Category: Judgment Collections

Levy Involving Deja Vu (Yes, that Deja Vu) Highlights Tennessee’s Conditional Judgment Process

A recent case involving Deja Vu Showgirls Nashville (warning: do not click that link) offers a useful map for a judgment creditor to follow where a garnishee fails to answer a wage garnishment.

In the case, One Main Financial Group, LLC v. Edward Hackney, Jr. (Davidson Co. General Sessions Docket No. 23GC8323), the Plaintiff served a wage garnishment on “Deja Vu Showgirls, Attn: Payroll.”

As you know, employers must respond to wage garnishments in Tennessee within 10 days; if they don’t, the employer risks being held liable for the entire Judgment debt.

In the Sessions case, there was no answer filed, and Plaintiff filed a Conditional Judgment, asking that the full $14,000.56 judgment against Hackney be made a judgment against Deja Vu. Once a conditional judgment is signed, the court then sets a final hearing on whether to enter a final judgment against the non-responsive party.

When Deja Vu failed to respond in any way to the wage garnishment or the conditional judgment, the Court granted a final judgment against it for the underlying debt.

Unsure of where Deja Vu banks or holds assets, the Plaintiff issued a levy instructing the Sheriff to seize the “Cash Box.”

Plaintiff’s logic was sound. A few weeks later, the Sheriff went to the establishment (on a Saturday!), seized all available cash (well, the cash up to $14,634.00, the amount owed under the Judgment), and paid the funds to the Court Clerk.

Some thoughts?

Don’t ignore wage garnishments. Ever. Who knows if Edward Hackney works at Deja Vu or, even if he did, would he have been paid $14,000 during the garnishment. Due to Deja Vu’s failure to respond, the actual facts are irrelevant; Deja Vu became liable for the full debt simply because it never responded.

It’s rarely too late to answer (until it is). A conditional judgment is a “warning shot” to a non-responsive employer/garnishee, and, if a response is filed before the final hearing, the conditional judgment is vacated.

Was the cash levy valid? A judgment creditor can levy against personal property of the judgment debtor, including cash. This is often called a “till tap,” and it’s a smart move anytime you’ve got a judgment against a debtor with cash in their pockets, in their possession, or in their cash register.

In the end, the best test of collections process is whether it works. Here, Plaintiff got a little bit lucky. The Sheriff served this levy on a Saturday, presumably when the business had ample cash on hand (I actually didn’t realize the civil process unit served process on weekends).

And whoever was manning the cash box didn’t raise any issues related to service or the accuracy of the corporate name issue at any point–whether at the time of the levy or before the money was disbursed. (Looking at the corporate records at the Tennessee Secretary of State, an argument could have been made about some things.)

Sometimes, a little bit of luck makes all the difference.

My advice is to always take as much care in issuing levies as you would when filing a lawsuit. That means getting business name exactly correct. A judgment in this situation is like any other judgment–you have to get valid service of process and party’s name correct.

The race is on: Davidson County Chancery answers a long-standing question regarding judgment liens

We’re one step closer to answering one of Tennessee collection law’s greatest mysteries: Can a judgment creditor record a copy of its judgment as soon as it is signed by the Judge, or must the creditor wait 30 days?

The question arises under Tenn. R. Civ. P. 62.01, which says that “…no execution shall issue upon a judgment, nor shall proceedings be taken for its enforcement until the expiration of 30 days after its entry…”

The exact issue is this: Is recording a certified copy of a judgment an “execution”? I’ve been asked that for years, but never quite knew the answer.

For starters, what’s the statutory authority for recording a judgment lien? I look at Tennessee Rule of Civil Procedure 69, which is titled “Execution on Judgments,” and includes all the different ways you can “execute” on judgments (garnishments, levies, sheriff’s sales, liens). This list includes Tenn. R. Civ. P. 69.07(2), “Execution on Realty,” which provides the exact process to record a judgment lien against the judgment debtor’s realty.

And let’s be honest; why would you record a judgment in the first place? Under Tennessee law, the recording of a judgment with the register’s office creates a lien on real property, meaning that the debtor can’t sell, refinance, or transfer the property without dealing with the judgment. It’s a pretty powerful tool to get paid. That’s why you’d record it, and as fast as possible.

