David

Construction Lenders: Don’t Wait to Visit the Construction Site to Check the Status of Work Progress

Not too long ago, even bad loans got repaid. With so much new money in the pipeline and refinance transactions always around the corner, errors in loan documents or lapses in lending oversight didn’t matter, because undiscovered issues never had time to blossom into problems. As a result, some lenders got lazy.

As this story from Memphis’ Commercial Appeal shows, Rusty Hyneman’s banker was really lazy. The worst part is the bank didn’t catch the issues until after approving the loans and, worse, advancing an incredible amount of money. When the bank did some basic post-transaction due diligence, the horses were already out of the barn.

After a customary review of active loans, the banker “hit the road to eyeball properties.” On this random visit to the construction site–11 months after loaning a total of $14 million–the banker must have been shocked to find that absolutely no work was being done on the project. Nothing.

That’s when the bank knew, obviously, there was a problem.

Here’s my advice to creditors: Take time to know your customers and know their projects. On a construction loan, occasionally drive past and make sure work is being done. Especially if you are actively advancing money to fund work at the site. Here, $4.9 million of the bank’s advances were to be used exclusively for construction at the project, and a quick drive-by could have saved millions of dollars.

Mechanic’s Lien Statutes are to be Liberally Construed: New Tennessee Court of Appeals Opinion Allows Valid Lien Claim in the Face of “Non-Prejudicial” Defects

Once upon a time, a mechanic’s and materialmen’s lien lawsuit was akin to walking a tight-rope. In order to have a valid lien claim, you had to comply with each and every deadline, notice, and other requirement of the statute. Just one mistake rendered the lien claim ineffective.

The Tennessee lien statutes (Tenn. Code Ann. § 66-11-101 et. seq.) were revised in 2007. A notable change was that, under Tenn. Code Ann. § 66-11-148, the statutes were to be “liberally construed” in the lien claimant’s favor and that “[s]ubstantial compliance” with the lien laws is “sufficient for the validity” of lien claims.

The recent case of Tri Am Construction, Inc. v. J & V Development, Inc. (Aug. 30, 2011) is the first case to discuss this new statute on liberal construction. In that case, the claimant: failed to file its Complaint under oath; didn’t add claims against the Deed of Trust trustee; didn’t have an attachment issued; and used a defective notary acknowledgment. All of these would have been fatal errors under the old statutes.

Under the new statute, however, the Court overlooked all of these defects, finding that the errors were “nonprejudicial” and fell within the scope of the liberal construction of the statutes.

I ask the obvious question: If a court is to overlook these defects, exactly what defects would be considered “prejudicial” and would prevent a valid lien claim?

I don’t know. Here, the exceptions appear to eliminate the rule. Surely, a court would dismiss a late-filed lien claim. Right?

Collection on Unpaid Legal Invoices in Tennessee: One Really Good Reason to Wait One Year

The Tennessee Court of Appeals issued a recent opinion discussing the elements of legal malpractice claims. The case is Tucker v. Finch,No. E2010-01704-COA-R3-CV, Slip. Op. (Tenn. Ct. App., Aug. 30, 2011).

The case provides a good summary of the statute of limitations on legal malpractice actions, which must be “commenced within one (1) year after the cause of action accrued.” Tenn. Code Ann. § 28-3-104(a)(2). The one year clock starts ticking “pursuant to the discovery rule “when (1) the client suffers an actual or legally cognizable injury, and (2) the client knows, or in the exercise of reasonable diligence should know, that the injury was caused by the attorney’s negligence.”

How is this relevant to collections? According to the ABA, most attorney malpractice claims are filed in response to attorneys taking collection actions against clients. Once you sue or threaten to sue a client for unpaid bills, it’s exponentially more likely that that client is going to attack the value of your legal services.

But, don’t forget, the statute of limitations for collection on unpaid debt–including unpaid legal invoices–is six years in Tennessee. Malpractice actions must be filed in one year.

As I’ve written before, this is why lawyers wait at least a year to collect on unpaid invoices.

If the underlying lesson to aggrieved clients in the Tucker case is “don’t sit on your malpractice claim rights,” the flip side of the coin may be “let sleeping dogs lie, at least for a year.”

(Side-note: I’m not condoning malpractice or encouraging attorneys to avoid responsibility. But, I know from experience, you can provide world-class services and, faced with a bill for world-class services, some clients are going to allege you did something wrong. On those clients, wait a year.)

Write the Wrong Defendant’s Name on Your Judgment? General Sessions Litigants Can Correct Clerical Errors in Judgments in Tennessee

Davidson County General Sessions Court (also known as “small claims” court) is the wild, wild west of our local courts. Things move fast, many parties are not represented by lawyers, and there are dozens of cases on each docket. Because the jurisdiction of General Sessions goes up to $25,000 (sometimes more) and a creditor can get a judgment in as little as a month, I file a number of my Nashville creditor lawsuits there.

