Tennessee Business Litigation Lawyers Blog

Articles Posted in Business Litigation

Temporary Restraining Orders and Temporary Injunctions in Tennessee Business and Employment Litigation

Published on: October 10, 2016 | by J. Ross Pepper

Tennessee courts, if they follow the law, which they usually do, are very disinclined to make a party do something or to make a party refrain from doing something until the usual legal processes which occur after a lawsuit has been filed have taken place. The usual processes, which typically take many months, are an initial round of pleadings and motions, an opportunity for each party to engage in discovery, and the occurrence of a trial (if one of the parties has not shown that it has a strong enough case that it is entitled to a summary judgment or dismissal).

There are situations in which Tennessee courts are authorized to, and will, grant what is referred to as “extraordinary relief” or “injunctive relief” on an emergency or semi-emergency basis. Such relief comes in the form of temporary restraining orders (“TROs”) and temporary injunctions, sometimes also called emergency injunctions. Temporary restraining orders and temporary injunctions are almost always granted at the outset of litigation in order to prevent irreparable harm to a party. (Permanent injunctions are granted after a trial or dispositive motion and are not discussed in this blog.)

The notion behind TROs and temporary injunctions is that, in some situations, if a party has to wait on the usual legal processes to occur, even if it wins, it will suffer damages or harm that cannot be remedied even by an award of money damages.

A. Requirements for Obtaining a TRO or Temporary Injunction

To obtain a TRO, a party must prove to the court that, absent a TRO, the opposing party’s actions will cause it immediate damage which will be irreparable. TROs are frequently issued in cases where ex-employees or independent contractors are violating valid non-compete agreements and/or have confidential information, which information gives them a competitive and unfair advantage over their prior employer or the party with whom they had the independent contractor relationship.

Breach of Contract Cases: When Does Tennessee Law Apply?

Published on: August 19, 2016 | by J. Ross Pepper

As much as any other area of the law, the common law related to contractual rights and to breach of contract cases seems to be generally pretty consistent from state to state, but there can be differences. Sometimes, those differences might make a critical difference in a breach of contract case.

So, when might Tennessee substantive law not apply to a breach of contract case filed in a Tennessee court? There are two scenarios under which Tennessee substantive law will always apply in breach of contract cases. Those scenarios are pretty common. The first is where the parties have an enforceable written contract which states that Tennessee law applies. The second is where everything about the contract involves Tennessee and no other state. For example, where two parties who are both residents of Tennessee enter into a contract which is to be performed only in Tennessee, Tennessee substantive law will apply.

In some situations, whether Tennessee law will apply is not so clear. For example, in situations where a Tennessee party has a contract with a New York resident and some of the contract performance occurs outside of Tennessee, Tennessee substantive contract law might not necessarily apply. This is so even where the Tennessee resident can properly file its breach of contract claim in a Tennessee court.

Supreme Court of Tennessee Adopts New Standard for Determining Whether a Claim is Direct or Derivative

Published on: July 23, 2016 | by J. Ross Pepper

Generally speaking, a shareholder of a corporation or a member of an LLC has no individual right against a third party for an injury done to the corporation or LLC. While injuries done to corporations and LLCs most always have a direct monetary impact on owners, still, such claims belong to the corporation or LLC. Thus, they must be filed on behalf of the corporation or LLC. As well, any recovery must be paid to the corporation or LLC.

In Tennessee, claims filed on behalf of a corporation or LLC are called “derivative lawsuits,” “derivative claims” or “shareholder derivative lawsuits.” “Direct claims” belong directly to shareholders (or LLC members), and can be filed in the name of the injured shareholders or LLC members. Any recovery or relief in a direct claim will go to the shareholder or LLC member who brought the claim.

A shareholder who brings a lawsuit in his or her own name had better be careful. That is because, if the claim brought by the shareholder should have been brought on behalf of the corporation as a derivative claim, it will be dismissed on the basis that the shareholder does not have standing. (The same analysis applies to claims brought by LLC members.)

For many cases, distinguishing between a claim that must be filed as a derivative claim versus a claim that may be filed by a shareholder or member in his, her or its own name and right is pretty easy. For example, if an officer or owner of a corporation or LLC breaches his or her fiduciary duties by misappropriating monies or business opportunities of the corporation or LLC, a shareholder or member would have to sue that officer or owner in a derivative lawsuit.

“As Is” Contracts and the Mutual Mistake Defense

Published on: July 16, 2016 | by J. Ross Pepper

Tennessee breach of contract cases can sometimes be defended successfully by asserting the defense of mutual mistake. Here is a hypothetical example of a case in which the defense of mutual mistake would squarely apply: Seller sells a residential lot to Buyer. At the time Buyer and Seller sign their contract, unbeknownst to both, the property is in a flood plane and is unsuitable for a home.

