Category: Litigation

Increase in Tennessee Homestead Exemption Fails. For Now.

Last month, the hot topic in the Tennessee creditor rights lawyer world was the rumored increase in the Tennessee homestead exemption.

Well, “rumor” is an understatement. This proposed change had real momentum and had a very strong chance of happening.

As you’d expect, this proposed change completely freaked out the creditor lawyers. I’m on the Tennessee Bar Association’s Creditor’s Practice Executive Committee, and here’s an excerpt of an email I received about it all:

This bill is bizarre. The exemption would go from the current $5,000.00-$25,000.00 to $150,000.00-$750,000.00 – a 3,000% increase!

This proposal should be officially opposed by the TBA. It would have a huge impact on banks’ and businesses’ ability to be repaid their just debts and judgments. Judgment debtors could hide any monetary assets they have in real estate and avoid having to repay what they promised to pay. This bill would legislatively tell debtors they do not have to repay their debts.

This sounds like something which Elizabeth Warren and Alexandria Ocasio-Cortez might suggest.

This is not a close call. This bill is off the charts bad.

So, yes, the creditor response was pretty clear, and a quick coalition formed involving the Tennessee Banker’s Association, the Tennessee Bar Association, and a handful of other similar groups.

In the end, the House Judiciary Committee deferred the homestead bill until next year. The bill will be moved to the committee’s first calendar of next year. When it comes up then, it will be in the form considered by the Committee in its last consideration, which was in the “flat” amount of $35,000. 

Ultimately, this seems like a fair amendment. Tennessee is pretty squarely in the bottom, with one of the lowest homestead exemptions in the nation.

When it comes up, I hope the sponsors propose an increase that reflects an adjustment for inflation, and not some drastic increase designed to make Tennessee a haven for asset protection. The fatal flaw in this proposed change during this session was that there was no justification or supporting data for an increase to $750,000 or a million dollars, especially when exemptions are designed to provide a “fresh start” to broke judgment debtors. It all seemed arbitrary.

Oh well, stay tuned, and I’ll report back in 2020.

Double Check Your Served Summonses: Tennessee Legislature To Amend Service of Process Statute…Effective January 2020

A very terrifying issue has been circulating in Tennessee courts (well, terrifying to the Tennessee creditor’s rights bar) over the past year regarding service of process in Tennessee.

It all relates to 13 very plain, unambiguous words: “The process server must be identified by name and address on the return.”

That text is from Tenn. Code Ann. § 16-15-901(b), and, over the past ten months, courts throughout the State have been, rightfully so, throwing out lawsuits and setting aside default judgments where a served warrant lacks the process server’s name and address.

Note: When a statute uses the phrase “must be,” you’d better do what it says.

Here’s why: Where the warrant lacks this required information, it doesn’t comply with Tennessee law for valid service of process. Where there’s no valid service of process, there’s no jurisdiction over the defendant. Where there’s no jurisdiction, the Court can’t grant valid relief in a judgment in the proceeding.

This seems like a very low requirement to satisfy (name and address?), but it’s a big deal because, if you’ve ever dealt with process servers and/or you’ve seen a served Summons/Civil Warrant, you have to be diligent and watch for this defect.

Here’s the good news: Yesterday, the Tennessee Legislature took a big step toward amending this statute to give plaintiffs some relief. The Senate Judiciary Committee passed the proposed amendment (the House Bill is at 0393 (and the Senate Bill is at 0456). The proposed law would take effect on January 1, 2020.

Disclaimer: I’m the lead counsel–for the judgment debtor–on one of the two primary cases that brought this issue to a head in 2018.

Second Disclaimer: I’m one of the legislative liaisons with the Tennessee Bar Association who worked on this text and met with the Tennessee Legislators/sponsors a few weeks ago to change this statute.

Third Disclaimer: I’m arguing my case on the old law tomorrow in front of the Tennessee Court of Appeals.

All this reminds me of the old lawyer joke, the one where a lawyer sees a car crash, runs up, and says “I saw everything that happened, and I’ll take either side!”

It’s a funny joke, but, please know, for the next eight months…check your Summonses and Civil Warrants to make sure they comply with the existing law. If you don’t, that sound you’ll hear will probably sound like a car crash.

Does Tenn. Code Ann. § 35-5-118(d) Support a Two Year Statute Limitation on Any Creditors with a Lien? It Could Depend on Your Judge.

I received an interesting question/comment on this 2013 post, (in)artfully titled “Don’t forget that Tenn. Code Ann. § 35-5-118(d) also has a two year statute of limitations on collection of foreclosure deficiency.” The question is this:

If first and second mortgage on property and first mortgage holder forecloses and not enough from sale to pay anything on second mortgage, is amount owed to second mortgage holder considered a deficiency balance so that second mortgage holder must bring action within 2 years under TCA 35-5-118(d)?