The prevailing party usually writes up his own judgment, and, in the rush of cases, the judgment may sometimes include a clerical error, either in the name of the parties, the computation of the amount of the judgment, or other terms. When there’s an error, the party has the right to appeal the whole thing under Tenn. Code Ann. § 27-5-108, but the best practice is to move to correct the “clerical error” in the judgment under Tenn. Code Ann. § 16-15-727.

The application of that statute was discussed in a Tennessee Attorney General Opinion (No. 04-090, May 10, 2044), applying Rule 60.01 of the Tennessee Rules of Civil Procedure applies in Sessions Courts.

Interestingly, the Opinion says that a litigant can only “correct” a “clerical error” in a judgment, and expressly stops short of any relief that a litigant might have under Rule 59 to “alter or amend” a judgment. This means that alleged errors on a point of law are not in the same category as clerical errors and cannot be changed.

So, if you get back to your office and realize you’ve written the wrong amount on the Judgment–or the wrong responsible party–you’ve got relief. Rule 60.01 does not contain a time limitation, and corrections may be made at any time upon the court’s initiative or upon motion of either party. Parties whose rights may be modified by the correction must be given notice of the Motion. Decisions to correct are within the discretion of the Judge. Obvious errors are usually corrected.

New CLE Speaking Engagement: The Essentials of Foreclosure Defense, September 22, 2011

My law partner, Tucker Herndon, and I have been invited by LawReviewCLE to speak at their upcoming seminar The Essentials of Foreclosure Defense. This seminar will be on September 22, 2011, in Nashville at the DoubleTree Hilton.

While we generally represent foreclosing creditors in the foreclosure process, the seminar organizers recognized that “bank lawyers” are probably some of the most knowledgeable about avenues to attack, stop, or stay a foreclosure. They’re right: after probably 500 foreclosures over the past 4 years, we’ve seen it all.

As a result, we’ll be speaking about trends in foreclosure litigation, including lawsuits to stay or enjoin foreclosures, as well as well consensual agreements to avoid foreclosures, like loan modifications, short sales, and deeds in lieu of foreclosure.

Finally, we’ll review the powers of Bankruptcy Courts to stop a foreclosure and, in some cases, attack a creditor’s lien rights.

This should be a lively seminar on an obviously topical area of law. We hope you’ll consider signing up. There will be a Q & A session at the end, and, if you ever wanted to ask a bank lawyer about foreclosures, this is your chance.

How Small are the “Small Claims” in General Sessions Court in Tennessee?

In Tennessee, you hear lots of talk of General Sessions Court, which is Tennessee’s version of small claims court. Of course, “small” is a relative term–General Sessions Courts in Tennessee have jurisdiction to hear civil cases with as much as $25,000.00 in controversy. See Tenn. Code Ann. § 16-15-501.

Trivia Time: In what three situations can a creditor obtain a judgment that exceeds the $25,000 jurisdictional limit in General Sessions Court? The Answer is after the jump.

Continue reading “How Small are the “Small Claims” in General Sessions Court in Tennessee?”

Even Lawyers Have to Collect Their Bills: Best Practices for Increasing Realization

Once upon a time, when money grew on trees, unpaid invoices and aged accounts receivable were nothing more than a casual nuisance. Then, of course, the economy turned, and businesses re-examined their books to search for any income source they could find. This includes law firms (see my tweet from yesterday).

Here are a few billing tips for increasing law firm collections on invoices:

1) Tell a story in your invoices. Craft time entries in a manner that tells a story and shows the client the value of your time. Don’t say: “Legal Research on jurisdiction.” Instead, say: “Legal Research on issues related to Delaware corporation doing business in Tennessee and whether internet website justifies lawsuit filed in Tennessee.” Which one looks like it took an hour of legal time?

2) Advise clients in advance of costly new developments. “No surprises” is the rule. If a big Motion gets filed against the client, tell the client immediately, even if you have thirty days to respond. One, the client should know about case developments, but, two, they should know that the case is getting ready to get expensive—before they receive the bill for the expensive legal work. Better to know that the client is (or isn’t) financially ready for an expensive fight earlier, rather than later.

3) Effectively manage resources. This means assigning the right person to handle each task. Clients don’t want to pay for the time it takes an associate to type, organize files, and manage his or her calendar–an assistant does a better job of those things. Clients don’t want to pay top rate for basic tasks, and they’ll appreciate the efficiency you can create by having workers with lower rates handle routine matters. Spend the client’s money like it’s your own.

