SUMMARY OF HEALTHCARE REFORM ACT DECISION

 Healthcare Reform Act is Constitutional – In Part.

Chief Justice Roberts, regarded as one of the more conservative members of the United States Supreme Court, announced that one of the key elements of the Patient Protection and Affordable Care Act of 2010 a/k/a the Health Care Reform Act – the individual mandate is constitutional.  Another element – Medicaid Expansion Sanction – was declared unconstitutional, and the Government was barred from sanctioning States for failing to expand their Medicaid Programs.

This is an apparent loss for Conservatives who argued that the Health Care Reform Act exceeded the powers granted to the federal Government under the Constitution.  In fact, Chief Justice Roberts applied well-settled principles of Constitutional law in analyzing the constitutionality of the Individual Mandate.  He concluded that the Individual Mandate is a tax, and the Constitution clearly grants Congress the power to impose taxes. 

Actually, this opinion is a victory for Conservatives and advocates of states rights.  In a portion of the opinion that will most likely receive less notice, Chief Justice Roberts reigned in the ability for the federal government to use federal funds to force states to participate in programs.  Although Congress is free to use funds as an incentive, it cannot use the threat of denial of funds as a penalty. 

In an apparent effort to fend off criticism from his conservative supporters, Justice Roberts opened his opinion with the statement that:

We do not consider whether the Act embodies sound policies.  That judgment is entrusted to the Nation’s elected leaders. 

He concluded his opinion with the following statement:

The Framers created a Federal Government of limited powers, and assigned to this Court the duty of enforcing those limits.  The Court does so today.  But the Court does not express any opinion on the wisdom of the Affordable Care Act.  Under the Constitution, that judgment is reserved to the people.

Hidden in the decision are many fundamental principles that will likely be cited by the Court in future years.  Here are some key elements:

The “individual mandate” provision of the Healthcare Reform Act requires all Americans to maintain “minimum essential” healthcare insurance coverage. 

·         The Commerce Clause allows Congress to regulate activity.  It does not allow Congress to regulate inactivity.

      ·         “The Commerce Clause is not a general license to regulate an individual from cradle to
             grave, simply because he will predictably engage in particular transactions.” 

·         Congress cannot compel individuals to engage in activity on the ground that their failure to do so affects interstate commerce.

      ·         The Commerce Clause does not permit Congress to mandate participation in commerce.

·          “People, for reasons of their own, often fail to do things that would be good for them or good for society.”   Congress does not have the authority under the Commerce Clause to force people to act or do what Congress believes is best for them.

·         The “Necessary and Proper” Clause is not an independent grant of authority to Congress.  That interpretation would literally gut the federal system of government.

·         The Necessary and Proper Clause has always been interpreted as supplementing the specific powers granted by the Constitution.

·         If it looks like a tax, it is a tax regardless of what Congress called it.

·         Taxes may be levied whether or not the individual engages in an activity.

·          Permitting the Federal Government to force the States to implement a federal program would threaten the political accountability key to our federal system.

·          Congress can use financial rewards as a carrot to encourage states to adopt programs but, the state must have a legitimate choice as to whether to accept federal funds. 

·         Congress is able to use conditions of the use of funds as a carrot. 

·         Congress cannot use the threat to terminate other independent programs to “coerce” behavior.    

·         Calling the penalty a “gun to the head,” Justice Roberts noted that the Medicaid expansion  mandated by the Act would result in the loss of 20% of some State budgets.  This penalty makes the condition an unconstitutional “coercion” and not a carrot.

·         Congress cannot impose post-acceptance or “retroactive” conditions upon States once they accept a program.

See Decision.

THE FAMILY THAT FIGHTS MAKES THE ATTORNEYS A LOT OF MONEY

IF I PUT ALL OF MY MONEY IN TRUST, MY KIDS WON’T BE ABLE TO FIGHT.  WRONG!

No good deed goes unpunished.  Or, in this case, even if you place all of your assets in trust, you cannot stop your family from fighting.