The statutory text doesn’t expressly address this issue. In fact, subpart (a) only references the generic term “creditor” (which could apply to any and all lien creditors). Then, when referencing a foreclosure sale, it doesn’t reference a specific creditor’s sale, but, instead, says “after a trustee’s or foreclosure sale of real property secured by a deed of trust or mortgage…” (which, again, could describe a sale by any and all lien creditors).

When I look at that text, I see so many places where a specific, limiting reference to that specific creditor could have been made, but no such limitation is included in the text. I might have said: After that creditor’s foreclosure sale of real property secured by that creditor’s deed of trust…

Now, if you take the entire statute as a whole, there’s a reasonable inference that the two year limitation of actions only applies to the “creditor” who actually engages in the foreclosure process. Subpart (b) references aspects of the sale process that “the creditor” will be impacted by (suggesting that the statute applies to one creditor, i.e. the creditor who foreclosed, and not all creditors).

Having dealt a lot recently with new statutes or with amended statutes with hastily amended text, I’ve seen how the Legislature can sometimes introduce a fix to correct one problem and, inadvertently, cause 3 new ones.

This seems to be that. Here, the original legislative intent appears to be to require that foreclosing creditor to take quick action, not impose a statute of limitations on creditors who had no active role in the foreclosure.

But, some judges take a liberal, progressive stance on legislative interpretation. Depending on what county you find your client in, this very well be an argument to make. If you’re in front of a debtor-friendly judge who views a judge’s role to be one that works backwards from the judge’s preferred outcome…well, this statute could support that judge’s inclination.

New Tort Opinion Discusses Obscure Issues of Law, Reminds Contract Attorneys to Never Take Elements for Granted

Yesterday, the Tennessee Court of Appeals issued an opinion that read more like a first year Torts law school exam question than an actual case.

The case, Belinda Puller v. Judith Roney (No. M2018-01234-COA-R3-CV, Tenn. Ct. App. Feb. 13, 2019), dealt with issues of res ipsa loquitur and homeowner premises liability.

The Court was faced with claims by a handyman who showed up to perform a variety of tasks at a house (including removal of debris from the roof) and, by the end of the day, was found on the ground. The handyman’s estate sued, alleging that his fall was the result of the homeowner’s defective ladder. Because no one saw what happened, the plaintiff alleged that the fall must have been caused by the defective ladder.

The Court considered the doctrine of res ipsa loquitur, which allows a trier of fact to consider “circumstantial evidence of negligence when direct evidence is lacking” and “infer negligence from the circumstances.” But, there must be a “rational basis” for finding that the injury was “probably the result” of negligence and that the defendant’s negligence was “more probable than any other cause.”

The Court then outlined the elements of a premises liability claim based on negligence. Ultimately, the Court denied liability, based on the fact that there were no witnesses and that so many other factors could have caused the injury. The Court upheld the lower court’s grant of summary judgment.

This type of tort case goes beyond what I generally discuss here, but I think this case is valuable because it reminds you to: (a) always focus on the elements of your legal cause of action; and (b) always consider what proof is necessary to establish those elements. When you don’t (or can’t) clearly plead those facts, you risk an adverse summary judgment ruling.

Employers, Banks, and Creditors: Here’s What Happens Immediately After Service of a Garnishment (Per Rule 69.05)

When an employer or company receives a garnishment, they are generally confused as to what to do next. Granted, there is very small print on the backside of the form that purports to provide instructions. Good luck reading, much less understanding, that text.

As a legal matter, Tenn. Rule Civ. P. 69.05 is designed to provide the actual, “legal” instructions to the garnishee. Specifically, Rule 69.05(3) imposes the following timeline for compliance:

Step One: Next Business Day After Service: “…ascertain whether the garnishee holds property of the debtor. If so, the garnishee shall mail one copy of the writ of garnishment with the notice to the last known address of the judgment debtor. Where the garnishee is a financial institution, the balance in the judgment debtor’s accounts on the night of the service date is the amount subject to that garnishment writ.”

Step Two: Within Ten Days of Service: “…file a written answer with the court accounting for any property of the judgment debtor held by the garnishee.”

Step Three: Within Thirty Days of Service: “…file with the court any money or wages (minus statutory exemptions) otherwise payable to the judgment debtor. If the garnishee holds property other than money or wages, a judgment may be entered for that property and a writ of execution may issue against the garnishee.”

Rule 69.05(3) has some fairly dense text (i.e. it says a lot of things in a short amount of space). Here’s a few quick take-aways.

