Will Landlords’ Casualty Paragraphs be a hot issue for Second Avenue businesses? (It looks like they already are.)

The real estate market has been so hot in Nashville over the past 6-7 years that, any time an old building in an in-demand area burns down, I’ve wondered if the culprit was a crafty real estate developer looking to build a high-rise condo. (Kidding, of course.)

But, as matter of law, a disaster can provide a landlord a way out of a long-term lease (whether they’re happy to be out or not), where the premises are fully destroyed.

I thought of this today, when reading the Nashville Post article Old Spaghetti Factory loses lease after 40-year run. Per local news, after total destruction of the building on Second Avenue, the landlord “will be terminating the lease agreement, although the restaurant reportedly has 16 years remaining on that lease.” The article notes that the restaurant is offering to spend more than $1 million of its own money to help rehab the space.

Seems unfair, right? It may be, but it’s probably allowed under the Lease.

Most commercial leases have a “Casualty” section, which dictates what happens when rental premises are totally destroyed, whether by fire, earthquake, or some other huge event.

Those provisions generally require the Landlord to restore the premises to substantially the condition that existed prior to the disaster. If the Landlord does that, then the Tenant is most likely stuck in the Lease. (Yes, even if losing the use its rented space during the repair period kills the Tenant’s business.)

Having said that, the provisions also generally give the Landlord an “out,” if the destruction is so total that the premises can’t easily be restored. In making this determination, a number of factors are considered, including if the cost to restore the building exceeds the ultimate value (and/or insurance money), if the Landlord’s lenders scoop up all the insurance money, the lease is near the end of the term, or if would take too long to restore (180 days from the event is a common measure).

In most cases, the landlord is motivated to repair or rebuild quickly, hoping to get the tenant back in the space–and back paying rent–as soon as possible.

There is no indication in the story whether the landlord here is relying on a similar provision or what types of other issues exist.

It may be that the cost to restore this historic building is so high that the landlord can’t (or isn’t financially ready to) quickly go into rebuilding mode. If the lease uses a typical 180 day requirement, the owner may know that there’s no way to do it in that time with all the special challenges presented by this terrorist event and during a global pandemic.

A skeptic would wonder if this owner wants to renovate a building to a newer, better use (like condos, offices, etc.) or may want to get rid of a long term–possibly below market–lease.

Leases are just like any other contracts. The plain text of their terms control. But, casualty provisions are a rarely negotiated point. When I prepare leases for commercial real estate, it’s often a few paragraphs at the end that I review quickly and move on.

But, when they do apply, it’s a big deal. Just like COVID got every Nashville commercial real estate attorney talking about force majeure, maybe this situation will get us negotiating casualty paragraphs.

In the end, though, yes, this is probably allowed under the lease.

Reformation may save you, but tech experts warn against “cut and pasting” document automation

During her presentation on legal tech at the TBA’s 2020 Creditors Practice Forum, Lori Gonzalez conducted an audience poll on what document-automation technology everybody was using.

The creditors’ bar must be an old-school crowd. Overwhelmingly, the most common practice was to: (1) find a similar existing document on your system in Microsoft format; and (2) cut-and-paste the old terms in the forms to match the new terms.

Lori told everybody to stop doing that.

In a recent decision, the Tennessee Court of Appeals explained why. The case is Franklin Real Estate Group, Inc. v. Spero Dei Church, No. M2019-01691-COA-R3-CV (Tenn. Ct. App., Jan. 27, 2021).

There, a real estate broker was working with property owner to sell their church building. Later, the owner asked the broker to, also, assist them in finding a property to buy.

The broker was smart to recognize the need to get a signed “seller’s” agreement; but, in preparing it, the broker “used language from the Seller’s Agreement as a template, simply substituting ‘Seller’ for ‘Buyer’ where appropriate to make the Agreement conform to a standard buyer’s agent agreement.” A classic cut-and-paste document creation.

As the legal tech experts said can happen, the broker missed a cut and paste. And, it happened in a very important paragraph–the one that defined the situation where the broker would get paid. Due to error, the final version awarded a broker a commission only where the Buyer bought a property from a “Seller/Landlord who has been introduced to the property…by Broker.”

It’s such non-sense that you almost read it the way it should have been written, but, in short, the broker would get paid if the client-Buyer bought a property from a Seller who was introduced to his own (the Seller’s) property by the broker. So, basically, if the broker found a Seller who didn’t know they owned the property and the broker was the one to tell the Seller about their property, the broker gets paid.

Total non-sense, and it’s inconsistent with the broker and client’s contemporaneous emails about the engagement.

You know how the rest of the story goes. The buyer ended up buying a property that the broker assisted on, but, for many reasons, didn’t pay a commission.

