A Filed, but Not Served Complaint, May Not Prevent the Statute of Limitations from Expiring under Rule 3

The Court of Appeals issued an interesting case yesterday to remind us all about the importance of prompt service of process. This case is Amresco Independence Funding, LLC v Renegate Mountain Golf Club, LLC (Tenn. Crt. Apps., Mar. 31, 2015, No. E2014-01160-COA-R3-CV), and the full text can be found here.

The basic facts are that the Plaintiff filed a collection lawsuit against Defendant, but did not obtain valid and timely service of process of the Complaint. Then, after the statute of limitations expired and after one year from the date that the original Summons was issued, the Defendant filed a Motion to Dismiss. In the Motion, the Defendant argued that any new Summons would not relate back to the Complaint filing date and, as a result, the lawsuit was too late.

This is a good argument. Under Tenn. Rule. Civ. P. 3:

If process remains unissued for 90 days or is not served within 90 days from issuance, regardless of the reason, the plaintiff cannot rely upon the original commencement to toll the running of a statute of limitations unless the plaintiff continues the action by obtaining issuance of new process within one year from issuance of the previous process or, if no process is issued, within one year of the filing of the complaint.

The Court of Appeals agreed with this analysis and upheld the dismissal.

So, as a rule of thumb, don’t think that because you filed your lawsuit that all your statute of limitations issues go away. Indeed, if you simply file the lawsuit and then don’t obtain service of process, your time-sensitive claims could potentially expire.

And this isn’t just a rule that penalizes lazy lawyers. I’ve filed lawsuits to satisfy deadlines, but then considered not serving the Summons because the parties were engaged in settlement talks or waiting for a sale or some other event to occur.

Under Rule 3, the mere filing of the lawsuit may not be enough to save your claims.

Beware Email Scams Targeting Lawyers: Tune in to My CLE and Save yourself $500,000

One of the reasons I have this blog is for people like you, potential client, to find me online and hire me for your Nashville and Tennessee legal needs. I cast a wide net and hope Google notices, and so it’s no surprise when I get calls from remote parts of the country–or world–asking me for help.

Many of the inquires I receive are not relevant–people looking to me to help them stop foreclosures. Many are potential scams from fake overseas clients. What I’ve noticed in the 5 years that I’ve kept this blog is the increasing sophistication of these scam client inquiries. No longer are they in broken English and as transparent as a glass of water.

Nowadays, the scammers are pretending to be part of real companies (or elaborately created fake companies), in deals that are designed to trick and trap lawyers into falling victim and processing forged cashiers checks.

If you think this can’t happen to you, as a simple Nashville lawyer, well, I’ve got just the CLE for you.

Working with OutkickCLE (the lawyer CLE arm of the Clay Travis sports media empire), I’ve presented a course called Most Distinguished Sir or Madam: This CLE Will Make You Rich!  In the CLE, I discuss actual e-mail scam referrals that I’ve received, the red flags I’ve learned to look for in dealing with these scammer clients, and what to do when a suspicious client emails you.

It’s a fun CLE, discussing the history of these scams, but it’s also a dead serious CLE, discussing how these scammers have stepped up their game, to the point to where lawyers are increasingly falling for the tricks. This may be the most useful CLE you’ve listened to in years.

Tennessee Court of Appeals recites law on Equitable Estoppel

The Tennessee Court of Appeals issued a new opinion, Preston McNees Specialty Woodworking, Inc. v. The Daniel Co., Inc., on February 13, 2015, which I’m citing here because it includes a good review of the law of equitable estoppel.

In the case, a subcontractor alleged that a general contractor was equitably estopped from denying payment of various change orders, when the general contractor waiting until the work was completed to provide notice that the extra charges would be denied.

The Court held that doctrine of equitable estoppel requires evidence of the following elements with respect to the party against whom estoppel is asserted:

  1. Conduct which amounts to a false representation or concealment of material facts, or, at least, which is calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert;
  2. Intention, or at least expectation that such conduct shall be acted upon by the other party; and
  3. Knowledge, actual or constructive of the real facts.

Consumer Credit Union v. Hite, 801 S.W.2d 822, 825 (Tenn. Ct. App. 1990).