By all accounts, Dad was a good man and a respected attorney in Memphis, Tennessee.  He and Mom recognized the value of placing their assets in trust in order to ensure that their children received adequate funds for their future needs.  A number of trusts were created over the years with the intent of providing for the family.  Dad died in 1994, and the fun began!

Apparently, Son enjoyed life to its fullest.  So much so, that he needed lots of money to live.  Pursuant to the Trust documents, Mom served as Trustee of many of the various Trusts after Dad died.  Sister served as Trustee for some of the Trusts.  At some point, Mom became concerned about Son’s penchant for spending and had the family attorney prepare two amendments to the Trust documents.  Each of these amendments capped the amount that Son received from the Trusts.  Son executed both amendments. 

After Mom died, Son sued his Sister claiming breach of trust.  As a part of his lawsuit, he asked the Court to declare the two amendments to be invalid based upon “undue influence. 

The facts of this story are interesting.  The first amendment was executed by Son at his home in Hendersonville.  He then returned the document to Memphis.  No one, other than Son, was present when that amendment was executed.  Therefore, how can Son claim undue influence?

The second amendment was executed by Son in the presence of Mom, Sister and the attorney.  There is no question that he did so freely.  In fact, Son stated that he did not even read the document.  Again, how can Son claim undue influence? 

As the Court of Appeals explained, the two elements of “undue influence” are (a) a confidential relationship and (b) benefit to the other party.  Mom and Son had a confidential relationship because Mom was the Trustee of the Trusts.  But, the second element is a benefit to Mom.  Mom did not receive any benefit from the amendments – she was not a beneficiary of the trusts. 

But, Sister was also a trustee of some of the trusts when the amendments were executed.  She was the contingent beneficiary upon Son’s death.  Therefore, she satisfied both elements – a confidential relationship and a benefit – because she would receive any funds that Son had not spent.  By all accounts, however, if any arm-twisting occurred, it was Mom doing the twisting. 

That, the court stated, does not matter.  The beneficiary of the arm-twisting does not need to be the one doing the twisting!  Because Sister satisfied both elements, a presumption of undue influence exists.  We then look at the means used, and the effect upon the donor.  If too much means were used and Son can convince the Court that he did not act based upon “free will,” then the amendments are invalid.

THE MORAL OF THIS STORY - IF YOU ARE GOING TO TWIST ARMS, MAKE SURE THAT YOU ARE NOT IN A RELATIONSHIP WITH THE TWISTEE, BECAUSE EVEN IF YOUR MOTIVES ARE PURE, TENNESSEE COURTS ADOPT “FREE WILL.”

For more on this story, see Betty C. GoffCartwright v. Jackson Capital, et al., No. W2011-00570-C0A-R3-CV (Tenn. Ct. App., June 5, 2012). www.tncourts.gov/sites/default/files/cartwrightbopn.pdf

REAL ESTATE AND MEDICAID - YOU CAN'T TAKE IT WITH YOU WITHOUT PAYING FOR IT

Courtesy of Justice Koch, we now have a complete history of probate court appeal since the beginning of time.  Ultimately, the decision is that appeals from Putnam County Probate Court go to the Court of Appeals and not the Circuit Court.  More importantly, the proper procedure for dealing with an appeal to the wrong court is to transfer, not dismiss, the case.

More importantly, this case highlights a peculiarity of Tennessee law.  Real property that passes by devise is not included in the probate estate.  The executor, however, may bring that property into the estate if necessary to satisfy claims of creditors.  Real Property that passes by survivorship or by the entireties is not subject to claim by the executor.  More importantly, it is not subject to claim by TennCare for reimbursement for Medicaid nursing home purposes.  So, if you want to put Mom in a Medicaid nursing home bed and avoid TennCare, have Mom convey the property to you as a joint tenant with right of survivorship.  Of course, Medicare has a “reachback” of 5 years, but it is worth a try.

See In Re Estate of Ardell Hamilton Trigg.

