Category: Judgment Collections

A Filed, but Not Served Complaint, May Not Prevent the Statute of Limitations from Expiring under Rule 3

The Court of Appeals issued an interesting case yesterday to remind us all about the importance of prompt service of process. This case is Amresco Independence Funding, LLC v Renegate Mountain Golf Club, LLC (Tenn. Crt. Apps., Mar. 31, 2015, No. E2014-01160-COA-R3-CV), and the full text can be found here.

The basic facts are that the Plaintiff filed a collection lawsuit against Defendant, but did not obtain valid and timely service of process of the Complaint. Then, after the statute of limitations expired and after one year from the date that the original Summons was issued, the Defendant filed a Motion to Dismiss. In the Motion, the Defendant argued that any new Summons would not relate back to the Complaint filing date and, as a result, the lawsuit was too late.

This is a good argument. Under Tenn. Rule. Civ. P. 3:

If process remains unissued for 90 days or is not served within 90 days from issuance, regardless of the reason, the plaintiff cannot rely upon the original commencement to toll the running of a statute of limitations unless the plaintiff continues the action by obtaining issuance of new process within one year from issuance of the previous process or, if no process is issued, within one year of the filing of the complaint.

The Court of Appeals agreed with this analysis and upheld the dismissal.

So, as a rule of thumb, don’t think that because you filed your lawsuit that all your statute of limitations issues go away. Indeed, if you simply file the lawsuit and then don’t obtain service of process, your time-sensitive claims could potentially expire.

And this isn’t just a rule that penalizes lazy lawyers. I’ve filed lawsuits to satisfy deadlines, but then considered not serving the Summons because the parties were engaged in settlement talks or waiting for a sale or some other event to occur.

Under Rule 3, the mere filing of the lawsuit may not be enough to save your claims.

A Creditor Doesn’t Have to Foreclose First: New Court of Appeals Case Answers This Common Question

When a loan goes into default, the lender has many options. Sometimes, they go straight to foreclosure. Other times, they’ll file a lawsuit first. Maybe the collateral isn’t worth repossessing; maybe the secured creditor wants to be the first to get to a judgment, in order to execute on other assets or take a judgment lien.

When a bank files a collection lawsuit prior to foreclosing, the borrower always yells in defense: “But you haven’t sold the collateral yet!” and argues that the lawsuit is premature or that the borrower is entitled to some sort of credit or offset to the ultimate judgment.

The defendant is wrong, and the Tennessee Court of Appeals reminded us of that in an opinion issued yesterday in Eastman Credit Union v. Hodges. This was the exact argument the defendant made: “that the judgment of the trial court should be reversed because Eastman did not repossess a motorcycle that served as collateral for one of Hodges’ loan obligations [and that] the value of this motorcycle should have been deducted from the outstanding balance of his loan.”

The Court of Appeals’ response? “His position has no merit.”

The Court held that Tennessee Code Annotated § 47-9-601 does not require a lender to foreclose on its collateral prior to obtaining a judgment. That statute provides that a secured party “[m]ay reduce a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or agricultural lien by any available judicial procedure[.]”  Specifically, the Court wrote: “These rights, in addition to others provided by the section, are ‘cumulative[,]’ and the statute expressly allows them to be exercised simultaneously. The statute, however, does not require that a secured party foreclose on collateral prior to or simultaneous to seeking a judgment.”

It’s a good case to remember the next time a defendant raises these issues, and, trust me, they will.

Snake Eyes for Gamblers: Gambling Debts are Enforceable in Tennessee, Where the Debts arose in a State Where Gambling is Legal

Gambling is illegal in Tennessee, and, as a result, Tennessee courts will not look kindly on lawsuits to enforce gambling debts.  This includes gaming losses and debts incurred for the purpose of gambling (i.e. a loan from a casino for in-house gambling).

This hostility is codified in Tennessee statutes.  Tenn. Code Ann. § 29-19-101 provides that: “All contracts founded, in whole or in part, on a gambling or wagering consideration, shall be void to the extent of such consideration.” Tenn. Code Ann. § 29-19-102 states: “No money, or property of any kind, won by any species or mode of gambling, shall be recovered by action.”

To show how serious they are, there’s Tenn. Code Ann. § 29-19-103, which imposes a $100 fine against any person who files a lawsuit based on a gambling debt.  In fact, the next statute, Tenn. Code Ann. § 29-19-103 says that a losing gambler can sue to recover his losses in an action.

