Quick Note on Negligent Misrepresentation in Tennessee

One of the ways this blog helps me is as a research note. When I find a statement of an issue of law, I’ll post it here so I’ll know where to find it later.  Good for me, sort of boring for you. 

In the case of First Tennessee Bank, N.A. v. Shelby Village Mobile Home Park, LLC, et. al., the Tennessee Court of Appeals outlined the elements of the Tennessee tort negligent misrepresentation. Here’s what the Court said:

“A party pursuing a claim of negligent misrepresentation “must prove by a preponderance of the evidence that the defendant supplied the information to the plaintiff; the information was false; the defendant did not exercise reasonable care in obtaining or communicating the information; and the plaintiff justifiably relied on the information.” Hill v. John Banks Buick, Inc., 875 S.W.2d 667, 670 (Tenn. Ct. App. 1993) (citations omitted). The tort of negligent misrepresentation is most often recognized “in connection with business or professional persons who carelessly or negligently supply false information for the guidance of others in their business transactions.” Houghland v. Sec. Alarms & Servs., Inc., 755 S.W.2d 769, 774 (Tenn. 1988). Our Supreme Court has recognized, however, that, “[t]his theory of law . . . does not convert every breached promise or contractual undertaking into a basis for the rescission of otherwise valid contracts and the abrogation of their terms.” Id.”

 

Interesting Collections Questions Raised at 2014 General Practice Summit

I presented at the Tennessee Bar Association’s 2014 General Practice Summit today. My topic was “Collection in General Sessions Court.”

I’m always curious to see what topics attract questions, as well as what parts cause the listeners to take the most notes. Today’s questions were:

  • Whether General Sessions Courts allow post-judgment asset depositions and discovery? Yes, they do, although written discovery isn’t very helpful because a judgment debtor is likely to ignore it or not understand/make a full disclosure. I prefer to obtain this information in person, in an in-office deposition.
  • Is the failure to include an Affidavit fatal to a Motion for Slow Pay in Sessions Court? Maybe, but it depends on if the Judgment Debtor has the necessary asset/liability information with them in Court. If the debtor shows up on the hearing date with the information in hand, then the Judge will likely consider it. 
  • Can a litigant remove a matter from General Sessions? Yes, pursuant to Tenn. Code Ann. 16-15-732, a party can file a Motion and Affidavit that they have a defense or claim that is so complex or expensive to present that, in the interests of justice, it should be moved to Circuit Court, where a more deliberate process controls (with discovery, pre-trial pleadings, etc.).
  • Are legal briefs allowed in Sessions Court? Yes, but the Judges may not–and probably won’t–read the briefs in advance, due to their caseload. 

This was a well-run and well-attended Session, and I’ll definitely be back to teach in the future. It will be available online for viewing, so tune in and, in the meantime, feel free to call or email me if you have special collections issues. 

What to do about a Late Filed Garnishment Response: An Employer Remains Liable for Monies Paid

I file wage garnishments all the time on my Tennessee judgments.

If you know where a defendant works, Tennessee law allows a judgment creditor to garnish the debtor’s wages for payment toward the judgment. (See Tenn. Code Ann. § 29-7-101). Without boring you with the details (see this earlier post instead), an employer then is required to pay about 25% of the employee’s wages to the Court Clerk, who then holds the wages and disburses them to the creditor.

In the event the employer fails to respond to the garnishment, the creditor can seek a judgment against the employer itself for the full amount of the judgment (not just 25% of it), which, clearly, is an awesome way to actually get your money.

I’ve explained this process before: you get a “Conditional Judgment” against the employer and then you issue a Scire Facias, which requires the employer to come to Court and “show cause” why it shouldn’t be a “final” judgment.

This sounds great, but nine times out of ten, the employer shows up in response and files (finally) an answer. Under Tennessee case law, a late filed response is good enough to stop the process and avoid a “final” judgment being entered. Last week, the Tennessee Court of Appeals issued a great opinion in Emrick v Moseley (July 30, 2014), reviewing this entire process.

