Real Estate Litigation

Commercial Lease Case Analyzes Statute of Frauds and Parol Evidence Rule

Published on: March 25, 2021 | by J. Ross Pepper

A Tennessee case, Smith v. Hi-Speed, Inc. (Tenn. Ct. App. 2016), which involved a commercial lease, sets forth a very useful analysis of the parol evidence rule and the statute of frauds. The facts and legal arguments, as well as the analysis of the Court of Appeals of Tennessee, align in a way that make the opinion in the case one that can be helpful to practitioners and litigants in many real estate cases where the parol evidence rule and the statute of frauds are in play.

Here are the salient facts:

Mother owned two commercial buildings, one in Tennessee and one in Arkansas
Mother’s son (“Son”) owned an interest in Hi-Speed (the opinion does not discuss whether Son owned all or some of Hi-Speed)
Mother agreed to spend significant money to build out the Arkansas building for Hi-Speed
Mother and Hi-Speed entered into a written lease agreement for the Arkansas building (the “Lease”)
The Lease provided that it was for 20 years with base rent of $14,000 per month
The Lease also provided that Hi-Speed would pay additional rent of $4,000 per month so long as the Mothers’ Tennessee building was pledged as collateral for the loan Mother obtained to build out the Arkansas building
Hi-Speed made the $4,000 additional monthly rent payments while the Tennessee building was pledged as collateral which was through 2008
Even after 2008, Hi-Speed continued to make the additional rent payments to Mother, and in even greater amounts than $4,000 per month
In 2009, Mother’s son died
In 2011, new management at Hi-Speed notified Mother that the additional rent payments each month would cease

Mother filed suit against Hi-Speed. She claimed that the Lease did not contain the entire agreement of the parties and that they also verbally agreed that the additional rent payments would continue as long as Mother was obligated on the loan she obtained to build out the Arkansas building. (The term of Mother’s obligation on the loan went well beyond the time period that Mother’s Tennessee building secured the loan). The trial court held that the parol evidence rule barred Mother from offering evidence of the verbal agreement.

PAROL EVIDENCE RULE ANALYSIS

Important Recent Tennessee Case on Contract Interpretation and the Parol Evidence Rule

Published on: March 8, 2021 | by J. Ross Pepper

In early 2019, the Supreme Court of Tennessee issued an opinion that, without exaggeration, can be said to be one of the most important Tennessee cases, if not the most important Tennessee case, to contemporary commercial litigation lawyers on the subjects of contract interpretation and the parol evidence rule. The opinion was in the case of Individual Healthcare Specialists, Inc. v. BlueCross BlueShield of Tennessee, Inc.

In the case, the Court undertook the arduous task of analyzing, discussing and reconciling over a hundred years of Tennessee case law on the subjects at issue, much of which case law is inconsistent on critical points. While the opinion, to a large extent, struck a middle ground which still leaves open the ability of parties with contravening positions to pull something from it which supports the position of each, it provides much more clarity than the case law that came before it. It also anchored Tennessee law in a place that is closer to the middle, and not at the extreme, of the two theories of contract interpretation with which it dealt — the contextual approach and the textual approach.

As explained in the Individual Healthcare Specialists case, under the contextual approach to contract interpretation, a court may look beyond the four corners of the written contract to determine the parties’ intent, even when the language in the parties’ contract is unambiguous. The Court juxtaposed that approach to contract interpretation applying the textual approach which prohibits a court from considering evidence other than the parties’ written agreement in many circumstances and certainly in a circumstance where the parties’ writing is unambiguous.

All of the facts and rulings related to the subjects of this post, contract interpretation and the parol evidence rule, do not have to be discussed to understand the outcome and implications of the Individual Healthcare Specialists case. In the case, the plaintiff, an insurance agency which sold BlueCross BlueShield (“BCBS”) policies for a commission, sued BCBS alleging that it had been underpaid. The language of the main agreement between the Plaintiff and BCBS, which was entered into in 1999, unambiguously permitted BCBS the right to change, unilaterally, the commission rates to be paid to the Plaintiff.

