David

Don’t Let Your Post-Foreclosure Rights Expire: Tenn. Code Ann. § 35-5-118(d) Imposes a Two Year Statute of Limitations on Deficiency Lawsuits

Last week, a local collections lawyer conceded, in open court, that collection cases rarely have interesting issues involved. This case was different, the lawyer argued, because it involved interpretation of Tenn. Code Ann. § 35-5-118(d), which has not yet been discussed in any Tennessee opinion.

This is the new foreclosure deficiency statute, and I’ve dealt with this law a few different times. Here’s a blog post about the first judicial opinion defining what constitutes a reasonable bid price at foreclosure under the statute.

I’ve also noted that the statute shortens the statute of limitations on pursuing post-foreclosure deficiency lawsuits. Specifically, the statute says:

(d)(1) Any action for a deficiency judgment under this section shall be brought not later than the earlier of:
(A) Two (2) years after the date of the trustee’s or foreclosure sale, exclusive of any period of time in which a petition for bankruptcy is pending; or
(B) The time for enforcing the indebtedness as provided for under §§ 28-1-102 and 28-2-111.

So, to collect your debt after a foreclosure, you have to act fast in Tennessee. While two years doesn’t sound like a short time frame, it can be, where the creditor spends time on eviction, selling the property, or even selling the deficiency debt to a third party.

The statute has a September 1, 2010 effective date, so the courts may still be dealing with deficiencies from both the pre-statute and post-statute time periods.

Always be on the look-out for this issue. In the “interesting” case that I mentioned above, the foreclosure occurred in February 2011, with the lawsuit filed in February 2014. In response to this issue, Plaintiff’s counsel confidently cited the general six year statute of limitations on breach of contracts (Tenn. Code Ann. § 28-3-109). The Court rightfully held that the more specific timelines of the foreclosure deficiency statute controlled and dismissed the action.

Who says collection cases aren’t interesting? We made law that day!

Holding a Car Pursuant to a Mechanic’s Lien Doesn’t Violate the Automatic Stay

Generally, if you’re a creditor and you have possession of a bankrupt debtor’s possessions, you have to give it back when they file bankruptcy. But not always.

Today, I’m talking about mechanic’s liens.

As you’ll remember in Tennessee, Tenn. Code Ann. § 66-19-101 allows a mechanic to assert a lien for repairs performed on a vehicle, and, in order to preserve the super-priority perfection in the vehicle, the mechanic has to retain actual, physical possession of the car.

But, what about when the customer files bankruptcy, and the demand to turnover the vehicle comes from a Bankruptcy Attorney, alleging a violation of the automatic stay?

Bankruptcy Courts say that the mechanic can still hold on to the car.

Certain actions are excepted from the automatic stay, including “any act to perfect, or to maintain or continue the perfection of an interest in property to the extent that the trustee’s rights and powers are subject to such perfection under section 546(b)” 11 U.S.C.A. § 362(b)(3). Section 546(b) limits a trustee’s avoidance powers under 11 U.S.C.A. § 549 with respect to “the maintenance or continuation of perfection of an interest in property … [i]f a law … requires seizure of such property … to accomplish such perfection, or maintenance or continuation of perfection of an interest in property[.]” 11 U.S.C.A. § 546(b). Statutory liens such as mechanics liens fall within the scope of this exception.

That’s a lot of legal citations, so here’s the take away: if the repairman holds a statutory mechanics lien upon the vehicle for the repairs done, then the retention of the vehicle–even after the Bankruptcy Case is filed–does not violate the automatic stay.

In that case, the Debtor must either propose to pay the lien, fight it, or give up the car. Good news for mechanics.

Get Your Law School Applications In: Welcome to the Profession

It’s that time of year when English, Philosophy, and History majors start wondering what they’re going to do after graduation.

If you’re thinking about going to law school, you’re welcome to read the entirety of this New York Times article, The Lawyer, the Addict, on substance abuse in the legal profession.

Or, you can read just this part, under the heading, “Rewarded for Being Hostile.” After noting that lawyers “have the highest rate of depression of any occupational group in the country,” there’s this:

Yes, there are other stressful professions…Being a surgeon is stressful, for instance — but not in the same way. It would be like having another surgeon across the table from you trying to undo your operation. In law, you are financially rewarded for being hostile.

