cloud an injury? That is another story. In any event, the court of appeals made short work of this case holding that the specific statute for surveyors superseded the more general statute for damage to real property. So, when this question comes up in Final Jeopardy, you now know the answer. The statute of limitations for lawsuits against surveyors is four (4) years. See Wanamaker v. Thaxton, et al.

I AM TANNING AND I CANNOT GET UP!

This case involves a negative tanning incident in Sumner County. For those of us who live in Sumner County, we know that you do not go to the tanning beds at Captain Video. But, I digress.

Apparently, the plaintiff and her sister enjoy the health benefits of tanned skin. In 2007, both women went to Captain Video. When her session ended, the plaintiff attempted to lift the top but was unable to do so because "it was too heavy.". She called for help, but for some unexplained reason, no one heard her cries. Finally, her sister became concerned about her welfare because, after all, it was only a 20 minute session. She entered the room and found the plaintiff lying on the tanning bed covered in sweat. Oh, that was from tanning.

Someone -- we don't know who -- lifted the tanning bed top and extricated the plaintiff from the tanning bed. The plaintiff was rushed to the emergency room due to her injuries. The record is unclear as to the nature of those injuries, but the word on the street is that a fingernail may have been broken. At this point, my cynicism is showing.

The real issue in this story is that a business owner is only liable for conditions of which it has actual or constructive knowledge. In this case, the owner and its employees regularly inspected the tanning beds and there had been no other complaints that the tanning bed top was too heavy. In addition, the owner promptly took steps to remove any defective beds from operation until repairs were made. The injured plaintiff had no evidence to the contrary. Result: judgment for the owner.

Two morals for this story:

1. It is safer to tan in the sun than in a coffin with lights.

2. Business owners can avoid liability by regular inspections and documentation.

See Harding, et al. v. Donovan Enterprises, Inc.

DO REAL ESTATE AGENTS HAVE AN OBLIGATION TO DO TITLE SEARCHES?

Real estate agents possess a greater likelihood of being sued than doctors. Why? We like doctors. Oh, and doctors, unlike real estate agents, are protected by a number of statutes that make it almost impossible to succeed. For real estate agents, the best protection in a lawsuit is the terms of their contracts.

Should a real estate agent representing a seller verify that the seller actually owns the property? What happens when the seller does not? More importantly, what happens when the seller cannot close on the sale of property because he does not own the property? The answer is guaranteed – no commission and a lawsuit.

So, does a real estate agent possess a legal obligation to perform a title search? What steps does the real estate agent need to take to verify that the seller actually owns the property?

The answer is – none provided that the contract with the buyer includes the following disclaimer:

Disclaimer. It is understood and agreed that the real estate firms and real estate licensee(s) representing or assisting the Seller or the Buyer are not parties to their Agreement and do not have or assume liability for the performance or nonperformance of Seller or Buyer. Buyer and Seller agree that the Brokers shall not be responsible for any of the following, but not limited to, those matters which could have been revealed through a survey, flood certification, title search or inspection of the Property; for the necessity or cost of any repairs to the Property, any portion thereof, or any item therein; for the necessity or cost of any repairs to the Property; for hazardous or toxic materials; for the tax or legal consequences of this transaction; for the availability, capability, and/or cost of utilities, sewer, septic, or community amenities; for applicable boundaries of school districts or other school information. . .if any of these matters or any matters are of concern to them, they shall seek independent expert advice relative thereon.

Of course, if the real estate agent actually knows that the seller does not own the property, the disclaimer does not work. And, if the real estate agent does a title search and fails to find the “cloud on the title,” the agent could be guilty of negligent misrepresentation. So, it would appear that for now ignorance of the state of title is blissful ignorance.

THE MORAL OF THIS STORY – ALWAYS TELL THE TRUTH, AND ALWAYS READ YOUR CONTRACTS CAREFULLY.

For the whole story, see Morgan Development, LLC v. Raymond W. Morrow, E2010-00610-COA-R3-CV (Tenn. Ct. App. Feb. 23, 2011).