How Gifts Can Change the Division of Proceeds in Partition Cases

Published on: June 28, 2020 | by J. Ross Pepper

Under well-established Tennessee law regarding the partition of jointly owned real estate, there is a presumption that the proceeds of the sale of the property should be divided equally between the co-tenants (co-owners). However, that is only a presumption and, quite often, the proceeds are not ultimately divided evenly because one or more owners have contributed more towards the down payment, loan payments, property taxes, or maintenance.

In some partition cases, there is another wrinkle, so to speak, besides the usual matter of how the proceeds should be divided. In some cases, a co-owner may take the position that, regardless of the fact that the other owner may have contributed more towards the property, nevertheless, the proceeds should be divided equally because the other owner intended to gift half of the property to the co-owner who contributed less. In some cases, that position can be successful like it was in a recent case from the Court of Appeals of Tennessee, Dicus, et. al. v. Smith (2020).

Here are the key facts from that case:

Randy Dicus (‘Randy”) was diagnosed with a terminal disease
Randy was not married, but had a son, Jacob
Randy was very close with Jacob and his family
Randy asked an old high school girlfriend, Lisa, with whom he had maintained contact over the years, to take care of him
According to Lisa, Randy told her that, if she would take care of him, he would buy her a house where they could live together while she took care of him
Randy told Lisa to look for a house in the $250,000-300,000 range
Both Randy and Lisa signed the agency agreement with the realtor who Lisa located to assist in finding a house
The realtor testified that Randy had stated, that, as long as Lisa was happy with the house, he would buy it
Randy paid the down payment of $5,000 on the house Lisa had selected and he had approved
The purchase price of the house was $274,000
The deed to the house was put in the names of Lisa and Randy
The deed did not contain any right of survivorship provision
Randy financed the balance of the purchase price of the house with a balloon note that required him to make one payment, after one year, of $280,439
The balloon note was secured by a savings account owned by Randy
Two months after buying the house, Randy made a will whereby he left all of his assets to his son, Jacob
In his will, Randy directed his executor to pay all of his debts (which would have included the balloon note)
Lisa and Randy lived in the home for about three months before Randy passed, during which time, Lisa took care of him
After his father’s death, Jacob, as the executor of his estate, paid off the balloon note for the house

After Randy passed, Jacob filed a partition action and requested that the proceeds from the sale of the home be applied first towards repaying Randy’s estate for the down payment and balloon payment. Lisa admitted that she had made no monetary contribution towards the property, but asserted that she was entitled to one-half of the proceeds of the sale because Randy had made a gift to her of one half of the house.

Claims for Fraudulent Concealment or Failure to Disclose in Tennessee

Published on: June 10, 2020 | by J. Ross Pepper

Under Tennessee law, when a defendant has affirmatively made an untrue statement of material fact, a plaintiff may well be able to recover for intentional misrepresentation (also called “fraud”) or for negligent misrepresentation. What if, instead of making an untrue statement of fact, the defendant failed to disclose an important fact or facts? In Tennessee, in proper cases, a plaintiff can recover for the defendant’s failure to disclose a material fact (sometimes called “fraudulent concealment”).

When considering a cause of action because a party has failed to disclose important facts, a good place to start your analysis is to recognize that, under Tennessee law, in most all transactions, a party does not have a duty to disclose material facts to the other party. For that reason, among others, this cause of action is not at all easy to prove. However, in some cases, it can be successful.

There are four categories of exceptions to the rule that a party to a transaction generally does not have a duty to disclose facts to the other party to the transaction. The first exception exists where a “previous definite” fiduciary relationship existed between the parties. Examples of definitive fiduciary relationships are attorneys and clients, and trustees and beneficiaries.

