Tennessee Business Litigation Lawyers Blog

The First Material Breach Rule in Tennessee

Published on: July 15, 2014 | by J. Ross Pepper

The “first material breach” rule has become an almost knee jerk response as a defense in breach of contract cases. Under that rule, a party who commits a material breach of a contract cannot recover damages from the other party for the other party’s later material breach of the same contract.

There are exceptions to the first material breach rule. First, if the party who committed the first material breach cures its breach, then the first material breach rule cannot be used against that party. Second, one party cannot use the first material breach rule against the other party where the facts show that the party waived the other party’s material breach.

In White v. Empire Express (Tenn. Ct. App. 2012), the defendant in a breach of contract case attempted to rely on the first material breach rule, but was unsuccessful because of waiver. In that case, the plaintiff entered into a lease-purchase agreement for a truck. The lease-purchase agreement required the plaintiff to make monthly payments for the 48 month term of the lease. After the 48 month term ended, the plaintiff was entitled to buy the truck by paying its residual value. Under the agreement, when the plaintiff paid the residual value, he was entitled to the title to the truck.

What Makes a Party a “Prevailing Party” Entitled to an Award of Attorney’s Fees?

Published on: July 3, 2014 | by J. Ross Pepper

Tennessee follows the “American Rule” which holds that the losing party in a lawsuit is not required to pay the attorney’s fees of the wining party. There are exceptions to the American Rule which come up quite often in Tennessee cases. First, if a statute provides that the prevailing party is entitled to an award of attorney’s fees against the non-prevailing party, then the prevailing party may recover its attorney’s fees. There are quite a few Tennessee statutes and federal statutes under which a winning party might be able to recover its attorney’s fees.

The second exception to the American Rule occurs when parties agree in a contract to a provision that permits the award of attorney’s fees. These types of contractual provisions are prevalent. Although the language used in contracts to nullify the American Rule varies, it is common for them to have language which provides that the “prevailing party” in any legal action between the parties is entitled to an award of attorney’s fees and expenses.

So, what makes a party a “prevailing party” under such contract language? In cases where one party prevails on each and every claim asserted in the action, the answer is pretty simple — that party is the prevailing party. Tennessee lawyers who handle commercial and real estate cases know that many cases end with both parties winning some claims and losing some claims. Who is the prevailing party in those kinds of cases?

Damages for Breach of Contract under Tennessee Law

Published on: June 20, 2014 | by J. Ross Pepper

Even for experienced breach of contract lawyers, applying Tennessee law regarding the amount and types of damages a plaintiff may be awarded in a breach of contract case, in many cases, is not so simple. In analyzing the potential damages that might be awarded in any Tennessee breach of contract case, you should start your analysis by applying the most fundamental rule applicable to contract damages in Tennessee: In a breach of contract case, the injured party should be awarded an amount of money that will put him in the position in which he would have been but for the other party’s breach of contract.

The above rule is designed to protect an injured party’s “expectation interest.” Another phrase that is often used to describe the law’s goal of protecting a party’s expectation interest is “benefit of the bargain”- – – an injured party is entitled to the benefits he would have received if not for the other party’s breach. In my experience, the most valuable benefit which is most often lost in breach of contract cases is profits which could have been made.

In order to recover lost profits in Tennessee, the injured party must prove them with reasonable certainty. The requirement that an injured party prove lost profits with reasonable certainty means that an injured party cannot recover what he expected to receive if not for the breach unless his expectations are supported by subjectively verifiable facts.

Tennessee Court Holds Arbitration Clause Not Waived

Published on: June 13, 2014 | by J. Ross Pepper

In a breach of contract case involving a subcontractor’s claim against a general contractor, Skelton v. Freese Const. Co., Inc., the Court of Appeals of Tennessee recently ruled that the general contractor did not waive its right to require that the case be arbitrated, and reversed the trial court on that issue. The trial court had ruled that the general contractor had waived its right to require arbitration by participating in the litigation in the trial court before filing a motion to compel arbitration.

How Long Do Offers Stay Open?

Published on: June 6, 2014 | by J. Ross Pepper

Parties in negotiations sometimes make offers and counter-offers, but do not specify by when their offers must be accepted by the other party. When that happens, one party might accept an outstanding offer and then be told by the other party that the acceptance was too late to be effective. If the party who accepted the offer files a breach of contract lawsuit, how will a court in Tennessee determine how long the offer remained open for acceptance?

In Tennessee breach of contract cases involving offers that did not specify how long they were open for acceptance, Tennessee courts will apply the rule of reasonableness. Under that rule, an offer that did not specify for how long it remained open will be deemed to have remained open for a reasonable period of time. That guideline begs the question that is so often begged in legal matters: What is reasonable?

