Tennessee Business Litigation Lawyers Blog

In a recent breach of contract case, In re Estate of John E. Mayfield, the Court of Appeals of Tennessee reversed the decision of the trial court which had held that a contract for the sale of a storage facility was unenforceable because there was no mutual assent of the parties.  This opinion is a very helpful reminder to practitioners of how fundamental contract law principles can determine the outcome of a substantial transaction, and of how easy it can be to lose sight of the importance of paying attention to basic contract law principles, as the trial court did.

Here are the key facts:

• Clayton worked for Mr. Mayfield as a housekeeper and manager of his rental storage facility
• At some point, she heard Mr. Mayfield say that someone had offered him $1 million for the facility
• Realizing that Mr. Mayfield might be interested in selling the facility, Ms. Clayton contacted Mr. Saltsman, whom she thought might be interested in purchasing it
• Saltsman was interested in the facility and wanted to see it
• The day that Mr. Saltsman was scheduled to visit the facility, Mr. Mayfield could not make it because he had been moved to Alive Hospice, so Ms. Clayton met Mr. Saltsman at the facility
• The day of the visit to the storage facility, Mr. Saltsman told Ms. Clayton that he would like to buy the property and that he would start with an offer “around” $900,000
• Clayton did not make an offer of $900,000 to Mr. Mayfield on behalf of Mr. Salstman, but instead, she made an offer on his behalf of $950,000
• Clayton explained that she made the offer of $950,000, instead of $900,000, because she knew that Mr. Mayfield already, as he had told her, had received an offer of $1 million. So, she decided to make an offer in the middle.
• When Ms. Clayton informed Mr. Mayfield that Mr. Saltsman would buy the property for $950,000, he said “I’ll take it.”
• Saltsman testified that, when Ms. Clayton came back to him and told him that Mr. Mayfield was willing to sell the property for $950,000, he said: “Sounds good to me. Send me a contract.”
• Mayfield asked Ms. Clayton to go to his lawyer’s office to have a contract prepared
• Clayton testified that, before those instructions, Mr. Mayfield had accepted Mr. Saltsman’s offer
• Once Ms. Mayfield had the written contract from Mr. Mayfield’s lawyer, she went to Alive Hospice where Mr. Mayfield was
• Mayfield signed the contract
• Since Mr. Saltsman was traveling, he told Ms. Clayton to take the signed contract to his house and told her that he would sign it when he returned home
• After Ms. Clayton dropped off the signed contract at Mr. Saltsman’s house, Mr. Mayfield’s lawyer’s assistant called and told her that it was the “wrong” contract, was “invalid,” and would need to be re-written
• Clayton informed Mr. Saltsman of the conversation she had had with Mr. Mayfield’s lawyer’s office. Mr. Saltsman said “okay” and that the name of the buyer would need to be changed to another entity than was on the current contract
• Before a new contract could be drawn up, Mr. Mayfield died
• Saltsman did not return to town and see the contract Mr. Mayfield had signed until after Mr. Mayfield had died

Mr. Saltsman filed a claim with the estate of Mr. Mayfield. To support the claim, he attached the contract signed by Mr. Mayfield, but it was not signed by Mr. Saltsman. Several months after filing his initial claim, Mr. Saltsman signed the contract and filed an amended claim with a copy of the contract bearing his signature and Mr. Mayfield’s.

Mr. Mayfield’s estate took the position that no enforceable contract existed. The trial court held that no enforceable contract existed because there was no mutual assent.  The trial court held that there was no mutual assent because, first, Ms. Clayton had testified that someone from Mr. Mayfield’s lawyer’s office had told her the contract was not valid and would have to be redrafted. Second, the trial court found that there was no mutual assent because Mr. Saltsman had not signed the contract until seven months after Mr. Mayfield had signed it.

Continue reading

The economic loss doctrine prohibits a party, which is seeking only damages for economic loss, from recovering those damages pursuant to a tort cause of action.  Under the doctrine, economic losses are the damages suffered by a party, other than damages for personal injury or property damage to “other” property.  Here is an example of the application of the economic loss doctrine:

• Plaintiff bought 1,000 widgets from Defendant
• The widgets all malfunctioned and were virtually useless because Defendant defectively manufactured them
• Plaintiff’s losses include the cost of the widgets and profits it lost from the anticipated resell of the widgets
• Under the economic loss doctrine, the Plaintiff can recover under breach of contract and breach of warranty causes of action, but cannot recover under tort causes of action for misrepresentation or products liability

If, in the above example, one of the widgets, because of a defect, had caused personal injury to a warehouse worker of Plaintiff or had burned down Plaintiff’s warehouse, Plaintiff could recover, under tort theories, for the damages caused by that widget because they were for personal injuries or to “other property” (property other than the widgets).

