David

New Banks Opening in Tennessee is Great News for Creditor Lawyers

Nashville is a hot market right now. One statistic I’ve seen says that anywhere from 70 to 100 new people move to the Nashville area every day.

And, it’s not just people. It’s also businesses. And banks. Today, the Nashville Business Journal reports that JPMorgan Chase is opening its first standalone branch in Nashville. Earlier this year, PNC Bank announced its own expansion into the Nashville market.

This great news for bank lawyers in Nashville, since more banks means more loans for lawyers to work on (both good and bad loans–we’ll take either).

And, it is particularly good news for Tennessee creditor rights lawyers when a national bank moves into Tennessee. As I mentioned a few years ago, it introduces new assets into Tennessee for garnishments and bank levies.

Like I said in that March 2018 post:

What if the debtor has all his assets in that foreign state, but he banks at a national bank with offices all over the country? And what if that bank has a branch in Tennessee? The answer is that you can levy on that bank account.

So, I say “Welcome” to all these new banks coming to Tennessee.

Good Article on Tennessee’s Post-Foreclosure Deficiency Statute

This month’s Tennessee Bar Association Journal has a good article on the new post-foreclosure deficiency statute, Tenn. Code Ann. § 35-5-118, titled “Deficiency Judgments after Foreclosure Sales.”

The article provides a detailed review of the cases construing that very ambiguous statute, which was enacted in 2010 and became effective September 1, 2010. Here’s what I wrote about the new law, back in 2010.

As you’ll recall, I litigated and won the first ever case construing the new law, in December 2012. My case was the GreenBank v. Sterling Ventures case, which is analyzed in the article.

If you’re a banker, a bank lawyer, or a defense lawyer helping some borrower clients, be sure to look at this article. It’s a weird law, and, as the last few paragraphs of the article suggest, there’s still a lot of things that are unknown/unclear about how Tennessee courts are going to apply it in the future.

Highlights from the Creditors Practice Annual Forum 2018: Stay Relief Violations

Last month, I taught a session at the Tennessee Bar Association’s Creditors Practice Annual Forum 2018. My section was called “Litigating Stay Violations.”

The CLE was on September 26, 2018, so, sorry, you missed it. But, to get more mileage out of the materials I prepared, I’m going to post some of the info here.

First off, the automatic stay at 11 U.S.C. § 362 operates as a stay of most collection activity against the debtor in bankruptcy.

When the stay is violated, 11 U.S.C. § 362(k) comes into play, which provides in part that “an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.”

And, no, a violation doesn’t have to mean that the creditor had bad intent.

Actually, a willful violation of the automatic stay requires only that: (i) the creditor knew of the stay and (ii) acted intentionally in violation of the stay. TranSouth Financial Corp. v. Sharon (In re Sharon), 234 B.R. 676, 687 (B.A.P. 6th Cir. 1999). “[P]roof of a specific intent to violate the stay” is not required, but instead only “an intentional violation by a party aware of the bankruptcy filing.” Id.

Basically, the debtor has to prove that the creditor had notice of the Bankruptcy and took intentional action that violated the stay. Long story short, it’s not a high bar to prove those factors.

Not all tenants are agents of their landlords, says Tenn. Code Ann. § 66-11-102(d)

When a mechanic’s lien claimant sits down with their attorney to file a mechanic’s lien on real property, the attorney generally leads with the same, initial question: Was your contract directly with the owner or did you deal with a general contractor? The lien laws can take drastically different paths, based on the answer.

But, what if the contractor says: Neither, I dealt with the tenant.

In that case, it depends.

In the past, I’ve generally included a broad allegation that the tenant acted as the owner’s agent for the improvements, based on a few old common law cases.

In 2007, the legislature enacted Tenn. Code Ann. § 66-11-102(d), which restricted the lien claimant’s ability to assert a lien “unless the lessee is deemed to be the fee owner’s agent.”

This new statute requires a far more detailed showing from mechanic lien claimants. In determining whether the tenant acted as the owner’s agent, the statute states that “the court shall determine whether the owner has the right to control the conduct of the lessee with respect to the improvement…” Further, the Court “shall consider” the following four factors:

Whether the lease requires the lessee to construct a specific improvement on the fee owner’s property;
Whether the cost of the improvement actually is borne by the fee owner through corresponding offsets in the amount of rent the lessee pays;
Whether the fee owner maintains control over the improvement; and
Whether the improvement becomes the property of the fee owner at the end of the lease.

So, to be clear, it’s no longer of simply alleging that a tenant was the owner’s agent. Instead, there is now a clear(er) statutory framework that must be followed.

Simply having a landlord tenant relationship isn’t enough to impute agency for lien purposes. This statute appears to require that the tenant truly acted at the direction of the landlord.

While there haven’t been any Tennessee cases on this statute, legal commentaries have described this as setting a fairly high burden on parties claiming a lien. This may reflect the fairly conservative nature of the Tennessee legislature, but, given the specific text, I’m betting our courts will enforce it as written.

Tennesee Legislature Expands Hours for Foreclosures

It’s always a surprise when I take a quick glance at a statute and discover a discrete, subtle change.

For instance, today, I was scheduling a foreclosure sale.

For years, the statute on “when” you could conduct the sale (Tenn. Code Ann. § 35-5-109) has said that a sale can be made on “any day Monday through Saturday” and “between the hours of ten o’clock a.m. (10:00 a.m.) and four o’clock p.m. (4:00 p.m.)” (excluding state or federal legal holidays).

