Davidson County Chancery Court has scheduled an actual trial that will be conducted via Zoom.

Mark your calendars: On April 28, 2020, Chancellor Lyle of the Davidson County Chancery Courts has scheduled a trial to be conducted via Zoom! (Full text: Lyle Order re Zoom trial).

For the past 5 weeks, Tennessee courts have been closed for most in-person proceedings, but, during that time, many courts have conducted telephonic or video “non-evidentiary” hearings. This is the first instance that I’m aware of that a civil court is conducting a real bench trial with witnesses and exhibits.

The underlying facts are interesting, from a creditor’s rights perspective.

The lawsuit seeks a declaration of the validity of a mechanic’s lien asserted on a Gulfstream GV  (a/k/a a “G5”) private jet, via both a recorded lien in the Davidson County Register of Deeds and with the Federal Aviation Administration Registry.  Per the Complaint, the plaintiff bought the jet from an actual Sheikh.

gulfstream g5(Note for the non-Sheikhs out there: Retail value for new G5s can be between $36MM and $48MM).

The Defendant / lien-claimant is a marketing firm in Kentucky that claimed a mechanic’s lien on the jet for sales marketing services provided to the Sheikh.

(I’ll reserve my thoughts on the validity of a mechanic’s lien when no actual physical improvements are provided, but I will note that, generally, the lien claimant has to show actual improvements to the property. Cases on aircraft liens have held that “gas for refueling” doesn’t even qualify, since gas doesn’t provide an actual improvement to the aircraft.)

This one will be really interesting, both substantively and procedurally.

 

 

Tennessee Legislature overreacted when they repealed Tenn. Code Ann. § 66-21-108.

If you’ve spent any time on this blog, you’ve know all about Tennessee’s wrongful lien statute, Tenn. Code Ann. § 66-21-108.

It’s a fairly new statute, enacted on May 21, 2018, and I’ve called it the scariest statute I’ve seen. That’s because the statute imposes broad (and automatic) penalties on lien claimants who lose a lien challenge, with the penalties being so harsh that it could have a chilling effect on lien claims.

So, having said that, I was glad to see that the Tennessee Legislature was going to walk back some of those automatic penalties with some proposed amendments to the statute for 2019. Specially, the changes to 66-21-108 would impose a “malice” requirement and would change the “shall recover” language to “may recover.” These changes would protect the mechanic’s liens with justifiable claims, but would preserve claims against those creditors who are looking for undue (and illegal) advantage.

In the end, I was glad to see some correction to the statute, but, candidly, I also thought that the changes took basically all the teeth out of the statute. From my time fighting in Bankruptcy Court, I know that “malice” isn’t an easy concept to prove.

I also know that some creditors’ philosophy is “when in doubt, why not file a lien”? Under the old statute, if those creditors weren’t careful, they would definitely get hit with damages. I’ve seen a lot of bad liens in my time, and this statute provided a remedy that homeowners legitimately needed.

So, it was with a lot of disappointment that I’ve discovered that, rather than amending the statute, the 2019 Legislature just repealed the entire statute.

The statute was designed to solve a very real problem. As it stands right now, there are no real remedies for a property owner to recover costs and expenses when challenging a wrongful lien on their property. As a result, there’s no real disincentive to keep a creditor from recording a questionable lien.

At some point, the cost, expense, and hassle of fighting over an invalid lien isn’t worth the fight. Lien creditors know that they get incredible leverage when they record a lien, and, under now existing law, there’s not much risk to them.

Honestly, I’d rather have the original version of the statute (which made lien claimants really evaluate their claims and think twice before encumbering a person’s property) than no statute at all.

Tennessee Supreme Court provides deep analysis on elements of “novation”

The Tennessee Supreme Court issued a new opinion today, which is notable for a few different reasons.

First, it discusses a legal dispute over The Braxton, which was a luxury high-rise condo building in Ashland City, Tennessee, and which is considered by some to be one of the first big development “fails” of Great Recession Nashville.

Second, the case provides a comprehensive analysis of the law on novation.

The case is TWB Architects, Inc. v.  The Braxton, LLC  No. M2017-00423-SC-R11-CV (Tenn., July 22, 2019).

At its most basic, “novation” is when a party substitutes a new obligation for an existing obligation, such that, after the novation, the second obligation is the only legally binding remaining obligation. Continue reading “Tennessee Supreme Court provides deep analysis on elements of “novation””

Property Owners Can Bond Over Mechanic’s Liens under Tennessee Law

A mechanic’s / materialman’s lien on real property in Tennessee is a very powerful tool. When a contractor asserts a lien, that lien, effectively, ties up the property until the contractor’s claims are resolved.

It’s a huge bargaining chip: The property owner can’t sell, transfer, pledge, or, generally, do anything with the property until the contractor’s lien is released.

That’s likely why the Tennessee Legislature passed
Tenn. Code Ann. § 66-21-108,  which imposes harsh penalties on people who file invalid liens on real property.

