And, all those builders, contractors, investors, and so many others who were broke in 2010/2011 but who turned things around when Nashville real estate, business, and construction boomed in 2015 (and beyond)?
They’ve been waiting. Hoping that you’d forget about them. Hoping that you’d do nothing to renew your judgment.
Part of what makes this Creditors Rights blog so popular is that I keep it an objective discussion of the law. You don’t see me use it to solicit business. (Well, overtly.)
But, for today, I’ll say this: If you have a box of judgments that you haven’t touched for years…Call or e-mail me immediately. There may still be time.
I’m seeing it happen every day. Big judgments are expiring, and debtors are ridding themselves of millions dollars’ worth of judgment liens.
Once upon a time, the creditor probably got frustrated by the dead-ends (or maybe the expensive lawyers spinning their wheels while billing by the hour). Those old files got put in a file cabinet. Maybe the banker switched banks. Maybe the bank got sold.
But, if you don’t dust off those old files, you are probably leaving money on the table. If you haven’t looked at those old files lately, it may be too late.
But, what about other types of long-term service contracts? Is the service-provider entitled to compensation for both past-due amounts and future contract payments coming due, regardless of whether they can find a “replacement” customer?
This exact issue is presented in three new lawsuits that were filed in mid-December in Davidson County. In the lawsuits, a commercial linen company (i.e. napkins, aprons, bar towels, mats, etc.) sued three Nashville restaurants for breach of the linen rental agreement. In all, the actual past due amount wasn’t that much–instead, the lions share of the requested judgment was for damages for the remaining months of the contract, which this particular agreement. Under this agreement, the provider could recover “60% of the weekly service charge for the unexpired term” as its future damages.
For instance, in the lawsuit against Woolworths on 5th, the restaurant had an actual overdue balance of just $1,430.11. But, after applying the damages clause, the rental company is asking for a total of $77,440.60, which includes 60% of the not-yet-due amounts owed over the 60 month service agreement.
This seems a bit unfair, right?
These types of damages are known as “liquidated damages.” When the actual amount of damages under a contract are uncertain and difficult to calculate, these provisions are agreed to by the parties at the time the contract is signed to provide certainty and establish a method for calculating those damages.
With real estate, it’s really easy to calculate damages —how long was the property vacant after the breach? With longer-term service contracts, it’s more difficult–what expenses and costs did the service provider not incur by not having to provide the linen?
In Tennessee, a liquidated damages clause will be generally be allowed unless the challenging party proves that the provision is really just a penalty and/or designed to punish the breaching party. Tennessee law does not favor penalties, and, if it’s a close call, Tennessee Courts will be inclined to disallow the penalty. Testerman v. Home Beneficial Life Insurance Co., 524 S.W.2d 664 (Tenn.App.1974). In short, a liquidated damages provision should be somewhat reasonable in relation to the possible injury suffered and not unconscionable or excessive.
More recent Tennessee cases tend to favor allowing parties to a contract the freedom to agree to whatever business deal they want, even it’s an awful deal with a fairly onerous damages provision. See Guiliano v. Cleo, Inc., 995 S.W.2d 88, 101 (Tenn.,1999). “‘The bargain may be an unfortunate one for the delinquent party, [but] it is not the duty of courts of common law to relieve parties from the consequences of their own improvidence.’” Id.
This will be interesting to watch. Sure, damages at 60% of the remaining term sounds really high, but maybe that’s representative of the expected profits in the linen rental industry. If it’s close, a Tennessee court will allow this.
The Tennessee Court of Appeals issued an opinion yesterday in a collection case, which has some really useful analysis on the reasonableness of attorney’s fees. This is an issue near and dear to my heart.
A full copy of the opinion, Tennessee Farmers Cooperative v. Ted Rains, M201801097COAR3CV, 2019 WL 3229686 (Tenn. App. July 18, 2019), can be found here.
In that case, the debtors had not made a payment on the debt for eight and a half years. The creditor, nevertheless, filed a collections lawsuit, but the creditor only sued for those installment payments that came due in the 6 years prior to the lawsuit (which included a final, fully matured balloon payment). Needless to say, this lawsuit was, essentially, for the entire amount owed (minus, of course, about 12 months of installment/interest payments).
The Court found that each installment missed was an independent cause of action, prompting a new, later statute of limitations deadline for each installment with each passing month. Specifically, the Court wrote:
“As it pertains to an installment note, the law is well settled that the cause of action accrues on each installment when it becomes due, and that the statutory period begins to run from that moment on that installment.” Consumer Credit Union v. Hite, 801 S.W.2d 822, 824 (Tenn. Ct. App. 1990). Here, Deutsche Bank sought missed monthly payments going back six years from the date of the filing of the complaint, which was January 20, 2017. Because a cause of action accrues with respect to each missed installment payment in an installment note, monthly payments that became due and owing since January 20, 2011 are not barred by the statute of limitations.