Under Tennessee law, to determine the reasonable period of time that the offer should be deemed to have stayed open, a court must look at the situation and circumstances involved in the case. Since every breach of contract case filed in a Tennessee court has unique facts and circumstances, what was a reasonable period of time for acceptance will vary from case to case. Here are three Tennessee cases which provide some insight into what facts and circumstances a court might consider in determining the period of time for which an offer remained open.

The Tennessee Uniform Trade Secrets Acts: The Basics

Published on: May 29, 2014 | by J. Ross Pepper

In 2000, Tennessee adopted the Uniform Trade Secrets Act (“UTSA”). The UTSA aims to protect trade secrets of businesses and individuals from misappropriation, theft, and misuse. In order to prove someone is liable under the UTSA, a plaintiff must establish that its information which was misappropriated was a “trade secret.”

Not every piece of information in the possession of a Tennessee business will qualify as a trade secret under the UTSA. To be a trade secret under the UTSA, the information must be valuable because it is not generally known or readily ascertainable by proper means. Also, to prove liability under the UTSA, a business must establish that it has made “efforts reasonable under the circumstances to maintain its secrecy.” Importantly, even if someone could properly and lawfully obtain all of the individual pieces of information which comprise the trade secret claimed by the business, nevertheless, under Tennessee law, if the business has integrated and aggregated the pieces of information, it may be considered a trade secret.

To prove liability under the UTSA, a business must prove that the trade secret was “misappropriated.” The definition of misappropriation under the UTSA is expansive. The definition includes, for example, direct taking of trade secrets as well as the receipt of a trade secret by a party who did not directly take it (under the defined circumstances).

Undue Influence in Tennessee Will Contests: A Helpful Case

Published on: May 14, 2014 | by J. Ross Pepper

The law of undue influence in Tennessee can be quite a bit to try to get one’s head around considering the numerous different factual situations in which undue influence cases arise and considering the numerous “suspicious circumstances” that Tennessee courts have instructed judges and juries to use in making their decisions. In addition to those considerations, there are other layers to any undue influence case whether the case involves a will contest, irrevocable trust, change of beneficiary or joint account. Those layers include the determination of whether a confidential relationship was present and whether the defendant rebutted the presumption of undue influence (if the presumption applied).

For Tennessee lawyers who handle undue influence cases and will contests (or clients involved in such cases), the case of In Re Estate of Schisler, a 2009 published opinion of the Court of Appeals of Tennessee, is a good place to start in trying to understand how Tennessee undue influence law works. In that case, two children of the deceased (“Defendant Children”) were sued by their four siblings. When she was about 79 years old, the mother of all of the children (“Mother”) moved from Maryland, where she had lived on a farm and raised all of her children, to Tennessee. Mother moved to Tennessee because her health was deteriorating. In Tennessee, she eventually moved in with one of the Defendant Children, a daughter.

In November of 2005, and about 10 months after having suffered a mini-stroke, Mother went with one of her daughters (one of the Defendant Children), with whom she was living in Tennessee, to a lawyer in Tennessee. On November 15, 2005, Mother returned to the lawyer’s office in Tennessee with the same daughter and made a new will. In the new will, Mother left only her one-fifth interest in a parcel of property she owned to all six children. Mother bequeathed the remainder of her assets to the two Defendant Children.

After Mother passed away in 2006, the other children of Mother filed a will contest in which they alleged that the new will which was done in 2005 was invalid because it was obtained as the result of the undue influence of the Defendant Children. The jury found that there was a confidential relationship between Defendant Children and that the new will was the result of the undue influence of Defendant Children. Defendant Children appealed and argued that the jury’s verdict should be set aside.

Under Tennessee law, the Court of Appeals could only reverse the verdict of the jury if no material evidence in the record supported the verdict. The court found that there was material evidence to support the jury’s verdict. As to the daughter who was a defendant, the court noted that Mother depended upon her to feed her, to care for her, to house her and to transport her. (If those facts are established in any Tennessee will contest case, I doubt that any judge or jury would not find the existence of a confidential relationship).

The proof of a confidential relationship between the son, who was one of the two Defendant Children, and Mother was much less compelling. That son do not live with, care for, or transport Mother. In fact, he remained in Maryland on the family farm. So, how was it that the court of appeals affirmed the jury’s verdict that he also had a confidential relationship with Mother? It opined that the proof showed that Mother was financially dependent on that son. How so? That son and Mother had, since 1982, had a joint account into which all of Mother’s social security benefits and income from the family farm were deposited. The son’s financial control of that account was enough evidence to support the jury’s determination that the son had a confidential relationship with Mother.