Apparently, in 2017, the legislature changed Tenn. Code Ann. § 35-5-109 to expand the time of day you can do a sale. Now, you can conduct sales “between the hours of nine o’clock a.m. (9:00 a.m.) and seven o’clock p.m. (7:00 p.m.).”

Sometimes, the legislature works in mysterious ways. I have no idea why this was law was changed.

I understand the utility of allowing sales earlier in the day, but why allow them to be as late as 7pm at night? Who demanded this?

Oh well. I guess the good news is that I can coordinate my future foreclosures in Shelby County with the tip off for a Memphis Grizzlies game.

Will an Adversary Proceeding Survive the Dismissal of the Bankruptcy Case? Maybe.

Eight years ago (8 years! You are reading a law blog that has lasted for 8 years!), I talked about the difference between a bankruptcy discharge and a dismissal.

The tl;dr version for creditors? Discharge is bad; dismissal is good.

But, what if you’re a creditor and the debtor has filed an adversary proceeding against you, but then the bankruptcy case is dismissed?

The tl;dr version? It depends.

Generally, the dismissal of the underlying bankruptcy case results in the dismissal of related adversary proceedings because federal jurisdiction is “premised upon the nexus between the underlying bankruptcy case and the related proceedings.” But, there are exceptions.

One such exception is for proceedings to enforce sanctions and contempt for violation of the automatic stay. A Bankruptcy Court will retain jurisdiction “for the purpose of vindicating the court’s own authority and to enforce its own orders.” See In re Bankston, 1:12-BK-14022-SDR, 2015 WL 6126440, at *2 (Bankr. E.D. Tenn. Oct. 15, 2015)

Basically, the reasoning goes, an action for contempt of court resulting from a party’s blatant disregard of the Bankruptcy Code and the authority of the Bankruptcy Court is something that the Bankruptcy Court takes very seriously and will enforce, independent of whether the underlying case still exists.

The reasoning is different for other types of proceedings that are dependent on the underlying case, like actions to recover avoidance preferences.

Courts Revisit, and Affirm, Requirement of Possessory Bond in Eviction Appeals

Here’s a quick reminder about appeals of detainer and eviction judgments in Tennessee.

Remember, a tenant who loses in General Sessions has the right to appeal that detainer judgment. But, in order to retain the property, that tenant has to post a bond equal to one year’s rental value of the real property.

But, what if the tenant files an appeal and doesn’t post that giant bond (or otherwise find a dummy to sign off on the bond as surety)?

The Tennessee Supreme Court waded into these waters in an opinion from December 2013 and said that a detainer appeal without the “one year rent” bond is still an effective appeal, but it doesn’t help the defendant in any way in keeping the property.

Earlier in the summer, the Tennessee Court of Appeals issued another opinion on that issue. In that opinion, the Court noted that the appeal bond requirement to retain possession applies to appeals as noted under Tenn. Code Ann. § 29-18-130(b)(2), as well as petitions for writs of certiorari under Tenn. Code Ann. § 29-18-129.

This is an obscure part of the law, but lots of Courts are covering this ground and reaching the same conclusion.

Last note: If the tenant is only appealing the monetary part of the judgment, no possessory bond is needed to have an effective appeal.

7% and Rising: Tennessee’s Post-Judgment Interest Rate Continues to Go Up

About this time last year, I noted that the statutory rate of interest on Tennessee judgments was continuing to increase. At the time, the rate was 6.25%.

After bumping up to 6.5% in January 2018, it has now risen again to 7.0% (effective July 1, 2018).

As you’ll recall from my post in February 2013, Tennessee switched from a flat-rate of 10% to a variable rate under the (then) new version of Tenn. Code Ann. § 47-14-121.

As a creditor, this is great news. As a creditor lawyer, it’s kind of a pain in the neck.

Now, when I’m asked to prepare a payoff, I have to check the Tennessee Administrative Office of the Courts website to see what the applicable rate is. Then, for any increases or decreases, I have to adjust my math for that time period.

If a Tennessee Plaintiff Fails to State a Valid Claim, a Defendant may be Awarded Attorney Fees

Way back in April 2011, I previewed a new law being considered by the Tennessee legislature, which would provide for recovery of attorney fees to a party who could quickly get its opponent’s lawsuit dismissed for failure to state a claim, notwithstanding the lack of a written contract between the parties that provided for that relief.

I guess this is old news at this point, but here’s the full citation.

As enacted in July 2012, the law can be found at Tenn. Code Ann. § 20-12-119(c)(1), which provides in part that:

Notwithstanding subsection (a) or (b), in a civil proceeding, where a trial court grants a motion to dismiss pursuant to Rule 12 of the Tennessee Rules of Civil Procedure for failure to state a claim upon which relief may be granted, the court shall award the party or parties against whom the dismissed claims were pending at the time the successful motion to dismiss was granted the costs and reasonable and necessary attorney’s fees incurred in the proceedings as a consequence of the dismissed claims by that party or parties. The awarded costs and fees shall be paid by the party or parties whose claim or claims were dismissed as a result of the granted motion to dismiss.

This, obviously, is a powerful tool to attack meritless claims that fail to state a cause of action under Tennessee law. But, a party seeking relief under this statute must act fast. The statute requires that the motion seeking this relief be filed within sixty (60) days after the moving party received service of the latest complaint, counter-complaint or cross-complaint in which that dismissed claim was made.