The purpose of the doctrine is to preserve the boundaries between tort and contract law, or, as it has been put: To keep contract law from drowning in a sea of tort law.  Another principle underpinning the doctrine was stated as follows by a Tennessee court: “Courts should be particularly skeptical of business plaintiffs who – having negotiated an elaborate contract or having signed a form when they wish they had not – claim to have a right in tort.”

The economic loss doctrine, as it exists in Tennessee, took a new twist based on a recent decision of the Court of Appeals of Tennessee in the case of Milan Supply Chain Solutions, Inc. v. Navistar, Inc.  In that case, the trial court held that Tennessee’s economic loss doctrine did not apply to fraud claims.  The court of appeals, at least on the facts before it, disagreed and reversed.  The case is a very significant case dealing with a very significant defense that is sure to become even more litigated in commercial disputes in Tennessee courts in the coming years.

Continue reading

The United States District Court for the Northern District of Tennessee decided against a former employee in a breach of contract case for failure to pay sales commissions on the grounds that he was required to do more than just connect the new customer with his employer (“Employer”). It should be noted, at the outset, that this case turned largely on the specific language of the former employee’s employment contract, and should not be taken as establishing a general rule that independent sales representatives and employees cannot collect commissions for just initiating the contact with the new customer. In some cases, they can.

Even though the case, Jackson v. Maine Pointe, LLC, 2018 WL 1371488, was decided largely on its unique facts, valuable lessons for commissioned sales representatives and employees can be derived from an understanding of what happened in the case.  Perhaps the most important lesson is how important it is for employees and representatives to pay attention to the terms of their written commission agreements and, where possible, to bargain for terms that leave no doubt about when they are entitled to be paid commissions.

Here are the key facts of the case:

• Jackson was an at-will employee of a company which specialized in operations consulting
• Jackson’s position was Vice-President of Food and Beverage
• Jackson’s offer letter provided that Employer would pay him commissions of 7% for “sales of $0 to $6,000,000” and 8% for “sales of $6,000,001 and above” for “New Name Client Work Developed by you”
• The specific language about commissions, which became critical, provided: “You will be eligible to earn sales commissions on collected engagement revenue (not analysis, nor reimbursed T&E Revenue … All commissions are paid monthly as project revenue is collected . . . “
• While employed, Jackson identified Colony Brands as a potential customer for Employer
• Jackson agreed to pay a referral fee of 1.5% to another employee of Employer who had a relationship with Colony Brands for helping Jackson connect with Colony Brands
• Just days prior to his termination from employment with Employer, Jackson sent an email to, and left a voicemail with, a contact at Colony Brands
• After Jackson was terminated, another employee of Employer resent Jackson’s email to the contact at Colony Brands, a Mr. Hughes
• Mr. Hughes responded to the email and even referenced Mr. Jackson’s name in his response
• Thereafter, other employees of Employer met with Mr. Hughes, and Colony Brands ultimately paid $6.3 million to Employer
• The employees who met with Colony Brands and brought the contract with it to fruition were paid commissions and the employee to whom Jackson had promised a 1.5% commission as a referral fee was paid that amount
• Jackson received no commission whatsoever

Jackson filed a breach of contract lawsuit against Employer. He argued that he was entitled to the agreed commission from the Colony Brands’ business because he had procured the business.  His former Employer argued that, under the terms of the written employment/commission agreement, to be entitled to a commission, Jackson had to do more than just “procure” the business — he had to “develop” it.

Continue reading

With some frequency, we see the first material breach defense raised in cases where a sales representative is owed commissions. After placing the account, the party with whom it was placed desires to keep the revenue, but resents continuing to pay the agreed commissions. So, it alleges that it should not have to pay any more commissions because the party who generated the account and revenue somehow breached the terms of the contract.

