Category: Litigation

A Creditor Doesn’t Have to Foreclose First: New Court of Appeals Case Answers This Common Question

When a loan goes into default, the lender has many options. Sometimes, they go straight to foreclosure. Other times, they’ll file a lawsuit first. Maybe the collateral isn’t worth repossessing; maybe the secured creditor wants to be the first to get to a judgment, in order to execute on other assets or take a judgment lien.

When a bank files a collection lawsuit prior to foreclosing, the borrower always yells in defense: “But you haven’t sold the collateral yet!” and argues that the lawsuit is premature or that the borrower is entitled to some sort of credit or offset to the ultimate judgment.

The defendant is wrong, and the Tennessee Court of Appeals reminded us of that in an opinion issued yesterday in Eastman Credit Union v. Hodges. This was the exact argument the defendant made: “that the judgment of the trial court should be reversed because Eastman did not repossess a motorcycle that served as collateral for one of Hodges’ loan obligations [and that] the value of this motorcycle should have been deducted from the outstanding balance of his loan.”

The Court of Appeals’ response? “His position has no merit.”

The Court held that Tennessee Code Annotated § 47-9-601 does not require a lender to foreclose on its collateral prior to obtaining a judgment. That statute provides that a secured party “[m]ay reduce a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or agricultural lien by any available judicial procedure[.]”  Specifically, the Court wrote: “These rights, in addition to others provided by the section, are ‘cumulative[,]’ and the statute expressly allows them to be exercised simultaneously. The statute, however, does not require that a secured party foreclose on collateral prior to or simultaneous to seeking a judgment.”

It’s a good case to remember the next time a defendant raises these issues, and, trust me, they will.

Quick Note on Negligent Misrepresentation in Tennessee

One of the ways this blog helps me is as a research note. When I find a statement of an issue of law, I’ll post it here so I’ll know where to find it later.  Good for me, sort of boring for you. 

In the case of First Tennessee Bank, N.A. v. Shelby Village Mobile Home Park, LLC, et. al., the Tennessee Court of Appeals outlined the elements of the Tennessee tort negligent misrepresentation. Here’s what the Court said:

“A party pursuing a claim of negligent misrepresentation “must prove by a preponderance of the evidence that the defendant supplied the information to the plaintiff; the information was false; the defendant did not exercise reasonable care in obtaining or communicating the information; and the plaintiff justifiably relied on the information.” Hill v. John Banks Buick, Inc., 875 S.W.2d 667, 670 (Tenn. Ct. App. 1993) (citations omitted). The tort of negligent misrepresentation is most often recognized “in connection with business or professional persons who carelessly or negligently supply false information for the guidance of others in their business transactions.” Houghland v. Sec. Alarms & Servs., Inc., 755 S.W.2d 769, 774 (Tenn. 1988). Our Supreme Court has recognized, however, that, “[t]his theory of law . . . does not convert every breached promise or contractual undertaking into a basis for the rescission of otherwise valid contracts and the abrogation of their terms.” Id.”

 

Attorneys Fees Can be Recovered in a Tennessee Lawsuit, but only if the contract or statute allows them

Sometimes, clients ask “Why didn’t my Judgment include your attorney fees?”

(Note: Actually, I don’t get that question very much, since I spend a good deal of time on the front end, explaining the process and rights to clients, so they know if they can’t recover fees.)

Here’s why: Tennessee follows the “American Rule” on awarding attorney’s fees which states that “a party in a civil action may recover attorney fees only if: (1) a contractual or statutory provision creates a right to recover attorney fees; or (2) some other recognized exception” applies. Cracker Barrel Old Country Store, Inc. v. Epperson, 284 S.W.3d 303, 308 (Tenn. 2009).

The contract provision allowing attorney fees to be recovered has to be very specific. In the Cracker Barrel case, the contract at issue provided that the prevailing party should recover “all costs and expenses of any suit or proceeding.” The Tennessee Supreme Court held that this language was not specific enough to award attorney fees (instead, it allowed recovery of court costs and litigation expenses). 

This is an important issue, as the ability to recover your expenses and costs as part of your action will be a big consideration in any decision to file a lawsuit. Lawyers are expensive. Keep that in mind on the front end, when you’re preparing a contract or agreement, and get very specific text allowing for recovery of attorney fees. 

Employers Who Provide False Garnishment Answers May End Up Owing the Money Themselves

I got a judgment a few months ago, and, having found out where the judgment debtor works, I issued a wage garnishment against the debtor’s wages.

And, oh man, did I ever have that guy. Not only did he work there, but he was listed (and pictured) on their website as an executive. It was only a matter of days until I got my money, right?

Well, not exactly. The employer filed a response that said “Terminated.” That was a surprise. I checked the website. The guy was gone.   Did my garnishment get him fired?  Strange.

So, out of curiosity, I called the employer and got the company directory. The debtor was still listed. So, I waited a few weeks, and they were still listed. I tried the extension and, within seconds, I had the debtor on the phone.

Long story short, I think this employer is lying. What do you do?