The second exception exists “where it appears one or each of the parties to the contract expressly reposes trust and confidence in the other.” I have not been able to find an example, in Tennessee case law, where this exception has been found to apply. This exception would necessarily be very difficult to prove and would require something more than is present in almost all transactions, in my opinion. It might apply to a situation where, by the express language of the contract, one party acknowledged that it was in a superior position of knowledge and recognized that the other party was relying upon it and trusting it to fully disclose all relevant facts.

Recovering All Commissions Owed Through Discovery Procedures in Tennessee State and Federal Courts

Published on: May 12, 2020 | by J. Ross Pepper

When sales representatives, brokers, agencies, or other businesses are owed commissions, but are not paid, sometimes they have to retain an attorney to file a lawsuit to recover the unpaid commissions. Our firm, over the years, has represented many commissioned sales representatives in such lawsuits. Many times, not only have we had to prove that the defendant was contractually liable for unpaid commissions, but also, we have had to establish and to prove the amount of the commissions owed.

Defendants which owe commissions often deny that they owe the amount of commissions which they, in fact, owe. Furthermore, they also often do not reveal, at least until they must, the full amount of revenue received or all of the sales on which the commissions are to be based. By doing this, they attempt to reduce the amount of their liability.

Before a lawsuit is filed, which is when discovery procedures can be used to compel parties to produce information on pain of being sanctioned, parties who owe commissions may refuse to produce information to former sales representatives or agents which is needed to determine the exact amount of commissions owed. Once a lawsuit is filed in a Tennessee state or federal court, however, a plaintiff can use the discovery procedures in the Tennessee Rules of Civil Procedure or the Federal Rules of Civil Procedure, as the case may be, to compel a defendant to produce information about sales, revenues, customer accounts, or claimed charge backs or refunds. For all practical purposes for this blog, the federal discovery rules and Tennessee discovery rules are the same. This blog gives an overview of the particular discovery rules that can be employed to determine the amount of commissions owed to a sales representative.

RULE 33: INTERROGATORIES

Rule 33 allows a party to send interrogatories, or questions, to another party. Unless an interrogatory is objectionable, a party must answer it and must do so under oath. Interrogatories are a helpful method of obtaining information about sales, dates of sales, amounts of sales, and the status of customer accounts. They are also helpful in forcing a business to identify the persons with the most knowledge about matters that bear directly on the amount of commissions owed so that those persons may be deposed. Continue reading

Implied General Partnerships in Tennessee: Positives and Negatives

Published on: May 3, 2020 | by J. Ross Pepper

A partnership can be created under Tennessee law without the partners ever having a written partnership agreement. Even where parties have not expressly agreed, verbally, to operate a partnership, an implied partnership can be formed under Tennessee law where the parties involved intended the acts that give rise to a partnership. The consequences, good and bad, of being in an implied partnership can be financially significant.

If you are in an implied partnership, that may be a good thing to establish in a Tennessee court as it may allow you successfully to recover money, property or profits another partner owes you or is withholding. Being a partner in an implied partnership, however, can also result in your personal liability, not just to other partners, but to third parties. To boot, it can result in your being liable to a third party based on an act or omission of the person or persons with whom you are determined to be in an implied partnership.

This blog discusses two general topics about implied partnerships in Tennessee: (1) How Tennessee courts determine whether an implied partnership exists; and (2) the resulting advantages and disadvantages to partners in implied partnerships.

DOES AN IMPLIED PARTNERSHIP EXIST?

Under the Tennessee Revised Uniform Partnership Act (“TRUPA”), a partnership is formed “by the association of two or more persons to carry on as co-owners of a business for profit … whether or not the persons intend to form a partnership.” Under TRUPA, a “person” includes business entities such as limited liability companies and corporations. Significantly, TRUPA provides that owning property together, in and of itself, even where profits from it are shared, does not establish a partnership.

Attacking Fraudulent Transfers in Tennessee State and Federal Courts

Published on: March 29, 2020 | by J. Ross Pepper

It happens sometimes that someone, or some company, which owes a debt will transfer assets that could have been used to pay the debt in order to avoid paying it. Such transfers are often to family members, related or successor businesses, or preferred creditors, and often, when the asset transferred is not cash, are made so that the debtor/transferor receives well below the value of the asset transferred.

