After a judgment for possession, does res judicata prevent a landlord from taking a money judgment?

I represent a lot of commercial landlords, and, when there’s a payment default and they want to evict a tenant, there’s an early strategy question that they all face: (1) Do we sue for possession only; or (2) Do we sue for money and unpaid rent (through the date of the court hearing)?

It’s a nuanced question. Most landlords choose # 2, especially since detainer lawsuits are filed in General Sessions Court and, due to a little-known exception, you can take a huge money judgment in “small” claims court.

But, they’ll generally say, what about the unpaid rent for time periods after we get a judgment and evict them from the property? That’s a second lawsuit. Isn’t there a rule against two lawsuits on the same issues?

Yes, it’s called res judicata, which we talked about last year.

So, can you sue a tenant two times on the same lease agreement?

Yes, you can. The Tennessee Court of Appeals reaffirmed this answer yesterday, in BOP, LLC, et al. v. Plastic Surgery of Nashville, P.C., et al., No. M2019-00588-COA-R3-CV (Oct. 8, 2020).

In that case, the landlord won an eviction judgment for possession and for money in 2005 , which the tenant later paid in full. Then, apparently, the landlord filed more lawsuits (5 more, actually), over other damages. This last part did not make sense to me, so I’ll stick to the part I care about, the law.

The Court wrote that “[t]he law on successive actions states that ‘[s]uccessive actions may be maintained on the same contract or transaction whenever, after the former action, a new cause of action arises therefrom’.” Tenn. Code Ann. § 20-6-201.

From there, the Court reasoned that each and every installment default under a contract for long term payments creates a new default, since a “suit may be brought in successive actions upon each default in an installment for
the amount of that defaulted installment.” Farmers & Merchants Bank v. Templeton, 646 S.W.2d 920, 923 (Tenn. Ct. App. 1982) (citing Barnes v. Black Diamond Coal Co., 47 S.W. 498, 499–500 (Tenn. 1898) (holding that “[i]nstallments of rent are subject to the same rule as installments of money due, and an action may be brought as each installment falls due” and that “[a] new cause of action arises and becomes enforceable with every successive installment”).

Therefore, a later suit to recover rents that “had not accrued” at the time of the first judgment constituted a new cause of action.

While the outcome in this particular case turned on really specific facts, this opinion, generally, supports the legal conclusion that, if there had been post-judgment amounts owed, the landlord would have a new cause of action to collect those and would not have been barred by res judicata.

So, to go back to the early fork-in-the road: Is it worth it to sue for unpaid rent when you don’t yet know all your damages?

I think it is. Getting possession is only “step one” of a landlord trying to establish its ultimate damages. Then, it must clean, repair, and market the premises. Once a tenant gets into the space and starts paying rent, then, the landlord will have mitigated its damages and will have the ability to calculate what its true and total damages are. But, that process could take six months to a year.

If you’re already filing a lawsuit, why not go ahead and get a judgment for at least a partial amount now (since, in many cases, the landlord doesn’t go back to sue a second time).

How your registered agent’s address could get you sued in their county.

Earlier this week, a lawsuit was filed in Davidson County Chancery Court by a landlord to collect $130,697.44 in unpaid rent from a Romano’s Macaroni Grill located in Rutherford County. There was no allegation that any of the facts of the case occurred in Davidson County or that the parties contractually agreed that the venue for any disputes would be in Nashville.

Should this lawsuit be dismissed for improper venue, where the business, all operations, and the leased premises were all in Rutherford County?

Not necessarily. Here’s why: All of the Defendants use corporate registered agents whose offices are based in Davidson County, and that subjects them to venue in Davidson County.

When analyzing venue for causes of action under Tenn. Code Ann. § 20-4-101(a), a defendant can be “found” in “any county wherein it has an office for the furtherance of its business activities.”

Tennessee courts have said that a registered agent’s address is an office for the furtherance of the defendant’s business activities, and it doesn’t matter that the defendant doesn’t actually operate a business out of that address or doesn’t otherwise have any other connection to that county. See Fed. Exp. v. The Am. Bicycle Grp., LLC, No. E200701483COAR9CV, 2008 WL 565687, at *3 (Tenn. Ct. App. Mar. 4, 2008).

Maybe this isn’t a big deal–most of these corporate agents are located in Davidson County, and Nashville uniformly has very strong courts and judges.

But, Tennessee is a very, very long state. It’s definitely something to keep in mind when you’re a company in Greenville or Memphis, and you’re selecting a registered agent.

