Articles Posted in Business Litigation

In a recent breach of contract case involving a construction contract for the replacement of a roof, the Supreme Court of Tennessee made two holdings that are crucial to understand for those lawyers, builders, and other parties involved in construction contracts, particularly, those carried out, in whole or in part, by subcontractors. First, even if a contractor does not make an express representation that it will perform its work in a workmanlike manner, that condition will be implied, by operation of law, into its contract (unless, of course, such a warranty is expressly disclaimed). Second, the contractor cannot avoid financial responsibility when work is not performed in a workmanlike manner because the contractor hired a subcontractor to perform the work (unless there is some sort of disclaimer by the contractor).

Here are the basic facts of the case:

• The Defendant was a roofing contractor who contracted to replace the Homeowners’ roof

In a recent decision, the Tennessee Court of Appeals reversed a trial court’s grant of summary judgment to a defendant drug testing company in a negligence case. The case is worth a blog post because, not only is it interesting, but also, it discusses three issues of law that arise frequently enough in Tennessee that they are worth reviewing: (1) negligence law; (2) exculpatory clauses; and (3) the difference between an agent and an independent contractor.

Admiral Webster, the Plaintiff, was an employee of Koyo Corporation. Koyo, the employer, had a workplace substance abuse policy. Webster, the employee, had signed an acknowledgment of the substance abuse policy wherein he agreed:

“to hold Koyo and its agents harmless from any liability arising in whole or in part from any act of negligence by any of them in connection with collection of specimens, testing, and use of the results…”

A recent breach of contract and overtime pay case which was decided by the Tennessee Court of Appeals, Taylor v. Del-Nat Tire, provides some excellent insight and knowledge as to two legal issues that are prevalent in many employer/employee situations. It also provides insight on one other issue: How a case might progress through the Tennessee civil judicial system.

First, the case emphasizes the point that, regardless of what might seem fair, if you want to prevail in a breach of contract case, you had better be able to prove that there was a contract. Second, the case reminds us that, where an employee brings a case under the Fair Labor Standards Act (“FLSA”) for unpaid overtime, he or she must, with certain pretty rare exceptions, prove that he or she worked more than forty hours in a workweek (the key concept being the workweek and not Sunday or holiday work). Third, for litigants faced with an adverse verdict from a trial court, the case evidences that trial courts can misconstrue even basic law with straightforward facts.

Here are the salient facts of the case:

Every contract in Tennessee has an implied duty of good faith which applies to both parties to the contract. A recent case from the Tennessee Court of Appeals illustrates well the point that the implied duty of good faith will not override an unambiguous, express contract term. Here are the pertinent facts of that case:

• The Plaintiff in the case was a doctor

• The Plaintiff was an employee of a pain management clinic with offices in Hermitage, Tennessee and Brentwood, Tennessee

In Tennessee, if you are doing construction work for $25,000.00 or more, and you fall under the definition of “contractor,” you must have a contractor’s license. If you don’t, you could “lose your shirt.” Generally speaking, if you are a subcontractor, even if your contract is for more than $25,000.00 worth of work, you do not have to be licensed by the State of Tennessee. In a breach of contract case between a project owner and a contractor, the fact that the contractor was not licensed may result in a substantial windfall to the project owner.

Who must be licensed by Tennessee as a contractor? What construction trades that are typically considered “subcontractors” have to be licensed? What are the consequences of someone without a license engaging in contracting work which requires a license? The first place to look to answer these questions is Tennessee Code Annotated (“T.C.A.”) §62-6-102 which defines a “contractor.”

To say the least, the definition of “contractor” in Tennessee is expansive. Even if someone engages in work that would make them a “contractor” under Tennessee law, so long as the total cost of the work does not equal or exceed $25,000.00, they do not need to have a license (for “masonry contractors” that threshold jumps to $100,000.00). Most subcontractors are not bound by the licensing requirements that apply to general contractors, but there are exceptions.

A recent Tennessee case involving a Nashville condominium and its homeowners’ association (also referred to herein as a “condominium association”) may not be very instructive legally, but it is bizarre enough to make an interesting blog post. Stacy Harris lived at the Windsor Tower Condominiums, a high-rise condo building on Harding Road in Nashville. Like all condominium residents, Ms. Harris was subject to terms in the master deed for the condominium as well as to the bylaws and rules and regulations of the condominium association.

The bylaws and rules and regulations in question forbid the owners of the individual units from carrying on any “unlawful noxious or offensive activities” or doing anything that amounted to a nuisance or “disturbance to others.” The bylaws stated that trash and garbage should be kept only in sanitary conditions, and should be “disposed of in a clean and sanitary manner.” Residents were also prohibited from causing an “unreasonable disturbance to others.” All of the foregoing are typical condominium association rules.

The property manager for the Windsor Tower began to receive complaints about noxious and offensive odors in the building. Eventually, it was determined that the odors were emanating from Ms. Harris’ unit. After a visit inside Ms. Harris’ unit, it was determined that there were “major sanitation issues” inside of her unit. The property manager reported that the smell inside Ms. Harris’ unit was so terrible that it made her eyes water and she had to fight her gag reflex.

Assuming that one party proves that the other party has breached a valid and enforceable contract, what amount of money can the non-breaching party recover from the breaching party? When explaining how a Tennessee court will approach the question of what amount of money to award someone for a breach of contract, I think that it is helpful to think of two broad categories of damages under Tennessee law that come into play when a contract has been breached.

What are those categories? The first is the category of expectation damages. The second is the category of reliance damages. An astute client, who has lost money because of a breach of contract, might ask the following questions (all of which I will attempt to answer):

• What damages are expectation damages and what damages are reliance damages?

In order to prove an intentional interference with contract claim in Tennessee, a plaintiff must prove the following elements:

1. That there was a legal contract;

2. The defendant knew of the contract;

One of a number of “business torts,” as they are called, which is recognized in Tennessee is the tort of intentional interference with contract. That tort is sometimes also referred to as “procurement of breach of contract” or “tortious interference with contract.” There is a Tennessee statute which makes procurement of breach of contract a tort. Businesses need to be aware of this tort, particularly since a party who commits it is liable for three times the actual damages suffered by the injured party.

In our practice, this cause of action seems to arise often in employment matters. For example, we handled a case where an employee, who was not bound by any non-compete agreement, left one employer and went to work for a competitor. Working for a competitor, when there is not a non-competition agreement in effect is, standing alone, not a problem. The legal problem in the case we handled arose because, after the employee started with the competitor of his former employer, a valuable customer of the former employer began doing business with the new employer.

Intentional interference claims also arise frequently when an employee who is bound by a non-compete agreement resigns or is terminated, and then goes to work for a competitor. Such a situation can create a liability problem, not only for the employee, but also, for the employer who hired the employer if that employer was aware of the non-competition agreement.

A recent Tennessee case highlights the importance of paying attention to how you or how the other party signs his or her name to a contract. The case involved a construction contract for a residence. Here are the facts:

• John Wise, III formed Wise Construction Company, LLC–a Tennessee LLC

• Wise entered into a construction contract to perform work on the Defendants’ home