Under the above hypothetical facts, both Buyer and Seller made a mutual mistake as to a material matter at the time they made their contract. Under Tennessee law, if the Buyer found out after the parties made their contract that the lot was unsuitable for a home; Buyer refused to pay; and, Seller sued buyer for breach of contract, then, Buyer could successfully defend those claims by pleading mutual mistake.

It is probably unlikely that the same facts as the above hypothetical will ever occur in a Tennessee case because of the prevalence of real estate contracts which have “as is” clauses in them. Such “as is” clauses in real estate contracts have taken away the defense of mutual mistake for more than one buyer of real estate in Tennessee.

Under Tennessee law, even where both parties entered into a contract under a mutual mistake about a material fact, if the contract allocated the risk of that mutual mistake to one party, that party cannot use the doctrine of mutual mistake. How does the risk of a mutual mistake become allocated to one of the parties? The answer is that “as is” and similar clauses do just that.

Using the Doctrine of Equitable Estoppel to Defeat a Statute of Limitations Defense

Published on: June 25, 2016 | by J. Ross Pepper

In Tennessee breach of contract cases, the defense of the statute of limitations is raised with some frequency. Most of the time that it is asserted as an affirmative defense, it will not defeat the plaintiff’s claim. It is one of the affirmative defenses which lawyers insert reflexively into their answer to cover their client just in case the facts, as they develop, might support such a defense.

In some cases, however, a defendant can prove fairly easily that the plaintiff filed his or her breach of contract case outside of the statute of limitations. In such cases, all may not be lost if the plaintiff can prove that the defendant should be equitably estopped from relying upon the statute of limitations. So, what does it take under Tennessee law to prove that the defendant should be equitably estopped from asserting the statute of limitations as a defense?

Once the defendant makes out a prima facie statute of limitations defense, the plaintiff has the burden to prove “the defendant induced him or her to put off filing suit by identifying specific promises, inducements, suggestions, representations, assurances or other similar conduct by the defendant that the defendant knew, or reasonably should have known would induce the plaintiff to delay filing suit.” Redwing v. Catholic Bishop for Diocese of Memphis (Tenn. 2012) A defendant makes out a prima facie case by presenting facts which show that the plaintiff’s claim was filed after the statute of limitations had expired.

Under Tennessee law, a plaintiff cannot bar the defendant from relying upon the statute of limitations defense by introducing vague statements made by the defendant or statements that are ambiguous. The plaintiff, however, does not have to prove that the defendant was so specific that he or she expressly stated that he or she would not assert the statute of limitations as a defense. Likewise, the plaintiff does not have to prove that the defendant specifically said that he or she would delay filing a lawsuit.

Using Quantum Meruit to Recover in Tennessee

Published on: May 22, 2016 | by J. Ross Pepper

In many, if not just about every, breach of contract case filed in Tennessee, the plaintiff will include a quantum meruit claim with his, her or its breach of contract cause of action. Why is that done? What is a quantum meruit claim?

Quantum meruit is a legal cause of action which allows a court to award damages to the plaintiff even where there is no enforceable contract between the plaintiff and defendant. When a court uses quantum meruit, essentially, it implies a contract between the plaintiff and defendant pursuant to which the defendant must pay the plaintiff for whatever the plaintiff provided. Quantum meruit can be used by a plaintiff to recover for goods, services, or both.

Quantum meruit claims accompany breach of contract claims so often because they provide a way for the court to award money to the plaintiff even when the plaintiff cannot prove that there was an enforceable contract. In fact, a court cannot even award damages pursuant to a quantum meruit claim if there was an enforceable contract between the parties. A quantum meruit claim can be an invaluable claim for a plaintiff because contracts, even written ones, may fail for various reasons: the statute of frauds; indefiniteness; mutual mistake; etc.

A fairly recent case from the Court of Appeals for the Sixth Circuit, in which the court applied Tennessee quantum meruit law, is illustrative of how important a quantum meruit claim can turn out to be. It also sheds light on how courts calculate damages for quantum meruit.

Litigating Contracts with “No Oral Modification” Clauses

Published on: May 7, 2016 | by J. Ross Pepper

Many breach of contract cases in Tennessee involve written contracts which contain what I refer to as “no oral modification clauses.” Although the language of these types of clauses differs, they usually say something like this: “This Agreement may not be amended, modified, changed or extended except by a written instrument signed by both parties.”

There is also a statute in Tennessee, T.C.A. §47-50-112(c), which directs that, if a contract contains “a provision to the effect that no waiver of any terms or provisions thereof shall be valid unless such waiver is in writing, no court shall give effect to such waiver unless it is in writing.”

Especially given the above statute, if two parties in a breach of contract case are litigating a case with a written contract which contains a clause disallowing oral modifications or changes, it would be impossible for one of the parties to prove that the contract had, in fact, been orally modified, right? Wrong. In fact, it happens all of the time.