RETALIATORY DISCHARGE AND EMPLOYEES WITH CONTRACTS FOR A DEFINITE TERM - THERE IS A DIFFERENCE

Tennessee law protects employees who report illegal acts by their employers from retaliation.   In addition to the statutory protection (Tenn. Code Ann. § 50-1-304), there is a “common law” protection.  But, that common law protection does not apply to all employees. 
In Tennessee, the common law protection against retaliatory discharge applies only to “at-will” employees.  If the employee has an employment agreement for a definite term (e.g., one year), the employee is not an “at will employee.”  He or she is not protected from retaliatory discharge.  
     
What if the employment agreement gives the employer the right to terminate at any time without cause?  That was the question in Petschonek v. TheCatholic Diocese of Memphis.  W2011-02216-COA-R9-CV (Tenn. Ct. App., May 23, 2012).  The contract at issue provided a one year term and stated that the principal could terminate the contract at any time for any reason.  The contract granted the employee 30 days of compensation as liquidated damages if the principal exercised this right.  Likewise, the employee could terminate the contract prior to the end of the term if the employee paid liquidated damages to the employer. 

The court of appeals held that the inclusion of a right to terminate the contract before expiration of its term does not change the essence of the agreement.  It remains a contract for a definite term.  The court emphasized that the contract at issue included “mutual” rights to terminate the contract and mutual obligations. 

Now, the unanswered question.  What if the contract did not allow the employee to terminate the contract?  What if the contract did not provide for “liquidated” damages to the employee upon termination by the employer without cause?  In those instances, would the employee have a common law protection from retaliatory discharge.

MORAL OF THE STORY.  Often, the inclusion or exclusion of language in a contract often has important legal consequences.  In this case, the employer’s willingness to give 30 days pay probably avoided a bundle of attorney’s fees.

HOW NOT TO RUN A BUSINESS - MINORITY SHAREHOLDERS AND BREACH OF FIDUCIARY DUTY

In 1994, Husband and his brother start a business.  Because they are intelligent, they incorporate that business.  Brother owns 50% of the corporation’s stock, Husband owns 25% of the stock and Wife owns 25% of the stock.  All is well until 2007 when Husband and Wife divorce.  According to the court, Wife had a “personal relationship” with a Company employee which appeared to precipitate this result. 

Normally, property, such as stock in a family business, would be transferred to one spouse as a part of the property settlement.  In this case, for reasons unknown, Wife kept her stock in the Company after the divorce.  And, Wife continued to be employed by the Company.

Then, in May, 2008, Husband fired Wife – now ex-Wife.  The Company then employed Husband’s new wife. 

At this point, the soap opera changes from a mildly interesting story to a tutorial on corporate law.  Husband testified that as CEO, “I am the company.”  He forgot, however, that Tennessee corporate law protects minority shareholders.  Here are a few of his mistakes: 

1.         Notices of Meetings.  Although Wife was a Director, she did not receive notice of meetings of the Board of Directors.  This included the meeting at which Husband decided to fire Wife.

2.         Bonuses to Insiders.  Husband, new wife and Brother all received bonuses.  These bonuses were not approved by a vote of “disinterested” Directors – in this case Wife.

3.         Actions of the Board.  The Husband and Brother decided to forego exercising an option to purchase property without holding a Board meeting.

4.         Removal of Plaintiff as a Director.  The Husband and Brother removed Wife as a Director without her knowledge.

The trial court concluded that the Husband and his Brother instituted a “systematic scheme” to deny Wife her rights as a shareholder.   The court concluded that they acted with malice and avarice toward Wife.  Consequently, the Court found that Husband and Brother violated their fiduciary duty to Wife.

The Moral of this Story.  If you divorce your business partner, buy out all of the stock.  Husband and Brother could have avoided a lot of attorney’s fees if they had merely purchased Wife’s stock. 

Proffit v. Smoky MountainWoodcarvers Supply, Inc., No. E2011-0180-COA-R3-CV (Tenn. Ct. App. May 15, 2012).

