Exaggeration of Lien Rights Can Lead to a Counter-Claim for Attorney Fees in Tennessee

The ability to record a lien on a debtor’s property is one of the strongest tools in the creditor’s arsenal. I mean, I am always talking about judgment liens. Liens get creditors paid.

That’s part of the reason why materialman/mechanic’s liens are such a great tool for contractors supplying labor and materials to real property.

But, there’s one note of caution in Tennessee: Don’t be so eager to claim lien rights that you exaggerate or overstate your rights.

I’m talking about Tenn. Code Ann. § 66-11-139, which provides the following remedy to a property owner who is facing a defective and/or fraudulent lien claim. That statute says:

If, in any action to enforce the lien provided by this chapter, the court finds that any lienor has willfully and grossly exaggerated the amount for which that person claims a lien, as stated in that person’s notice of lien or pleading filed, in the discretion of the court, no recovery may be allowed thereon, and the lienor may be liable for any actual expenses incurred by the injured party, including attorneys’ fees, as a result of the lienor’s exaggeration.

Some courts will remove all lien rights–even the portions that are valid–where a contractor overstates its lien rights.  Although Tennessee Courts haven’t yet considered it, other jurisdictions with similar statutes have allowed recovery of fees where the lienor knowingly asserts lien claims on property that is not lienable. The statute certainly appears to provide recovery where a lien claimant asserts a lien that is invalid, such as an untimely claim.

Tennessee Courts follow the “American Rule,” meaning that a party can’t recover attorney fees unless they are provided for in a contract between the parties. If you are fighting with a lien claimant over an exaggerated or defective lien in Tennessee, consider turning the tables on them–ask for an award of attorneys fees.

Remote Contractors Can’t Assert a Materialman’s Lien on Residential Property in Tennessee

In this booming economy, there’s money in real estate, and the contractors who went broke in the Great Recession are back on top. So, let’s talk for a moment about mechanic’s and materialman lien laws, i.e. the Tennessee laws that allow an unpaid contractor to assert a lien claim on the real property that is improved by his labor and materials.

If you’re a contractor and you provide labor and materials to a real property project, you can always assert a lien on the property, right? Well, like many things in the legal world, the real answer isn’t that easy.

Here’s a quick exception to keep in mind.

First off, are you a “remote contractor” or a “prime contractor”?

A contractor who contracts directly with the owner is a “prime contractor.” A “remote contractor” is anyone who provides material, services, equipment or machinery in furtherance of an improvement pursuant to a contract with a person other than an owner (i.e. a subcontractor who is brought on to the project by the general contractor).

Under Tennessee’s lien laws, remote contractors may not assert liens on what is defined as “residential real property.” Tenn. Code Ann. § 66-11-146(a)(1) defines “residential real property” as a dwelling unit in which the owner intends to reside. There’s an exception under Tenn. Code Ann. § 66-11-146(b)(2) for situations where the owner is operating as a de facto general contractor (in which case the remote contractor has contracted with the owner, so the remote contractor is really a prime contractor).

So, yes, lien laws are a great way to protect contractors and ensure that their debts are paid. Just not on residential projects.

Tennessee Court of Appeals recites law on Equitable Estoppel

The Tennessee Court of Appeals issued a new opinion, Preston McNees Specialty Woodworking, Inc. v. The Daniel Co., Inc., on February 13, 2015, which I’m citing here because it includes a good review of the law of equitable estoppel.

In the case, a subcontractor alleged that a general contractor was equitably estopped from denying payment of various change orders, when the general contractor waiting until the work was completed to provide notice that the extra charges would be denied.

The Court held that doctrine of equitable estoppel requires evidence of the following elements with respect to the party against whom estoppel is asserted:

  1. Conduct which amounts to a false representation or concealment of material facts, or, at least, which is calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert;
  2. Intention, or at least expectation that such conduct shall be acted upon by the other party; and
  3. Knowledge, actual or constructive of the real facts.

Consumer Credit Union v. Hite, 801 S.W.2d 822, 825 (Tenn. Ct. App. 1990).

Additionally, the Court held, equitable estoppel also requires the following elements with respect to the party asserting estoppel:

  1. Lack of knowledge and of the means of knowledge of the truth as to the facts in question;
  2. Reliance upon the conduct of the party estopped; and
  3. Action based thereon of such a character as to change his position prejudicially.

This is a great review of the law, as this issues comes up. Ultimately, this Court ruled that there was no reliance because the contract at issue was clear.

The Tennessee Prompt Pay Act Requires Retainage to Held Separately and Imposes Penalties for Non-Compliance

After representing contractors and suppliers over the years, I’ve learned a good deal about the Tennessee Prompt Pay Act, which is found at Tenn. Code Ann. § 66-34-101, et. seq.

The Act has a lot of protections for real estate contractors, but one significant part to know is in Tenn. Code Ann. § 66-34-104, titled “Escrow; portion of contract price.” This statute governs those construction contracts that require retainage.

Under § 66-34-104(a), any retainage “shall be deposited in a separate, interest-bearing, escrow account with a third party which must be established upon the withholding of any retainage.” Under § 66-34-104 (b), “the funds shall become the sole and separate property of the prime contractor or remote contractor to whom they are owed….” Finally, the owner/general contractor must provide written notice that the escrow account has been set up, including the name of the bank, the account number, and the amount of funds on deposit.