Here is a summary of cases not upholding and upholding no oral modification clauses:

CASES HOLDING WAIVERS, AMENDMENTS AND MODIFICATIONS EFFECTIVE EVEN THOUGH CONTRACT CONTAINED CLAUSE REQUIRING CHANGES TO BE IN WRITING Continue reading

Business Court Ruling Expands Fiduciary Duties of LLC Members

Published on: April 14, 2016 | by J. Ross Pepper

A recent ruling from the Davidson County, Tennessee Business Court in a breach of fiduciary duty case has expanded the scope of fiduciary duties owed by LLC members to other LLC members. Under Tennessee law, it is, and has been for many years, well-established that shareholders in corporations and partners in partnerships owe fiduciary duties to each other, and not just to the corporation or partnership.

Whether LLC members even owe other members fiduciary duties, and, if so, what fiduciary duties LLC members owe to one another have been unclear. The Business Court’s recent opinion has helped to clarify the matter of the duties owed by LLC members to other LLC members.

Limited liability companies, a form of business entity which is, relatively speaking, fairly new, are designed to incorporate the best features of corporations and partnerships. Tennessee has a comprehensive set of laws regarding LLCs which are found in the Tennessee Revised Limited Liability Company Act (the “Act”), T.C.A. §48-249-101.

Section 48-249-403 of the Act deals with the fiduciary duties of LLC members and managers, and limits the fiduciary duties of LLC members and managers. Moreover, some Tennessee case law, which was decided before the enactment of the Revised Tennessee LLC Act, held that LLC members did not owe each other fiduciary duties. Continue reading

Statutes of Limitations in Tennessee Breach of Contract Cases: An Overview of the Basics

Published on: March 26, 2016 | by J. Ross Pepper

Step One: Determining Which Statute of Limitations Applies

The Six Year Statute of Limitations Applies Most of the Time

Most breach of contract cases in Tennessee will be subject to the six (6) year statute of limitations codified at T.C.A. §28-3-109. There is one (1) other possible statute of limitations which could apply in a breach of contract case which would require someone to file suit in less than six (6) years. There is another statute of limitations which might allow a period longer than six (6) years. Lastly, there is the possibility that none of the statutes of limitations codified in Tennessee apply because the parties have contractually agreed to a limitations period.

The Four Year Statute of Limitations for UCC Cases

If the breach of contract is for the sale of goods, the Uniform Commercial Code (“UCC”) will apply. The statute of limitations for any contract for the sale of goods under the UCC is four (4) years. T.C.A. §47-2-725

The Ten Year Statute of Limitations for Demand Notes

In Tennessee, demand notes are subject to a ten (10) year statute of limitations. T.C.A. §28-3-109

Contractually Agreed to Limitations Periods May Be Shorter Than Four Years, Six Years, or Ten Years, and Are Enforceable in Tennessee

In many breach of contract cases, particularly insurance policy breach of contract cases and disability insurance policy cases, a statute of limitations placed in the parties’ contract will govern. Even if the six (6) year statute of limitations might otherwise apply, a breach of contract case might have to be filed much sooner in order not to be barred by a shorter limitations period which was agreed to by the parties. Such contractual statutes of limitations are fully enforceable in Tennessee, and trump the statutes of limitations in the Tennessee Code. Under Tennessee law, a contractually agreed to limitations period for filing a lawsuit is enforceable so long as it provides a “reasonable time period” for filing a lawsuit. One Tennessee court upheld a contractually agreed to limitations period of sixty (60) days. See, Morgan v. Town of Tellico Plains (Tenn. Ct. App. 2002). Another upheld a contractually agreed to limitations period of one (1) year. See, Certain Underwriters at Lloyd’s of London v. Transcarriers, Inc. (Tenn. Ct. App. 2002). Continue reading

Recovering Attorney’s Fees Pursuant to a “Prevailing Party” Contractual Provision

Published on: February 26, 2016 | by J. Ross Pepper

Under Tennessee law, which follows the “American Rule,” a winning party cannot recover its attorney’s fees from the losing party. There are a couple of exceptions to that Rule. One of those exceptions is that a party can recover its attorney’s fees if there is a contractual provision whereby the parties agreed to the same.

Many contracts do contain what are referred to as “fee shifting” clauses or “attorney’s fees” clauses. Frequently, in breach of contract cases, there is a contractual provision involved which provides that the prevailing party is entitled to recover its attorney’s fees and expenses from the other party.

What if a party does not have an outright win, but only wins on some issues? Whether the case involves a breach of contract or real estate dispute, both sides are most likely to allege numerous claims and defenses and to put many issues before the court for resolution.

A recent case involving restrictive covenants in a subdivision plat dealt with the question of whether parties who prevailed on some of their claims, but not all of them, were prevailing parties. In addition to the many other provisions in the restrictive covenants in the plat, there was a provision which stated: “In the event litigation is implemented for the enforcement of these covenants, the prevailing party shall be entitled to an award of attorney fees as additional damages.”

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