The $25,000 General Sessions Judgment Limits May Apply on Appeal, Unless the Claims are Amended

I enjoy practice in General Sessions Courts. Once you get past the utter chaos, unpredictability, and potentially long lines at the elevators, you may be able to obtain an enforceable judgment in less than 4-6 weeks after filing your lawsuit. That’s the fastest justice in the State.

Remember, though, that the monetary limit in General Sessions is $25,000.

Given the speed advantages, some lawyers will sue for a lesser amount to have their lawsuits heard in Sessions (i.e. the debt is $27,0000, and they sue for $24,999.99).  Then, if they lose the case or if it’s appealed to Circuit Court, the lawyers know they can always increase the action to the full amount in Circuit Court.

Such amendments are allowed under Tenn. Code Ann. § 16-15-729, which says the Circuit Court “shall allow all amendments in the form of action, the parties thereto, or the statement of the cause of action, necessary to reach the merits, upon such terms as may be deemed just and proper. The trial shall be de novo, including damages.”

But, don’t think the informality of Sessions practice carries over into Circuit Court.  The Tennessee Supreme Court’s opinion in Brown v. Roland, 357 S.W.3d 614, 616 (Tenn. 2012) held that a party is limited to their damages sought until and unless an actual amendment is made to the complaint. 
This is an interesting case, because, by implication, an amended complaint may also be required to add parties and causes of action.
In Sessions Court, it can feel like “anything goes.” It’s not a court of record, and the Judges let litigants have some procedural leeway in presenting their claims. Under the Brown case, that leeway stops upon appeal.

You’ve Got the Escalade, Now What? A Reminder of What Slow Pay Motions Can’t Do

With the economy in shambles, I’ve come to learn that, sometimes, people are broke.

When I ask that they pay me $250 a month on a judgment, they turn around and file a “slow pay” motion asking to pay me $20 a month.  I talked about Slow Pay Motions (a.k.a. Motion to Pay Judgment by Installments) a few years ago.

Let me revisit one aspect I left out in that earlier post:  What exactly does a Slow Pay Motion stop you from doing?

Tenn. Code Ann. § 26-2-216 does not stay garnishments against real or personal property; it only stays garnishments against wages or salaries due to the debtors:

The filing of such motion by the debtor shall stay the issuance, execution or return of any writ of garnishment against wages or salary due the judgment debtor or any other funds belonging to the judgment debtor …

Tennessee cases support this conclusion: “No such installment payments are to be ordered unless the debtor has filed an affidavit stating that no other assets are available for payment of the judgment except the wages or salary of the debtor and that any other funds receivable by the debtor are so limited that installment payments are appropriate.” Harrington v. Harrington, 759 S.W.2d 664, 668 (Tenn. 1988).

So, let’s say you execute against a Cadillac Escalade (congratulations), and the borrower files a Slow Pay. In that case, the Court may enter a Slow Pay Order and set payments. But, that Order will prevent Wage Garnishments;  it will not stop collections on real or personal property.

Tour of Tennessee Courts: Tips for Rutherford County General Sessions

I enjoy hitting the road and going to courts all over middle Tennessee. But, at the same time, it can be disconcerting to go to court in a new county, which generally has its own Local Rules and customs of practice. No matter how long you’ve been practicing, you never want to embarrass yourself in front of a foreign court.

So, I’m starting a “Tour of Tennessee” blog series, which discusses the different Courts that I go to, along with some tips and tricks for appearances.

First stop, Rutherford County General Sessions Court. Here is a link to the General Sessions Court’s website, which has updated, good information about the Court, including phone number, address, and Clerk information.

Note that the Rutherford County Courts, including General Sessions, post a variety of their  dockets online.  Be sure to print out a copy of the docket before you go to court.

Their Local Rules are also posted online, and read those before you go.

Here are some helpful tips to know from the Local Rules:

  • The Court presumes cases will be tried on the the date they are set, but, on the first setting in civil actions, the  “court may liberally grant a continuance on the first setting of a case.”
  • The Court does not allow “indefinite” continuances. Under Local Rule 5.01, the Court only allows continuances of less than 60 days.
  • The Court will only allow 3 continuances, absent good cause.
  • The Court caps attorney fees at 25%, unless good cause is shown.

