Davy Crockett was "king of the wild frontier." The hero of the Alamo served as a Congressman from Tennessee and has been the subject of television shows, movies, books and magazines. He is a true "American Idol."
But, Davy's misfortunes in life were not limited to being in the wrong place at the wrong time." His love life, alas, is worthy of a Lifetime movie. It seems that Davy fell in love with a married woman. That relationship ended because divorce was not an option. Then, Davy fell in love with Margaret. The couple became engaged. In fact, The relationship was so serious that the couple obtained a marriage license from the Jefferson County Clerk. The marriage, however, never took place. Alas, Margaret ran off with someone else. Davy consoled his loss by marrying another Margaret one year later.
Why the history lesson? Davy returned the marriage license -- the one never consummated -- to the Jefferson County Clerk. That license remained in the courthouse until sometime in the 1930s when it was removed. Some 60 years later, the story and the marriage license was featured on an episode of the Antique Roadshow. In response, this litigation ensued.
The present holder contended that her uncle retrieved the license from the trash where it had been deposited during the course of cleaning out of the archives. He then presented the document to her father as a gift. Jefferson County, Tennessee asserted that it had been removed without permission (a/k/a stolen) and remained the property of the County.
This case reveals a number of issues that were not discussed by the Court of Appeals. The holder of the document lived in Florida. Although a motion to dismiss for lack of personal jurisdiction denied by the trial court, this issue was not presented to the court of appeals. Second, the court of appeals' opinion relies upon a statute enacted in 1989. How can one violate a statute in 1938 that was not enacted until 1989?
In fact, the court of appeals' decision reflects a point of common law that is fairly well developed. One cannot gain good title to "stolen" property. In this case, the "stolen" property was the marriage license. So, the case is closed.
MORAL OF THIS STORY: Don't brag on the Antique Roadshow about how your father obtained a historical document unless you have a copy of the receipt.
See Jefferson County, Tennessee v. Margaret V. Smith.
Thursday, July 28, 2011
Tuesday, May 31, 2011
CRYE-LEIKE: SALE BUT NO COMMISSION
In this case, the court of appeals held that Crye-Leike was not entitled to a commission because of the plain language of its listing agreement. Specifically, the purchaser was not "shown or submitted" to the purchasers prior to August 21 (the date the listing agreement expired). Interestingly, the purchaser saw the property the day after the listing agreement expired.
The facts are simple. Out of town buyers contacted a real estate agent in Memphis to schedule viewings of homes for sale. The buyers apparently surfed the internet and found the house on an "unidentified website." The agent scheduled a viewing for August 22 through Crye-Leike's offices. The listing agreement, however, expired the day before.
The buyers, being crafty, then fired their real estate agent and contacted the homeowner directly. In the interim, the homeowner (who had no knowledge that the buyers had even visited the property) refused to extend Crye-Leike's listing agreement and insisted that Crye-Leike remove its sign. [The real estate agent testified that the owner "orally" agreed to extend the listing agreement, but that extension was not put into writing.) In any event, the buyers and the homeowner entered into a contract for the property.
On appeal, the court of appeals held that the homeowner did not owe anything to Crye-Leike because:
a. The listing agreement required all amendments to be in writing.
b. The terms "shown or submitted" did not include "internet" advertisements to the general public prior to the expiration of the agreement. Instead, those words required that the real estate agent provide "access" to the Property or "an opportunity to view the Property."
The Moral of this Story:
Change your contract today to make specify that internet advertising is clearly included.
See Crye-Leike, Inc. v. Sarah A. Carver.
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.
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.
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