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).

New Associates: These recent Tennessee Appellate Opinions can save you some research time.

Over the past few weeks, the Tennessee appellate courts have issued some really useful opinions on creditor-specific issues of law.

As you’ll remember from this post (from 2013!), these opinions have great recaps of the law and can save valuable research time. I’ve literally been sitting at counsel table, furiously researching this site for a citation (this one, about slow pay motions. And also this one about Rule 69.02.)

Some quick hits from the past week:

Statute of Limitations; when a breach of contract cause of action accrues; and the standard of review for a 12.02(6) motion. This case from yesterday, In re Estate of Donald Cowan, No. M2019-01597-COA-R3-CV (Tenn. Ct. App. Aug. 25, 2020) has a great statement of the law on statutes of limitation, when the clock starts ticking on a claim, and a good recap of the standards in granting a motion to dismiss for failure to state a claim upon which relief can be granted under Tennessee Rule of Civil Procedure 12.02(6).

It’s a well written opinion, and a litigant with those issues can literally cut and paste those sections into a brief.

Motions to Intervene under Tenn. Riv. Civ. P. 24. Regions Bank v. The Blumberg Trust, et. al., No. E202000051COAR3CV, 2020 WL 4919783 (Tenn. Ct. App. Aug. 21, 2020). This opinion, issued on Friday, has a great summary of the statutes and case law on Intervention as of Right and Permissive Intervention in Tennessee under Rule 24.

In that case, the party seeking to intervene was an assignee of the debt and was really only trying to substitute itself as a party, so it’s strange that intervention was even an issue.

In an even stranger twist, the prevailing party (appellee) most definitely submitted the Order Denying the Motion, and the submitted (and entered) trial court order was entirely devoid of factual or legal analysis. As a result, the Court of Appeals refused to rule on the issues on appeal and remanded the case for further proceedings.

My question is this: It was clearly a deficient bare-bones trial court order, but doesn’t the appellant share the responsibility of curating the record? Shouldn’t the appellant have submitted a competing order that had enough substantive details to properly present the issue on appeal?

Just a strange case.

Prejudgment Interest under Tenn. Code Ann. § 47-14-123. The Court of Appeals revisited the case of 101 Constr. Co. v. Hammet, No. M201801321COAR3CV, 2019 WL 5606610, at *7 (Tenn. Ct. App. Oct. 30, 2019), appeal denied (Mar. 26, 2020), and I can’t tell exactly why, but I appreciated the reminder about this case’s very detailed lesson about the importance of detailed communication in legal fee arrangements.

Also, it has a nearly “cut and paste” perfect discussion of the standards in Tennessee for awarding prejudgment interest under Tenn. Code Ann. § 47-14-123.

Spoiler: Tennessee Courts should always be awarding pre-judgment interest.

Elements to Determine Value of Damages under Quantum Meruit Claims (and who can testify). This is an issue that doesn’t show up in appellate cases often: what type of proof is required to establish the amount of damages in a quantum meruit claim.

The Court of Appeals provided a really good road map last Tuesday, in Blount Mem’l Hosp. v. Glasgow, No. E201900776COAR3CV, 2020 WL 4809951, at *2 (Tenn. Ct. App. Aug. 18, 2020).

The Plaintiff had an awful contract, so it had to rely on unjust enrichment/quantum meruit to recover the value of the hospital services provided to the Defendant. The Plaintiff presented proof from the “hospital’s financial representative” (not a doctor or service provider) that “she was familiar with the customary charges in the medical industry and that the hospital’s charges for the services were reasonable and customary.”

This knowledge wasn’t gleaned from a survey of the industry or by first hand knowledge of what other hospitals were charging; instead, it was based solely on what Medicare allowed hospitals to pay. (As an added note, though, the Court mentioned that the mere fact that “this is what the hospital usually charges” isn’t good enough proof.)

But, because the proof presented, i.e. that the “medical services were comparable to all hospitals in the area that accepted Medicare patients…,” was presented by a “hospital representative who is familiar with what is reasonable and customary,” the Court found that it was “sufficient to make [a] prima facie case for the reasonable value of the services rendered.” Id. at *3.

Keep this case for those situations where your witness is the controller / bookkeeper, but has no idea how to perform the underlying services. This comes up alot.

Last One: Setting Aside a Judgment Under Rule 60.03. Reese v. Amari, No. M201900329COAR3CV, 2020 WL 4342734 (Tenn. Ct. App. July 28, 2020).