In defense, the buyer argued that the provision was drafted so poorly that it was unenforceable–that it was “void for vagueness.” The Court noted that “[i]t is a fundamental rule of law that an alleged contract which is so vague, indefinite and uncertain as to place the meaning and intent of the parties in the realm of speculation is void and unenforceable.” See Four Eights, L.L.C. v. Salem, 194 S.W.3d 484, 486 (Tenn. Ct. App. 2005).

But, while the Court agreed that the provision was “illogical,” it went on to find that the rest contract is certain and clear, except for this one provision, which is merely “the result of a mistake.” Instead, the Court decided, the real question is “whether the mistake ..is subject to reformation so that the contract conforms to the true intention of the parties.”

Courts are to enforce contracts as written, but “the law’s strong policy favoring the enforcement of contracts as written must occasionally give way and grant courts the power to alter the terms of a written contract where, at the time it was executed, both parties were operating under a mutual mistake of fact or law regarding a basic assumption underlying the bargain.”

This is called reformation, which seeks “to make the contract conform to the real intention of the parties.” The elements are:

(1) the parties reached a prior agreement regarding some aspect of the bargain; (2) they intended the prior agreement to be included in the written contract; (3) the written contract materially differs from the prior agreement; and (4) the variation between the prior agreement and the written contract is not the result of gross negligence on the part of the party seeking reformation.

The Court then considered many factors, including the the purpose of parties’ overall transactions, relationship, and related communications about the contract.

When I looked at the elements, though, I wondered about “gross negligence.” I mean, if missing a critical word in a contract that you drafted isn’t that, then what is?

The Court addressed that issue head on, finding that the drafting error was not “gross negligence.” The Court wrote, errors resulting from “inattention” are not “categorical exemption[s]” to reformation. If drafting errors were exceptions, then reformation would never be available to correct typographical mistakes.

In the end, it turned out fine for the broker, after, of course, years of litigation.

Listen to Lori on this point, consider a more advanced technology for your document automation. Because no lawyer wants to have to defend their work as “sure, it’s inattentive, but…”

Davidson County General Sessions Caps Dockets at 25 Cases: This is a Big Problem

Last week, the Davidson County General Sessions Court entered an Administrative Order that limited the number of cases that can be set on the civil dockets in Courtrooms 1A & 1B, with a cap of 25 cases per day (effective October 5, 2020).

That sounds like a lot of cases. It is not.

A typical General Sessions civil docket might have 50 to 100 cases on the docket. Davidson County has civil dockets every day of the week.

By my math, this represents a minimum 75% cut in capacity.

Granted, when I first heard about the 25 case limit, it didn’t sound like too much of a problem, since I don’t have a high volume consumer or residential eviction practice. The high volume lawyers who routinely have 25 of their own cases on each docket would be the ones with the problem, right?

Then, I got a call from a commercial landlord whose tenant hasn’t paid rent since March and has “gone dark.” The landlord asked me to get a judgment for possession as soon as possible.

Spoiler-alert: The 25 case limit is a problem.

Continue reading “Davidson County General Sessions Caps Dockets at 25 Cases: This is a Big Problem”

The Palm and the Nashville Hilton’s litigation over unpaid COVID rent has touched almost every trial court in Davidson County.

As you all know, The Palm restaurant in Nashville sued the Nashville Hilton in July. At the time, The Palm was four months in arrears in its payment of rent.

But, despite being in payment default, The Palm went on the offensive and premptively filed the first lawsuit, arguing that the landlord’s (i.e. the Nashville Hilton) own shut-down in response to COVID was a breach that excused The Palm’s payment of its rent.

At the time, I marveled at the audacity of the tenant in making the first move. Today, however, I’ve discovered that this dispute has gone absolutely bonkers, and it’s has been (or is being) litigated in nearly every trial court in Davidson County.

First, there was the Chancery Court lawsuit filed by The Palm on July 9, 2020.

Then, after the Hilton declared The Palm to be in breach on July 13, 2020, the Hilton filed a Davidson County General Sessions evictions lawsuit on July 14, 2020.

In response, The Palm filed a Notice of Removal of the detainer action to the District Court for the Middle District of Tennessee on August 7, 2020. This prompted the Hilton to file a notice of voluntary dismissal on August 10, 2020.

Then, the Hilton filed a second detainer action in General Sessions Court on August 13, 2020. On August 26, 2020, The Palm filed an Application for Removal of the matter to Davidson County Circuit Court, which was granted.

So, what courts did they miss? Criminal Court? Bankruptcy? Environmental Court?

This dispute involves two mega-law firms, so it’s fun to see big-time lawyers fighting over eviction issues in small claims court.

Still, though, I have to wonder if the Hilton could have opposed The Palm’s request to remove the matter to Circuit Court, which was–possibly–an attempt to get the matter moved to the slower-paced Circuit Court, but without having to post the detainer possessory bond pursuant to Tenn. Code Ann. § 29-18-130(b)(2), which requires a tenant that loses in sessions court to post one year’s worth of rent in order to remain in possession of the property.