So, if you’re a property owner who wants to fight a mechanic’s lien, is there anything you can do to get it removed, in lieu of payment or litigation?

Yes, you can record a bond to indemnify against the lien and get it discharged. That bond process is described at Tenn. Code Ann. § 66-11-142. In essence, the bond replaces the lien and ensures payment to the contractor, in the event the lien is deemed valid.

With a bond in place, the property can be transferred, and the lien claimant proceeds against the bond for cash, which is all they wanted in the first place.

Construction Lawyers Rejoice! Tennessee Legislature Proposes Amendment to Fix the “Invalid” Lien Law

A few weeks ago, I wrote about Tenn. Code Ann. § 66-21-108, a fairly new statute that I called the scariest statute I’ve seen in long time.

This statute imposes strict liability and double / triple / quadruple penalties upon lien claimants who lose a lien challenge. As enacted, the statute didn’t draw any distinctions between good faith lien claims and fraudulent claims.

In short, if you lose any lien challenge, you lose big.

My concern was that this would have a chilling effect on Tennessee lien claims. Honestly, I was going to be nervous every time I filed a future mechanic’s lien, no matter how good my factual and legal basis was. You just never know what can happen in Court.

So, it was no surprise when I saw that House Judiciary Committee Chair Rep. Michael Curcio, R-Dickson, and Sen. Todd Gardenhire, R-Chattanooga, introduced a bill this week that was drafted by the Tennessee Bar Association’s Construction Law Section to fix this.

This proposed legislation HB875/SB682 adds a “malice” requirement when imposing penalties. Specifically, the big change comes in subpart (a), which provides:

“…a real property owner who prevails in an action challenging the validity of a lien, and establishes, by clear and convincing evidence, that the person claiming the lien has acted with malice, including in a libel of title proceeding, may recover: …”

I’m disappointed that I wasn’t able to use this statute on somebody, but it’s a small price to pay in order to avoid somebody using it on me.

Tenn. Code Ann. § 66-21-108 is the Scariest Statute I’ve Seen in a While (and I can’t wait to use it)

On May 21, 2018, the Legislature enacted a law related to real property lien disputes with some real teeth. (When I say “teeth,” I’m picturing the movie poster for Jaws.)

That statute is Tenn. Code Ann. § 66-21-108.

The law provides that, if a real property owner prevails in challenging a lien, the owner “shall recover” all of the following:

  1. The owner’s reasonable attorney’s fees; AND
  2. Reasonable costs incurred by the owner to challenge the validity of the lien; AND
  3. Liquidated damages in an amount equal to ten percent (10%) of the fair market value of the property not to exceed one hundred thousand dollars ($100,000); AND
  4. Any actual damages incurred by the owner.

What’s significant about this statute is all the punishments it awards a party losing a lien dispute. It creates a statutory basis for attorneys fees (remember, Tennessee is an “American Rule” state) and also creates a statutory basis for pretty hefty liquidated damages (remember, Tennessee courts don’t favor liquidated damages provisions).

And, in case that’s not enough, don’t overlook that this statute imposes these double penalties on a “strict liability” basis, meaning that there needs to be no showing of bad faith. Instead, all that the property owner needs to do is: (1) prevail; and (2) ask for all these damages.

So, if you’re the property owner, you’ll love this statute. If you’re a contractor or represent lien claimants, I suspect you’re going to think twice (and maybe more) about this statute every time you file a lien claim.

General Contractors, Subcontractors, Subs, and All Those Other Terms

Old habits die hard.

Growing up in Memphis, I knew our local college as “Memphis State.” Then, in 1994, the name changed to “University of Memphis.” But, guess what everybody still calls it? Memphis State.

In 2007, Tennessee’s mechanic’s lien statutes were drastically overhauled. Lots of things changed, but one of the most noticeable was in terminology.

Before 2007, everybody made distinctions between “general contractors” (i.e. those contractors who have a direct contractual relationship with the owner of the real property) and “subcontractors” (those contractors who do not have a direct contract with the owner).

After 2007, those terms changed. Now, the terms are “prime contractor” and “remote contractor.” Tenn. Code Ann. § 66-11-101 (12) and (14) provide those definitions.

The difference in rights is significant.

A prime contractor has a lien that lasts a one year after the work is finished or materials are furnished and  that lien doesn’t require any special demand or lien to be recorded in order to preserve those rights (warning: this is a drastic oversimplification).

A remote contractor has more hoops to jump through and limitations on its lien rights. Tenn. Code Ann. § 66-11-115 describes those “hoops,” which include a requirement to serve a notice of non-payment to all parties (See Tenn. Code Ann. § 66-11-145) and to record a Notice of Lien (See Tenn. Code Ann. § 66-11-112).

So, in the end, just because everybody talks about general contractors and their subs, don’t  think that the change in the laws was purely cosmetic.