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.
Tuesday, May 31, 2011
Thursday, May 26, 2011
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).
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).
Wednesday, May 25, 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.
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.
Monday, May 23, 2011
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.
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.
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.
Tuesday, May 10, 2011
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.
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.
Friday, May 6, 2011
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.
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).
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).
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)
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).
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).
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