Sessions Judges don’t like to waste valuable docket time on complex commercial matters, so they are generally happy to allow complicated, discovery-heavy trials to be removed to Circuit Court pursuant to Tenn. Code Ann. § 16-15-732.

But, at the same time, it’s a move that Sessions judges see all the time, and the Judges will sometimes ask tenant’s counsel “Is the rent paid current?” and, depending on the answer, grant a judgment for possession, and tell the tenant’s counsel to appeal and sort it out in Circuit Court.

I don’t want to ruin the developing story, so I will remain quiet about the Landlord’s options in Circuit Court to force payment of rent. But they have a few.

Whatever direction this goes, in the age of COVID, this qualifies as entertainment (for law nerds).

Second Lady A sues Original Lady A in Nashville: Interesting Legal Issues for Interesting Times.

I’ll start by saying this: Lady Antebellum’s heart seemed to be in the right place.

As you will recall, last month, the band announced that it was changing its name to “Lady A,” which was in recognition of the racially insensitive history of the term “Antebellum.”

The news was applauded, in light of the global outpouring of support for the Black Lives Matter movement and the growing awareness of how little so many of us understand about what it means to be a non-white member of American culture. It’s not cool for a white country music band to be walking around with Antebellum in their name.

But, then, you know what happened next. Anita White, an African American gospel and blues singer in Seattle–and who has long performed as “Lady A”–objected to the name-change.

Side-note: Did nobody do a google search on any of this?

Per Second Lady A’s twitter, the parties had a number of conversations–all friendly (see above)–which became more complicated, as Original Lady A began to recognize that her interests may not be entirely at heart in the band’s move.

Then, well, I’ll let Second Lady A say it: “Today we are sad to share that our sincere hope to join together with Anita White in unity and common purpose has ended.”

To be clear, that date of the end was July 8, 2020, when Second Lady A filed a lawsuit in Nashville federal court, asking the District Court to grant them the right to use the trademark. The lawsuit says that it isn’t asking for money, but, still, it’s a fairly aggressive move. Apparently, Original Lady A asked for $10 million as part of the conversations.

This isn’t Trademark Rights 101 , but I follow really smart lawyers on twitter. Such as this twitter chain by Alexandra Roberts, an Intellectual Property law professor, who analyzes this situation top to bottom.

It’s a really fascinating view into the thought process that a court will consider, both on the facts and relevant law. Read the whole thing…you’ll be smarter by the end of it.

Another issue that I thought was interesting is this: Did Original Lady A submit herself to jurisdiction in Nashville by participating in phone and Zoom video calls, when Second Lady A were physically in Tennessee? Yikes, if that’s the law. Professor Roberts suggests that may be the alleged basis.

So, two quick-takeaways.

(1) This is a terrible look for Second Lady A. Maybe they’re correct as a matter of law, and I’ve just got more to learn about IP law. But, again, what a terrible look for Second Lady A. I tell my clients this all the time: You may be right here, but are there other factors to consider. Should we keep looking for a middle-ground resolution?

(2) I can’t wait for more information on the basis for jurisdiction in Nashville, Tennessee for this lawsuit.

Davidson County Chancery Court’s Zoom Trial Worked!

Last month, I told you Davidson County Chancellor Ellen Lyle had scheduled a business litigation trial to be conducted entirely via Zoom.

This was big news for laywers. After COVID-19 prevented most in-person court proceedings, many innovative courts began to conduct contested, non-evidentiary hearings via the phone or Zoom.

What was so interesting about this matter, however, was this was a full-blown trial, with witnesses and 61 exhibits. This required lots of advance planning, exchanging exhibits, and technical preparation (Does Zoom work? Can you share screens and jointly review exhibits?)

And, it worked. A link to the live-streams remains available at Part III’s YouTube channel. (What a crazy thing to type…”Part III’s YouTube channel.”)

It’s been an unprecedented time for our world, but it’s awesome to see our Tennessee Courts evolving to make sure matters get heard and also not being afraid to open up these news-worthy proceedings to the public.

Earlier this week, the Tennessee Supreme Court conducted a full day of hearings via Zoom, with the proceedings live-cast on the Court’s YouTube channel.

My office is just down the street from the Davidson County Courthouse and only a block or two from the Tennessee Supreme Court, so it’s no big deal for me to stop by and observe an interesting or newsworthy court proceeding.

But, for the average citizen, the barriers to seeing the justice system at work are staggeringly prohibitive. The average person probably doesn’t know where the courthouse is, how to get there, where to park, or whether they are even allowed to “pop in” and watch a proceeding.

Long story short, the Tennessee Courts have really done a great job during the pandemic; not only staying open, but expanding and innovating. Here’s hoping that the progress continues.

