Tennessee Business Litigation Lawyers Blog

Articles Posted in Business Litigation

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.”

Departing Physician Entitled to Accounts Receivable and Not Liable for Future Rent

Published on: January 31, 2016 | by J. Ross Pepper

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.

Recovering Pre-Judgment Interest in Tennessee Breach of Contract Cases

Published on: January 2, 2016 | by J. Ross Pepper

Pre-judgment interest is the interest which accrues from the date an obligation is due to the plaintiff until the day the judge or jury enters a verdict in favor of the plaintiff.

Given that a breach of contact case or other commercial litigation case may take a year or more to get to the point where a verdict is rendered once the case is filed, pre-judgment interest can be substantial in many cases. Consider also that, for various reasons, many cases are not filed until months, even years, after the debt was due to the plaintiff.

Where the parties in litigation do not have a contract about the amount of any interest due, as is often the case, T.C.A. §47-14-123 allows a judge or jury to award pre-judgment interest at any rate not in excess of ten percent (10%). Under Tennessee case law, if you are relying on the statute for pre-judgment interest, you can never receive anything more than simple interest. You cannot compound statutorily awarded pre-judgment interest.

Enforcing a Judgment from a State other than Tennessee in Tennessee

Published on: November 15, 2015 | by J. Ross Pepper

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

Lessons from Daniel Kahneman’s Thinking Fast and Slow

Published on: November 8, 2015 | by J. Ross Pepper

Daniel Kahneman’s bestseller, Thinking Fast and Slow, is not only a fascinating read, but also, it contains insights that can be an immense help to clients in making decisions about their cases, choosing lawyers, negotiating settlements, and evaluating the advice of their lawyers. Here is what clients (and trial lawyers) can learn from the book:

Lesson One: Intuitions are not as Reliable as We Think

With objective evidence and data, Mr. Kahneman proves the point that many people are overconfident and place too much faith in their intuitions. I know from experience that lawyers are just as susceptible to this way of analysis as any other group. On many occasions, I have heard misguided advice from lawyers that was the result of their relying on some kind of intuitive impulse rather than spending time and effort evaluating a case from many angles (which takes time), bouncing the facts of the case off of several other people, including lawyers and non-lawyers (especially important where a jury trial is involved), and seeking and studying objective data (like published case law).

Lesson Two: Jury Outcomes are Unpredictable

When I first became a trial lawyer 25 years ago, I participated in the National Institute of Trial Advocacy and read extensively about the decision making process of juries. What I learned, and was taught, by seasoned trial lawyers and psychologists, is that most juries will ignore the law, the jury instructions, to get to the result which they think is fair. In my trial practice, I have found that to be true.

After reading Kahneman’s book, I realized that there is a whole other layer in the jury decision making process of which we have to be aware. You can’t help but be persuaded by Kahneman that, even the people who make decisions, like jurors, do not understand fully why they decided something the way they did. The point Kahneman makes, and makes well, is that we can all be primed to make decisions in a certain way without even knowing that we have been primed or what has primed us.

Using the Tennessee Trust Fund Statute in Construction Cases to Recover Attorneys’ Fees

Published on: November 1, 2015 | by J. Ross Pepper

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.

Does the Parol Evidence Rule Apply to Statements Which Are the Basis for a Claim or Defense of Fraud?

Published on: September 25, 2015 | by J. Ross Pepper

In Tennessee breach of contract cases and fraud and misrepresentation cases, it is quite possible for the parol evidence rule to come into play. (The basics of the parol evidence rule are explained in a previous blog.) It is also quite possible, in such cases, for the parol evidence rule to be outcome determinative.

A review of the relevant Tennessee case law reveals that Tennessee courts have been inconsistent in applying or not applying the parol evidence rule in cases where allegations of fraud are made, either as a defense, as a claim, or as a counterclaim.

If you want to understand the rules regarding the application of the parol evidence rule in cases where allegations of fraud (now called misrepresentation) are made, then digest the following five cases. In the first three cases, a party relied on a statement made before the contract was signed (parol evidence) to establish a misrepresentation; the other party claimed that such statement was inadmissible under the parol evidence rule; and, the court ruled that the evidence of the statement was not barred by the parol evidence rule. The same things happened in the second two cases except, in those cases, the courts held that evidence of the misrepresentations was barred by the parol evidence rule.

CASES ALLOWING PAROL EVIDENCE TO PROVE A MISREPRESENTATION Continue reading

Contract Clauses Which Prohibit Oral Modifications: How Effective Are They in Tennessee?

Published on: September 18, 2015 | by J. Ross Pepper

Many Tennessee breach of contract cases involve written contracts which contain clauses which provide that no modifications or amendments to the contract are valid unless they are in writing and signed by both parties. How effective are such clauses? Can a party successfully prove that a contract was verbally changed or modified even if it contained a “no oral modification” provision?

Clauses which require modifications to be in writing do not always foreclose the possibility that one of the parties can successfully prove that the contract was, in fact, orally modified. An opinion that gives some pretty good perspective on how such clauses might play out in breach of contract cases is Crye-Leike, Inc. v. Carver (Tenn. Ct. App. 2011).

In the Crye-Leike case, the seller (“Seller”) of a home entered into an “Exclusive Right to Sell Agreement” (the “Agreement”) with a real estate agency (“Agency”). The Agreement was an exclusive six-month listing agreement. It provided that the Agency was entitled to a commission from any sale to anyone during the six-month period or from a sale to someone who was shown the home during the six-month period who purchased the home within ninety days after the Agreement expired.

Are Forum Selection Clauses Enforceable in Tennessee?

Published on: August 26, 2015 | by J. Ross Pepper

Forum selection clauses are prevalent in contracts entered into by Tennessee companies and residents. Often, the purpose of a forum selection clause in a contract is to force another party to litigate in a particular court in a particular state. For example, companies which are based somewhere other than Tennessee, but which sign contracts with Tennessee businesses, frequently put forum selection clauses in their contracts. They do so to ensure that, if they have to sue the Tennessee business or, if the Tennessee business decides to sue them, the lawsuit can only be brought in their home state.

If you are a Tennessee business or resident and have signed a contract with a forum selection clause, how likely is it that a Tennessee court would not uphold the forum selection clause? In my experience, in many cases, that result is not very likely.

Forum selection clauses are considered enforceable in Tennessee, and Tennessee courts will uphold them except in limited circumstances. Here they are:

If the Tennessee business or resident who signed the contract cannot secure effective relief in the other state;
If the other state would be a substantially less convenient place for trial;
If the contract containing the forum selection clause or the forum selection clause itself was obtained by duress, abuse of economic power, misrepresentation or some other unconscionable means; or
If, for any other reason, it would be unreasonable or unfair to enforce the forum selection clause.

Partner Who Claims He Was Defrauded Gets Justice on Appeal

Published on: August 12, 2015 | by J. Ross Pepper

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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