If the point is to get paid–and as soon as possible–that looks a lot like enforcement, right? But is that “execution”? Should we also throw around terms like “collection” or “attachment” too?

It’s been a mess because the statutes and rules all seem to use these different terms interchangeably, except when they aren’t interchangeable.

Faced with this exact issue, the Davidson County Chancery Court had to make sense of these competing terms and concepts. In an Order from February 2, 2024, the Court found the mere act of recording a judgment during the Rule 62.01 stay period “was not premature ….because the filing of judgment lien is not an act of enforcement.”

In doing so, the Court referenced the pleadings filed in the matter, which drew reasoning from Tenn. Code Ann. § 25-5-101(b)(1) and the competing concepts of “final” judgments found in Tenn. R. Civ. P. 54 and 62.01. Further, given the Court’s brief, but specific, factual finding, the Court seems to agree with the opposing brief’s distinction between the acts of recording a lien versus enforcing a lien, arguing that only the latter would violate Rule 62.01. The full Order is attached below.

2024-02-02-order-on-motion-to-void-lienDownload

It’s an important issue that has long vexed creditor rights lawyers, debtor’s counsel, and even court clerks. I’ve had court clerks only begrudgingly provide me with a certified copy of a judgment on the day of entry (and reminding me that I “can’t do anything with it for 30 days”).

This Order and the related reasoning may provide a roadmap for future arguments on this issue, which comes up far more frequently than you’d think.

I watched these trial court proceedings pretty closely, and I’m glad to see a creditor-friendly result. The underlying initial pleadings are also attached below.

2024-02-02-original-motion-to-void-lienDownload
2024-02-02-response-in-opposition-to-motion-to-void-lienDownload

Plaintiffs Counsel Beware: Tenn. Court of Appeals issues new opinion on “finality” of general sessions judgments

If you’ve ever filed a lawsuit involving multiple claims or multiple parties, you probably already know how Tenn. R. Civ. P. 54.02 works. If you don’t, here’s a primer that I wrote in 2017.

Yesterday, the Tennessee Court of Appeals issued a new opinion on this topic, which is a must read for sessions lawyers.

The case, Mary Bradley v. Catherine A. Pesce, W2023-00583-COA-R3-CV (Tenn. Ct. Ap. Dec. 19, 2023)(full copy here), involves a lawsuit against two defendants, filed in general sessions court in 2020. Plaintiff served one defendant, but never got the other served. After taking a judgment in June 2022 against the served defendant, plaintiff nonsuited the claims against the never-served defendant in January 2023.

Using the date of the dismissal, the judgment defendant filed an appeal of the June 2022 judgment. The issue, of course, was whether her appeal was timely under Tenn. Code. Ann. § 27-5-108, which provides “[a]ny party may appeal from a decision of the general sessions court to the circuit court of the county within a period of ten (10) days.”

Wasn’t the defendant required to appeal within 10 days of the June 2022 judgment?

Looking to Tenn. R. App. P. 3(a), the Court of Appeals first asked whether a ruling in a matter is “final” where other claims (like a cross-claim) are still pending. The Court noted that the “finality rule” is applicable even in general sessions cases, citing other opinions that “the time for filing a notice of appeal [does] not begin to run until every claim raised in the general sessions court [is] adjudicated.” Further, the Court considered the 2018 amendments to Tenn. Code Ann. § 27-5-108, which provide that one party’s timely appeal takes all issues to the circuit court, even when other claims remain pending.

In the end, the Court concluded that because “the general sessions court action …was against two parties: Appellant and Ms. Weaver,” then “[t]he judgment against Appellant was not final and appealable until all the claims of all the parties were adjudicated,” and “[t]his occurred on or about January
5, 2023.” As a result, the appeal of the June 2022 ruling was not a final order until the dismissal order was signed.

In short, the concepts behind Rule 54.02 apply in Tennessee General Sessions Court, and litigants should keep this opinion in their mind any time a case involves multiple claims and parties.