FRAUD AND PLEADING - AS WELL AS SOME CHANCERY COURT JURISDICTION ISSUES

Fraud must be alleged with particularity.  That is a simple statement, but is one that causes many attorneys a lot of problems. 

First, some ground rules.  In Tennessee, the courts look at the substance of the complaint, not the form of the complaint.  But, the court will not create a cause of action if the complaint does not allege sufficient facts.  You cannot rely upon allegations of law.  Finally, if you allege fraud, you must allege more than a “short and plain” statement.  The circumstances constituting fraud or mistake must be alleged with particularity.  That means the complaint must include the details.

According to the court of appeals, the term “fraud” for purposes of Rule 9.02 includes any cause of action alleging misrepresentation, including fraudulent concealment and conversion.  To allege these causes of action, the complaint must state the specific representations at issue and identify the persons who made and who received the false information.

This case discusses a cause of action that I did not realize exists in Tennessee – the tort of “aiding and abetting.”  That tort arises if the defendant knows of the wrong being committed and gives substantial assistance or encouragement to the bad actors.  Unlike civil conspiracy, this tort does not require participation in the activities or even knowledge of what actually is occurring.  Even though this tort extends to things other than “fraud,” the court of appeals states that the facts constituting “substantial” assistance must be plead with particularity. 

Two other concepts noted in this opinion.  “Intangible” property cannot be converted.  Money is intangible.  Therefore, the theft of money is not “conversion” unless the amount of money is specific and the funds are identifiable.  If someone removes $100.00 from your bank account, the amount is specific and the funds are identifiable.  If a convenience store is robbed, the perpetrator is not guilty of conversion.  Chancery Courts do not possess jurisdiction over claims for unliquidated damages.  If the exact amount of damages is alleged, the claim is not unliquidated.

So, read those civil procedure rules carefully when you draft your complaint and avoid being the attorney of record in the textbook case on appropriate pleading for the rest of eternity.       

See PNC Multifamily Capital Institutional Fund XXVI Limited Partnership, et al. v. Bluff City Community Development Corporation, et al.

AGREED JUDGMENTS ARE UNENFORCEABLE

Loan workouts occur every day.  Often, the lender requires the borrower to provide an “agreed judgment” as a part of the workout.  This is intended to ensure that the lender does not have to litigate the case. 

If the debtor “revokes” his agreement to the judgment before the judgment is filed or signed by a judge, the agreed judgment is worthless.  All the debtor needs to do is assert a defense of breach of contract.

The good news is that the Court will enforce the terms of the loan modification agreement.  If the debtor, as in this case, failed to make a required $30,000.00 payment, the Court will grant summary judgment.

See The People's Bank v. Raymond E. Lacy.

WHAT POLICY? YOU MEAN WE HAVE A POLICY ON THAT?

Under the Tennessee Governmental Tort Liability Act, Tennessee counties and cities are liable for the negligent actions of their employees. In Giggers v. Memphis Housing Authority, No. W2010-00806-SC-R11-CV, the Tennessee Supreme Court held that immunity under the GTLA is always removed whenever an employee violates a governmental entity’s established policy.

In Giggers, a resident of a housing project operated by the Memphis Housing Authority had a bad day. He elected to remove some of his hostility by firing a gun at the housing project’s security office. Unfortunately, the plaintiff’s father was in the path of the gunfire. He died as a result of the gunshot wounds.

The plaintiff sued MHA alleging that MHA knew that the shooter was dangerous yet failed to evict him. Apparently, the angry shooter previously committed an aggravated assault upon another resident. In response to this incident, MHA placed the shooter “on probation.”

The initial reaction of most people is that the government is not liable for the actions of a criminal. In their first appeal, the Tennessee Supreme Court held that MHA, as a landlord, owed a duty to the residents to protect them. So, the question on this appeal is whether MHA acted negligently.

The answer to this question depends upon a subtlety of the GTLA. If the injury resulted from a
“discretionary” act, the entity retains its immunity. If the injury results from an “operational”
act, immunity is removed and the government is liable.

