Economic Loss Doctrine Prevents Double-Dipping in Damages

Sometimes I use this blog as a notepad for obscure legal theories that I’m going to use later.

Like this one, on the “economic loss doctrine.”

If you have a plaintiff who sues you both for breach of contract damages and for tort damages arising out of the same transaction, you may be able to get the tort claims dismissed, per a Tennessee Court of Appeals opinion released yesterday.

The case is Milan Supply Chain Solutions, Inc. v. Navistar Inc. et. al,  W201800084COAR3CV,  2019 WL 3812483 (Tenn. App. Aug. 14, 2019), and it discussed this rule, known as the “economic loss doctrine.” The theory was “created by the courts to avoid the ‘coming collision between warranty and contract on the one hand and the torts of strict liability, negligence, fraud and misrepresentation on the other’.”

The heart of the concept is stated as:

[C]ontract and tort are separate and distinct areas of the law that provide separate and distinct remedies. A party who enters into a contract which contains terms that limit recovery in the event of a breach [is] typically unable to circumvent such provisions by alleging a tort occurred as well. The warranty or contract’s terms and conditions set forth the rules governing the relationship, and tort law does not expand the remedies of the contract beyond the agreed-to terms. Absent personal injury or damage to other property, the sole remedy lies in contract.

The theory is that a party to a contract is free to contract for the terms of their purchase agreement, and this doctrine protects the right to allocate risk in a transaction.

A good “real life” example of this would be where a party limits the damages for breach in a real estate transaction, such as by providing that damages are limited to a return of the deposit to the buyer. Under this theory, the buyer would not be able to, later, subvert that contract provision by suing for damages in tort.

341: Lawyers Doing Good Matters

My law firm recently met with a public relations group, who gave us the pitch on all the things they could do for us, including beefing up our presence on LinkedIn, posting special interest stories on our corporate Facebook page, and more Twitter updates.

After this week of front page stories and national press, I’m not sure we need too much help. Here’s a look at the stories we’ve been involved in this week…

Continue reading “341: Lawyers Doing Good Matters”

Tennessee Legislature overreacted when they repealed Tenn. Code Ann. § 66-21-108.

If you’ve spent any time on this blog, you’ve know all about Tennessee’s wrongful lien statute, Tenn. Code Ann. § 66-21-108.

It’s a fairly new statute, enacted on May 21, 2018, and I’ve called it the scariest statute I’ve seen. That’s because the statute imposes broad (and automatic) penalties on lien claimants who lose a lien challenge, with the penalties being so harsh that it could have a chilling effect on lien claims.

So, having said that, I was glad to see that the Tennessee Legislature was going to walk back some of those automatic penalties with some proposed amendments to the statute for 2019. Specially, the changes to 66-21-108 would impose a “malice” requirement and would change the “shall recover” language to “may recover.” These changes would protect the mechanic’s liens with justifiable claims, but would preserve claims against those creditors who are looking for undue (and illegal) advantage.

In the end, I was glad to see some correction to the statute, but, candidly, I also thought that the changes took basically all the teeth out of the statute. From my time fighting in Bankruptcy Court, I know that “malice” isn’t an easy concept to prove.

I also know that some creditors’ philosophy is “when in doubt, why not file a lien”? Under the old statute, if those creditors weren’t careful, they would definitely get hit with damages. I’ve seen a lot of bad liens in my time, and this statute provided a remedy that homeowners legitimately needed.

So, it was with a lot of disappointment that I’ve discovered that, rather than amending the statute, the 2019 Legislature just repealed the entire statute.

The statute was designed to solve a very real problem. As it stands right now, there are no real remedies for a property owner to recover costs and expenses when challenging a wrongful lien on their property. As a result, there’s no real disincentive to keep a creditor from recording a questionable lien.

At some point, the cost, expense, and hassle of fighting over an invalid lien isn’t worth the fight. Lien creditors know that they get incredible leverage when they record a lien, and, under now existing law, there’s not much risk to them.

Honestly, I’d rather have the original version of the statute (which made lien claimants really evaluate their claims and think twice before encumbering a person’s property) than no statute at all.