Here, it seems like the judgment debtor acted out of necessity (and not by design). Frankly, the safest course of action would have been to file the appeal in June 2022 and be entirely certain that the appeal was timely (which would have, by operation of Tenn. Code Ann. § 27-5-108, taken the entire matter to circuit court).

On the other side of the aisle, an experienced plaintiff’s lawyer knows the incredible challenges that an evading or difficult-to-serve defendant presents, and that lawyer should take precaution to make any partial judgment final (and executable) as soon as possible.

This could be done in a few easy ways. The plaintiff could ask for text in the sessions judgment that tracks the language of Rule 54.02, making it clear that the order is a final order. The plaintiff could, at the time of the entry of the initial judgment, dismiss the other claims and parties. Or, if the other claims and parties were simply too crucial, the plaintiff could delay all relief or, at worst, live with a bit of ambiguity as to the finality of the partial judgment.

The appellate court’s reasoning is sound, but a savvy plaintiff has a number of ways to protect their client.

A more pressing question is this: If the “partial” sessions judgment isn’t final in a situation like this, then shouldn’t the Court Clerk refuse to issue execution? (Spoiler: Most will issue execution, but, based on this case, they shouldn’t.)

Tennessee Court of Appeals questions “reasonableness” of contingency fees in collection judgment

Many collections lawyers handle cases on a contingency basis. They don’t bill by the hour, but, instead, they keep some percentage (usually 33%) of the money they actually collect for the clients. Sounds fair, right?

A recent study showed that a Nashville lawyer’s average rate exceeds $500 per hour, and that adds up pretty quick. With lawyers being so expensive, it makes sense that some clients would ask their attorney to share in the success (or, maybe, frustration) of the collection process.

(As a quick disclaimer, I rarely take collections cases on a contingency and, when I do, I’ve done my advance homework and am confident that, candidly, we’re all going to make a lot of money.)

Because the contingency fee attorney is not sending bills that track every minute of his time, a down-side is that he may not have a clear measure of how much in fees he has expended on a case. This is important in breach of contract cases, when the lawyer asks the judge to add an award of attorney fees to the creditor’s judgment. Under Tennessee law, a trial court must consider whether the fees requested are “reasonable,” using very specific guidelines established by the Tennessee Supreme Court.

If the lawyer hasn’t kept track of her work, then what amount does the attorney ask for? Generally, contingency-fee lawyers simply ask for their contingency-fee amount to be added to the judgment. That is generally allowed.

Not so fast, a September 2023 Tennessee Court of Appeals opinion says.

In that case, after they were awarded $50,000 on their breach of contract claim, the plaintiffs asked for attorney’s fees “in the amount of one-third of the total Judgment, or sixteen thousand six hundred and sixty-six dollars and sixty-six cents ($16,666.66).” See Fulmer v. SARCO, GP, No. M202201479COAR3CV, 2023 WL 5787082, at *2 (Tenn. Ct. App. Sept. 7, 2023).

In questioning the attorney fees, the Court of Appeals wrote that “[w]hile a one-third fee may have been what [plaintiffs] agreed to pay their counsel, it is not what [defendants] agreed to pay in the Note” (which only referenced “reasonable attorney fees”). Id. The defendants were not party to the contingency fee agreement, and “what [plaintiffs] agreed to pay their own attorney is not dispositive of what constitutes a reasonable fee under the circumstances of this case.” Id.

Instead, the trial court must have some proof substantiating the fees and services provided, consistent with the factors listed in Tennessee Supreme Court Rule 8, RPC 1.5. Id.

I understand the reasoning here, but I disagree with the general premise that a contingency fee is, per se, not reasonable.

As an example, consider my practice. If I accept one of my no-brainer, “we’re all going to make a lot of money” contingency fee cases mentioned above (and my homework is correct), I could possibly make a $333,333.33 fee on a lawsuit that lasts two months. Does that the fact that I got the matter resolved quickly and efficiently necessarily mean that my fee violates the Tennessee standards for reasonableness? This opinion suggests it might.

