Month: February 2023

New Court of Appeals Opinion suggests that late-filed Answer may not prevent a default judgment

All the good Nashville lawyers I know are so busy right now. This is a good problem to have, but, nevertheless, it is a problem. There’s simply too much demand right now.

I overheard one local lawyer telling a story about a frantic call he received from a client, who was freaking out because they hadn’t filed an Answer to a lawsuit, and it had been more than 30 days after service.

“Have they filed a Motion for Default yet? If not, then it’s not late.”

I’m sure the lawyer was more tactful in the actual conversation, but the reasoning has some basis in local custom. Often, in Davidson County courts, if a defendant files an Answer before the hearing on a Motion for Default Judgment and pleads a tenable defense, a court will not grant a judgment under Tenn. R. Civ. P. 55, under the theory that the justice system prefers that “matters be decided on the merits” not a technicality. (See, generally, Discover Bank v. Morgan, 363 S.W.3d 479, 491 (Tenn. 2012)).

A recent opinion from the Tennessee Court of Appeals shows that there are risks in waiting to file an Answer.

That case is Conserv Equip. Leasing, LLC v. Schubert Enterprises, LLC, No. E2022-00535-COA-R3-CV, 2023 WL 1489768 (Tenn. Ct. App. Feb. 3, 2023). There, the creditor filed a motion for default, and, a few days later, received a phone call from an attorney who “expected to be retained” by the defendants and asked for a 3 week continuance on the motion hearing. After the hearing was so continued, that defense attorney “fax-filed” an Answer at 3:59pm on the Friday before the Monday morning default hearing, with an original copy filed with the Clerk about 33 minutes before the hearing.

Defendant appeared at the hearing, objecting to the relief and presumably with filed Answer in hand, but the default judgment was nevertheless granted. At the trial court level, Defendants later tried to set aside the ruling on excusable neglect grounds and Tenn. R. C. P. 60.02.

The Court of Appeals noted that “[a]lthough courts construe Rule 60.02 ‘with liberality to afford relief from a default judgment,’ the movant bears the burden of showing ‘why the movant was justified in failing to avoid the … neglect’.” Id. at *2. The Court wrote that “[i]f the court finds that the defaulting party has acted willfully, the judgment cannot be set aside on ‘excusable neglect’ grounds…” and “[m]aking ‘deliberate choices’ amounts to willful conduct. Id.

In the end, the issue was remanded back to the trial court, whose order denying the Rule 60 motion failed to include findings of act and conclusions of law (per Tenn. R. Civ. P. 52.01). In short, the trial court didn’t provide any explanation for its ruling.

To be clear, though, the Court of Appeals didn’t say the trial court was wrong; instead, it sent it back down for the trial court to provide more explanation for its refusal to set aside the judgment. The most likely outcome, of course, is that the plaintiff will prepare a properly supported proposed order, the judge will sign it, and, then, that order will be appealed.

It’ll be an interesting case to watch, but, procedurally, it’s also a reminder: Don’t delay when dealing with court deadlines.

Tennessee Court of Appeals makes it clear: When a lien is paid, the Lender must pay the release fee (limited exclusions apply)

When a mortgage or judgment gets paid off, the creditor has to release its lien. It’s not only common sense, but it’s a duty imposed by Tennessee statute (see Tenn. Code Ann. § 66-25-101).

It’s an easy process to prepare a Release of Lien and record it with the register of deeds. Also, it’s not particularly expensive. Depending on how many pages the release is, the fee can be as little as $12.00.

Not too onerous for a lender who just got paid in full, right?

Well, not so fast. Ask any of my creditor clients, and they’ll tell you that “paid in full” means “fully paid, including that release fee.” When I get a payoff request on a deed of trust or judgment lien, I generally include a line for the $12.00 release costs.

Not anymore, in light of a December 2022 Tennessee Court of Appeals opinion, Eudaley v. U.S. Bank Nat’l Ass’n, No. M202100344COAR3CV, 2022 WL 17751378 (Tenn. Ct. App. Dec. 19, 2022). In that case, the mortgage lender got paid in full, recorded the release, and sent a bill to the borrower for $12.00. In response, the borrower filed a class action lawsuit in Davidson County Circuit Court, arguing that, per Tenn. Code Ann. § 66-25-106, “[a]ll costs … for registering a formal release[ ] shall be paid by the holder of the debt secured by the … deed of trust.”

Despite the very clear statutory text, the trial court dismissed the case after finding that federal law allows such fees and preempts the state law. The Court of Appeals affirmed, but not before providing some useful guidance to other lienholders (who may not have a federal banking regulation to hide behind).

Specifically, the Court wrote that “§ 66-25-106 prohibits holders of debt from seeking reimbursement of costs associated with recording a release of a deed of trust” because “[t]he debt holder’s obligation to record a release only arises if the debt has been paid in full or satisfied, indicating that nothing further is owed to the debt holder.” In affirming the trial court’s dismissal, the opinion makes clear that the lienholder bears those costs and can’t seek reimbursement, but, nevertheless, “that prohibition is preempted by federal law when the debt holder seeking reimbursement is a national bank.”

So, what if you’re not a national bank? Tenn. Code Ann. § 66-25-106 applies, and the creditor must chalk up $12.00 as the cost of getting paid.

What about other sorts of liens, like judgment liens or mechanic’s liens? § 66-25-106 seems to apply to any lienholder, but the judgment creditor may nevertheless have an argument that the release fees are “costs of collection” or allowed court costs/discretionary costs.

Either way, this December 2022 opinion provides pretty compelling authority to support a lender’s decision to simply record the release and write off the $12.00. In a very creditor-friendly state like Tennessee, Tenn. Code Ann. § 66-25-106 is an outlier, but this case is a very good reminder that it exists.