Tenn. Code Ann. § 26-2-204 requires garnishment responses to be under oath. The law even anticipates that an employer might lie: “The answer of the garnishee is not conclusive.” Tenn. Code Ann. § 26-2-205. To that end, Tenn. Code Ann. § 26-2-206 allows a creditor to get a judgment against the employer if they actually have assets of the debtor in their possession.

So, in the end, a creditor has rights against a dishonest employer, but there are hoops to jump through. Though the statutes don’t lay this out, the procedure would be to subpoena the payroll records or otherwise get testimony from the employer to establish the veracity of the response. Then, the creditor must take the employer back to Court under § 26-2-206 to get a judgment.

It’s a hassle. But, if you lie, employers, I’m happy to take a judgment against you.

General Sessions Appeals are Cheap and Easy, But Detainer Judgment Appeals are Expensive and Tricky

In some law review article I’ve read (I’ll find you a citation later), the author said that the right to appeal a detainer action is really no right at all, because it’s so expensive to appeal in that scenario.

This is a reference to the detainer judgment appeal bond contained in Tenn. Code Ann. § 29-18-130(b)(2).

That section says in part that:

…if the defendant prays an appeal, the defendant shall execute bond, or post either a cash deposit or irrevocable letter of credit from a regulated financial institution, or provide two (2) good personal sureties with good and sufficient security in the amount of one (1) year’s rent of the premises, conditioned to pay all costs and damages accruing from the failure of the appeal, including rent and interest on the judgment as provided for herein, and to abide by and perform whatever judgment may be rendered by the appellate court in the final hearing of the cause. …

So, where the tenant (or other person in possession of the real property) loses in General Sessions Court and the Plaintiff/Landlord/Property owner wins a detainer judgment for possession, sure, that tenant has the right to appeal. But, they have to post a bond equal to one year’s rental value of the property.

That’s a pretty tall order. Of course, if they don’t have the money or credit to post a cash bond, they can always try to find some dummy to sign on as a surety on the bond.

So, in short, this  isn’t the typical $250 Appeal Bond that you see in most other Sessions appeals.  That’s a quick and easy way to buy more time. This detainer bond could be $10,000 or it could be $150,000 (for fancy Belle Meade mansions or commercial properties).

Keep in mind, a losing defendant can still file an Appeal without complying with this bond requirement.

A detainer appeal without the “one year rent” bond is still an effective appeal, but it doesn’t help the defendant in any way in keeping the property (See what the Tennessee Court of Appeals ruled in December 2013 in Johnson v. Hopkins).

 

Lawyers: Read What the Bond Says Before You Sign It

In Davidson County, I file a Cost Bond with every new lawsuit. A “Cost Bond” is given pursuant to Tenn. Code Ann. § 20-12-120 and means that the plaintiff’s lawyer is acting as surety for payment of all court costs in the matter.

These costs generally run from $200 to $500 and, of course, it’s the client’s obligation to pay; nevertheless, the Clerk wants the lawyer to make sure those costs get paid. If, at the end of the case, the court costs aren’t paid, our Clerk gives it about 6 months, then they send the attorney a bill under the Cost Bond.

No big deal, right? (Well, it’s sort of a big deal. I never sign as “David Anthony”–I sign them as my law firm, “Bone McAllester Norton”).

Recently, I was blown away by seeing an attorney sign a different type of bond. This attorney signed a “Surety Bond,” in the mid-five-figures-range, pursuant to Tenn. Code Ann. § 29-18-130(b)(2).

If you don’t know that statute, that’s the detainer appeal bond statute, which requires a defendant who appeals an eviction judgment to post a bond in the amount of one year’s rent (in order to remain in possession of the property). Instead of posting a cash bond, one option is to have two Sureties guaranty payment of any damages and accruing rent.

So, in the event that the defendant loses the appeal, this attorney is personally liable for the damages. This defendant hasn’t been paying her mortgage, and it’s quite possible that she isn’t going to pay an entire year’s rent on the property. But guess who will be liable for the entire debt?

Yep. This attorney. For the entire amount. Watch what you sign.

Does Tenn. Code Ann. § 47-14-103 Impose a Ceiling on Interest Where the Note says “Maximum Rate Allowed”? (No.)

A few weeks ago, I got a call from a lawyer who was staring at a Judgment submitted by opposing counsel. The Judgment provided for post-judgment interest at 10%, which immediately made the lawyer think: Didn’t they lower the post-judgment interest rate in Tennessee? (They did ).

But, this Judgment recited that the underlying note provided for interest at the “maximum rate allowed under law,” which the Judgment defined as 10%, pursuant to Tenn. Code Ann.  § 47-14-103.

That statute, titled “Maximum Rate of Interest,” provides:

Except as otherwise expressly provided by this chapter or by other statutes, the maximum effective rates of interest are as follows:

(1) For all transactions in which other statutes fix a maximum effective rate of interest for particular categories of creditors, lenders, or transactions, the rate so fixed;
(2) For all written contracts, including obligations issued by or on behalf of the state of Tennessee, any county, municipality, or district in the state, or any agency, authority, branch, bureau, commission, corporation, department, or instrumentality thereof, signed by the party to be charged, and not subject to subdivision (1), the applicable formula rate; and
(3) For all other transactions, ten percent (10%) per annum.