In my limited contingency practice, I lean really heavily on my skills, expertise, and homework (i.e. the “novelty and difficulty” referenced in the Rule) in picking my cases. In short, on those cases where I hit a grand slam, it can occasionally look easy, but a lot goes into that. It’s like the ship repairman, who charged $2.00 for tapping the engine with a hammer one time and $9,998.00 for knowing where to tap. He is worth every penny.

In the end, the Court of Appeals remanded the question back to the trial court, and there’s some chance that the plaintiffs make these same arguments in defense of their contingency fee.

Good lawyering is mostly great paperwork: A reminder to include all the details in your Judgments

It looks very exciting on TV, but success in the legal profession is often a matter of being really good at paperwork.

Proof-reading and getting the details right are essential….

But what makes great lawyers really great is the knowledge and foresight to know which details to include.

On TV, cases tend to end after a passionate closing argument, and the lawyer and client walk out of the courthouse victorious. In reality, most of my cases end with me pouring over the details of a single document–the Order that the Judge will sign–and victoriously e-filing it with the Court Clerk.

When I prepare an order for a Judge’s signature, I try to think through every possible scenario where I’d enforce the terms. When I type the judgment debtor’s name, I make sure I’ve spelled the name the same way it’s spelled on the debtor’s old checks or property deed. If there’s some special request or relief I’ve asked for in my motion, I make sure to recite that in the order and have the order expressly grant it.

A trend I’m noticing lately is that lawyers leave out critical details in their orders, and the omissions hurt their cases.

A good example relates to post-judgment sheriff sales. Sheriff’s sales confuse courts, clerks, lawyers, and sheriffs. The law is tricky and draws on 2-3 separate statutory bases (Tenn. R. Civ. P. 69.07 ; Tenn. Code Ann. § 26-5-101, Tenn. Code Ann. § 35-5-101). County sheriffs are good at a lot of things, but they really dislike having to navigate confusing Tennessee statutes on their own.

A good creditor attorney will think through the entire process, starting at the end (i.e. what will the title company need to insure title on this sale), anticipate all the questions, and have the Order address any possible question that could arise.

Who owns the real property? (Look at the Order.)

What are the liens that are impacted by this Sheriff’s Sale? (Look at the Order.)

Who will prepare and publish the Notice of Sheriff’s Sale? (Look at the Order.)

What’s the minimum price pursuant to Tenn. Code Ann. § 26-5-115? (Id.)

Will there be a deposit? What happens after the sale? When does the buyer get a deed? Will there be a sale contract? What happens with the redemption rights? And so on…

I recently saw an Order Authorizing Sheriff’s Sale that said, basically, “the relief granted in the Motion is GRANTED.”

And that was it. The Order had no specific reference to relief described in the Motion and provided no guidance to the sheriff. Instead, to enforce the Order, the lawyer had to also send a copy of the Motion and hope that the sheriff would connect the dots between the two pleadings.

The lawyer’s job is make the process run as smooth as possible, and that includes anticipating issues and preventing them. One strategy to make the process work is to think through all the issues in advance and, before the Judge signs the order, include it all in the document the Judge signs.

Tennessee’s Financial Records Privacy Act offers creditors unique insight into a debtor’s finances

If I know where a judgment debtor banks, I’m half-way to collecting on my judgment. That is, of course, until the bank responds “Account Closed” to my bank levy.

What then?

You have to make some lemonade with the lemons, I guess. “Account Closed” suggests that, at some point, the debtor had an account there. If I can’t capture money, maybe I can figure out where it all went.

One way to do that is to subpoena the bank’s records for the time periods that the account was active. To do that, a Tennessee creditor has to comply with the Tennessee Financial Records Privacy Act, found at Tenn. Code Ann. § 45-10-101 et. seq.

The purpose of the Act is to protect a bank customer’s privacy, and the Act prevents Tennessee banks from arbitrarily releasing customer records (where the customer hasn’t authorized the release).

This sounds complicated, but compliance isn’t particularly difficult. The basic requirements are spelled out in the Act: (i) the customer must get notice of the subpoena and an opportunity to object (Tenn. Code Ann. T.C.A. § 45-10-106 ); and (ii) the requesting party must satisfy a number of technical requirements, spelled out at § 45-10-106 (15 days minimum to respond; sufficient identifying information must be provided; a bond).