So, if a conditional judgment is considered a “wake up call” to prompt a response from an employer, then what do you do about the money that the employer should have paid to the Clerk? Two weeks ago, I had this exact case and argued that, under the existing case law, the cow was out of the barn and the employer’s only obligation is to comply with future obligations (i.e. withhold future wages).

I was wrong. That’s where the Emrick case is so good. Via dicta, the Emrick Court says that the employer has exposure under Tenn. Code Ann. § 29-7-112 for any money that it should have paid in, if it had timely responded.

So, no, you can’t get a judgment for the full amount of the debtor’s judgment, but you can get a judgment for the garnishment amounts that should have been withheld.

This is good news for creditor attorneys, and, even though I was wrong on this issue in the past, I’m glad to have been wrong.

A Reminder About Collection on Unpaid Legal Invoices: Wait a Year

This is an issue I’ve written about before, in Collection on Unpaid Invoices: One Really Good Reason to Wait a Year.  

But, I mention it again because the Tennessee Court of Appeals revisited the issue recently, in Scott Ostendorf, et. al. v. R. Stephen Fox, et. al. (Tenn. Ct. Apps.,  No. E2013-01978-COA-R3-CV, July 16, 2014).

In that case, the law firm committed possible malpractice regarding the perfection of a client’s lien security interest rights. The issue came to light in November 2008, and the client sued for malpractice in March 2012. Clearly, the lawsuit was filed more than one year after the facts alleged to be malpractice. 

This was a pretty easy one for the Court, which cited the Tennessee Supreme Court’s opinion at Kohl & Co., P.C. v. Dearborn & Ewing, 977 S.W.2d 528, 532 (Tenn. 1998):

“The statute of limitations for legal malpractice is one year from the time the cause of action accrues. Tenn. Code Ann. § 28-3-104(a)(2). When the cause of action accrues is determined by applying the discovery rule. Under this rule, a cause of action accrues when the plaintiff knows or in the exercise of reasonable care and diligence should know that an injury has been sustained as a result of wrongful or tortious conduct by the defendant. Shadrick v. Coker, 963 S.W.2d 726, 733 (Tenn. 1998).” 

As I said in my prior post, I’m not condoning legal malpractice, nor suggesting that you should play hard-ball in collection of unpaid invoices for services that involved malpractice. But, as I said in my last post, if you sue a client for unpaid bills, it’s more than likely going to result in that client claiming malpractice, whether it’s merited or not. 

If you think that such a claim will be raised from vindictiveness or tactic planning, then any lawyer should sit on the unpaid bills for services for at least a year. It’s an easy summary judgment / failure to state a claim upon which relief can be granted issue. 

.

Attorneys Fees Can be Recovered in a Tennessee Lawsuit, but only if the contract or statute allows them

Sometimes, clients ask “Why didn’t my Judgment include your attorney fees?”

(Note: Actually, I don’t get that question very much, since I spend a good deal of time on the front end, explaining the process and rights to clients, so they know if they can’t recover fees.)

Here’s why: Tennessee follows the “American Rule” on awarding attorney’s fees which states that “a party in a civil action may recover attorney fees only if: (1) a contractual or statutory provision creates a right to recover attorney fees; or (2) some other recognized exception” applies. Cracker Barrel Old Country Store, Inc. v. Epperson, 284 S.W.3d 303, 308 (Tenn. 2009).

The contract provision allowing attorney fees to be recovered has to be very specific. In the Cracker Barrel case, the contract at issue provided that the prevailing party should recover “all costs and expenses of any suit or proceeding.” The Tennessee Supreme Court held that this language was not specific enough to award attorney fees (instead, it allowed recovery of court costs and litigation expenses). 

This is an important issue, as the ability to recover your expenses and costs as part of your action will be a big consideration in any decision to file a lawsuit. Lawyers are expensive. Keep that in mind on the front end, when you’re preparing a contract or agreement, and get very specific text allowing for recovery of attorney fees. 

New Tennessee Opinion on Foreclosure Deficiency Follows Creditor-Friendly Precedent

One of my greatest victories was the favorable opinion I obtained for a client in GreenBank v. Sterling Ventures, et. al. , decided on December 7, 2012.