A recent Tennessee commissions case illustrates how such an argument as above can fail, as it should. Here are the pertinent facts of the case:

• Plaintiff was an insurance agent who had built what appears to have been a pretty substantial book of business which was renewing consistently
• Plaintiff, apparently anticipating health problems, entered into a written contract with an insurance agency (“Defendant Agency”)
• Pursuant to the terms of the contract, for a four- year period, Plaintiff was to receive 50% of the commissions from her accounts
• Pursuant to the terms of the contract, after the four- year period, the accounts would be owned by the Defendant Agency, and it would owe no more commissions to Plaintiff
• Pursuant to the terms of the contract, during the four-year term, Plaintiff was to assist in helping the Defendant Agency retain and produce business
• The contract expressly contemplated that the Plaintiff might die within the four-year period as it provided that, if she did, any monies owed to her under the contract would be paid to her estate
• About a year and a half into the four- year period, the Plaintiff died
• The Defendant Agency continued to pay the Plaintiff’s commissions to her estate until about three months after her death

The Defendant Agency claimed that it was not required to pay any further commissions because, shortly after the contract was signed, the Plaintiff stopped coming into the office and assisting with the accounts; stopped returning phone calls of clients; failed to invite clients to the office of the Defendant Agency to meet its principals; and failed to learn how to use the Defendant Agency’s systems. In the lawsuit filed by the Plaintiff’s estate, the Defendant Agency asserted that it was not required to pay any further commissions due during the agreed four- year term because the Plaintiff had committed a first material breach by the above actions and inactions.

Continue reading

With some frequency, subcontractors incur extra expense, or lose other opportunities to make money, because another subcontractor did not complete its work within the time by which it was represented it would be completed. There are situations in which it is possible that the general contractor might be responsible for money damages to a subcontractor which incurred a loss because of a delay by another subcontractor.

The starting point to analyze whether, given the facts of the case, the general contractor could be liable for the delay of one subcontractor to another is the written contract. Generally speaking, regardless of what the outcome of a case would be if there was no written contract, the terms of a valid written contract might change the outcome that would otherwise occur under Tennessee common law. That is why a thorough analysis of the terms of the written construction contract, out the outset, is a critical part of any construction case.

If the terms of the written contract do not speak to the issue of the responsibility of the general contractor to a subcontractor for money damages resulting to that subcontractor because of the delay of another subcontractor, the Tennessee case of Foster & Creighton v. Wilson Contracting Company, Inc. (Tenn. Ct. App. 1978) might come into play to assist the subcontractor. Here are the basic facts of that case:

• The general contractor (the “General Contractor”) contracted for a project which required the resurfacing and repaving of airport runways
• The General Contractor contracted with a subcontractor to perform earth moving and grading (the “Grading Subcontractor”)
• The General Contractor also contracted with Foster & Creighton to perform all of the paving, which included: (1) Resurfacing existing runways; and, (2) paving new runways
• It was possible for Foster & Creighton to perform the resurfacing work without the Grading Subcontractor having finished its work, but it was not possible for Foster & Creighton to pave new runways until the Grading Subcontractor’s work was finished
• The provisions of subcontract between the Grading Subcontractor and the General Contractor and the provisions of the subcontract between Foster & Creighton and the General Contractor required work to be completed by the same date
• Foster & Creighton’s work required it to set up, on site, a large concrete mixing plant, which would take three weeks to erect
• In discussions about when Foster & Creighton should begin its work, the General Contractor expressed that it wanted Foster & Creighton to begin its work significantly sooner than Foster & Creighton wanted to begin based on Foster & Creighton’s opinion that the Grading Subcontractor was moving so slowly that it would not complete its work in time for Foster & Creighton to begin its paving work without having to have its crew and equipment remain idle on the project site
• In the discussions, a representative of the General Contractor assured Foster & Creighton that, if it set up its plant and started on the resurfacing, by the time it finished the resurfacing, the Grading Subcontractor would have completed its work such that Foster & Creighton could “proceed” with its work
• Foster & Creighton complied with the requests of the General Contractor, but the Grading Subcontractor’s work was delayed such that Foster & Creighton incurred significant expense while waiting in excess of two extra months for the Grading Subcontractor to finish its work to the point that Foster & Creighton could begin its paving work

Foster & Creighton filed a lawsuit against the General Contractor for its damages. The trial court awarded it $26,000.  On appeal, the Court of Appeals of Tennessee upheld the decision of the trial court that the General Contractor was liable to Foster & Creighton.

Continue reading

Pepper Law, PLC was recently successful in having the Business Court, located in Davidson County, pierce the veil of a limited partnership to hold the limited partner personally liable for a judgment rendered years earlier against the limited partnership. No Tennessee appellate court has yet addressed whether or not the veil of a limited partnership can be pierced, and the decision of the Business Court is believed to be the first time a Tennessee court has ruled on the issue.

