Tennessee Business Litigation Lawyers Blog

If you have to hire and to pay a lawyer for a collection case, breach of contract case or to defend a lawsuit or arbitration proceeding brought against you by another party, is it possible for you to recover from the opposing party the money you have to pay your lawyer? In Nashville, and in the rest of Tennessee, the answer is: Maybe, but maybe not.

Tennessee operates under what is referred to as the “American Rule.” Under the American Rule, no matter which party wins or loses, each party must pay its own lawyer’s fees. There are exceptions to the American Rule. One exception to the American Rule occurs when the parties to the dispute have a contract which contains language that the losing party has to pay the prevailing party’s attorney’s fees. In cases involving such contracts, the losing party will be required to pay the attorney’s fees (or some portion thereof) of the party which wins the lawsuit.

If the contract involved in your case contains a provision allowing the prevailing party to recover its attorney’s fees, then the contract contains, so to speak, a double-edged sword. If you bring the lawsuit and win, you will be entitled to recover your legal fees. If you bring the lawsuit and lose, you will be required to pay the other side’s legal fees.

A recent Tennessee case illustrates the importance of disclaimers in contracts. Here are the facts of the case:

• The Seller told the real estate brokers that he “had the property under contract” with the owner

• The Seller signed a listing agreement with the brokers in which he represented to the brokers that he had title to the property or full authority to enter into the listing agreement

A recent federal case from the Sixth Circuit Court of Appeals which involved retail space in Brentwood, Tennessee is worth paying attention to if you are, or might be, a landlord or tenant under a commercial lease in Tennessee. Here are the basic facts:

• Sports Authority entered into a lease agreement for commercial space as the tenant

• The shopping center where the leased space was located had not been built as of the signing of the lease agreement

For buyers of lots within subdivisions where the buyers are required to use a specified builder, a recent Tennessee case reinforces the old adage— “let the buyer beware.” In Davidson County, Williamson County and other counties surrounding Nashville, some developers of subdivisions require a buyer of a lot to agree to use only a certain builder or builders to construct the buyer’s home.

The plaintiffs in a recent Tennessee Court of Appeals case were buyers of a lot that required them to use a designated builder. The buyers were burned by the builder when the builder overdrew the construction loan obtained by the buyers, failed to pay subcontractors, and didn’t complete the home.

The buyers brought a lawsuit against the developer of the subdivision project claiming that the developer was responsible for their losses. The buyers claimed that the developer knew, or should have known, that the homebuilder designated by the developer was not capable of completing the project, and that the developer had a fiduciary duty to provide a homebuilder which could build a home in a good, workmanlike manner.

Many businesses in Nashville, and in other parts of Middle Tennessee, have entered into written contracts which contain what we lawyers refer to as “forum selection” clauses. A typical forum selection provision might read something like this: “In the event of a dispute between the parties, the parties agree that any legal action may be brought only in a court located in Atlanta, Georgia.”

Let’s assume that your business, and your lawyer (or law firm), are located in Nashville, and you need to take legal action against a supplier with headquarters in Atlanta. Let’s also assume that the Atlanta business has an operation in Nashville. You will probably not have any problem with maintaining a lawsuit or arbitration in Nashville, Davidson County, Tennessee unless your contract with the supplier contains a forum selection clause requiring you to bring a legal action only in Atlanta.

Forum selection clauses (just like arbitration and mediation clauses) are pretty common in “form” contracts used by businesses (particularly by those with leverage). In Tennessee, as a general rule, forum selection clauses are enforced by our courts. So, if you sign a contract requiring you to bring suit in a state, far, far way, you should assume you will have to sue in the far away state (and use a far away lawyer) if the out-of-state party commits a breach of contract.