But, Tennessee Courts have allowed lawsuits to collect gambling loans and losses where the gambling debts were incurred in a state where gambling is legal.

This is seen in both: (1) lawsuits filed  by out-of-state casinos to enforce gambling debts in Tennessee (see Robinson Prop. Grp., L.P. v. Russell, W2000-00331-COA-R3CV, 2000 WL 33191371 (Tenn. Ct. App. Nov. 22, 2000); and (2) enforcement actions to domesticate foreign judgments based on gambling debts (see Mirage v. Pearsall, 02A01-9609-CV-00198, 1997 WL 275589 (Tenn.Ct . App.1997).

The courts have found that it’s not contrary to Tennessee public policy to allow enforcement of gambling debts in Tennessee, where the gambling loans/gaming contracts were entered into in a state where gambling is legal.

The Tennessee Court of Appeals has reasoned “it would be a great injustice if Tennesseans could reap the benefits of gambling in states where it is legal when they are successful, but seek shelter in Tennessee courts when they lose.”

Keep in mind, however, if you file a lawsuit to enforce a gambling debt incurred in Tennessee–where gambling is illegal–it’s no crap-shoot: you’re probably going to have to pay the $100 fine.

Interesting Collections Questions Raised at 2014 General Practice Summit

I presented at the Tennessee Bar Association’s 2014 General Practice Summit today. My topic was “Collection in General Sessions Court.”

I’m always curious to see what topics attract questions, as well as what parts cause the listeners to take the most notes. Today’s questions were:

  • Whether General Sessions Courts allow post-judgment asset depositions and discovery? Yes, they do, although written discovery isn’t very helpful because a judgment debtor is likely to ignore it or not understand/make a full disclosure. I prefer to obtain this information in person, in an in-office deposition.
  • Is the failure to include an Affidavit fatal to a Motion for Slow Pay in Sessions Court? Maybe, but it depends on if the Judgment Debtor has the necessary asset/liability information with them in Court. If the debtor shows up on the hearing date with the information in hand, then the Judge will likely consider it. 
  • Can a litigant remove a matter from General Sessions? Yes, pursuant to Tenn. Code Ann. 16-15-732, a party can file a Motion and Affidavit that they have a defense or claim that is so complex or expensive to present that, in the interests of justice, it should be moved to Circuit Court, where a more deliberate process controls (with discovery, pre-trial pleadings, etc.).
  • Are legal briefs allowed in Sessions Court? Yes, but the Judges may not–and probably won’t–read the briefs in advance, due to their caseload. 

This was a well-run and well-attended Session, and I’ll definitely be back to teach in the future. It will be available online for viewing, so tune in and, in the meantime, feel free to call or email me if you have special collections issues. 

What to do about a Late Filed Garnishment Response: An Employer Remains Liable for Monies Paid

I file wage garnishments all the time on my Tennessee judgments.

If you know where a defendant works, Tennessee law allows a judgment creditor to garnish the debtor’s wages for payment toward the judgment. (See Tenn. Code Ann. § 29-7-101). Without boring you with the details (see this earlier post instead), an employer then is required to pay about 25% of the employee’s wages to the Court Clerk, who then holds the wages and disburses them to the creditor.

In the event the employer fails to respond to the garnishment, the creditor can seek a judgment against the employer itself for the full amount of the judgment (not just 25% of it), which, clearly, is an awesome way to actually get your money.

I’ve explained this process before: you get a “Conditional Judgment” against the employer and then you issue a Scire Facias, which requires the employer to come to Court and “show cause” why it shouldn’t be a “final” judgment.

This sounds great, but nine times out of ten, the employer shows up in response and files (finally) an answer. Under Tennessee case law, a late filed response is good enough to stop the process and avoid a “final” judgment being entered. Last week, the Tennessee Court of Appeals issued a great opinion in Emrick v Moseley (July 30, 2014), reviewing this entire process.

So, if a conditional judgment is considered a “wake up call” to prompt a response from an employer, then what do you do about the money that the employer should have paid to the Clerk? Two weeks ago, I had this exact case and argued that, under the existing case law, the cow was out of the barn and the employer’s only obligation is to comply with future obligations (i.e. withhold future wages).