This is somewhat counter-intuitive, since you’d think a six year old, long defaulted debt would have expired, well, six years from the default. But, it’s not the case. In fact, the only debts that would have expired are the specific installments that came due beyond that six year period.
I’m as pro-creditor as anybody, but this seems like an unfair outcome.
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.
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.
More than four years ago, I complained about the (then) new post-judgment interest rates in Tennessee. Long story short, the interest rate on judgments in Tennessee used to be a clean, easy 10%. Under the new version of Tenn. Code Ann. § 47-14-121, judgments accrue interest at a variable rate, that could change every 6 months.
One of my complaints was that it’s so difficult to figure out what the rate is at any time, but, luckily, the statute requires the administrative office of the courts to publish the applicable rate.
So, today’s post is to notify you of this: As of July 1, 2017, the rate is as high as it’s ever been, at a whopping 6.25%.
I talk a lot about liens as a good way for a creditor to get paid. In state courts and bankruptcy courts, there often are two lines formed: one for those with liens; and the other for those without liens. And you can guess which one leads to the money.
Under Tennessee statutes, there are liens for all kinds of people: mechanics, artisans; dentists; jewelers; shoe repairers; cotton ginners; lithographers; baggage claim folks…just to name a few.
But let’s talk about attorney liens today.
Under Tenn. Code Ann. § 23-2-102, an attorney who files a lawsuit “shall have a lien upon the plaintiff’s or complainant’s right of action from the date of the filing of the suit.” (Or, per Tenn. Code Ann. § 23-2-103, the attorney has a lien from the date that the attorney starts work on the case.)
This lien extends to two types of property. The first is a “retaining lien,” which gives the attorney the right to retain a client’s books, papers, or money coming into his possession during the matter until the client pays. The second is a “charging lien,” which is a lien for payment of fees against the judgment or recovery obtained in a case. For a good review of this, see Starks v. Browning, 20 S.W.3d 645, 650 (Tenn. Ct. App. 1999).
There’s some old caselaw out there that suggests that the attorney must have the lien noted in the Judgment to be valid. The Starks case above (involving the venerable Nashville lawyer, Bart Durham) says that requirement is not in the statute and is just an odd creation from old caselaw.
But, I say that it’s a good practice to note the attorney lien any– and every-where (in judgments, in notices filed with the Court, notices recorded in the Register’s Office), but it’s not legally required.
The statutes above don’t cover all situations where an attorney might have a lien; in fact, other specific statutes, like worker’s compensation matters, may have their own special rules. Additionally, nothing would stop a collection minded lawyer from obtaining a consensual lien as part of his or her client engagement documents, particularly where client resources may eventually be scarce.
Long story short, the attorney lien statutes are probably narrower than you thought they were, granting a lien generally only the lawsuit filed by the attorney. Any other, broader liens to secure repayment must be granted or taken under other statutes (judgment liens, consensual liens).
Judgment debtors with non-traditional employment are always a headache to collect from. This includes self-employed people, independent contractors, and people who work for tips.
Here, I’m talking about waiters, valets, and anybody else who may earn a nominal hourly rate, but the bulk of their income comes from tips or gratuities. How do you garnish $5 in cash handed to a valet?
In Tennessee, you can’t. The Tennessee Court of Appeals recently considered the issue of whether tips reported by the Garnishee’s employees are to be included in the calculation of disposable earnings for the purposes of garnishment in determining the withholding under the garnishment statute, Tenn.Code Ann. § 26–2–106.
This case was Erlanger Med. Ctr. v. Strong, 382 S.W.3d 349, 351 (Tenn. Ct. App. 2012). In that case, the judgment debtor was a server at Shoney’s. In deciding whether tips could be garnished, the Court looked at how “wages” was defined in Tenn.Code Ann. § 26–2–102 (which suggested that tips are included), but the Court went on to note that federal law excludes tips from garnishment because tips “do not pass to the employer.”
This makes sense, because how can an employer withhold 25% of funds that it never has control over?
As a result, a judgment debtor whose primary income comes from tips and gratuities (that do not pass through the employer’s hands) may be able to escape garnishment.
But, where the tips are paid via the employer, there’s still a chance that those funds can be captured. Since at least 75% of restaurant transactions are paid via credit card (including payment of tips), there’s a strong argument that such tips could be garnished if the employer disbursed those tips in the form of a paycheck.