The requirement that retainage be placed in a third party, separate account (not in the owner or the General Contractor’s accounts) is designed to protect contractors by: 1) making sure that money is, in fact, set aside for payment to contractors; and 2) held in the name of or for the benefit of the contractors.

There’s a $300 a day penalty for non-compliance. That doesn’t sound like much, but it can add up over time (especially on large, long term jobs).

It is those large, long term jobs that involve the most money being retained and, as a result, the deep pocketed owners who think they have the most bargaining power to refuse to comply with the retainage requirements. 

My advice to contractors is to confirm compliance with the escrow account requirements. Do it early in a project. If the project goes bad, it may be too late.

Computation of Time: How Do You Count “10 Days” for a General Sessions Court Appeal in Tennessee?

Everybody knows that, in Tennessee General Sessions Courts, you have a right to file a de novo appeal in ten days. But, lawyers sometimes scratch their heads on how to count ten days. Is it business days? Is it calendar days?
Tenn. Code Ann. § 27-5-101 provides the Answer:

Any person dissatisfied with the judgment of a recorder or other officer of a municipality charged with the conduct of trials, in a civil action, may, within ten (10) entire days thereafter, Sundays exclusive, appeal to the next term of circuit court.

So, under the statute, you use calendar days but you exclude any intervening Sundays.
Also, see Tenn. Code Ann. § 1-3-102:

The time within which any act provided by law is to be done shall be computed by excluding the first day and including the last, unless the last day is a Saturday, a Sunday, or a legal holiday, and then it shall also be excluded.

So, if the tenth day falls on a Saturday, Sunday, or a legal holiday, the deadline rolls forward.

Ok, last question, what’s a “legal holiday” in Tennessee? See Tenn. Code Ann. § 15-1-101:

January 1; the third Monday in January, “Martin Luther King, Jr. Day”; the third Monday in February, known as “Washington Day”; the last Monday in May, known as “Memorial” or “Decoration Day”; July 4; the first Monday in September, known as “Labor Day”; the second Monday in October, known as “Columbus Day”; November 11, known as “Veterans’ Day”; the fourth Thursday in November, known as “Thanksgiving Day”; December 25; and Good Friday; and when any one (1) of these days falls on Sunday, then the following Monday shall be substituted; and when any of these days falls on Saturday, then the preceding Friday shall be substituted; also, all days appointed by the governor or by the president of the United States as days of fasting or thanksgiving, and all days set apart by law for holding county, state, or national elections, throughout this state, are made legal holidays, and the period from twelve o’clock (12:00) noon to twelve o’clock (12:00) midnight of each Saturday which is not a holiday is made a half-holiday, on which holidays and half-holidays all public offices of this state may be closed and business of every character, at the option of the parties in interest of the same, may be suspended.

Tennessee Secretary of State to launch new online UCC filing system on July 1, 2013

The ability to file documents online is one of the many ways technology has made the practice of law easier. Faced with a looming deadline, attorneys no longer need to rush to the Courthouse before closing time. Nowadays, they pdf their pleading and can upload it at 11:59 from home.

Starting on July 1, 2013, the Tennessee Secretary of State will allow parties to make Tennessee Uniform Commercial Code (UCC) filings online. Information about this program can be found in this release.

To prepare Tennessee UCC filers for this process, the Secretary of State has posted a number of links to a number of training videos, which cover topics such as:

  • Filing a Tennessee UCC1 Financing Statement
  • Filing a Tennessee UCC3 Amendment – Termination
  • Filing a Tennessee UCC3 Amendment – Continuation
  • Filing a Tennessee UCC3 Amendment – Party Update
  • Filing a Tennessee UCC3 Amendment – Assignment
  • Filing a Tennessee UCC3 Amendment – Collateral and Max Indebtedness Change
  • Filing a Tennessee UCC5 Information Statement
  • Filing a Tennessee UCC11 Information Request
  • Searching the Tennessee UCC Database

The electronic filing system also coincides with the implementation of the 2010 Amendments to UCC Article 9, which also become effective on July 1, 2013. I’ll discuss those in a later post.

For now, I’ll say that I’m really excited about the prospect of filing and searching UCC records online. This is a great development for Tennessee lawyers.

What Tim McGraw Can Teach You About Injunctions in Tennessee

During the first week of law school, law students learn how to read caselaw.

The way it works is this: Judges decide legal issues by writing legal opinions that summarize existing law and apply the existing law to the facts before them in that case (or by departing from existing law to create new law). Over time, the line of published legal opinions creates “The Law.”

Long story short, a good way to learn the law on a topic is to look for a recent case dealing with the topic.

That’s why I am citing the Curb Records, Inc. v. Samuel T. McGraw case from last week. (That’s “Tim McGraw” a.k.a. Mr. Faith Hill.) I don’t delve into entertainment law very often (although I’ve sued a few country singers in my time for unpaid debts), but this case has a very good review of Tennessee injunctions and the standards to obtain injunctive relief.

This legal opinion discusses the primary law (Tenn. R. Civ. P. 65.04), along with the most recent cases discussing the standards. Plus, because it’s a case from last week, you can cite it with confidence that it remains good law and hasn’t been overruled. It’s worth a read.

Tim McGraw will undoubtedly be flattered to hear that the Tennessee Court of Appeals finds, as a matter of fact, that “McGraw is undisputedly an entertainer offering unique and
extraordinary services.”