  • First, where you’re dealing with a bank, timing is everything. A creditor will want to time their garnishment to maximize the recovery. Knowing that the amount is determined “on the night of the service date” is useful information.
  • Next, if the creditor is seeking “property other than money or wages,” the rule allows for the entry of a judgment for that property, with a writ of execution to issue. This would be where a garnishee is holding personal property, choses in action, or a judgment. This subsection suggests a very efficient “turn-over” procedure for that type of property.

One issue the creditor will have is that there are other statutes, court precedent, and local rules that deal with these same issues. Per the Advisory Commission Comment, the intent here was to “consolidate procedures…into a single orderly rule.”

So, when in doubt, follow Rule 69.05.

May the Lawsuit Filed Against You be an Interpleader Complaint

Today’s post is just a quick follow-up to one from a few years ago.

That post, titled Interpleaders: The Only Time People Like to Hear from Me, discussed what an interpleader action is, why a bank/creditor would file an interpleader, and, most importantly, why it’s good news to receive one.

With it being the start of the year, a lot of banks and law firms are dealing with escrow and trust account balances, and trying to resolve those balances (i.e. pay the funds out). If those funds relate to a foreclosure and the foreclosing bank or trustee isn’t sure who is the proper party to send them to, they’ll probably file a Complaint in Interpleader.

So, to those of you who have had property foreclosed on in 2018 and now the bank has filed a lawsuit, there’s a chance that the lawsuit is good news.

A small chance, but there’s always hope.

In Order to Be Granted Summary Judgment on a Claim, a Party Must File a Motion

In Chancery Court litigation, when I’m the movant on a motion for summary judgment, I sometimes describe my potential outcomes as “Win” or “Not Win.”

In short, I’m either going to win my case on summary grounds or not, but, as the moving party, I’m not going to lose the case, unless the other side files their own “counter” motion seeking summary judgment.

The Tennessee Court of Appeals issued an opinion yesterday that confirms this, at Adrian Lynn McWilliams, et. al. v. Brenda Vaughn, et. al. (No. E2017-01942-COA-R3-CV,  Tenn. Ct. App. Jan. 23, 2019).

In that opinion, the Court wrote that, when faced with cross-motions for summary judgment, “a court must rule independently on each motion and determine, with regard to each motion, whether disputes of material fact with regard to that motion exist.” Savage v. City of Memphis, 464 S.W.3d 326, 332 (Tenn. Ct. App. 2015) (citing CAO Holdings, Inc. v. Trost, 333 S.W.3d 73, 82 (Tenn. 2010)). Further, “the denial of one party’s motion for summary judgment does not necessarily imply that the other party’s motion should be granted.” Id. Rather, when considering cross-motions for summary judgment, the court must determine whether each party is “independently entitled to summary judgment.” Id.

To be clear, where one party’s motion for summary judgment is denied does not necessarily mean that the other party is entitled to prevail, even if they filed their own motion. Id. That’s because there are all kinds of factors that go into whether to grant or deny a summary judgment motion.

But, the Court went on to note, where the other side doesn’t file a competing motion, that other, non-moving party is definitely not entitled to an award of summary judgment. Id. In order to be granted summary judgment, you have to be a “moving” party.

So, in the end, keep this opinion handy when you’re preparing for a summary judgment hearing, where the opposing party doesn’t file its own motion. There, it’s a “Win/Not Win” situation for you.

 

Tennessee Supreme Court Changes Rule 4 on Service of Process

The Tennessee Supreme Court has issued four orders adopting amendments to various rules of procedure that will go into effect on July 1, subject to approval from the Tennessee General Assembly.

These include changes to the rules of criminal procedure and evidence, but, today, I’m going to talk about how Tennessee Rule of Civil Procedure 4 has changed. Here is a link to the proposed changes. This includes changes to service of process, which is a critical step in any litigation.

On this issue, it’s Tenn. R. Civ. P. 4.04 that is amended, where a plaintiff tries to serve a defendant via certified mail. Specifically, the amendments add a provision that allows for valid service where a defendant “refuse[s] to accept delivery” of the certified mail, as long as the record contains:

a return receipt stating that the addressee or the addressee’s agent refused to accept delivery, which is deemed to be personal acceptance by the defendant pursuant to Rule 4.04(11)

The Advisory Commission Comments provide a helpful warning for these situations. They state that “the Postal Service’s notation that a registered or certified letter is ‘unclaimed’ is no longer sufficient, by itself, to prove that service was ‘refused.’ ”

This comment clearly reminds plaintiffs to make sure that the return receipt states “refused” and not “unclaimed.” This distinction is important, since so many defendants simply never go to the post office to pick up their certified mail, because they assume it’s just a lawsuit, demand letter, or some other collection correspondence. This Comment makes clear that a lazy defendant does not submit itself to personal jurisdiction.