This one is really interesting. A judgment debtor attacked a decades old judgment, arguing that it was a default judgment.

In denying the attack, the Court noted that, even though it was called a “default” judgment, the trial court actually entered the judgment at a trial, which the defendant didn’t attend. So, it wasn’t technically a default judgment, as that is defined under Tenn. R. Civ. P. 55, and wasn’t entitled to the more generous standards to set aside default judgments.

Separately, though, Judge Dinkins’ opinion has a very precise presentation of when a court will set aside a final judgment under Rule 60.02(3).

And, new associates, this comes up far more than you’d imagine.

Tennessee Court of Appeals issues opinion that resolves another obscure issue under Foreign Judgment Act.

Last year, I wrote a post called Judgment Creditors are Limited to the terms of their Foreign Judgments, which cited a Tennessee Court of Appeals case styled The Wolf Organization, Inc. v. TNG Contractors, LLC.

The point of that opinion was that a judgment creditor seeking to domesticate a foreign judgment under the Uniform Enforcement of Foreign Judgments Act (Tenn. Code Ann. §§ 26-6-101 to-108) would be limited to the actual amount of the foreign judgment. In Wolf, the issue was that the creditor was asking for the judgment amount plus more post-judgment attorney fees to be allowed. The Wolf Court said that the claim for additional attorney’s fees was a separate claim.

I appreciated this case, since it provided resolution of an obscure, but common, issue under the Tennessee Foreign Judgment Act.

Well, a little more than a year later, the Wolf litigants are back at it, with another interesting issue. The latest is Friday’s opinion, The Wolf Organization, Inc. v. TNG Contractors, LLC, M202000093COAR3CV (Tenn. App. Aug. 21, 2020).

The new issue? If the foreign judgment provides for a specific post-judgment rate of interest, but the Order enrolling the foreign judgment doesn’t mention interest, what happens?

The Court makes two useful observations:

  1. Regardless of whether the new Order says anything about post-judgment interest, all judgments are automatically entitled to post-judgment interest.
  2. But, in the absence of a specific statement or order about the amount of post-judgment interest in the enrollment Order, the rate of interest is just the Tennessee statutory rate, found at Tenn. Code Ann. § 47-14-121.

My take-aways from this opinion:

  1. Details matter. If you think you will need it in the future, include it in the text of the Order. An order from a court will always be the most important pleading you’ll draft, and a smart lawyer will think about all the things she will need from this order and work backwards.
  2. Are Orders always required? Under the Foreign Judgment statute, an order is not expressly required. Instead, under Tenn. R. Civ. P. 3A.04, the Clerk simply “enrolls” the original judgment after 30 days after service.

Sure, the Wolf creditor could have avoided all of this with a more detailed Order; could they have avoided all this by not filing any order? Maybe.

Also, following the first Wolf opinion, the creditor needed to go back to the other state to get an award of attorneys fees. Couldn’t the creditor also get a judgment for post-petition interest at the higher rate and then come back to Tennessee?

Either way, it’s an interesting case on a rarely litigated statutory scheme.

Will collection on unpaid private school tuition bills be a big news story in 2021? Probably.

In late July, I noticed the television ads by the Nashville Catholic Schools during the morning news, confidently advertising that their schools would be open for in-person classes the 2020-21 school year.

The first few times, I wondered if it was a coincidence that the ads were being rolled out while public schools were struggling with the decision of whether to re-open for in-person classes during the COVID pandemic.

Then, the weekend after public schools started their online-only reopening, the private schools’ messaging got a lot less subtle:

Gone were the images of sweet kids in their school uniforms.

These new ads featured a frustrated mom, dealing with a pesky kid with a tablet in her little hands, bothering the mom for help with school work while the mom tried to work from home. But, as the ad showed, once the mom signed her kid up and sent her off to in-person school at the private school, however, all was good.

At the end of the day, a private school is a business, right? This is a marketing technique called “FUD,” which means “fear, uncertainty and doubt” and is evoked intentionally in order to put a competitor at a disadvantage. In short, the private schools knew that public school parents were terrified about the start of the new school year, had no idea what to do, and the ads were deployed the weekend after Metro re-opened to provide some answers.

The campaign has worked in my neighborhood. My local school’s Parent-Teacher Organization has been decimated by defections. Seriously, I might be the new PTO president by default and not even realize it. We’ve had so many kids and their parents opt out of our (awesome) school.

But, as colleges across the country all over America are realizing this week, promises of in-person learning can be hard to keep.

