Tennessee Business Litigation Lawyers Blog

Articles Posted in Business Litigation

Recent Case Highlights a Way Around the Tennessee Statute of Frauds

Published on: January 19, 2015 | by J. Ross Pepper

In Tennessee, certain kinds of contracts are not enforceable unless (1) they are in writing and (2) they are signed by the party against whom enforcement is sought (the defendant, typically). Why? Because the Tennessee Statute of Frauds says so. (Keep in mind that most contracts in Tennessee are enforceable even if they are not in writing and even if they are not signed.)

For those types of contracts which must be written, such as contracts to buy or to sale real estate, you should not assume that you cannot enforce a contract because of the statute of frauds just because you do not have a formal agreement which has been signed. You may well be able to satisfy the statute of frauds if you have one or more different kinds of informal writings related to the sale, such as, for example, a signed check combined with an MLS Listing Sheet describing the property.

The Tennessee Prompt Pay Act: Using It to Recover Attorneys’ Fees in Construction Contract Cases

Published on: November 5, 2014 | by J. Ross Pepper

The Tennessee Prompt Pay Act allows a contractor or subcontractor who has not been paid to recover, in addition to the amount owed under its contract, an award of attorneys’ fees (and interest). The recovery of attorneys’ fees is not automatic, but depends on convincing the judge or jury that the other party, whether it was the owner, general contractor or another subcontractor, acted in bad faith. The Act only allows a court to award attorneys’ fees where the party who failed to pay acted in bad faith.

Before we take a look at what Tennessee courts require to prove bad faith, let’s consider some other requirements of the Tennessee Prompt Pay Act. Even if you can prove that an owner, contractor or another subcontractor has acted in bad faith, if your case does not fall within the protections of the Prompt Pay Act, you will not be able to use that Act to recover your attorney’s fees. For the most part, only in construction contract cases covered by the Prompt Pay Act does Tennessee law allow the prevailing party to recover attorneys’ fees by statute. There is an exception to that rule which occurs frequently: If parties to a construction contract have contractually agreed between themselves that, in the event of litigation or arbitration, the prevailing party is entitled to an award of attorneys’ fees, then they can be recovered even where no Tennessee statute permits their recovery.

The Prompt Pay Act does not apply to residential construction unless the construction involves more than four single-family units. To recover attorneys’ fees under the Prompt Pay Act, a contractor or subcontractor, as the case may be, must provide written notice to the party who has not paid by registered or certified mail, return receipt requested. The notice must state the provisions of the Act on which the unpaid party intends to rely and of that party’s intent to pursue remedies provided by the Act if payment is not made within the time designated in the Act.

Court of Appeals of Tennessee Upholds Arbitration Provision in Employment Contract

Published on: October 28, 2014 | by J. Ross Pepper

In a recent case, the Court of Appeals of Tennessee was asked by a terminated employee (“Employee”) to rule that an agreement to arbitrate in his employment contract (Employment Agreement”) was not enforceable because arbitration would be too expensive. The court disagreed with the Employee, and affirmed the order of the trial court which mandated that the Employee’s claims be submitted to arbitration in conformance with the rules of the American Arbitration Association (“AAA”).

In the case, Trigg v. Little Six Corporation, the Employee was a well-educated, highly paid, top level employee. In exchange for signing the Employment Agreement and releasing Employer from any claims he had against it under a previous employment agreement, the Employer had paid Employee over one and a half million dollars. As well, although the Employee was defined as an “at will” employee in the Employment Agreement, it also provided that Employee would receive a payment of $50,000 in the event his employment was terminated without cause.

The Employment Agreement mandated that any dispute be resolved by a three member arbitration panel. It also provided that the expenses of arbitration be paid equally by the parties.

Court of Appeals of Tennessee Issues Important Decision Regarding Preemptive Effect of Tennessee Uniform Trade Secrets Act

Published on: October 20, 2014 | by J. Ross Pepper

In the recent case of Ram Tool & Supply Company, Inc. v. HD Supply, the Court of Appeals of Tennessee adopted a rule which sets forth the circumstances under which a common law breach of fiduciary duty claim will be preempted by the Tennessee Uniform Trade Secrets Act (“TUTSA”). Before going into the facts of the case, let’s review what TUTSA protects and why it was enacted in 2000 by the Tennessee legislature.

TUTSA allows a business (or an individual) to file a lawsuit and to recover damages where its trade secrets have been misappropriated. To be considered a trade secret: (1) the information must be valuable because it is not known and is kept secret; (2) the information must have economic value to others if they were to have it; and (3) efforts must have been made to keep the information secret. One reason Tennessee adopted the Uniform Trade Secrets Act was to prevent a plaintiff from recovering twice for the same act of trade secret misappropriation. This was possible where a plaintiff could set up separate causes of action such as, for example, conversion and breach of fiduciary duty, and base them both on the same facts related to trade secret misappropriation.