Remember, Rule 60 Motions Must be Filed Within One Year

This new opinion from the Tennessee Court of Appeals sets up a nightmare scenario for a prevailing party.

In that case (Reliant Bank v. Kelly D. Bush, No. M2018-00510-COA-R3-CV,  Tenn. Ct. App. Dec. 28, 2018), the Bank won a post-foreclosure deficiency judgment in 2014, after  competing experts testified about the fair market value of the property under Tenn. Code Ann. § 35-5-118. The former homeowners appealed the ruling, which was affirmed in 2016, and remanded. But, on remand, a new Chancery Court Judge was on the bench, and the new Chancellor had a different analysis and partially aside the judgment under Rule 60.02.

On the second appeal, the Judgment was upheld, but talk about snatching victory from the jaws of defeat (or vice versa).

Aside from being a great lesson about the uncertainty and risks of litigation, the 2018 opinion provides some good reminders about Rule 60.02. The Court noted, in part, the following:

Relief under Rule 60.02 is “an exceptional remedy.” Nails v. Aetna Ins. Co., 834
S.W.2d 289, 294 (Tenn. 1992). The rule is intended “to alleviate the effect of an
oppressive or onerous final judgment.” Spence v. Helton, No. M2005-02527-COA-R3-CV, 2007 WL 1202407, at *3 (Tenn. Ct. App. Apr. 23, 2007). It “acts as an escape valve from possible inequity that might otherwise arise from the unrelenting imposition of the principal of finality embedded in our procedural rules.” Thompson v. Firemen’s Fund Ins. Co., 798 S.W.2d 235, 238 (Tenn. 1990). The movant has the burden of proving the grounds for relief. Spence, 2007 WL 1202407 at *3.

Under Rule 60.02(1), the court may set aside a final judgment for reasons of “mistake, inadvertence, surprise or excusable neglect.” Tenn. R. Civ. P. 60.02. Under Rule 60.02(2), additional reasons for a court to set aside a final judgment are “fraud … misrepresentation, or other misconduct of an adverse party.” Id. But motions based on Rule 60.02(1) or (2) must be filed within a reasonable time, not more than one year after the order was entered. Id.

Ultimately, the Court of Appeals found the new Motion to be untimely.

Because the motion was untimely, the chancery court should not have entertained it. See Furlough v. Spherion Atl. Workforce, LLC, 397 S.W.3d 114, 131 (Tenn. 2013) (concluding that “relief [wa]s not available under Rule 60.02(1)” because the petition seeking relief “was not timely filed”); cf. Rogers v. Estate of Russell, 50 S.W.3d 441, 445 (Tenn. Ct. App. 2001) (“[M]otions under Rule 60.02(1) and (2) must be filed both within a reasonable time and within one year after the judgment or order was entered.”).

Service of Process via Registered Agents can be Hard, where There is no Registered Agent

As strange as it seems, but some businesses go to great lengths to set up a proper corporate entity (i.e. a corporation, LLC, etc.) for their business, but they don’t appoint a registered agent for process.

As you all know, a corporate entity must designate a person or entity to serve as a registered agent (i.e. to provide a public “face”) for service of process.

Before filing any lawsuits, I’ll research a corporation on the Tennessee Secretary of State business information search to get the name of its registered agent (i.e. the person/entity that I have to serve with service of process), and they simply don’t have one listed (or they just have the corporate name listed).

This may be dumb, or it may be dumb like a fox. I mean, if they don’t list an agent to accept service of legal documents, then is there a chance that plaintiffs simply can’t serve legal documents on them?

The short answer is “Of course not.” The longer answer is at
Tenn. Code Ann. § 48-15-104 (b), which provides:

(b) Whenever a domestic or foreign corporation authorized to do business in this state fails to appoint or maintain a registered agent in this state, whenever its registered agent cannot be found with reasonable diligence, whenever a foreign corporation shall transact business or conduct affairs in this state without first procuring a certificate of authority to do so from the secretary of state, or whenever the certificate of authority of a foreign corporation shall have been withdrawn or revoked, then the secretary of state shall be an agent of such corporation upon whom any such process, notice or demand may be served.

So, in that situation, you serve the Secretary of State. In the past, what I’ve frequently done is serve the managing corporate actor, such as the president, owner, or other suitable person in a management capacity. Per
Tenn. Code Ann. § 48-15-104 (d), that appears to also be allowed (that statute provides that “[t]his section does not prescribe the only means, or necessarily the required means, of serving a corporation.”