MHA argued, predictably, that its decision of whether to evict a tenant is a “discretionary” decision because it involves the exercise of decision-making. True, the Court noted, the employee makes a decision – to evict or to not evict. That decision does not constitute “planning
or policy making” – two essential elements of a discretionary act under the GTLA. Without those elements, the decision is an “operational” act.

Hidden in this decision is an important message. The plaintiff argued that MHA violated its
“one-strike” policy when it failed to evict the shooter after the first incident. The Court did not rule on this specific issue because MHA disputed the existence of this “one-strike” policy. Instead, the Court remanded the case to the trial court with the instruction that any act that violates an established policy is always an operational act.

THE MORAL OF THIS STORY – REVIEW YOUR POLICIES IMMEDIATELY.

At least for governmental immunity purposes, any violation of a policy is always Bad News.
See Giggers v. Memphis Housing Authority, No. W2010-00806-SC-R11-CV (Tenn. April 2, 2012)

ALWAYS ATTACH YOUR ADDENDA TO YOUR AGREEMENTS - OR THERE MAY BE NO CONTRACT

This case involves what should have been a "normal" residential real estate deal. The buyer offered to purchase the seller's house at $147,300.00. The parties exchanged counter-offers and ultimately, the buyer accepted the seller's counter-offer to sell the house for a price of $151,000.00. If that was the rest of the story, I would not be writing this account.

It appears that the seller soon realized that the purchase price was not enough to pay all of her costs, including the real estate commissions. So, she refused to close and sold the house to another buyer (presumably at a higher price).

The buyer sued the seller for breach of contract. As this case shows, a written document signed by both parties with an agreed upon price is not always a "contract."

In this case, the parties used a form residential real estate agreement published by the Tennessee Association of Realtors to document the transaction. Like many residential real estate contracts, the form referenced several addenda, including a "Short Sale Addendum." The Short Sale Addendum was not, however, attached to the agreement signed by both parties. We don't know why, but apparently this fact was undisputed. A short sale addendum typically states that the deal is contingent upon the agreement of the mortgage holders to accept less than what they were entitled to receive. But, I digress.

As every law student learns, the elements of a contract are: an offer, an acceptance and consideration. In this case, all three are present. But, there is one element that all contracts must have -- a meeting of the minds.

The court of appeals held that because of the omission of the addendum from the actual contract, "there was no meeting of the minds." The buyer argued that the parties intended to use the TAR form short sale addendum. The court of appeals, however, rejected this argument noting that the "form" agreement does not reference the specific TAR form.

THE MORAL OF THIS STORY:

Always attach your Addenda, or you may lose more than just your mind.

See Casey E. Bevans v. Rhonda Burgess, et al.

MORTGAGE ON A LIFE ESTATE - NO PROBLEM UNLESS THE LIFE TENANT DIES

Bankers are people, and people make mistakes. In this case, the Banker made a very costly mistake. Husband and wife wanted to borrow some money. They apparently did not have any collateral, so they offered to pledge Mom's house to secure the loan.

Mistake # 1 -- To make things easier, Banker agreed to make the loan to Mom instead of to Husband and Wife. He could have made the loan to all three without any problem, but I digress.

Mistake #2 -- Banker received an "attorney's title letter" but apparently fails to review it. I say apparently, because if the Banker had reviewed the letter he would have realized that Mom only had a life estate in her house. He needed to obtain the signature of husband and wife to the deed of trust to make sure that the lien survived Mom's death.

Mistake #3 -- Banker made the loan to Mom secured by a deed of trust on her house. This was a mistake because Mom then died leaving the Bank without any collateral.

The Bank sues Husband and Wife. Predictably, Husband and Wife said it is not our problem. The Chancellor agreed. Clearly, the Bank intended to make a loan to Mom secured by her interest in the property, and the Bank received the benefit of its bargain. The court of appeals remanded the case because the Chancellor failed to rule on the Bank's claim of "promissory estoppel." It is hard to imagine how the Bank will be able to assert that it "justifiably relied" upon any misstatements of fact when the Bank just failed to read the title report it ordered.