Tennessee has long-recognized that the corporate veil of a corporation may be pierced such that an individual may be held liable for the debts of the corporation. As well, in a 2012 opinion, the Court of Appeals of Tennessee ruled that the veil of a limited liability company could be pierced in the case of Edmunds v. Delta Partners, L.L.C., 403 S.W.3d 812.

In arguing that the piercing of the veil of a limited partnership to hold a limited partner individually liable was warranted, we relied upon several non-Tennessee cases. Of particular weight in the Business Court’s decision was the opinion of the bankruptcy court for the Southern District of New York in In re Adelphia Commc’ns Corp., 376 B.R. 87 (2007).  In the case before the Business Court, the limited partnership against whom we had earlier obtained a judgment, and for which we sought to pierce the veil to hold its limited partner liable, was a Delaware limited partnership.  In the Adelphia case, the limited partnership at issue was also a Delaware limited partnership.

In the Adelphia case, the court pointed out that there was nothing in the Delaware Limited Partnership Act which prohibited the piercing of the veil of a limited partnership.  The Business Court approved of the reasoning in the Adelphia case, noting that Tennessee appellate decisions had approved of Tennessee courts looking to Delaware courts for guidance on corporate law. In addition to the bankruptcy court in the Adelphia case, appellate courts in New Jersey and Virginia have ruled that the veil of a limited partnership may be pierced to hold a limited partner liable.

Continue reading

Often, in trade secrets cases, a pivotal issue is whether or not what the plaintiff claims is a trade secret is, in fact, a trade secret under the Tennessee Uniform Trade Secrets Act (“TUTSA”). TUTSA’s definition of “trade secrets” includes “information” which is “technical, nontechnical, or financial data, a formula, pattern, compilation, program, device, method, technique, process or plan” that has independent economic value because it is not generally known or readily accessible.  To qualify as a trade secret, the plaintiff must also prove that there were “reasonable efforts” taken to keep the information secret.

Here are some basic rules and guidelines used in Tennessee trade secrets cases for determining whether information constitutes a trade secret:

• Just because a party calls certain information a trade secret does not mean that it will qualify as a trade secret after the court reviews other facts and applies the TUTSA
• A former employee’s goodwill with customers or the fact that the former employee was the face of the company are not trade secrets because they are not information (an employer may protect against a former employee’s use of goodwill developed while the employee was employed by a non-competition/non-solicitation agreement)
• Just because a product or process can be reverse engineered does not necessarily mean that it will not qualify as a trade secret. If the plaintiff can prove that reverse engineering would be time-consuming or very expensive, the product or process may still be entitled to trade secret protection
• A former employee’s remembered information about customers, pricing, vendors and the like is not a trade secret
• The degree of the egregiousness of the former employee’s or new employer’s conduct always has some effect on the court’s decision. For example, if a former employee took information improperly and passed it on to her new employer, it is more difficult to argue that the information taken was not a trade secret. After all, if it was not valuable and secret, why take it?
• The extent that the information is known to the public will affect the decision as to whether the information is a trade secret
• Whether the owner of the information has taken steps to keep it secret will affect the decision as to whether it is a trade secret
• The economic value of the information will affect the decision as to whether the information is a trade secret
• Even if components of the information, standing alone, may not be trade secrets, the aggregation, compilation or formatting of information may be
• Whether information is, or is not, a trade secret is a question of fact

The below summary of five different trade secret cases is helpful in understanding what might, and what might not, qualify as a trade secret under the Tennessee Uniform Trade Secrets Act.

Eagle Vision, Inc. v. Odyssey Medical, Inc. (Tenn. Ct. App. 2002): The Plaintiff developed and marketed punctul plugs for eyes. For a number of years, it had a contractual relationship with the Defendant, which manufactured the plugs for it. The Plaintiff shared design specifications with the Defendant as well as prototype punctal plugs. The design specifications were marked “confidential.” The relationship between Plaintiff and Defendant ended and Defendant began making and selling punctal plugs. Defendant offered evidence that it could easily reverse engineer the punctal plugs with a certain device it possessed. Plaintiff claimed that it was impossible to reverse engineer the punctal plugs. The court held that the question of whether or not the information which Defendant had allegedly misappropriated was a trade secret was a question of fact for the jury. Continue reading