As for the jury’s decision that there had been undue influence, the appeals court affirmed it because a number of the suspicious circumstances were present including: (1) there was material evidence that Mother’s mental and physical health had deteriorated; (2) both Defendant Children had played a role in procuring the new will; (3) both of Defendant Children accompanied mother to the office of a lawyer in Maryland prior to the execution of the new will in 2005 at which time Mother made changes to her estate plan which benefitted Defendant Children; and (4) both Defendant Children benefitted from the new will.

Lessor Held Individually Liable in Breach of Commercial Lease and Piercing the Veil Case

Published on: April 30, 2014 | by J. Ross Pepper

In a recent breach of contract case and fraud case arising out of a commercial lease for a doggy day care facility in Nashville (Dog House Investments, LLC v. Teal Properties, Inc.), the Court of Appeals of Tennessee discussed several areas of Tennessee law including: (1) The law related to piercing the corporate veil; (2) the law of breach of contract in commercial lease cases; (3) fraud; and, (4) the award of punitive damages in commercial disputes. For Tennessee lawyers who handle breach of contract cases and piercing the veil cases, the opinion is a worthwhile read.

Here are the facts of the case:
• An individual named Jerry Teal (“Teal”) owned a commercial building in Nashville, Tennessee
• Although Jerry Teal owned the building, he leased it through a corporation of which he was the sole owner (“Corporation”)
• The tenant (“Tenant”) which signed the lease with Corporation for the building was an LLC
• The lease agreement between Tenant and Corporation required Corporation to make all repairs to the building
• The May 2010 flood in Nashville caused substantial flooding and damage to the building
• Tenant immediately notified Teal of the damage
• Because it was critical to Tenant’s business that the water removal and repairs be done quickly, Tenant began handling the water removal and repairs with the knowledge and consent of Teal
• Teal informed Tenant that the building was covered by insurance
• Teal engaged in a series of conduct that unquestionably led Tenant to believe that Teal would submit a claim to the insurance company for repairs made by Tenant and that Tenant would be reimbursed
• Tenant paid for $39,000 in repairs and submitted documentation to Teal so that he could submit a claim to the insurance company
• Teal submitted a claim to the insurance company and Corporation received over $40,000 from it
• Teal never paid Tenant any money and concealed that the insurance company had paid Corporation anything
• The insurance money paid to Corporation was used by Teal for his individual purposes

Tennessee Evidence Law: A Few Basic Rules Helpful to Clients

Published on: April 24, 2014 | by J. Ross Pepper

Whether you are involved with a breach of contract case, will dispute case, real estate case or any type of commercial litigation case in a Tennessee court, you can help yourself by knowing a little about the basic rules of evidence that apply in Tennessee state court cases. In my experience, many clients assume that some piece of evidence will be admissible at trial when it will not be admissible.

The Tennessee Rules of Evidence act like a filter. While there may be all kinds of statements and documents related to a dispute, the odds are that some, even many of those statements and documents, will not be admissible at trial. They get “filtered” from the courtroom by the Tennessee Rules of Evidence. Here are a few basic rules of evidence in Tennessee of which it would behoove any party to have at least passing knowledge.

FIRST-HAND KNOWLEDGE: In order to be allowed to testify about a matter, a witness must have first-hand knowledge of the matter. Let’s assume there is a breach of contract case in Tennessee in which Defendant contracted to provide computer programmers to Plaintiff for work on a project which was the subject of a separate contract between Plaintiff and its client (“Client”). The programmers worked on-site with Client and directly under Client’s supervision. The programmers, according to Client, did not have adequate experience or skills and performed inadequately. Because of that, Client cancelled the contract between it and Plaintiff which resulted in Plaintiff losing substantial profits.

Valuing the Shares of Dissenting Shareholders in Tennessee

Published on: April 6, 2014 | by J. Ross Pepper

Shareholders of Tennessee corporations, under certain circumstances set forth in Tenn. Code Ann. §48-23-102, have the right to “dissent” and to require the corporation to pay them for the “fair value” of their shares. How do Tennessee courts determine the “fair value” of a dissenter’s shares? For Tennessee lawyers who handle shareholder disputes, the three Tennessee cases discussed below provide a valuable road map in dissenters cases.

The Supreme Court of Tennessee, in the 1983 case Blasingame v. America Materials, Inc., held that the “Delaware Block Method” should be used in Tennessee to determine the fair value of a dissenting shareholder’s shares. The Delaware Block Method requires that the court consider three different methods used to value shares: (1) the market value method; (2) the asset value method; and (3) the earnings value method. Once the court determines the value of a share of the dissenter’ stock according to each method, the court must assign a weight, expressed as a percentage of 100%, to the stock value as determined by each method.

The market value method looks at the price for which a share of the corporation’s stock could be sold if there were a willing buyer. The asset value method values a share of the corporation’s stock according to its pro rata value as to the net assets of the corporation. The earnings value method values a share of the corporation’s stock based on its earnings potential which, in turn, will be based on historical earnings.