Fraudulent transfers can come in an endless variety of forms. Some are obvious and easy to spot. (One of the first ones I ran into involved a defendant which had transferred a piece of real estate to another entity just after my client obtained a judgment against it.) Often, however, they cannot be spotted absent access to the transferor’s financial records, and perhaps even, a deposition or two or a review of financial records by a forensic accountant.

Tennessee has adopted the Uniform Fraudulent Transfer Act (the “Act”) to allow creditors to set aside fraudulent conveyances. If the debtor/transferor transferred the asset to a bona-fide purchaser who paid a value reasonably equivalent to the asset, a court may not set aside the transfer, but, in such a situation, it may well be possible to obtain a judgment against the entities or individuals responsible for the transfer, if they are different from the transferor.

Under the Act, it is important to remember that you do not have to have obtained a court judgment for the amount owed to you before a transfer can be considered fraudulent and set aside. A transfer can be fraudulent as to any creditor who has a “claim” against the transferor. Under the Act, “claim” has a broad definition, and odds are, if you were owed money by the transferor, you can avail yourself of the Act. Moreover, the definition of “claim” includes unliquidated debts, meaning debts the exact amount of which are not known, but which, at some point, can be reduced to a dollar value.

How the Failure to Pay Property Taxes Can Affect Ownership Rights in Tennessee

Published on: March 16, 2020 | by J. Ross Pepper

Tennessee has a statute, T.C.A. §28-2-110, which can come into play in a lawsuit about the ownership of real estate where the party initiating the lawsuit (the “Plaintiff”) is alleged not to have paid property taxes on the property at issue for more than twenty (20) years. To paraphrase the statute, it prevents anyone making a claim to real estate, or rents or profits from it, from bringing a lawsuit where that party, and those through whom that party claims her interest, have failed to pay any state or county taxes owing on the property for more than twenty (20) years.

In my estimation, the critical thing to understand about the statute is that it is a statute of limitations and does not, and cannot, divest a party of title to property or prevent a party from defending its claim to property when it is challenged by another party who initiates a lawsuit. Furthermore, the statute cannot prevent a party who has initiated a lawsuit from defending its claim to the property when the defendant goes beyond invoking §28-2-110 and simply denying the plaintiff’s claim. Where the defendant, through a counterclaim or otherwise, requests that the court adjudicate it to be the owner of the disputed tract, the court cannot use the statute to bar the plaintiff’s claim of ownership.

Maybe, the best way to understand the statute beyond the abstract, is to review how it has affected real parties in lawsuits. So, the following three case summaries are provided to help with that understanding.

Kinder v. Bryant (Tenn. Ct. App. 2018): I selected this case because it seems to be a somewhat common and fairly easy to understand fact scenario in which the statute was employed as a defense. The property at issue was a forty (40) acre tract which the plaintiffs claimed to have purchased in 1980. The plaintiffs had a deed. The plaintiffs did not record their deed until 1995. The defendants’ predecessors in interest purchased the same property in 1994. They received a deed and recorded it before 1995. The plaintiffs filed a lawsuit to have themselves declared the owners of the property. Obviously, since there was no indication that the defendants were not bona fide purchasers without notice of the plaintiffs’ deed, and since the defendants had recorded their deed first, the plaintiffs had no chance of being declared the owners of the property based on the superiority of their title. So, the plaintiffs claimed that they owned the property by adverse possession. Since it was undisputed that the plaintiffs had not paid any of the county taxes due on the property for over twenty (20) years, the court dismissed their case under §28-2-110. This case is an example of the statute barring a claim based on adverse possession.

