Articles Posted in Business Litigation

A recent case involving a non-competition agreement signed by a brick salesman proves the conclusion that, in many Tennessee non-competition agreement cases, the determination of whether or not a former employee should be bound by his or her non-compete agreement turns on very subjective considerations. In point of fact, in that case, the trial court determined that the non-competition agreement was unenforceable: The Court of Appeals of Tennessee then determined that it was enforceable.

For breach of contract lawyers who handle non-compete cases, the case also highlights the importance of whether or not the former employee had access to pricing information, pricing strategies and profit margin information about his or her former employer. One of the two pivotal factors which caused the Court of Appeals to reverse the trial court was that the former employee / brick salesman (“Employee”) had fairly extensive knowledge of his former employer’s pricing structure, margin targets and bidding strategies for brick sales. Notably, Employee even admitted that having such knowledge would give someone a competitive advantage over the former employer (“Employer”) when bidding and quoting brick.

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Clients in breach of contract cases, as well as other cases involving business disputes, are often new to the litigation process and have questions about it. Common questions I receive at the outset of a case from clients are: How long will the case take? What happens after the complaint is filed? When will the trial take place?

So, how long does it take for a breach of contract case to be finished? What I tell clients for cases filed in Tennessee state courts is that, if the case has to go all the way to trial, don’t expect the trial to take place any sooner than a year to a year and a half from the date the case was filed. If you have a trial date within one year of the date suit was filed in a case in Tennessee state court, you are doing well in terms of time.

For breach of contract cases filed in the federal court for Nashville and Middle Tennessee, the trial date will almost certainly, in my experience, be set on a date that is at least one year from the date the complaint was filed. In federal court in the Middle District of Tennessee, the court will automatically assign your case a trial date within, usually, a few weeks after the case was filed.

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To recover in a breach of contract case in Tennessee, a party must prove that there was an enforceable contract. In Tennessee, an agreement must meet several requirements before it can be considered a legal contract. For example, there must have been a “meeting of the minds” between the parties and the terms of their agreement must be definite enough to be enforceable in order for a contract to be formed. Believe it or not, more often than you might think, two parties conduct some type of business together without having an agreement that amounts to what a court would consider a contract.

So what happens when an aggrieved party cannot prove that there was a contract? Is that party then totally without any legal recourse whatsoever? Not necessarily. Tennessee, as do most, if not all other states, recognizes the legal doctrine of quantum meruit – – -also called unjust enrichment or quasi-contract.

Quantum meruit allows a court to award money to a party who has provided goods or services to someone else even though those parties never had a contract. In fact, a court can use quantum meruit to provide relief only when no legal contract is found to exist between the parties.

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Frequently in Tennessee, LLC members have to part ways. When that happens, it also may happen that one of the members will file a court action to have the limited liability company dissolved. Assuming that the LLC has assets, an issue that a Tennessee court is likely to have to decide in an LLC judicial dissolution action is how the assets should be divided between or among the LLC’s members. Of course, in dissolution proceedings, LLC members often disagree about the amount to which other members are entitled.

The first place a Tennessee court will (or should ) look to determine how the assets of an LLC which is being dissolved should be distributed is T.C.A. §48-249-620, which is part of the Tennessee Revised Limited Liability Company Act. To summarize, here is the pecking order for the distribution of an LLC’s assets upon dissolution:

First: Creditors of the LLC, which can include members who have made loans (as distinguished from contributions to the LLC).

Collecting a judgment or debt owed from either a husband or wife, but not owed by them jointly, can be difficult, if not impossible. Why so? Jointly owned property, in many circumstances, is not subject to a creditor’s claim against just one of the spouses. Some spouses try to avoid paying debts by transferring property they own individually to the other spouse so that both spouses own the property jointly. When this occurs, it is possible, depending on the facts, that a Tennessee court might declare the transfer to be a fraudulent conveyance (also referred to as a “fraudulent transfer”).

If a transfer is found to be a fraudulent conveyance, a Tennessee court has a range of options to assist a wronged creditor. It might negate the transfer so that the property reverts to the spouse with the debt so that his or her creditors can collect against it. Or, it might order the property sold to satisfy the claim of a creditor. In some circumstances, a court might even enter a money judgment in favor of a creditor and against the spouse which received the fraudulent conveyance.

In a recent fraudulent conveyance case, the Court of Appeals of Tennessee ruled that the transfer of a 27 acre farm by one spouse to the other was a fraudulent conveyance. Here are the facts:

If you do business in Nashville, or anywhere else in Tennessee, you might be wise to know something about the warranty provisions of the Uniform Commercial Code (“UCC”). Those warranty provisions are contained in Chapter Two of the UCC, which deals with sales.

When do the warranty provisions of the UCC apply to a sale? They apply only to transactions for the sale of goods. “Goods” are defined, generally, as anything that is movable. What warranties does the UCC create? There are three UCC warranties which potentially could apply to any sale of goods in Tennessee.

In what should have been an easy win in a breach of contract case, a Tennessee bank went home with a goose egg after the Court of Appeals applied a fundamental rule of Tennessee contract law to the facts of the bank’s case. The case, which was filed in Coffee County, Tennessee, answers the question of why the material terms of contracts should be definite: Because, if they are not definite, the contract will not be enforceable.

The facts of the case are as follows:

• The Bank loaned money to the Defendants

For salespeople, brokers, and agents who derive a substantial part, if not all, of their income from commissions, knowing something about Tennessee law on the subject of future commissions is worthwhile. By future commissions, I am referring, broadly, to commissions that become due after an account is established, but while the relationship between the organization that originally agreed to pay the commission and the salesperson, broker or agent is intact. I am also referring to commissions which accrue after the salesperson, broker or agent has terminated their relationship with the organization that agreed to pay commissions.

The best way for a salesperson, broker or agent in Tennessee to avoid the headaches, uncertainty and expense of a breach of contract lawsuit to recover future commissions is to make sure that there is a clear, written agreement which outlines specifically the circumstances under which future commissions are owed. In the absence of any written agreement which clearly sets forth the agreement of the parties as to future commissions, parties involved in cases about future commissions are likely to become embroiled in a legal slugfest about what was agreed to between the parties and who said what.

I have seen many employment agreements which make it crystal clear that, once the employer terminates the employee, or once the employment relationship is terminated for whatever reason, the employer will owe no future commissions even from accounts or business generated by the terminated employee. These types of provisions are enforceable. Agreements between organizations agreeing to pay commissions and independent contractors, or other non-employees, often contain similar provisions which restrict the right to future commissions once the relationship is terminated.