Here are a few other things to know:

  • The Judge, Larry Brandon, is sharp, both in his legal acumen, as well as his wit and the way he runs the Courtroom. Stay on his good side by being early, paying attention, and reading the Local Rules before you go.
  • Seriously, that’s important: stay on his good side across the board.
  • Many Clerks are liberal and let you use any old Civil Warrant  forms, but, if you’re in doubt about your form, be sure to use the official Civil Warrant forms from the Rutherford County General Sessions Clerk.  Using the standard form is an important part of staying on the Judge’s and the Clerk’s good side.
  • On street parking is plentiful all around the Courthouse, and there are a number free lots available.
  • General Sessions Court takes place on the third floor of the Courthouse. The General Sessions Clerk is on the first floor.
  • The security line can get long, particularly if you’re running late. Be prepared to remove watches, belts, and other metal items. Attorneys can purchase “pre-screened” pass cards for $5, which allow you to by-pass security. If you go there a lot, keep that in mind.
  • The elevator  gets backed up, and, if you’re running late, head to the stairs in the back of the building.
  • Judge Brandon starts promptly, at 9AM.
  • It’s about a 45 minute drive from downtown Nashville, so give yourself an hour.
  • Cases are generally called in batches, organized by the Plaintiff’s attorney’s name, meaning all of an attorney’s cases are generally bundled together and called at the same time (and then that attorney is allowed time to go to the hall and review the matters or write them up).

Rutherford County General Sessions Court is an active court, often with a large number of cases (40-50) set on one docket. Be early, be prepared, and read the Local Rules, and your court appearance will go fine.

Confessions of Judgment aren’t Valid in Tennessee: Here’s Why

All kinds of search terms that lead visitors to this site. I routinely look at them, because it’s a great insight into what creditor rights issues people want to learn about. (And, sometimes, it’s pretty funny.)

A common query is whether confessions of judgments are valid in Tennessee. Frankly, after nearly 15 years of practice in Tennessee, I’ve never dealt with a confession of judgment, so, as a practical matter, I don’t think they are valid in Tennessee. But, recently, I actually came across the answer.

As background, a confession of judgment is a contract provision (or a stand-alone contract) in which one party agrees on the front-end of a transaction to let the other party enter a judgment against him if the deal goes bad.  You agree, in advance and before any default or dispute arises, that the other party can get a judgment, even without a lawsuit pending and despite any legitimate defenses that may ultimately exist.

You can imagine why a creditor would include such a provision in their contracts.

Tennessee doesn’t allow such provisions. Tenn. Code Ann. § 25-2-101(a) says:

Any power of attorney or authority to confess judgment which is given before an action is instituted and before the service of process in such action, is declared void; and any judgment based on such power of attorney or authority is likewise declared void.

But, an agreement to allow a judgment may be allowed after a lawsuit is filed and after the party is served (when, it would be assumed, the party has received due process of the law and the issues are defined).  § 25-2-101(b) says:

This section shall not affect any power of attorney or authority given after an action is instituted and after the service of process in such action.

So, even though Confessions of Judgment are not valid in Tennessee at the time of the contract, such provisions will be enforceable after the filing of the lawsuit, such as in a forbearance or settlement agreement.

New Opinion Analyzes Common Defenses to Domestication of Foreign Judgments in Tennessee

A good rule of thumb in Tennessee is that a valid foreign judgment will be enforceable here, provided the plaintiffs comply with the procedural requirements of Tennessee Code Annotated § 26-6-101, et seq.

A new Tennessee Court of Appeals opinion, in Bancorpsouth Bank v. David J. Johnson, et. al. (July 16, 2013), examined both the general law, as well as the potential defenses to domestication. This is a good case to know, since it reviews all aspects of the foreign judgment enrollment process.

First, it presents the three “standard” defenses to domestication:

a forum state may decline to accord full faith and credit to the judgment or public act of another state if it is (1) void due to a lack of personal or subject matter jurisdiction, (2) based upon fraud, or (3) “where enforcement of the judgment would violate the public policy of the forum state.” …  Tennessee courts have recognized and adopted all three of these exceptions. … (citations omitted)

These defenses aren’t easy to establish, and the Court notes  “a party who seeks to show that a foreign judgment should not be enforced in Tennessee must meet a ‘stern and heavy‘ burden.”

Most attacks on a foreign judgment are under Defense No. 1 (that the judgment is void); this new case is interesting in that is that the Court provides a good analysis of Defense Nos. 2 and 3 (which no other case that I’ve seen has done).