As a collections lawyer, I have to wonder if parents, who were enticed by the promise of in-person learning, will be unhappy with their decision (and the exorbitant monthly tuition costs) if in-person classes are suspended. Will this unhappiness result in defaults in tuition payments?

During the last recession, I represented a handful of Nashville’s private schools in collection matters. It was not an easy task, as I wrote about in this 2011 blog post, More Than Just Legal Expense: The Unexpected Hassles of Pursuing Collection of Unpaid Debt. In that post, I said:

I was reminded of this [difficulty] when I read this [then recent] Tennessean article about lawsuits filed by Nashville private schools to collect on unpaid tuition. I was doubly reminded about the “hassle” part when I scanned the comments, with the schools’ dirty laundry getting aired for the world to see.

The school is perfectly within its rights to seek payment of past due amounts, but collections can bring out the worst in people, especially in this economy.

In 2009 and 2010, I issued a number of demand letters to parents for unpaid tuition, and, wowza, the responses I got were not pretty. The parents complained about everything imaginable. I sent probably 50 letters, but I talked the school out of filing any lawsuits. Life was too short to have to have to deal with those sorts of fights in small claims court.

So, if the promises of in-person schooling end up not coming true during the global pandemic, will parents pull their kids out? Maybe. Does the standard annual contract have a provision that keeps the parents obligated to repay the full tuition? Probably.

Should the school sue? See my 2011 post about that.

This will be a developing issue in 2021. This is the first time that many of those parents are incurring the $2,000 to $4,000 a month fees, and they may not have anticipated the huge budget impact it will have. If the pandemic takes a harder turn–whether it results in online only classes or even a parent’s job loss–will those parents be willing (or able) to stay enrolled and current on tuition?

The Palm sues the Nashville Hilton over losses related to COVID

Late Thursday, the Palm Restaurant sued the Nashville Hilton, arguing it should not have to pay full rent during the pandemic and especially not for time periods when the Hilton hotel itself wasn’t open.

It’s an interesting argument, about issues that will be litigated throughout the country over the next few years.

Generally, in Nashville (and everywhere else), closures related to COVID-19 haven’t given tenants much factual or legal basis for avoid rent payments. That’s because most commercial leases–more than anything–make payment of rent such a supreme duty under the lease that anything short of total physical destruction of the premises doesn’t excuse payment.

The Palm’s Lease at the Hilton is no different.

The Complaint alleges that “[t]he Lease provides for a rent abatement in the event that the Premises is damaged as a result of casualty,” citing Section 23.1 of the Lease. Specifically, that provision requires that the Property “be damaged by fire or other casualty” and has the typical murky text that you’d expect in a landlord-drafted lease that assumes the premises were physically damaged.

(Side note: The Lease also has a “Force Majeure” provision that is so iron-clad that The Palm doesn’t even cite it in the Complaint.)

As in so many of these cases, the million dollar question is: Does the COVID-19 virus cause “physical damage”?

The Palm takes a novel approach, in part, arguing that the Hilton’s voluntary shut-down caused the losses at the restaurant, since The Palms’ decision to initially lease the space was so heavily dependent on the existence of a thriving Hilton hotel.

“Pursuant to the Lease, the Hilton was and is required to operate a first-class business hotel…[and] provide the Palm with access to Common Areas…” As part of the Lease, the Palm’s dependence on the Hilton is evidenced by the facts that: Palm allowed Hilton guests to charge meals to their rooms; the Hilton heavily advertised the Palm in the hotel and in the rooms; and the Palm agreed to identify the Hilton in its own marketing.

Then, COVID hit. On March 12, the SEC tournament was shut down. On March 20, Metro shut down in-person dining. On March 22, the State of Tennessee took similar action. In response, on March 22, the Palm closed to in-house dining.

But, the lawsuit alleges, “[a]t no point in time since March 1, 2020 has the Hilton been forced to cease operations due to a state or local governmental order. … Despite the fact that it was under no obligation to do so, the Hilton shut down on March 24, 2020. …Upon information and belief, despite its management company having cash on hand necessary to support ongoing operations, the Hilton remained closed during April, May, and part of June.”

The Palm re-opened to 50% capacity on May 11 (as allowed by local and state law), but the Hilton didn’t re-open until June 8, 2020. The Palm argues that it was denied the benefit of foot traffic from the Hilton, marketing and promotional benefits, and access to Common Areas.

When the lawsuit was filed, the Palm had not paid rent for April, May, June, or July 2020 (including CAM charges for space at the Hilton). The Hilton has refused to discount any of that rent, despite the Palm’s requests for a discount.