The Ram Tool case involved two competing construction supply companies. Ram Tool, the plaintiff, was based in Nashville and employed a Mr. Pruitt. Although the parties disputed Mr. Pruitt’s position at Ram Tool, it is apparent that he was employed at the managerial level. White Cap, which operated in Alabama, desired to start a branch in Nashville. To that end, it recruited Pruitt to help it which he did all the while being employed by Ram Tool.

When Tennessee Contracts May Be Modified Just By Conduct of the Parties

Published on: October 13, 2014 | by J. Ross Pepper

In Tennessee, contracts may be modified after they are made and after the parties have begun performing. In fact, it happens all of the time. Tennessee law allows the modification of contracts, and a modified contract is as effective as the original contract. Many Tennessee breach of contract cases result from the alleged breach of a term that was not a part of the parties’ original written contract, but which was allegedly agreed upon after the original contract was made.

A modification of a contract is defined as a change to one or more terms of the contract which adds something to the contract or which nullifies some part of the contract. When a contract is modified, its general purpose and intent are left intact. Technically, under Tennessee law, a modification creates a new contract, but the original terms which were not changed or nullified remain in effect.

To prove a modification, there has to be evidence sufficient to establish that both parties assented to the modification. Under Tennessee law, a contract may be modified by verbal agreement or by written agreement. Moreover, and very significantly, a contract may be modified by a course of conduct on the part of the parties. In other words, mutual assent can be found in the conduct of the parties alone. Even more significantly, under Tennessee law, a contract may be orally modified or modified by a course of conduct even where the parties have agreed, in writing no less, to a clause that specifically says that the contract may only be modified by a writing signed by both parties.

Bringing and Defending Breach of Fiduciary Duty Cases for Tennessee LLC Members

Published on: October 5, 2014 | by J. Ross Pepper

Members of Tennessee Limited Liability Companies (“LLCs”) have the right to file lawsuits to recover losses resulting from breaches of fiduciary duty committed by other LLC members or committed by officers or managers of the LLC. In Tennessee, if the breach of fiduciary duty caused a loss to the LLC, as opposed to a loss directly to the LLC member, then the LLC member has the right to bring a derivative lawsuit on behalf of the LLC. If, on the other hand, the breach of fiduciary duty caused a loss directly to the member and not to the LLC, the member cannot bring a derivative lawsuit. In such a case, the member should file suit individually against the other member, officer or manager.

The Tennessee Limited Liability Company Act specifically provides the right to an LLC member to bring a claim for breach of fiduciary duty on behalf of the LLC. Such actions are referred to as “derivative actions” or “derivative lawsuits.” Derivative actions are simply actions brought by an individual member or members on behalf of the LLC. Any recovery for breach of fiduciary duty resulting from a derivative action goes to the LLC, not to the LLC member who brought the lawsuit.

A Tennessee court may, under the provisions of the Tennessee Limited Liability Company Act, permit a successful plaintiff in a derivative action to be reimbursed from any recovery from the lawsuit for attorney’s fees and expenses paid by that plaintiff from his or her own funds. The court may permit such reimbursement for fees and expenses even if the plaintiff member does not recover a monetary judgment, but obtains injunctive or other equitable relief. Furthermore, the court may require the LLC to reimburse the plaintiff for attorney’s fees and expenses paid for by the plaintiff if the amount of the recovery is not sufficient to reimburse the plaintiff for such expenses.

Using Waiver and Estoppel to Hold Insurance Companies Liable in Tennessee

Published on: September 19, 2014 | by J. Ross Pepper

Regardless of what unfounded promises and misrepresentations are made by insurance companies and their agents about the scope or type of coverage purchased, an insured may well be able to use the principles of waiver or estoppel to hold an insurance company to its promises. This may be the case even if the loss in question is technically not covered by the insurance policy or even if it is expressly excluded.

In the watershed opinion of Bill Brown Construction v. Glen Falls Insurance Co., the Supreme Court of Tennessee held that an insured may use waiver or estoppel to void any provision in an insurance policy that would otherwise prevent the insured from being covered. In the Glen Falls case, the insured was a business (“Business”) which specialized in transporting cargos which were too big to be transported on conventional trailers. The Business requested a “full coverage policy” from the Insurance Company. In the process of obtaining the “full coverage policy” which it requested, the owner of the business showed pictures to the Insurance Company’s agent of the type of equipment which it hauled. The pictures showed equipment which substantially exceeded the height of the tractor-trailers on which it was located.