I was wrong. That’s where the Emrick case is so good. Via dicta, the Emrick Court says that the employer has exposure under Tenn. Code Ann. § 29-7-112 for any money that it should have paid in, if it had timely responded.

So, no, you can’t get a judgment for the full amount of the debtor’s judgment, but you can get a judgment for the garnishment amounts that should have been withheld.

This is good news for creditor attorneys, and, even though I was wrong on this issue in the past, I’m glad to have been wrong.

Attorneys Fees Can be Recovered in a Tennessee Lawsuit, but only if the contract or statute allows them

Sometimes, clients ask “Why didn’t my Judgment include your attorney fees?”

(Note: Actually, I don’t get that question very much, since I spend a good deal of time on the front end, explaining the process and rights to clients, so they know if they can’t recover fees.)

Here’s why: Tennessee follows the “American Rule” on awarding attorney’s fees which states that “a party in a civil action may recover attorney fees only if: (1) a contractual or statutory provision creates a right to recover attorney fees; or (2) some other recognized exception” applies. Cracker Barrel Old Country Store, Inc. v. Epperson, 284 S.W.3d 303, 308 (Tenn. 2009).

The contract provision allowing attorney fees to be recovered has to be very specific. In the Cracker Barrel case, the contract at issue provided that the prevailing party should recover “all costs and expenses of any suit or proceeding.” The Tennessee Supreme Court held that this language was not specific enough to award attorney fees (instead, it allowed recovery of court costs and litigation expenses). 

This is an important issue, as the ability to recover your expenses and costs as part of your action will be a big consideration in any decision to file a lawsuit. Lawyers are expensive. Keep that in mind on the front end, when you’re preparing a contract or agreement, and get very specific text allowing for recovery of attorney fees. 

Tennessee Courts will not find a ‘Paid in Full’ Check to be Conclusive Release of Debt

Every once in a while, one of my clients will receive a random check with a note in the Memo line that says “Paid In Full.”

If the creditor accepts that check, the borrower’s argument goes, the creditor also accepts the payment as a settlement…that the account was paid in full. This overlooks (or counts on) the fact that most big creditors process payments by machine or without watching for sneaky notes in the Memo section.

Fortunately, however, the general rule in Tennessee is that a note on a check may be an indication that the account was settled, but it isn’t the only and final proof of settlement.  On this exact issue, the Tennessee Supreme Court has said “Something more is required.” Quality Care Nursing Servs., Inc. v. Coleman, 728 S.W.2d 1, 4 (Tenn. 1987).

Generally, Tennessee courts will look at whether there was any other evidence of a payment dispute and “meeting of the minds” that this payment was tendered as a settlement and a proposal to resolve the disputed account. Was there a cover letter explaining a dispute and that acceptance of the payment was truly a settlement of the debt?

The Supreme Court noted: “It would be unrealistic in the modern business world for a debtor to send an installment payment to a creditor, which may be receiving hundreds or thousands of such checks, and to have the balance of his debt deemed discharged as a matter of law simply because of a legend the debtor placed thereon, absent any other proof of a compromise or settlement.”

So, what do you do if you are faced with a “Paid in Full” check? Well, as a initial matter, be careful.

If you receive one and you notice it, you may well be opening yourself up to an “accord and satisfaction” defense under Tennessee law. The best practice would be to refuse any such payment and return it to the borrower, with a demand that the check be replaced.
The risk in accepting the payment is clear. One court has noted ” a creditor’s action of cashing the check speaks louder than its words, have held that by accepting and cashing a check marked ‘paid in full,’ a creditor has agreed to accept the amount of the check as full payment of a disputed amount.” Ideal Stencil Mach. Co. v. Can-Do, Inc., 85-81-II, 1985 WL 4041 (Tenn. Ct. App. Dec. 4, 1985).

 

Employers Who Provide False Garnishment Answers May End Up Owing the Money Themselves

I got a judgment a few months ago, and, having found out where the judgment debtor works, I issued a wage garnishment against the debtor’s wages.

And, oh man, did I ever have that guy. Not only did he work there, but he was listed (and pictured) on their website as an executive. It was only a matter of days until I got my money, right?

Well, not exactly. The employer filed a response that said “Terminated.” That was a surprise. I checked the website. The guy was gone.   Did my garnishment get him fired?  Strange.