I blogged about it here, but to recap: That case was the first consideration of a foreclosure deficiency attack under Tenn. Code Ann. §35-5- 118(c). Under that statute, a borrower can argue that a foreclosed property sold for “materially less” than fair market value and, under §35-5- 118(c), a court can deny a deficiency judgment to the foreclosing creditor.

In an opinion issued this past Friday, the Court of Appeals revisited the statute in Capital Bank v. Oscar Brock, No. E2013-01140-COA-R3-CV – Filed June 30, 2014 (see full text here).  The case followed the established precedent of Sterling Ventures and its progeny.

This new case is notable in two respects:

  1. Courts can and will resolve §35-5- 118(c) issues at the Summary Judgment level,  where it is only a matter of applying the valuations against the foreclosure bid price. In fact, this new opinion weighs some of the evidence, in finding that the defendants valuations were were “formed
    months or even years before or after the time the Property was sold at foreclosure.” This was a major victory in the original Sterling Ventures case, since borrowers want to make these issues a “fact” question, forcing a trial and delay of judgent.
  2. Courts continue to look at percentages when determining what “materially less” means. Sterling  Ventures and the later opinions all say the courts want to avoid setting a “bright-line percentage, above or below which the statutory presumption is rebutted.” That has basis in the legistlative history of the statute, where the lawmakers used “material” based on its usage in child custody cases. Nevertheless, the courts continue to apply a percentage test; in this case, spread was 15.8% and the sale was upheld.

This Court shot down a number of other arguments, including: those based on the amounts of several post-foreclosure appraisals; based on the Bank’s ultimate sale-listing price; and an argument that the Bank committed “fraud” by bidding a lower amount when it planned  to market the property at a higher amount.

The ultimate take-away on this remains the same as in the past.

  • Get an appraisal at or near the time of the proposed sale.
  • Bid an amount that is reasonably tied to the amount of your appraisal (or other reliable/admissible valuation).
  • Summary Judgment is a proper way to proceed, provided the foreclosing creditor was cautious and acted with this statute in mind.

 

Tennessee Courts will not find a ‘Paid in Full’ Check to be Conclusive Release of Debt

Every once in a while, one of my clients will receive a random check with a note in the Memo line that says “Paid In Full.”

If the creditor accepts that check, the borrower’s argument goes, the creditor also accepts the payment as a settlement…that the account was paid in full. This overlooks (or counts on) the fact that most big creditors process payments by machine or without watching for sneaky notes in the Memo section.

Fortunately, however, the general rule in Tennessee is that a note on a check may be an indication that the account was settled, but it isn’t the only and final proof of settlement.  On this exact issue, the Tennessee Supreme Court has said “Something more is required.” Quality Care Nursing Servs., Inc. v. Coleman, 728 S.W.2d 1, 4 (Tenn. 1987).

Generally, Tennessee courts will look at whether there was any other evidence of a payment dispute and “meeting of the minds” that this payment was tendered as a settlement and a proposal to resolve the disputed account. Was there a cover letter explaining a dispute and that acceptance of the payment was truly a settlement of the debt?

The Supreme Court noted: “It would be unrealistic in the modern business world for a debtor to send an installment payment to a creditor, which may be receiving hundreds or thousands of such checks, and to have the balance of his debt deemed discharged as a matter of law simply because of a legend the debtor placed thereon, absent any other proof of a compromise or settlement.”

So, what do you do if you are faced with a “Paid in Full” check? Well, as a initial matter, be careful.

If you receive one and you notice it, you may well be opening yourself up to an “accord and satisfaction” defense under Tennessee law. The best practice would be to refuse any such payment and return it to the borrower, with a demand that the check be replaced.
The risk in accepting the payment is clear. One court has noted ” a creditor’s action of cashing the check speaks louder than its words, have held that by accepting and cashing a check marked ‘paid in full,’ a creditor has agreed to accept the amount of the check as full payment of a disputed amount.” Ideal Stencil Mach. Co. v. Can-Do, Inc., 85-81-II, 1985 WL 4041 (Tenn. Ct. App. Dec. 4, 1985).