4) Don’t be afraid to give occasional discounts or time write-offs. Sometimes, you’ll do work on a task that takes far longer to complete than you can justify, whether it’s a simple pleading, a day of phone-tag, or anything else that you know a client wouldn’t pay for. Be fair on the easy tasks, and the client may remember that when faced with a $5,000 invoice for that huge brief.

5) Call the Clients who aren’t paying. In this economy, a late paid invoice is probably the result of issues with the client’s cash flow. But, it could be the result of the client being unhappy with your services and/or billing. Implement a standard system by which you routinely follow up with late invoices, whether it’s after 30, 45, or 60 days. If it’s a problem with your services, you need to know that immediately. If the client is having trouble paying for your services…well, you need to know that immediately too.

6) Review your own bills to remind yourself how expensive lawyers are. In many firms, younger lawyers never see a bill until they get a few years of practice under their belt. Bill review is for the older, established “rain-makers.” As a result, lawyers don’t realize that all the 0.3s and 1.7s are real billing events, that cost real money. Nothing puts those billing entries into the proper perspective like seeing the actual monetary amounts. Ask yourself, “Were the services that I provided worth $1,200.00?”

At my firm, one of my hobbies is being a back-seat driver on the invoicing and collection tasks. It’s my area of practice and what I do all day long, and, if my firm gets it right, it means more money for me. These best practices are easy ways to increase realization on invoices. Because, in the end, if we’re not going to get paid, wouldn’t we all have preferred to spend that time at the beach?

Davidson County Chancery Court Case Information Now Online

For a few years now, all of the Davidson County Circuit Court’s records have been online at the Davidson County Caselink (subs. req’d).

Now, the case records of the Davidson County Chancery Court are online on the Court’s website. Although it doesn’t provide scanned copies of pleadings (yet), the website contains party information and the dates of relevant pleadings.

As the world moves entirely online, it’s great to see this move from Chancery Court. Will electronic filing of Court pleadings be next?

Santa Fe Holding Company Bankruptcy Case in Middle District of Tennessee Starts the Preference Recovery Process

Yesterday in the Middle District of Tennessee Bankruptcy Court, the Trust (DBMC Restaurants f/k/a DBMC Investments, LLC) created in the Santa Fe Holding Company, Inc. bankruptcy began the process of filing adversary proceedings to recover preferences. So far, about 30 cases have been filed.

This is a process that generally happens after a Chapter 11 Plan is confirmed, in which the post-confirmation entity takes action on the various lawsuits it held as of the bankruptcy filing.

Here, the pleadings, styled “Complaint to Avoid and Recover Avoidable Transfers,” make claims under 11 U.S.C. 547, which is a provision of the Bankruptcy Code that, under certain circumstances, allows a trustee to recover payments made to creditors within 90 days of the bankruptcy filing.

The basic theory is that, the debtor is presumed to be insolvent during those 90 days, and any payments made during that period were selective disbursements (a.k.a. preferential payments) to certain preferred creditors. By these actions, the trustee recovers these preference payments, puts the money into a big pot, and then distributes it evenly to all creditors.

Sounds pretty fair in theory, right? Well, in practice, these actions drive creditors crazy. “Not only did this company bankrupt on the debt, now, two years later, they’re suing me to take back some of the last money they paid me?” My response? “Yes.”

There are a number of defenses to these actions (see 11 USC 547(c)), and I’ll touch on those in a later post. Right now, I’m going to go look at the dockets to see who all is getting sued. So far, this includes: Continue reading “Santa Fe Holding Company Bankruptcy Case in Middle District of Tennessee Starts the Preference Recovery Process”

50 Cent and Young Buck are scheduled for a Big Fight next week in Nashville Bankruptcy Court

Young Buck has filed a Chapter 11 Bankruptcy Case in the Middle District of Tennessee, and the battle is heating up between Young Buck (David Brown) and 50 Cent’s G-Unit Records about what to do with the remainder of Young Buck’s recording contract with G-Unit.

Plus, Young Buck owes $170,983.00 to 50 Cent on a personal loan. Yikes.

The Wall Street Journal Bankruptcy Blog has a good summary of the issues set for hearing on July 19, 2011.

Here is a copy of the Objection to the Young Buck Chapter 11 Plan filed by G-Unit. An interesting excerpt:

…there is a significant question as to whether the Debtor can manage his business affairs throughout the course of the Plan to sustain any level of success going forward to fund the Plan. At the recent 2004 examination of the Debtor, he had trouble identifying where he had been on tour, who had booked his travel, how he had even gotten from one place to another…

Just another day in the Nashville Bankruptcy Courts.