Additionally, the Court held, equitable estoppel also requires the following elements with respect to the party asserting estoppel:

  1. Lack of knowledge and of the means of knowledge of the truth as to the facts in question;
  2. Reliance upon the conduct of the party estopped; and
  3. Action based thereon of such a character as to change his position prejudicially.

This is a great review of the law, as this issues comes up. Ultimately, this Court ruled that there was no reliance because the contract at issue was clear.

A Creditor Doesn’t Have to Foreclose First: New Court of Appeals Case Answers This Common Question

When a loan goes into default, the lender has many options. Sometimes, they go straight to foreclosure. Other times, they’ll file a lawsuit first. Maybe the collateral isn’t worth repossessing; maybe the secured creditor wants to be the first to get to a judgment, in order to execute on other assets or take a judgment lien.

When a bank files a collection lawsuit prior to foreclosing, the borrower always yells in defense: “But you haven’t sold the collateral yet!” and argues that the lawsuit is premature or that the borrower is entitled to some sort of credit or offset to the ultimate judgment.

The defendant is wrong, and the Tennessee Court of Appeals reminded us of that in an opinion issued yesterday in Eastman Credit Union v. Hodges. This was the exact argument the defendant made: “that the judgment of the trial court should be reversed because Eastman did not repossess a motorcycle that served as collateral for one of Hodges’ loan obligations [and that] the value of this motorcycle should have been deducted from the outstanding balance of his loan.”

The Court of Appeals’ response? “His position has no merit.”

The Court held that Tennessee Code Annotated § 47-9-601 does not require a lender to foreclose on its collateral prior to obtaining a judgment. That statute provides that a secured party “[m]ay reduce a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or agricultural lien by any available judicial procedure[.]”  Specifically, the Court wrote: “These rights, in addition to others provided by the section, are ‘cumulative[,]’ and the statute expressly allows them to be exercised simultaneously. The statute, however, does not require that a secured party foreclose on collateral prior to or simultaneous to seeking a judgment.”

It’s a good case to remember the next time a defendant raises these issues, and, trust me, they will.

If a Debt Isn’t Scheduled in a Chapter 7, Is it Discharged?

Growing up, my dad liked the saying, “If a tree falls in the woods and nobody is there to hear it, does it make noise?” (Actually, he used the alternate version, involving a bear, bear poop, and the resulting odors).

But, let’s get back to creditor rights talk: “If a Debt isn’t Scheduled in a Chapter 7, Is it Discharged?

The general thought is, if you want to discharge the debt, you have to list and send notice that creditor. Most Debtor Bankruptcy attorneys err on the side of listing any and everybody: paid debts, unpaid debts, potential debts, everything.

This comes from 11 U.S.C. § 523 (a)(3), which says that all debts are discharged under § 727, unless those debts that are:

“…neither listed nor scheduled under section 521(a)(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit–

(A) if such debt is not of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim, unless such creditor had notice or actual knowledge of the case in time for such timely filing; or

(B) if such debt is of a kind specified in paragraph (2), (4), or (6) of this subsection, timely filing of a proof of claim and timely request for a determination of dischargeability of such debt under one of such paragraphs, unless such creditor had notice or actual knowledge of the case in time for such timely filing and request…”

Based on the text above, it’s pretty clear, right? If it’s not listed, it’s not discharged, right?

Well, the Sixth Circuit Court of Appeals has very convincingly ruled otherwise, in In re Madaj, 149 F.3d 467 (6th Cir. 1998). In that case, the debtor intentionally hid the bankruptcy from the creditors (who, coincidentally, were his foster parents). They weren’t listed, weren’t warned, and, in fact, the debtors actively kept the case a secret from mom and dad.

But, nevertheless, the Bankruptcy Court noted that the case was a no-asset case, meaning no Proof of Claim deadline was ever set, such that the § 523 (a)(3) timelines and deadlines were never implicated. The Court said that, because no claim deadline was ever set in this no asset case, then it didn’t matter when the creditors learned of the Bankruptcy Case: the instant they learned about the Bankruptcy, the debt was discharged. Subpart (A) above never came into play, because no Proof of Claim was ever set. Heck, the Court reasoned, the creditor could file a Claim today and still be technically “timely.”

“Their learning of the bankruptcy after the entry of the discharge order did not transmogrify the debt into one that is excepted from discharge under some provision of the Code other than § 523(a)(3)(A).”