So, the Judgment creditor apparently reasoned, 10% was the “cap” to the interest rate, where the note didn’t expressly state a maximum rate in numerical form. This was the basic holding in a 2005 case, McNeil v. Nofal, 185 S.W.3d 402, 414 (Tenn. Ct. App. 2005).

I haven’t seen this particular issue before. I think it’s incorrect. My stance is that subpart (1) to the statute protects banks who are proceeding on a promissory note. The full reasoning is laid out in a 2008 case, Foster Bus. Park, LLC v. J & B Inv., LLC, 269 S.W.3d 50, 55 (Tenn. Ct. App. 2008).

But, long story short, lawyers make money when there’s a split of authority that leaves a little crack in the door for creative arguments. And this statute and the 2005 case open the door a little bit.

At the end of all this, my primary surprise was that the creditor’s lawyer was effectively conceding the issue by self-imposing a 10% cap. When in doubt (and assuming you represent the bank), I vote for the 24% rate of interest.

New Tennessee Opinion Reviews Law on Motions for Recusals: Sets High Bar for Proof

A good rule of thumb for determining if a lawsuit has come off the rails is if one of the litigants files a Motion for the judge in the case to recuse himself. That’s a motion saying, essentially, that this particular judge is so biased against one party that the judge can’t rule fairly in the case.

I’ve been asked to file these in the past, and I always refuse because, if you attack a judge’s impartiality and you lose, then you’re stuck with that same judge. 

So, I read this Tennessee Court of Appeals case from last week with some interest, because it is the first time I’ve seen the law on recusal motions spelled out with this much detail. And, of course, it’s in a divorce proceeding, where emotion runs high.  (Side note: This is a completely insane divorce–login to Davidson County CASELINK and look at the pleadings. God help us all.)

In the decision, the Court focuses on whether the trial court entered the proceedings with a bias, such that it “prejudged” the litigants based on “interest, partiality, or favor” resulting “from extrajudicial sources and not from events or observations during litigation of a case.” Mere adverse rulings are not enough to justify recusal.

Nine times of out ten, a motion for recusal is filed by a party who is losing the lawsuit, and they equate the judge ruling against them as the judge being biased. This new opinion supports the position that they are not the same. Most of the time, the judge will rule against a party because they’re wrong, not because the judge doesn’t like them.

The $25,000 General Sessions Judgment Limits May Apply on Appeal, Unless the Claims are Amended

I enjoy practice in General Sessions Courts. Once you get past the utter chaos, unpredictability, and potentially long lines at the elevators, you may be able to obtain an enforceable judgment in less than 4-6 weeks after filing your lawsuit. That’s the fastest justice in the State.

Remember, though, that the monetary limit in General Sessions is $25,000.

Given the speed advantages, some lawyers will sue for a lesser amount to have their lawsuits heard in Sessions (i.e. the debt is $27,0000, and they sue for $24,999.99).  Then, if they lose the case or if it’s appealed to Circuit Court, the lawyers know they can always increase the action to the full amount in Circuit Court.

Such amendments are allowed under Tenn. Code Ann. § 16-15-729, which says the Circuit Court “shall allow all amendments in the form of action, the parties thereto, or the statement of the cause of action, necessary to reach the merits, upon such terms as may be deemed just and proper. The trial shall be de novo, including damages.”

But, don’t think the informality of Sessions practice carries over into Circuit Court.  The Tennessee Supreme Court’s opinion in Brown v. Roland, 357 S.W.3d 614, 616 (Tenn. 2012) held that a party is limited to their damages sought until and unless an actual amendment is made to the complaint. 
This is an interesting case, because, by implication, an amended complaint may also be required to add parties and causes of action.
In Sessions Court, it can feel like “anything goes.” It’s not a court of record, and the Judges let litigants have some procedural leeway in presenting their claims. Under the Brown case, that leeway stops upon appeal.

There’s a 15 Day Limit to Continuances in Tennessee Detainer Actions

Landlording is a hard business. If you don’t think so, wait until the first time you have to sue your tenant to evict them.

In Tennessee, the process is done by a “detainer” warrant, and it’s a full blown court proceeding, which is generally done in General Sessions Court.

In these proceedings, the landlord wants the proceeding resolved as soon as possible, while the tenant wants to stretch out the proceeding as long as possible. Who doesn’t like to live rent free, right?

Tenn. Code Ann. § 29-18-118 provides some protection for landlords. That statute allows the judge to continue a matter, but only to a time not exceeding 15 days.

The only exception the statute provides that would allow for a longer period of time is: (1) if the parties agree to a longer time; (2) the 15 days ends at a time when there’s no court; or (3) the party asking for the continuance pays “the costs.” (Here, the costs means they pay, at the time of the request, the rent due for that period, plus any other amounts due/incurred during that period.)

So, the tenant might get a delay–note that the statute isn’t absolute, it says “may”–but there’s an absolute limit to the delay. No Tennessee case–published or unpublished–provides any exception that allows for a longer continuance to this statute.