Defense No. 2, Fraud:  “[T]o deny full faith and credit on the basis of fraud, there must be allegations of extrinsic fraud, that is, fraud that is collateral to questions which were either determined or which could have been determined in the underlying action. Extrinsic fraud is contrasted with intrinsic fraud, which pertains to an issue involved in the underlying action or where the acts allegedly constituting fraud were or could have been litigated…”

“‘[E]xtrinsic fraud ‘consists of conduct that is extrinsic or collateral to the issues examined and determined in the action,’. . . while intrinsic fraud is fraud within the subject matter of the litigation, such as forged  documents produced at trial or perjury by a witness.”

An example of extrinsic fraud is a party lying to the other party about the court date or committing some fraud regarding the litigation (something beyond the allegations of the lawsuit). Intrinsic fraud would be some fraud related to or contained in the allegations of the lawsuit, such as a fraudulent signature on the note at issue.

Defense No. 3, Public Policy:  “Under the public-policy exception to full faith and credit, “Tennessee courts are not obligated to give full faith and credit to any judgment of a state which we hold to be violative of Tennessee’s public policy or the Federal Constitution.”

This is rare, however: “The principle of giving full faith and credit to the judgments of sister states will “almost invariably” outweigh the interest of an individual state; the public-policy exception to full faith and credit is applied only on ‘extremely rare occasions.’”

While the Court doesn’t provide examples, the Defendants’ argument is illustrative. Here, they argued that the foreclosure that resulted in the deficiency balance at issue in the lawsuit was improper, and it was an issue that Tennessee has a defense for, under Tenn. Code Ann. § 35-5-118.

The Court saw this as an improper attempt to re-litigate potential defenses under the underlying judgment, not some public policy that rendered the out-of-state judgment unenforceable.

Most cases cite the three major defenses, and this new opinion is significant because it provides helpful analysis of what constitutes those defenses.

New Trial Opinion on Tennessee Post-Foreclosure Deficiency Statute Shows a Creditor-Friendly Trend in Interpreting “Materially Less”

A few months ago, I argued the first appellate case construing Tenn. Code Ann.  § 35-5-118, which is the new Tennessee post-foreclosure deficiency judgment statute. As you may recall from my blog post about the new law, the statute provides a possible defense to a deficiency action, where the debtor can show “by a preponderance of the evidence that the property sold for an amount materially less than the fair market value…”

In layman’s terms, a foreclosed borrower may be able to avoid a judgment for the remaining debt if he can show that the foreclosure buyer drastically under-bid at the foreclosure.

All across the state, this statute has resulted in two fights:

  1. What was the fair market value at the time of the foreclosure? and
  2. Was the foreclosure sale price “materially less” than the fair market value?

A big problem under the statute has been that “materially less” isn’t defined in the statute or anywhere else in Tennessee law.

In the resulting GreenBank v. Sterling Ventures  opinion, the Court of Appeals issued a bank-friendly interpretation,  offering guidance as to what “materially less”  means by saying that a sale price of 86% is not “materially less.”

I’ve heard from a number of bank lawyers since that opinion, complaining that 86% isn’t low enough. I’ve told them, just wait, the Sterling Ventures opinion didn’t set the “floor;” there is room in the statute for lower values, which will be established in future cases (in the Sterling Ventures case, the bid at issue was 88-91%, so it didn’t require the Court to define the lowest possible percentage).

This past week, my firm received another favorable  opinion from the Williamson County Chancery Court. In this Opinion (click to review), the Court recognized this issue, and rightfully upheld lower percentage bid amounts. The Court, following the lead of the Court of Appeals, cites the Holt v. Citizens Central Bank case, which recognized that a 50% recovery at foreclosure is a customary result.

While this doesn’t suggest that 50% is the magic number/floor percentage, this analysis shows a judicial tendency in interpreting the statute at a lower range than most debtors have argued.

With any new law, it takes a few decisions to “battle test” how it works. So far, the parameters of Tenn. Code Ann.  § 35-5-118 are being defined in a way that favors creditors.

Last Chance to Learn: Creditors’ Rights in Tennessee: 10 Collection Strategies

A quick reminder: Tomorrow, June 6, 2013, I’ll be teaching the CLE  presented by M. Lee Smith Legal Publishers called Creditors’Rights in Tennessee: 10 Collection Strategies.