I love that image. I mean, I also hate it, as a lawyer who has to deal with lawyers all day long.

The law is a strange profession. Look at the ads in the Yellow Pages, and there they are: “Hostile”; “Aggressive”; “Take No Prisoners”; “Bulldog.”

Aggressive

Here is a law firm using, literally, an angry gorilla to advertise their services. (I found another one with a lawyer holding a ninja sword, but I didn’t post that.)

This isn’t the part where I say that I hate my job, but it’s a note that the legal profession is a strange one.

The next ten years will be interesting, as more of the “old school” attorneys retire and make way for the millennials, who, if we believe the news stories, value quality of life and collaboration. Maybe, we’ll see a decrease in this “law is war” mentality.

But, with a generation raised on social media snark, I wonder whether we’ll see a continuation of the broader cultural shift to a lack of civil behavior, particularly with the wide-spread use of e-mail communication as the primary means of lawyer to lawyer communication and long-distance / remote practice.

What I’m saying, in the end, is: Welcome to the Jungle, new lawyers.

To Recover Attorney’s Fees in Tennessee, You Have to Be Express and Exact in Your Contract

We’ve talked about this before: Tennessee is a great, creditor-friendly state, but, if you want to recover your attorney’s fees in Tennessee, you’d better have some very specific language in your contract.

The Tennessee Court of Appeals filed an opinion last week as a reminder, at Nyrstar Tennessee Mines-Strawberry Plains, LLC v. Claiborne Hauing, LLC, Tenn. Ct. Apps, No. E2017-00155-COA-R3-CV.

Here is the contract provision the Court considered:

The Customer must pay Nyrstar all costs and expenses incurred by Nyrstar in connection with enforcing its rights against the Customer under an Agreement including legal expenses and other costs incurred in recovering monies owed by the Customer to Nyrstar.

By my read, “all costs and expenses,” along with “including legal expenses,” should be good enough.

The Nystar Court disagreed. That text does not say “including reasonable attorney’s fees.”

As a result, “The provision at issue does not specifically or expressly create a right to ‘fees,’ ‘attorney’s fees,’ or ‘reasonable attorney’s fees.'” Further, ““the term ‘expenses,’ without more, . . . does not include an award of attorney fees.”

As a result, “[t]he language in the contract before us is not sufficient for Nyrstar to be entitled to recover its attorney’s fees. The provision at issue does not expressly or specifically create a right for Nyrstar to recover its attorney’s fees.”

So, if you want to recover attorney’s fees in Tennessee, you’d better say exactly that in your contract–that the prevailing party shall be entitled to recover its attorney’s fees.

The Ethical Implications of How You Obtain Evidence: Avoid “Pretexting” (And Also Everything Else Harvey Weinstein Did)

This week, the New Yorker ran an article, “Harvey Weinstein’s Army of Spies,” which talked about the ways that the embattled movie producer investigated the women making sexual harassment claims against him.

One of the stranger aspects, however, is that he used his lawyer, David Boies, to employ these investigators, who later pretended to be victims in order to gain the trust and sympathy of the targeted victims.

Sure, we can be appalled at the extreme measures employed, but, when his lawyer puts his signature on any aspect of it, it becomes even more troubling.

This blog isn’t about Harvey Weinstein-level counter-intelligence, but this type of thing occasionally comes up in real life law practice, particularly in domestic relations.

This is referred to as “pretexting,” and it involves some sort of ruse or deception to obtain information. Frequently, it will entail the creation of a fake social media accounts to “friend” or communicate with a witness or opposing party.

This is unethical behavior and, in Tennessee, violates the Rules of Professional Responsibility. Rule 4.1 provides that “a lawyer shall not knowingly make a false statement of material fact or law to a third person.” In addition to lawyer professional disciplinary proceedings, such actions can result in criminal or civil liability under the Gramm-Leach-Bliley Act and other mail/wire fraud statutes.

But, let’s be clear: Information that a person publicly posts online is perfectly ripe for the taking and use, including public posts and pictures. Similarly, information that a person privately posts but which a party has knowing permission to access can also be used.