341 Meeting: Suing Your Own Employees; Public Schools; Urgent Political Spam

Hassling Poor People, Who Happen to be Your Own Employees. When the economy hit rock bottom in 2009 or so, all kinds of doctors, lawyers, private schools hired me to collect their debts. Many had never dealt with bad debt before, or the awful circumstances that lead to defaults. They just saw the bad debt and thought it could be an income stream for them. It was an eye-opening lesson for many.

Since then, I occasionally have had to tell some of my clients that some debt isn’t worth collecting, whether it’s a low return on investment or, frankly, just bad PR.

This story out of Memphis reminds me of that.   NPR reports that Methodist Le Bonheur Hospital is making national news for its practice of suing its own employees when they can’t pay their medical bills, and then using some pretty aggressive collection tactics when they can’t pay the judgments rendered in the lawsuits.

…what is striking at Methodist, the largest hospital system in the Memphis region, is how many of the patients being sued are the hospital’s own employees. Hardly a week goes by in which Methodist workers aren’t on the court docket fighting debt lawsuits filed by their employer.

That’s a really bad look, especially in a climate where employers are criticized for not paying a living wage and also terrible health insurance benefits. Continue reading “341 Meeting: Suing Your Own Employees; Public Schools; Urgent Political Spam”

Good Article on Tennessee’s Post-Foreclosure Deficiency Statute

This month’s Tennessee Bar Association Journal has a good article on the new post-foreclosure deficiency statute, Tenn. Code Ann. § 35-5-118, titled “Deficiency Judgments after Foreclosure Sales.”

The article provides a detailed review of the cases construing that very ambiguous statute, which was enacted in 2010 and became effective September 1, 2010. Here’s what I wrote about the new law, back in 2010.

As you’ll recall, I litigated and won the first ever case construing the new law, in December 2012. My case was the GreenBank v. Sterling Ventures case, which is analyzed in the article.

If you’re a banker, a bank lawyer, or a defense lawyer helping some borrower clients, be sure to look at this article. It’s a weird law, and, as the last few paragraphs of the article suggest, there’s still a lot of things that are unknown/unclear about how Tennessee courts are going to apply it in the future.

 

Borrower Beware: They look like Checks but act like Loans.

Nashville’s Fox 17 news asked me to comment on their news story about lending companies that target low income borrowers.

The news report focused on one lending practice as particularly unscrupulous: the unsolicited check loan. These are sometimes called “live loan” checks.  Maybe you’ve received one in the mail. They look exactly like a check, made payable to you, and all you have to do is take it to your bank and, boom, you’ve got cash.

And…you’ve got a new loan that probably has very bad interest rates and onerous terms.

You can click on the news segment above, but, ultimately, I gave this warning:

There’s no such thing as free money, and so if someone has sent you a check unsolicited in the mail, that’s where your radar should go up. They do take advantage of someone who needs something. They have a resource, cash, that these people over here desperately need.

In the end, I’m sympathetic to the borrower, but also acknowledge a really hard fact: These type of credit vehicles may be the only life-line some borrowers have to pay rent, get medical treatment, or obtain necessary goods and services. And that’s not a problem created by an unscrupulous lender, but a part of the income inequality of modern society.

Don’t get me wrong, I’m not defending the lenders here, but I want to make sure that, while most of us are alarmed by these lending practices, we also realize that exposing these practices doesn’t, by itself, solve the deeper issues.

Poor people face a lack of access to funds for essential goods, services, and needs that is completely under-served and ignored. We may scorn the lenders for exploiting that need and call it predatory, but we also lack resources to consider alternate ways to address those needs.

And that’s where I end my tidy little blog post.

What Happens to Stale, Unserved General Sessions Lawsuits? Some Get Dismissed.

I was doing some general sessions legal research today. And, no, that isn’t a mis-print.

There are some really interesting legal issues that come up in small claims court.

Today, I found a corollary to Tenn. R. Civ. P. 3, which I blogged about a few years back. Rule 3 says that un-issued and un-served Summonses may not preserve the statute of limitations.

The similar rule in sessions court is Tenn. Code Ann. § 16-15-710, which provides:

The suing out of a warrant is the commencement of a civil action within the meaning of this title, whether it is served or not; but if the process is returned unserved, plaintiff, if plaintiff wishes to rely on the original commencement as a bar to the running of a statute of limitations, must either prosecute and continue the action by applying for and obtaining new process from time to time, each new process to be obtained within nine (9) months from return unserved of the previous process, or plaintiff must recommence the action within one (1) year after the return of the initial process not served.

So, in short, if you want to rely on the date you filed your lawsuit, then you have to make sure you get a new Alias Summons issued within 9 months of your last, unserved warrant.

If you don’t, you may have to re-file your entire lawsuit. Yikes.