Articles Posted in Business Litigation

In a recent breach of contract case involving a physician’s claim for accounts receivable after he left the partnership in which he was a partner (the ”Partnership”), the physician prevailed on his claims.  The physician (the “Plaintiff”) also prevailed as to the counterclaim of his former partners who counter-sued him claiming that he was liable for future rent due under a lease entered into by the Partnership.  The case, Pendola M.D., P.C. v. Assoc. Neurologists of Kingsport (Tenn. Ct. App. 2016), involved the following facts:

• The Plaintiff joined a Partnership of other neurologists in 1996
• The Plaintiff became a partner one year later
• At the time Plaintiff became a partner, he signed a Partnership Agreement
• In 2008, after Plaintiff became a partner, the Partnership signed a ten year lease for a building with an annual rental rate of $216,000
• Plaintiff claimed that he was not informed of the signing of the lease until more than one year after it was signed
• In 2011, Plaintiff gave his 180 day notice that he was leaving the Partnership

The Plaintiff filed a breach of contract lawsuit after the Partnership refused to pay him the accounts receivable to which he claimed that he was due. The Partnership counter-sued alleging that the Plaintiff was liable for his pro rata portion of rent due for another eight years after Plaintiff’s departure.

The Partnership Agreement clearly provided that the Plaintiff was entitled to receive his accounts receivable after he left the Partnership.  The Partnership based its argument that Plaintiff was liable for future rent on a “hold harmless” provision in the Partnership Agreement.

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I receive calls frequently from companies and individuals who have obtained a judgment from a court in a state other than Tennessee against someone who lives in Tennessee or someone or some business which owns property in Tennessee or has operations in Tennessee.  If you are one of those companies or individuals who have a judgment from another state against someone who lives in Tennessee or some company which has assets or real estate in Tennessee, here is the good news:  In all likelihood, that judgment can be enforced in Tennessee.

Tennessee has adopted the Uniform Enforcement of Foreign Judgments Act.  That Act essentially codifies the full faith and credit clause of the United States Constitution which requires the states to give full faith and credit to the judgments and decrees of sister states.

The Act requires Tennessee courts to presume that a judgment issued by a state other than Tennessee is valid.  Even better, once a foreign judgment is “enrolled” by a Tennessee court, you can use all of the procedures to collect it that you could if it was a judgment which originally came from a Tennessee court.  Continue reading

In breach of contract cases involving construction contracts, the Tennessee Trust Fund Statute, T.C.A. §66-11-138, may provide a subcontractor with a way to recover the attorneys’ fees and expenses incurred in collecting amounts owed to it, but not paid.   To recover attorneys’ fees and expenses using that Statute, it is not enough to prove just a breach of the contract by the contractor or subcontractor with whom you contracted.  You have to prove that you were not paid because the contractor or subcontractor who owed you money violated the Statute and did so with the intent to defraud.

The Statute also provides protection to project owners by allowing them to recover any attorneys’ fees and expenses, as well as any other damages, incurred as the result of the contractor using funds of the owner for improper purposes (purposes prohibited by the Statute).

Under the Tennessee Trust Fund Statute, any contractor or subcontractor who, with intent to defraud, uses monies paid to it for any purpose other than to pay for labor, materials, services, equipment, machinery or for related overhead or profit, while any subcontractor remains unpaid, has violated the Statute (subject to the exceptions discussed below).  A violation of the Statute, besides amounting to a Class E felony, entitles the injured party to recover any damages caused to it as the result of the misuse of the funds, including attorneys’ fees and expenses.

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In a recent decision involving a partnership lawsuit, the Court of Appeals of Tennessee reversed a trial court’s decision to dismiss a partner’s fraud and promissory fraud claims against the other partner and a third party.  Here are the key facts of the case:

• Plaintiff and Defendant were 50% partners in a Partnership
• Defendant was the managing partner
• The only significant asset of the Partnership was a large commercial building
• Plaintiff expressed a desire to sell his partnership interest to a Third Party
• The building was appraised at $3.3 to $3.6 million dollars
• Defendant insisted that the building was worth less than the appraised value by about $1 million because of hail damage to the roof which would cost about $1 million to repair
• Neither Third Party nor Defendant divulged to Plaintiff, before he sold his interest to Third Party, the fact that Defendant had submitted an insurance claim for the roof damage (They both knew it for over two months before Plaintiff sold)
• Plaintiff sold his interest to Third Party, and, thereafter, discovered that the insurance company had paid just over $1 million to the Partnership for the roof damage after his interest had been sold
• Plaintiff testified that he sold his interest for about a half a million dollars less than he would have had he known about the insurance claim

The Plaintiff filed a lawsuit for fraud. It is difficult for me to conceive, based on the facts of the case, how a trial court could dismiss the Plaintiff’s fraud claims on summary judgment, but the trial court did just that. The trial court held that the Defendants had negated essential elements of the Plaintiff’s claims “with respect to whether there was a failure to disclose.”  The Court of Appeals reversed the trial court.

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