The key is that a lawyer–or an investigator working for the lawyer–should not use deception or lie in order to obtain that access. But, short of that, if it’s out there and it’s useful, download it, copy it, save it, and use it.

As an aside–and totally appropriate for this topic–I’ll be presenting the topic “Ethical Issues: Using Social Media/The Evidentiary Role of Technology,” at the Family Law Conference for Tennessee Practitioners in December 2017.

Tennessee Law on Sheriff’s Sales Can be Confusing, but Worth the Work

A very long time ago, I wrote that judgment collections may require patience but that, fortunately, Tennessee judgments are valid for ten years.

So, while you may be dealing with a debtor without any money now, keep in mind that this economy can shift for the good, as quick as it went bad. In collections, patience can lead to money.

That was in July 2010, and, man-oh-man, has Nashville’s economy rebounded. If you’ve followed my other advice, way back when, you have already ordered a certified copy of your judgment and recorded it as a lien in the real property records.

So, fast-forward to 2017. If you take that old judgment lien and add in 7-8 years’ worth of property appreciation, maybe it’s time for you to consider conducting a sheriff’s sale of real property pursuant to your judgment lien.

In Tennessee, Sheriff’s Sales are governed by Tenn. R. Civ. P. 69.07(4) and Tenn. Code Ann. § 26-5-101, et. seq. At a recent seminar, I was asked which of the two lines of authority controlled the process: Rule 69; or the Tennessee Code?

The correct answer is, unfortunately, that nobody is entirely sure. So, I guess, the answer is that both control the process.

As a practical matter, when I’m conducting a sheriff’s sale of real property to enforce a judgment, I follow all of the requirements under Rule 69 and also under Tenn. Code Ann. § 26-5-101. Sure, that makes for a lot of “hoops” to jump through, but the hoops are never contradictory.

Given the appreciation in property values, sheriff’s sales can be a very effective collection method.

Court of Appeals Issues Friendly Ruling in Lawyer Malpractice Matters

The Tennessee Court of Appeals recently tackled an interesting issue of when a client “discovers” a lawyer’s malpractice.

The opinion is Mark Thomas v. Richard Myers, No. W2016-02581-COA-R3-CV (Tenn. Ct. Apps., Oct. 19, 2017).

The most interesting aspect of the case is that the lawyer’s defense, basically, admitted malpractice:

Q: And you were aware that you had lost, for lack of a better term, big time, a lot of money.
A: A great deal of money, yes.
Q: And you were aware that the evaluation by Richard Myers was wrong.
A: Yes.
Q: And you were aware that Richard Myers’ deceptions as to what a great case this was was wrong.
A: Yes. Yes.
Q: And you were aware that Richard Myers’ negligence and misrepresenting to you what the law was, what the facts could be presented as, and your great position in this lawsuit was wrong.
A: Yes.
Q: And you were aware on that day that he was not being truthful about the odds of winning.
A: Yes.
Q: And you were aware on the day that whatever risk outline he had given you, be it little, small, or none, was wrong, because the reality was you’d had a judgment rendered against you, so you knew he had misled you and deceived you.

A: Yes.

But, as a legal matter, the defense relied on the “discovery rule” to argue that, despite the lawyer “explaining away the loss” and saying that they’d ultimately win on appeal, the client “discovered” that he suffered an injury on the day that the adverse judgment was rendered at the trial court.

So, again, despite continued assurances from the lawyer that they’d win on appeal, the one-year statute of limitations for malpractice actions starts on the day of the adverse judgment. “At that point, the client is aware of the fact of injury.” Yikes.

This is an interesting decision, that clients will hate, but lawyers will love.

General Sessions Court is Weird, and Also Awesome

In General Sessions today, I saw two funny things. One lawyer was walking around with a half-empty bottle of Mountain Dew in his suit jacket. Another lawyer had a can of snuf in his back-pocket as he made an argument to the Judge.

(Disclaimer: I love Mountain Dew, and I’ve praised the A.A. Birch courthouse and others for keeping it fully stocked.)(Second Disclaimer: I’ve talked about Mountain Dew a lot on twitter.)