New Court of Appeals Opinion provides good statement of doctrine of Res Judicata

As lawyers, the business model is fairly simple: We sell our time, multiplied by our hourly rates.

This creates a huge disconnect between clients and lawyers. All clients want their matters resolved in their favor, but also quickly, smartly, and cost-efficiently (that’s a nice way to say for as little legal fees as possible). On the other hand, the lawyer-industrial-complex wants lawyers to ponder, research, litigate, bill, examine, depose, etc. (i.e. for as many billable hours as possible).

First off, run away from lawyers like that.

Second, if you’re a lawyer and want clients to be happy, you should read this new Tennessee Court of Appeals opinion, which discusses the concept of res judicata. That’s a doctrine that allows parties to avoid unnecessary, duplication litigation, when the issues have already been decided by a court.

The facts aren’t that important, so I’ll just focus on the legal discussion.  The Court wrote: Continue reading “New Court of Appeals Opinion provides good statement of doctrine of Res Judicata”

341 Meeting: Suing Your Own Employees; Public Schools; Urgent Political Spam

Hassling Poor People, Who Happen to be Your Own Employees. When the economy hit rock bottom in 2009 or so, all kinds of doctors, lawyers, private schools hired me to collect their debts. Many had never dealt with bad debt before, or the awful circumstances that lead to defaults. They just saw the bad debt and thought it could be an income stream for them. It was an eye-opening lesson for many.

Since then, I occasionally have had to tell some of my clients that some debt isn’t worth collecting, whether it’s a low return on investment or, frankly, just bad PR.

This story out of Memphis reminds me of that.   NPR reports that Methodist Le Bonheur Hospital is making national news for its practice of suing its own employees when they can’t pay their medical bills, and then using some pretty aggressive collection tactics when they can’t pay the judgments rendered in the lawsuits.

…what is striking at Methodist, the largest hospital system in the Memphis region, is how many of the patients being sued are the hospital’s own employees. Hardly a week goes by in which Methodist workers aren’t on the court docket fighting debt lawsuits filed by their employer.

That’s a really bad look, especially in a climate where employers are criticized for not paying a living wage and also terrible health insurance benefits. Continue reading “341 Meeting: Suing Your Own Employees; Public Schools; Urgent Political Spam”

341 Meeting Recap: Thoughts on Hell’s Half Acre; Beware When Judges are too Nice; Karaoke Happy Hour; Sue the Collector.com

Welcome to the “341 Meeting,” at 3:41pm (well, today, I’m posting at 11:41, just to get it out here).

This will be a regular series of posts (on Thursdays, at 3:41) that will be longer, but made up of smaller, semi-relevant items about local legal issues. A lot of you (about 1,000) “subscribe” here and get an e-mail every time I post an update, and this is a way to get mini-blasts out (without clogging up your inboxes with a bunch of smaller posts). 

But, first, a video from Judge George Paine of the United States Bankruptcy Courts for the Middle District of Tennessee…. only those of you who have attended a Nashville 341 Meeting will get that…nevermind…

Continue reading “341 Meeting Recap: Thoughts on Hell’s Half Acre; Beware When Judges are too Nice; Karaoke Happy Hour; Sue the Collector.com”

Everybody Loves “It City”: United States Supreme Court to hear dispute over land deal in The Nations in November.

The Nashville Bankruptcy Bar got some exciting news from the United States Supreme Court recently, as the Big Court granted certiorari to consider a novel issue of law: Whether an order denying a motion for relief from the automatic stay is a “final order” under 28 U.S.C. § 158(a)(1).

For you real law nerds out there, here’s a copy of the case schedule.

You’ll note that cert was granted in May 2019, and the oral argument is set for November 13, 2019. (I have no idea why this news from May 2019 is just now hitting the local news.)

But, to our local bar, this is newsworthy because the United States Supreme Court is said to grant “cert” in extremely rare circumstances, said to be less than 0.01% of matters presented to it. Continue reading “Everybody Loves “It City”: United States Supreme Court to hear dispute over land deal in The Nations in November.”