This is a one hour audio seminar, that will cover the usual Tennessee collections lawyer song and dance. Things like:

  • Things to consider prior to declaring a loan in default and filing a collections lawsuit
  • Issues in deciding between Chancery Court and General Sessions Court
  • Importance of knowing your Statute of Limitations
  • Making sure you Sue the Right Party
  • Judgment Liens and why they work
  • Fraudulent Transfers
  • Overview of bankruptcy issues, including preferences and Trustee avoidance actions
  • Common roadblocks to collecting money, including domestication of foreign judgments

It’s one hour of CLE credit, and, hopefully, what I teach you during seminar will put some money in your clients’ pockets.

New Tennessee Legislation Imposes Contempt Sanctions on Judgment Debtors Who Don’t Notify Creditors of New Employment

As a creditor rights attorney, I’m always looking for new developments in the law that gives me any advantage.

Recently, I saw that the Tennessee Legislature is considering a new law that gives creditors an unfair advantage.

I’m talking about Public Chapter 187, on wage garnishments, which would create the new Tenn. Code Ann. § 26-2-225. The statute provides, in part, that:

… A judgment debtor whose salaries, wages or other compensation are subject to a garnishment shall notify the judgment creditor who filed the writ of garnishment within ten (10) days, as computed in § 1-3-102, of obtaining any new employment. Notice to the judgment creditor shall be by certified mail and shall include the name, address and telephone number of the new employer. A judgment debtor who fails to provide notice of new employment in compliance with this section is in contempt of court and, upon the court making a determination of contempt, may be punished the same as contempt of court in a judicial proceeding. …

Under this proposed law, any debtor whose wages are being garnished must notify the creditor within 10 days, via certified mail, of any new employment.

As a creditor’s lawyer, sure, I understand why this law would be helpful: when a debtor switches jobs it can take months for me to figure out where they work. But, I’m surprised that  the Legislature would waste this energy to get involved in this collections cat-and-mouse game.

Frankly, even noting my creditor-friendly bias, I think this law goes a little far. An affirmative requirement that  the debtor send written notice, via certified mail, seems so onerous that I predict that a General Sessions Court would hesitate to impose h a contempt charge.

This is just a strange law, all around.

Adequate Protection Considerations in the Middle District of Tennessee Bankruptcy Courts

Despite using the same Bankruptcy Code, Bankruptcy Courts often have a broad range of practices on how the exact same statutes can apply.

While most creditors’ lawyers will call any Bankruptcy Court “debtor-friendly,” one way that the Bankruptcy Courts in the Middle District of Tennessee are markedly different than others is the threshold of proof required for creditors to receive “adequate protection” payments from the debtor.

Adequate Protection refers to payments made by the debtor to the creditor, generally, to compensate the creditor for the use of the creditor’s collateral. The statutory precedent is 11 U.S.C. § 361(1), which allows the debtor to make a “cash payment” to the extent that the automatic stay “results in in a decrease in the value of [the creditor's] interest in the property.” In layman’s terms, if the bankruptcy stay hurts or impairs the value of your collateral, you may be entitled to a cash payment (or an alternate/replacement lien).

In some districts, like the Middle District of Georgia, the Bankruptcy Courts allow the resumption of contract payments to a secured creditor, without a deep analysis of depreciation.

The Middle District of Tennessee takes a different approach. Here, a secured creditor is only entitled to adequate protection in the amount that it can prove depreciation of its lien. So, with a car, the creditor would get compensation for the loss of value from the Debtor’s use of the collateral. (It’s substantially more difficult with real property, where depreciation is may be impossible to prove.)

In order to obtain Court approval and avoid an objection from the U.S. Trustee, the creditor will typically need to hire an appraiser to go look at the vehicle and assess the value and his estimate of how much wear and tear/depreciation is imposed on the car on a monthly basis. Then, the Court would order monthly adequate protection payments in that amount.

As an aside, this practice isn’t for the debtor’s benefit; it’s actually designed to protect unsecured creditors from arbitrary loss of cash/income from the Bankruptcy Estate.

As a creditors attorney operating in the Nashville Bankruptcy Courts, this a conversation I have a lot with outside counsel. It’s a hard lesson to teach, especially when the Courts in their backyard take the opposite approach.