Once upon a time, when a creditor wasn’t listed, the debtor would file a Motion to reopen the closed bankruptcy case and then amend their Schedule F to include the debt. The Court expressly rejected that practice. Instead of imposing administrative hassle on the Clerks and counsel, the Court found that such debts–listed or unlisted–are discharged. In a no asset case, “the fact that the debts were not listed becomes irrelevant.”

So, in these situations, that sound you hear is the debt getting discharged.

Bankruptcy Discharge: You Only Get One Every Eight Years

Sometimes people need to hit the “reset” button more than once, even in Bankruptcy Court.

How quickly can an individual who has received a Chapter 7 discharge obtain a new Chapter 7 discharge?

The answer is in 11 U.S.C.A. § 727(a)(8), which provides that the Bankruptcy Court shall grant a discharge, unless:

(8) the debtor has been granted a discharge under this section, under section 1141 of this title, or under section 14, 371, or 476 of the Bankruptcy Act, in a case commenced within 8 years before the date of the filing of the petition;

So, the quick answer is that you count out 8 years from the date that the individual filed the first case in which he or she received a Discharge. Note: You don’t count the 8 years from the last discharge, but, instead, from the date that the earlier case was filed.

This is why you see what some people refer to as “Chapter 20″ bankruptcy cases, in which a debtor receives a discharge in Chapter 7 and then immediately (or soon thereafter) files a subsequent Chapter 13 case. The debtor doesn’t get a discharge in the Chapter 13, but can get the other benefits of Chapter 13, like stretching out the amortization of a debt that was reaffirmed in Chapter 7 or obtaining a stay from collection on liens or reaffirmed debts.

This is a change from earlier law, which set the time period between discharges using a 6 year period.

Another side issue to consider: under 11 U.S.C.A. § 1328(f)(1), the debtor in a subsequent Chapter 13 will not receive a discharge in that Chapter 13 if he or she received a discharge under 7 or 11 in a case filed under 7 or 11 during the 4 year period preceding the Chapter 13 filing.

Snake Eyes for Gamblers: Gambling Debts are Enforceable in Tennessee, Where the Debts arose in a State Where Gambling is Legal

Gambling is illegal in Tennessee, and, as a result, Tennessee courts will not look kindly on lawsuits to enforce gambling debts.  This includes gaming losses and debts incurred for the purpose of gambling (i.e. a loan from a casino for in-house gambling).

This hostility is codified in Tennessee statutes.  Tenn. Code Ann. § 29-19-101 provides that: “All contracts founded, in whole or in part, on a gambling or wagering consideration, shall be void to the extent of such consideration.” Tenn. Code Ann. § 29-19-102 states: “No money, or property of any kind, won by any species or mode of gambling, shall be recovered by action.”

To show how serious they are, there’s Tenn. Code Ann. § 29-19-103, which imposes a $100 fine against any person who files a lawsuit based on a gambling debt.  In fact, the next statute, Tenn. Code Ann. § 29-19-103 says that a losing gambler can sue to recover his losses in an action.

But, Tennessee Courts have allowed lawsuits to collect gambling loans and losses where the gambling debts were incurred in a state where gambling is legal.

This is seen in both: (1) lawsuits filed  by out-of-state casinos to enforce gambling debts in Tennessee (see Robinson Prop. Grp., L.P. v. Russell, W2000-00331-COA-R3CV, 2000 WL 33191371 (Tenn. Ct. App. Nov. 22, 2000); and (2) enforcement actions to domesticate foreign judgments based on gambling debts (see Mirage v. Pearsall, 02A01-9609-CV-00198, 1997 WL 275589 (Tenn.Ct . App.1997).

The courts have found that it’s not contrary to Tennessee public policy to allow enforcement of gambling debts in Tennessee, where the gambling loans/gaming contracts were entered into in a state where gambling is legal.

The Tennessee Court of Appeals has reasoned “it would be a great injustice if Tennesseans could reap the benefits of gambling in states where it is legal when they are successful, but seek shelter in Tennessee courts when they lose.”

Keep in mind, however, if you file a lawsuit to enforce a gambling debt incurred in Tennessee–where gambling is illegal–it’s no crap-shoot: you’re probably going to have to pay the $100 fine.