In response, the bank will provide signature cards and account statements for the time periods requested. The records will show how much came in, how much went out, and where it all went.

Having looked at 100s of responses from Banks, I will tell you: Bank records don’t lie, and they always tell a story. Some involve luxury purchases, vacations, and restaurants I’ve never heard of (and couldn’t afford). Some confirm that maybe the debtor has, in fact, gone broke. Some will lead to other banks and other records to be subpoenaed.

In short, knowing how to subpoena records under the Financial Records Privacy Act is a powerful tool and not particularly hard to get right.

Honestly, the hardest part is knowing what bank to send the subpoena to.

Tennessee’s Post-Judgment Interest Rate Hits Record High

Effective July 1, 2023, the statutory rate of post-judgment interest in Tennessee is 10.25%, the highest that it’s been in my 20 plus years of practice.

Long-time readers know that, in 2012, the Tennessee Legislature amended the Tennessee post-judgment interest statute, Tenn. Code Ann. § 47-14-121.

At the time, Tennessee creditor rights attorneys complained both about the decrease in the interest rate (at the time, it dropped from 10% to 5.25%) and also the confusion related to tracking a variable rate (it changes every 6 months). Back then, none of us envisioned a world where the rate would exceed Tennessee’s old rate.

Well, welcome to the future.

What’s next? A review of the historical list of Tenn. Code Ann. § 47-14-121 interest rates shows that rates have been steadily climbing since 2016, with the greatest spike in the past year.

When the Legislature made these changes during the Great Recession, it was designed to provide relief to judgment debtors. That the rate has reached an all-time high is good for creditors, of course, but also indicative that interest rates are pushing the economy toward a tipping point.

Court of Appeals: If attorney discounts their fees, prevailing party may not be entitled to recover full amount

Much to my former law partners and book-keepers’ chagrin, I often apply courtesy discounts to my clients’ legal invoices.

It’s counter-productive to my business model. But, as a kid raised by a mom who worked at the local Piggly Wiggly and a dad who worked on an assembly line, sometimes I look at a bill, am reminded of how expensive lawyers are, and apply a small discount.

Don’t get me wrong: All my billable entries are wonderful and worth every penny. In fact, I tend to win many of my cases, including an award of attorney fees, and, when I do, I sometimes wonder whether the defendant have to pay the full amount (and not the discounted amount)?

A recent Tennessee Court of Appeals says that a court can only award what the prevailing party actually pays (or is obligated to pay). It’s at St. Paul Cmty. Ltd. P’ship v. St. Paul Cmty. Church, No. M202101548COAR3CV, 2023 WL 1860692(Tenn. Ct. App. Feb. 9, 2023).

In the case, the trial court originally awarded the Church $343,535.07 in attorney fees and expenses, which were computed at the rate of $295.00 per hour. In later proceedings (after an earlier remand), the Church attorneys asked for $515,655 in attorney fees, which appeared to retroactively calculate all entries at $450 per hour.

Why? The attorney and client had a unique “side” agreement to the engagement letter, that, even though the hourly rate was $295, if they won, the attorney would ask the Court to reimburse the fees “at a higher rate than the $295/hour I’m billing the church.” There was no agreement that the Church would ever actually have to pay that higher rate.

In light of the Tennessee’s application of the “American Rule” on attorney fees, the Court of Appeals focused on the text of the underlying agreement, which required the reimbursement of attorneys fees “incurred” by the Church. “Incur,” the Court noted, means “to become liable for” or “to be legally obligated to pay.”

Here, the lawyer’s engagement letter clearly said that the Church would never be expected to actually pay that higher rate. The trial court, then, was correct in awarding the attorney fees at the $295 rate, “which were charged and paid at the $295 rate pursuant to the written engagement letter” and denying any requests that the higher rate. Id. *6.

It’s an interesting opinion, with some fairly unique facts that would never come up in most cases.