Alexander v. Patrick (Tenn. Ct. App. 1983): In this case, the plaintiff and defendant claimed ownership of the same fifty (50) acre tract of land. Plaintiff’s claim was based on a deed as was defendant’s, but plaintiff’s deed was prior in time to defendant’s deed. The opinion does not state if, or when, the relevant deeds were filed with the register of deeds. The proof established that defendant, and her predecessors, had paid the property taxes for more than twenty (20) years and that plaintiff, and her predecessors, had not. The court held that the plaintiff’s claim was barred by §28-2-110 and dismissed the plaintiff’s complaint. This case is an example of the statute barring a claim based on title. Continue reading

Recent Tennessee Partition Case: Court Finds Ouster and Entitlement to Rent

Published on: May 20, 2019 | by J. Ross Pepper

A recent opinion of the Court of Appeals of Tennessee provides a good roadmap of the law for joint owners of land involved in partition cases where there are claims that the proceeds from the sale of the property should not be divided equally because of rental value received by a joint owner and because of repair and maintenance paid by a joint owner.

Here are the basic facts:

Four siblings inherited a home (“Home”)
One sibling, Janella, lived at the Home with the parents before they passed and before the four children became joint tenants
After the parents died, Janella continued to reside at the Home
The siblings agreed that Janella would continue to reside at the Home, would maintain it, and have repairs made in preparation for its sale
Email correspondence established that all agreed that each sibling would contribute to the repairs and maintenance
All four siblings had some personal items at the Home
Janella informed her siblings that the necessary repairs would cost $48,000, but refused the requests of her siblings to provide more detailed information about the quotes and estimates
Janella began setting deadlines for her siblings to remove their personal property from the Home before she discarded the same
Janella stopped communicating with her siblings
One sibling went to the Home to remove her items and had to call the police to gain entry because Janella refused to allow her to enter the Home

The siblings filed a partition action. The trial court found that there had been an ouster. It held that Janella owed, to her siblings, three fourths of the rental value of the Home during the time she resided there. It also held that the siblings owed Janella $60,000 for repairs, maintenance and taxes which she had paid towards the Home.

Janella appealed the trial court’s decision that she owed her siblings rent. Her siblings appealed the trial court’s decision that they owed Janella the $60,000. The Court of Appeals of Tennessee affirmed the trial court’s decision on both rulings.

Tennessee Eminent Domain Cases: A Potential Zoning Change as Increasing Value for the Land Owner

Published on: February 9, 2019 | by J. Ross Pepper

Zoning laws and zoning maps are not caste in stone. They are subject to change for any number of reasons including recognition by a legislative body of a change in the character of an adjacent area. In Middle Tennessee these days, it is not at all fantastical for a land owner to expect a change in the current zoning of his or her property, which rezoning would allow new uses and development parameters.

In many cases, land owners’ real estate increases in value when a zoning change is enacted. For example, the value of a piece of property might dramatically increase when its zoning is changed from some form of residential to some form of commercial or industrial use. Can a possible change in zoning that would increase the value of a piece of property that is the subject of a condemnation case be considered by a jury? In Tennessee, the answer is “yes.”

A couple of Tennessee eminent domain cases are excellent authority for the position that a potential change in zoning may be considered by a jury. In Shelby County v. Mid-South Title Company, Inc. (Tenn. Ct. App. 1980), the property owner’s property was zoned R-1 (single family residential). The condemning authority, Shelby County, appealed a jury verdict on the grounds that the trial judge should not have permitted the property owner’s experts to testify as to the value of the land being taken based on appraisals wherein they considered comparable sales of commercially zoned properties.

At trial in the Shelby County case, the proof was that the county was taking 1.842 acres of the property owned by the defendant land owner. All three of the land owner’s expert witnesses testified that the property at issue had immediate and imminent commercial value that would be taken into account by any potential buyer. These opinions were based on their opinions that the property would be rezoned for commercial use in the near future. Consistent with the aforementioned opinions, each expert based his opinion of the value of the land being taken on appraisals based on comparable commercial sales. The three experts for the county based their appraisals strictly on comparable residential sales because they believed that any commercial potential for the subject property was far-off.