INSURANCE AGENTS BEWARE!

It is common for insurance agents to complete applications for their clients. In fact, most clients prefer that the agent handle “the paperwork.” The client then reviews the application in order to verify the accuracy and signs the application normally under a “lengthy” series of acknowledgments that says that the information is accurate and the insurance company will rely upon the answers.

What happens when the customer signs the application completed by the agent and the application contains an error? What happens when the insurance agent completes the application and does not know that the answer is false? IN TENNESSEE, THE INSURANCE AGENT PAYS THE CUSTOMER $1.0 MILLION.

The facts of the case were not very unusual. The insurance agents become friends with husband and wife. Husband had a $300,000 life insurance policy. The agents convince him that he should increase the policy to $1.0 million. The agents obtain some information, complete the application, and send the application to Husband. Husband signs the application without even reading it. The insurance company then issues the policy. Husband allows the $300,000 policy to lapse.

Two months later, Husband dies in a single car accident. Insurance Company declines coverage because of a false statement on the application. The application states that Husband has not been charged or convicted of driving under the influence. In fact, Husband was convicted of DWI.

Wife sues the insurance company for breach of contract, negligence and violation of the Tennessee Consumer Protection Act. The insurance company – settles the case by paying $900,000.

BUT THE STORY DOES NOT END –

Wife also sues the insurance agents. Common sense says that since the insurance company paid $900,000, then the maximum amount the insurance agent could be liable for would be $100,000.

Nice try, but the Tennessee Supreme Court says that the settlement was a general settlement of all claims. It did not specify that it was limited to the breach of contract claim.

In fact, the Court says that the insurance agents are guilty of wrongful failure to procure life insurance. Essentially, the insurance agents are guilty of professional malpractice. “Insurance that is obtained but later voided because of acts or omissions by an agent is just as worthless as no insurance or inadequate insurance.” That wrong is separate and distinct from the wrong done by the insurance company.

The Moral of this story: Is a Judgment against the Insurance Agents for $1.0 million worth a few minutes spent reviewing the insurance application with the client?

Morrison v. Allen, No. M2007-01244-SC-R11-CV (Tenn. Feb. 16, 2011).

WHERE DO I FILE MY THRA COMPLAINT?

In law school, I discovered that Tennessee actually has two court systems, the Chancery Court and the Circuit Court. Why, I wondered. What's the difference?

Well now I know -- it is so that lawyers may waste money and time arguing over which court has jurisdiction. And then appeal to the court of appeals so that they can waste more time. And, it really doesn't matter, since if one doesn't have jurisdiction, we simply transfer the case to the other. And in some counties, it does not really matter since the chancellor and the circuit court judges share cases any way. But, I digress.

The Tennessee Human Rights Act states that Chancery Court and Circuit Court have concurrent jurisdiction. So, if you bring a THRA complaint you can file in Chancery Court. WRONG!

According to the Court of Appeals, if the lawsuit is solely for unliquidated damages, you still must bring the case in Circuit Court. But that makes no sense, you might say. Well, it makes as much sense as have two separate offices essentially serving the same function.

Now, have I told you how I feel about having two courts of appeals?

See Keri Williams v. The City of Milan, Tennessee, et al.

FORECLOSURE AND CLEARING TITLE

Around the country, many borrowers who lose their house in foreclosure are arguing that the foreclosure was defective. This results in delay as the courts examine the specifics of the foreclosure. For lenders, the issue is how to avoid the inherent delay.

The answer, at least in Tennessee, is to file an unlawful detainer warrant in General Sessions Court. If the homeowner does not raise the defective foreclosure in the General Sessions Court, then the decision is "res judicata" on any subsequent action. If the borrower does raise that issue, it is resolved quickly by the General Sessions Court.

A quick and cheap way to clear title on property. Also, you serve the detainer warrant by nailing it to the door of the property -- no chasing the elusive occupants around the world trying to get service.

See Davis, et al. v. Williams, et al.