What I’m saying is that Davidson County General Sessions Court is a little bit different than the stuffy and formal proceedings in District Court.

That’s why a lot of the larger Nashville law firms don’t file anything in small claims court. It can be a weird, fly-by-the-seat of your pants exercise in justice. Big firms and “fly-by-your-seat” don’t mix well.

But the following timeline shows how General Sessions Court is awesome:

October 18, 2017: Filed Civil Warrant for $24,999.00.
October 19, 2017: Obtained Personal Service on Defendant.
October 26, 2017: Took a Judgment for $33,500.00 (base amount, but remember this old post–you can exceed that amount with attorney fees, expenses, etc.).

So, to be clear, after the 10 day appeal period expires on Monday, November 6, 2017, I’ll have a final judgment for $33,500.00 and can execute on it–in less than three weeks after filing the lawsuit.

If your creditor lawyers are filing collection lawsuits in Circuit Court or Chancery to collect debts that are less than $25,000.00, you’re paying too much and waiting too long for your Judgments.

Don’t Lose Your Next Default Judgment Hearing: Why Some Judges Ask for an Affidavit

Under Tenn. R. Civ. P 55 (governing “Default”), if a defendant does not answer or defend a lawsuit, then the plaintiff can take a default judgment against the defendant. If they don’t answer, the court grants the motion and enters a judgment. Easy, right?

Yes, but, sometimes, some courts make it more complicated than that.

In some counties, even when the defendant hasn’t responded and doesn’t appear at the hearing, the Judge will: (1) ask if I filed an Affidavit; or (2) set the matter for a “damages hearing,” which can be months in the future and could require a witness to attend.

Having seen this happen, I’ve scoured Rule 55 and the various counties’ Local Rules, but have no idea where this idiosyncrasy comes from. But, over time, I started filing affidavits along with my motion for default in non-Davidson County counties.

But, recently, I saw a Davidson County Chancellor ask about an affidavit as part of an uncontested motion for default. When the plaintiff didn’t have one, the judge set a damages hearing to occur in 90 days.

I never, ever want a non-responding defendant to get an extra 90 judgment-free days, so I now carry around this recent opinion from the Court of Appeals, Judith Husk v. Brandon Thompson, No. M2016-01481-COA-R3-CV (Tenn. Ct. Apps. Aug. 10, 2017).

That opinion covers a lot of ground, including bases to set aside a default judgment, but I want to focus on the “damages” analysis. The opinion lays out the law as follows:

Generally, the rule in Tennessee ‘is that the defendant, by suffering a default judgment to be entered against him, impliedly confesses all of the material allegations of fact contained in his complaint, except the amount of the plaintiff’s unliquidated damages.’ …Thus, a default judgment establishes the non-defaulting party’s right to maintain the action and recover some damages, but the amount of damages remains an open question to be determined by proof. … If the amount of the plaintiff’s damages is liquidated, however, a trial court may immediately enter a final judgment without a determination by proof.

(Citations Omitted/emphasis added).

So, the issue comes down to whether the claim is for “liquidated” or “unliquidated” damages.

The Court noted that unliquidated damages are uncertain and the type that require a “determination by proof” and are “damages that cannot be determined by a fixed formula…”

“Liquidated damages” are the type that are for “a set amount of money, or a or a certain formula, expressly stipulated in a contract as the amount of damages to be paid by a party that breaches the agreement. Liquidated damages can also be defined as the amount which has been ascertained by judgment or by specific agreement of the parties or which are susceptible of being made certain by mathematical calculation from known factors…”

Long story short, a lawsuit alleging breach of contract for amounts due under a promissory note plus interest using the “math” laid out in the note? Liquidated.

A lawsuit alleging damages “in an amount to be determined at trial” as a result of an auto accident? Unliquidated.

In the Davidson County matter I saw, the Chancellor expressly referenced the Husk opinion, even though the Court was faced with a breach of contract action with liquidated damages.

Having seen that happen, then, I think it’s a good practice to always include an affidavit in support of your motions for default, just so there’s no question. Plus, it’s probably good to get the facts supporting the existence of the contract, the damages, and showing the “math” into the record.