But, in the context of long-standing litigation, a few $300 or $500 “courtesy discounts” here and there over the course of a case could add up to a few thousand (or more) dollars. After a long fought legal battle, it’d be natural to have your billing software show your cumulative legal fees for your Affidavit (which would naturally output only logged time entries and not paid bills) and forget to give your adversary the benefit of those discounts.

Under this new opinion, you may be legally obliged to. So, maybe my book-keeper is right.

Tennessee Courts will not consider substantive challenges to foreign judgments

Where a foreign judgment is based on substantive law that is inconsistent with Tennessee law, will a Tennessee court deny domestication of that judgment in Tennessee? The short answer is “no.” A Tennessee court will only look at whether the judgment is valid in the foreign state and will not consider substantive defenses based on Tennessee law.

The Tennessee Court of Appeals considered this exact issue a few years ago. In that case, the Court was faced with a foreign judgment based on a “confession of judgment” which, under Tennessee law, aren’t valid and are unenforceable. But, because confessions of judgment are valid in the other state, the Court found that a foreign judgment based on a “confession of judgment” was enforceable in Tennessee under the Uniform Enforcement of Foreign Judgements Act.

Last week, the Tennessee Court of Appeals that reaffirmed that outcome, in Mantis Funding LLC v. Buy Wholesale Inc., No. M202200204COAR3CV, 2022 WL 17986892, at *1 (Tenn. Ct. App. Dec. 29, 2022).

In Mantis, the judgment creditor sought to enforce a New York judgment in Davidson County Circuit Court. The judgment debtor objected, but Judge Brothers looked only to whether the New York court was willing to set aside or entertain a challenge to the validity of the underlying judgment. When the New York court denied the debtor’s motion to vacate the judgment, the Tennessee decision was easy: “the New York judgment is entitled to full faith and credit in Tennessee pursuant to the Constitution of the United States of America.” Id. at *1.

The Court of Appeals agreed. Sure, confessions of judgment are void under Tennessee law pursuant to Tenn. Code Ann. § 25-2-101, but “full faith and credit” doesn’t require that the sister state’s judgment be consistent with Tennessee law. Instead, assuming that there are no service or procedural issues, the Tennessee Court will consider only whether the judgment debtor has challenged the foreign judgment and/or the substantive legal issues in the foreign jurisdiction. If not, “the decision is res judicata… [and o]nce decided, these issues cannot be raised in another, later case seeking to enroll the foreign judgment.” Id. at *2.

This is a fairly settled issue in judgment enforcement, but, because a judgment debtor has such limited bases to challenge a foreign judgment, the debtor will nevertheless “throw the kitchen sink” at the creditor. This new opinion reaffirms that such challenges should be denied.

Recent Bankruptcy Case Offers Creditor-Friendly Holding When Calculating Preference Period

My creditor clients are always in a hurry to get their money.

When a bank levy hits a big account, most judgment creditors go nuts during that 20 day period when the Court Clerk holds garnished funds (per Tenn. Code Ann. § 26-2-407) before disbursement.

Once the funds are paid out, though, I tell my clients to keep their fingers crossed for a bit more time–at least until the end of the Bankruptcy Code’s “preference period.” Until then, a Bankruptcy Trustee can “recover” payments received by creditors in the 90 days before a bankruptcy case is filed.

“One of the most unfair creations of the Bankruptcy Code,” I’ve written on this very creditor-friendly blog.

The question I often get is this: Does the 90 day period start when the Clerk receives the funds or when the Clerk disburses the funds?

An August 19, 2022 Minnesota Bankruptcy Court opinion (In re Holbert, 643 B.R. 332 (Bankr. D. Minn. 2022))(from the Eight Circuit) presents pretty compelling reasoning that the clock starts ticking upon the Clerk’s receipt of the funds.

Specifically, this Court held that the “transfer” (per 11 U.S.C. § 547(b)) for property held in custodia legis occurs when the property is placed in escrow / deposited with the court.

The American Bankruptcy Institute has a more analysis of the case here (and a link to the opinion).

It will always be frustrating for a creditor to see the money just sitting there, in the court coffers, for 20 days. The silver lining, of course, is that the preference clock also appears to be burning off during that period.