The owner of the Business testified that the Insurance Company’s agent told him that his company “had full coverage.” The Business was transporting an asphalt dryer on a tractor-trailer when the asphalt dryer hit an overpass near Nashville. The asphalt dryer was knocked off of the trailer and badly damaged. The tractor-trailer on which it was being hauled did not make contact with the overpass and was not damaged.

The Parol Evidence Rule in Tennessee Breach of Contract Cases

Published on: August 8, 2014 | by J. Ross Pepper

What are we talking about when we talk about parol evidence in breach of contract cases? Assume A and B have a written contract. A sues B for not fulfilling its obligations. The case of A v. B goes to trial. Any evidence at trial about the negotiations, discussions or agreements on contract terms which led up to the final written contract between A and B would be parol evidence. What would not be parol evidence would be the written contract in its final form (which would certainly be entered into evidence at the trial).

The parol evidence rule is designed to protect the integrity and sanctity of written agreements by limiting what parties and witnesses can testify about at trial when their testimony relates to the terms of the written contract. The policy behind the parol evidence rule is that it would not be good to allow people who have entered into a written contract to come into court and present evidence that contradicts what they agreed to in writing.

The parol evidence rule applies only where there is a written contract: It does not apply to breach of contract cases involving verbal contracts. The parol evidence rule prohibits any evidence at trial of agreements, discussions or negotiations which happened prior to or contemporaneous with the execution of the written contract. Even though “parol evidence” technically refers to oral testimony, the parol evidence rule also applies to letters, emails and other writings created before or at the same time that the written contract was signed.

Insurance Company Held Liable Even When Policy Never Issued

Published on: July 21, 2014 | by J. Ross Pepper

Most business people I know are too busy to read their insurance policies. So, they rely on their insurance agents to make sure that they buy the kind of insurance coverage which they need. Insurance agents and insurance companies are quite capable of miscommunicating and making mistakes. So, sometimes, insureds make claims only to be told by the insurance company that they did not purchase the type of coverage or amount of coverage which they thought that they had purchased.

Luckily for those who purchase insurance policies in Tennessee and don’t read them, Tennessee courts can step in and help an insured who thought it had purchased coverage which it needed when it turns out that it did not. Two cases in which insurance companies were held liable to insureds even when the lack of coverage could have been discovered by the insureds had the insureds read their policies are Allstate Ins. Co. v. Tarrant (Tenn. 2012) and Cleveland Custom Stone v. Acuity Mutual Ins. Co. (Tenn. Ct. App. 2014).

In the Tarrant case, the insured told his agent to place his business vans under his commercial policy. The agent goofed and added the vans to the insured’s personal policy which had lower limits. The Supreme Court held that the insurance company was required to provide the higher limits of coverage under the commercial policy because the agent had made the mistake. The insurance company argued, unsuccessfully, that the mistake of the agent could have been discovered by the insured if only the insured had read his policies.

The First Material Breach Rule in Tennessee

Published on: July 15, 2014 | by J. Ross Pepper

The “first material breach” rule has become an almost knee jerk response as a defense in breach of contract cases. Under that rule, a party who commits a material breach of a contract cannot recover damages from the other party for the other party’s later material breach of the same contract.

There are exceptions to the first material breach rule. First, if the party who committed the first material breach cures its breach, then the first material breach rule cannot be used against that party. Second, one party cannot use the first material breach rule against the other party where the facts show that the party waived the other party’s material breach.

In White v. Empire Express (Tenn. Ct. App. 2012), the defendant in a breach of contract case attempted to rely on the first material breach rule, but was unsuccessful because of waiver. In that case, the plaintiff entered into a lease-purchase agreement for a truck. The lease-purchase agreement required the plaintiff to make monthly payments for the 48 month term of the lease. After the 48 month term ended, the plaintiff was entitled to buy the truck by paying its residual value. Under the agreement, when the plaintiff paid the residual value, he was entitled to the title to the truck.

For a Consultation(615) 256-4838

Name (Required)Email (Required)Phone (Required)Message I accept the terms and conditions. Terms and Conditions: You are sending a form to an email address of Pepper Law, PLC. Before accepting any representation, Pepper Law's professional obligations require that it determine whether there are any actual or potential conflicts with any current or former clients of the Firm. In addition, we do not accept any representation solely as a result of having been contacted via email. By sending this form, you acknowledge that you will not become a client of Pepper Law, PLC merely by sending this email or by the Firm's receipt of it. Any information you send to this Firm before an attorney-client relationship is acknowledged by the Firm and a representation agreement is signed will not be considered confidential or protected by the attorney-client relationship. Do not send any information in this email that is, or that you wish to be treated as, confidential.