This lawsuit asks the Davidson Chancery County Chancery Court to provide “declaratory relief” and declare that The Palm is not in default and is not required to pay April, May, June, and July 2020 rent (as well as get back some of the rent paid in March).

This case raises nearly all of the issues the commercial landlord-tenant bar will be fighting in the near future. Plus, this one has the added awkwardness of two inter-dependent, adjacent businesses being involved in direct litigation.

This may be the first notable COVID-related landlord tenant lawsuit filed in Nashville, and it’ll be one to watch over the next few weeks, months, and, gulp, year.

TL;DR: The lawsuit asks whether the Hilton’s decision to shut its own operations down creates a factual or legal defense to some or all of the amounts due from The Palm under the Lease.

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.

Time is On Your Side: 4 Tips for Collections in a Sinking Economy

Things are looking bad for the economy, and there doesn’t appear to be any end in sight. As we enter Month Two of the COVID pandemic, banks and others creditors are bracing themselves for a very long winter.

I’m telling my creditor clients to be patient. While this good news doesn’t put money into hands today, here are some things I said the last time around, i.e. in 2010, that any creditor should bear in mind while we wait to see what the economy does.

There’s time to be patient.  In Tennessee, the statute of limitations for collection on an unpaid debt is six (6) years, pursuant to Tenn. Code Ann. § 28-3-109. Then, once you sue and obtain a judgment (within six years from the date of the default), your judgment is valid for ten years, pursuant to Tenn. Code Ann. § 28-3-110.  Plus, if your judgment remains unpaid at the end of the ten years, Tennessee judgments can be renewed pursuant to § 28-3-110 for another ten year period.

Don’t wait to act.  In some instances, it may make sense to take no action on unpaid debt. Maybe the customer is a company that has gone out of business and has no remaining assets, or maybe they’ve filed a liquidation bankruptcy.  This is where you make the “don’t throw good money after bad” decision and possibly decide to write this debt off.

But, remember, the first creditor to obtain a judgment is the first in line to seize assets. Granted, you could be the first in line and discover there are no assets, but you should nevertheless record your judgment as lien in the real property records. For less than $25 in filing fees, a creditor can record a certified copy of its judgment in any and all Tennessee counties where the debtor owns real property, and that judgment becomes a lien on any real property owned by the debtor.

Even if they don’t have any equity in their property today, the situation could well be different in ten years (judgment liens remain valid as long as the underlying judgment is valid). What’s more, your lien’s reach will capture any real property they obtain during the life of the lien. In the end, sooner or later, your debtor will have to deal with you, whether it be as part of a purchase of new property, a sale, or a refinance.

Bend, don’t break. Sometimes, it’s important to recognize when a debtor truly lacks any assets to pay toward your debt. When this is the case, aggressive collections—whether it be seizing a work truck or all funds out of a bank account—may put that debtor out of business and, possibly, into a bankruptcy filing. A judgment creditor can take depositions and request financials from their debtor, and this information may assist you in determining whether they aren’t paying anybody…or just aren’t paying you.

Bankruptcy doesn’t mean the process is over.  If your debtor does file a bankruptcy case, there’s still a chance of monetary recovery. In addition to the benefits to the debtor, the secondary point of the bankruptcy process is to maximize return for creditors prior to granting the debtor a discharge of his or her debts. But, in most instances, a creditor in bankruptcy only receives pennies on the dollar in the process.

Keep in mind, however, the success rate in Chapter 13 bankruptcy cases (where debtors repay a percentage of their debts over 3 to 5 years) can be as low as 20%, meaning that most of those cases end with a dismissal. A dismissal is good for a creditor, because there is no discharge of the debt. Instead, the full amount remains due and owing. Debts are eliminated only when debtors receive a “discharge.” That’s an important distinction to know.

Finally, remember that a bankruptcy discharge only discharges “debts”—not “lien” rights. So, if you’ve already obtained a judgment and recorded it as a lien, then your lien on the debtor’s property survives the bankruptcy discharge. As a result, even though you can’t collect your debt, you can enforce your lien in the event of an attempted sale or refinance.

In the end, collection is a process that rewards the patient, especially in a struggling economy. But, a successful creditor must be prepared, and being prepared means having a valid judgment in place and exhausting all enforcement remedies before giving up. It may be a long road to recovery, but, if a creditor is smart and strategic now, the steps you take today will help make sure you’re paid in the future.