The Moral of this Story:

Don't bother getting a title opinion if you are not going to read it. Or, if you make a loan to one person secured by someone else's property, make sure that the real borrower signs the note or even better a personal guaranty.

See The Farmers Bank v. Clint B. Holland, et al.

BASEBALL AND PRENUPS

Baseball is in the air -- Opening Day is almost here -- and the Cardinals will win the Series without Pujols. Okay, I was daydreaming.

In baseball, everyone knows that three strikes and you are out. This case emphasizes that Life often works the same way.

Strike 1 -- You file a joint tax return with your husband.

Strike 2 -- Husband Dies.

Strike 3 -- You signed a prenuptial agreement and Husband left all of his property to someone else.

In baseball, if the catcher drops the ball on the third strike, you can run to first base and avoid the out if you arrive before the ball. That almost never happens. In this case, the widow was trying to outrun the catcher's throw. She lost.

Because the couple filed a joint tax return, the IRS made the refund check payable to both Husband and Wife. When the executor asked the widow to endorse the check so it could be deposited into the Estate account. She said no, "the funds are all mine."

The court of appeals, acting as umpire, called the widow "Out." Specially, the Court held that the proper way to determine ownership of the refund was to look at who earned the income. The wife did not earn any income reflected on the return. As all of the income was attributable to husband, the Court held that 100% of the refund belonged to the Estate.

Arguably, the wife should be entitled to the amount by which the deductions or credits attributable to wife reduced the amount of income payable by the husband. But, it does not appear that the wife made that argument.

THE MORAL OF THE STORY:

Don't argue balls and strikes with the Umpire
Never sign a prenuptial agreement unless you really really intend to give up all of your claims to all of your spouse's assets.

See The Estate of Noel C. Hunt, III, H. Wayne Grant, Executor v. Trisha L. Jolley Hunt

DECEDENT'S ESTATES AND PROBATE 50 YEARS AFTER DEATH

Who files a probate proceeding 50 years after the decedent's death and why?

What happens when someone dies without a will? Lawyers make lots of money.

Urban Legend #1. If I die without a will, my estate will not have to pay the “death” tax. The Tennessee Inheritance Tax is based upon the value of the property owned at the time of death. The tax applies even if the decedent does not have a will.

Urban Legend #2. If I have a will, but I do not go through probate, my estate will not have to pay the “death” tax. Some states calculate a tax based upon the value of assets in the probate estate. The Tennessee Inheritance Tax is calculated on the value of the assets owned at the time of death.

Urban Legend #3. If I do not have a will, it will all work out. It will work out – it just may take 50 years.

In Tennessee, if a person dies without a will, the Government decides who inherits a person’s property. Sometimes it all works out; at other times the family feuds.

Ben and Pearl Bates had nine children. They owned a house in McMinnville, Tennessee where they lived until their deaths. Ben died in 1959, and Pearl died in 1962. Both died without a will. As they had nine (9) children, under Tennessee law each child owned a 1/9th interest in the house.

Fifty (50) years later, one son filed petitions to probate his parents’ estates. He did not, however, file these petitions because he wanted to pay some overdue death taxes. He had an ulterior motive – he wanted to be reimbursed for “expenses, renovations, upkeep, liability insurance and property taxes” he had allegedly spent on the property – over $200,000.

Our hero forgot a basic principle of Tennessee law when he filed the probate petitions. At the time of death, any interest in real estate immediately vested in the heirs. The estate can claim the real estate, but only if there is not enough personal property to pay the claims of creditors. In this case, because over 50 years had passed, the statute of limitations barred any claims by any creditors to the assets of the estates. The real estate never became a part of the “probate” estate. Therefore, the probate court lacked jurisdiction to consider son’s claims.

THE MORAL OF THIS STORY:

THEY CALL IT “FAMILY FEUD” FOR A REASON. When money is involved, the feuding begins.

In re Estate of Bates, M2011-0164-COA-R3-CV (Tenn. Ct. App. Jan. 5, 2012)

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.