Tennessee Business Litigation Lawyers Blog

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.

Rescission as a Remedy in Tennessee Breach of Contract Real Estate Cases

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

Tennessee law permits, under certain circumstances, a buyer of real estate to rescind a real estate contract and to recover any monies paid towards the real estate. If a Tennessee court allows rescission, the buyer will receive, at least, the amount he or she paid for the property. Moreover, a buyer may be entitled to receive compensation for permanent improvements made to the property in some situations, in addition to receiving a refund of the purchase price.

Rescission is an equitable remedy. Equitable remedies are left to the discretion of the trial court. For that reason, there is no legal formula to apply to each case in order to know, in advance of a ruling by the court, whether rescission will or will not be granted. In many cases, an experienced Tennessee real estate contract lawyer will probably be able to give you some general estimation of your chances of obtaining a rescission.

Tennessee courts do not take rescission lightly: Under Tennessee law, the remedy of rescission will be allowed only in circumstances where fairness demands it. It is most likely to be allowed in cases where a seller has committed fraud. In fact, fraud by a seller of real estate in Tennessee renders the real estate contract voidable. However, even where the seller has committed fraud and the real estate contract is voidable; it is possible that a Tennessee court will make an award of damages instead of rescinding the contract and refunding the purchase price.

While rescission is requested in many real estate contract cases in Tennessee involving fraud, it can also be granted even when the seller did not commit fraud, but where the seller and buyer both made a mutual mistake. For rescission to be granted in a case of mutual mistake, the mistake with respect to the parties’ contract must have been mutual; the mistake must have been as to a material term of the contract; and the buyer must not have been negligent in failing to realize the mistake.

How Elective Share Works in Tennessee Probate Cases

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

In Tennessee, either a husband or a wife whose spouse has died has the right to elect to receive, from the deceased’s spouse’s assets, an amount allowed by a Tennessee statute, sometimes called the elective share statute, as opposed to receiving the amount left to him or her under the deceased’s spouse’s will.

Where a spouse has died without a valid will, the surviving spouse may also elect to receive the amount to which he or she is entitled pursuant to the elective share statute, as opposed to what he or she would receive under the statutes that prescribe what amount a surviving spouse receives when the deceased spouse did not leave a will. (Under Tennessee law which governs intestate estates, which are estates of those who have died without a valid will, a surviving spouse is entitled to the entire residue of deceased’s spouse’s estate where there are not children, and to the greater of one-third or a child’s share where there are children).

The amount of a surviving spouse’s elective share is based on the length of the marriage as follows:

Less than 3 years 10% of the net estate

3 years or more, but less than 6 20% of the net estate

6 years or more, but less than 9 30% of the net estate

9 years or more 40% of the net estate

Court of Appeals of Tennessee Sets Aside Punitive Damages Award Against Insurance Company

Published on: September 18, 2016 | by J. Ross Pepper

In a recent insurance policy case, Lance. v. Owner’s Insurance Company, the Court of Appeals of Tennessee set aside a jury’s award of punitive damages in the amount of $267,500 against Owner’s Insurance Company (a subsidiary of Auto-Owner’s Insurance Company). The case involved the complete destruction of the Plaintiff business-owner’s building and inventory.

The Plaintiff owned a retail business which was operated out of a 14,000 square foot building in Polk County, Tennessee. The building and inventory within it were completely destroyed by fire in April of 2011. The insurance company’s investigators, as well as the fire department and state officials, determined that the fire was intentionally set. The Plaintiff did not challenge that the fire was intentionally set, but denied any involvement with it.

After the fire, the Plaintiff submitted a claim to the insurance company. The insurance company requested additional information. The Plaintiff submitted the additional information requested by the insurance company along with a bad faith notice under Tennessee’s bad faith failure to pay statute. (That statute allows an insured to recover damages beyond the insured’s actual out-of-pocket loss in an amount up to 25% of the insured’s actual loss).

Recent Case Lays Down New Law in Tennessee for Joint Bank Accounts of Spouses

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

In Tennessee, many spouses have joint bank accounts with rights of survivorship. Such accounts are considered accounts held by the spouses as “tenants by the entirety” unless the spouses have specifically agreed otherwise. Such accounts are referred to as “tenancy by the entirety accounts” or “entireties accounts.”

A tenancy by the entirety account is a form of ownership which is only available to spouses. Under Tennessee law, each spouse owns the entire account, and, when one of the spouses dies, the other spouse continues to own the entire account.

In a recent probate case which made it on appeal to the Court of Appeals of Tennessee, the Court of Appeals made some new law on tenancy by the entirety accounts. The case is In re Estate of Fletcher and here are the facts and procedural history:

Husband and Wife opened a joint account with a right of survivorship (which was deemed to be a tenants by the entirety account)
Husband and Wife deposited $100,000 in the account which they received from re-financing their home
According to the account agreement, either Husband or Wife could withdraw funds without the signature of the other
After the account was opened, Husband withdrew $100,00 from the account and bought a certificate of deposit (“CD”)
The CD was in Husband’s name only
Husband died with a will in place (died testate)
Husband’s will provided that his children (“Children”) were entitled to his personal property which included the CD
Husband’s will was admitted to probate
In the probate litigation, Wife contended that the CD was not part of Husband’s estate and Children contended that it was
The probate court held that the funds in the CD ceased to be owned by the entireties when Husband withdrew the funds from the entireties account and bought the CD in his name only
Under the holding of the probate court, the funds in the CD were, therefore, personal property owned by Husband at the time of his death, and, therefore, were part of his probate estate
Under the holding of the probate court, Children, not Wife, were entitled to the funds from the CD

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.

Recovering Life Insurance Policy Benefits in Tennessee When the Life Insurance Company Denies Payment for Alleged Misrepresentations

Published on: June 8, 2016 | by J. Ross Pepper

Many people who are entitled to benefits under a life insurance policy are denied the benefits by the insurance company on the basis that the insured (the person whose life was covered) made a misrepresentation. In life insurance cases where the insurance company denies payment on the basis of misrepresentation, a statute that is weighted in favor of life insurance companies will apply. That statute is T.C.A. §56-7-103.

In a nutshell, that statute provides that a life insurance company may deny the payment of benefits under a life insurance policy if it can prove either of two things: (1) that the insured made a misrepresentation with “actual intent to deceive”; or (2) that the misrepresentation increased the risk of loss to the life insurance company.

The statute is unfair for a couple of reasons. First, it permits the life insurance company to deny benefits if the misrepresentation increased its risk of loss at all — it does not require that it materially increased its risk of loss. Second, it allows a life insurance company to deny benefits if its risk of loss was increased even where the misrepresentation had nothing to do with the insured’s cause of death. For example, if the insured stated on his application that he had no history of heart disease, but did, and died later of skin cancer, nevertheless, the life insurance company can avoid paying if it can prove that the failure to identify a history of heart disease increased its risk of loss (which it will almost certainly be able to do).

A case that illustrates how the statute works in real life insurance litigation is Smith v. Tennessee Farmers (Tenn. Ct. App. 2006). Here is how I would summarize the procedural history of that case: The trial court reached a fair result, but to do so, pretty much had to ignore T.C.A. §56-7-103, and the Court of Appeals of Tennessee reversed the decision of the trial court based on the statute. I think the Court of Appeals reached a reasoned and correct decision, which decision was, unfortunately, compelled by an unfair statute.