So, out of curiosity, I called the employer and got the company directory. The debtor was still listed. So, I waited a few weeks, and they were still listed. I tried the extension and, within seconds, I had the debtor on the phone.

Long story short, I think this employer is lying. What do you do?

Tenn. Code Ann. § 26-2-204 requires garnishment responses to be under oath. The law even anticipates that an employer might lie: “The answer of the garnishee is not conclusive.” Tenn. Code Ann. § 26-2-205. To that end, Tenn. Code Ann. § 26-2-206 allows a creditor to get a judgment against the employer if they actually have assets of the debtor in their possession.

So, in the end, a creditor has rights against a dishonest employer, but there are hoops to jump through. Though the statutes don’t lay this out, the procedure would be to subpoena the payroll records or otherwise get testimony from the employer to establish the veracity of the response. Then, the creditor must take the employer back to Court under § 26-2-206 to get a judgment.

It’s a hassle. But, if you lie, employers, I’m happy to take a judgment against you.

The Cure for a B.S. Answer is the Power of a Motion for Summary Judgment

“All litigants have the right to defend themselves,” I tell my clients when I’ve received a B.S. Answer to a Complaint I’ve filed. As you know, I usually represent banks and other creditors, and, frankly, there are not many defenses to the lawsuits I generally file.

I generally have to prove: (1) the Defendant signed the Note; (2) the Plaintiff loaned money; (3) the Defendant didn’t pay the money back; and (4) how much wasn’t paid back.

Sometimes, the defendant calls and simply concedes judgment and, instead, focuses on the real issue at stake (setting a reasonable and “livable” repayment schedule). One of the results of a generally improving economy, however, is that a defendant may not have enough money to repay the debt, but they’ve got enough money to put up a little bit of fight.

In most cases, this involves “delay” tactics. In the Answer, the defendant will raise no real factual or legal defense, but they’ll deny everything, demanding that the plaintiff “prove” the facts.

That’s when I file a Motion for Summary Judgment under Tennessee Rule of Civil Procedure 56, which is a Motion that tells the Court that: (1) the material facts are not disputed (or cannot be disputed); and (2) on those undisputed facts, the plaintiff is entitled to judgment as a matter of law.

In response, a defendant’s broad denial of all facts will not win. Instead, Rule 56.03 says that a defendant must “demonstrate” that an important fact is disputed. If a fact is disputed, the defendant must support the denial with a specific citation to an affidavit or a deposition.   A general denial isn’t enough.

This focus on the need to “demonstrate” that relevant facts are disputed was discussed recently in Discover Bank Issuer of Discover Card v. Layton Howell, III,  No. M2013-00485-COA-R3-CV  (Tenn. Crt. Apps. Nov. 8, 2013).

Keep this case in your tool-box for the next time that a defendant tries to delay the inevitable without concrete facts.

Service of Process: Just Like the Movies

There’s a reason that there’s never been an epic movie about Bankruptcy lawyers: To the rest of the world, it’s not very exciting work.

In fact, the only movie about it (that I know of) is Heart and Souls (1993), starring Robert Downey, Jr. as a creditor bankruptcy attorney who goes after struggling companies and shuts them down when they can’t pay their bills.  The premise is that his four childhood guardian angels come back to visit him and are shocked at the work he does. (Yikes).

But, there is one aspect of my practice that is just like the movies: Service of Process.

Under the Tennessee Rules of Civil Procedure, a lawsuit and summons must be physically served on an individual (Per Rule 4.04).

This part of the process can be frustrating to clients, because, until you get the other party served, they have no responsibility to answer and the case doesn’t move forward. Obviously, the other party in the lawsuit has every incentive to dodge, evade, and generally run from you when you go to serve them.

I wrote about this on Paid in Full–some of my clients get so upset that they want to serve the process themselves (which they can’t).

My advice: Find a really good process server, one who is willing to be creative in order to get the job done.

Have you ever seen the movie Pineapple Express? In that movie, Seth Rogen plays a sneaky process server, who has a car full of costumes and disguises. That’s who you want working for you.

I have a guy right now, who is great. He’s gone to the door with a big bouquet of flowers. He’s used a pizza delivery guy disguise. Around the holidays, he doesn’t serve “process”–he delivers “gifts.” Who doesn’t like gifts?

Sometimes you get efficient and good results because you’re a great lawyer. Sometimes, it’s because the other side thinks they have a secret admirer.