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.

 

 

Broadway Bar files first COVID-19 Insurance Coverage Lawsuit

What insurance companies do over the coming weeks in response to the COVID-19 pandemic is going to matter a lot to restaurants all across the country. Will insurance companies pay the claims, or will insurers use this this historically unprecedented situation as a way to poke holes in their customers’ coverage? (I’m betting on the latter.)

This question is of supreme importance to downtown Nashville, where the downtown honky tonks and restaurants stay jam packed 7 nights a week.

Except for, of course, the past 4 weeks.

undergroundToday, one of the downtown bars filed a lawsuit (full copy here: COVID Insurance lawsuit) against Nationwide Property and Casualty Insurance Company, challenging the denial of a coronavirus-related claim. The plaintiff is Nashville Undergound, described as “a seven-story restaurant, bar, nightclub and live music venue” and exactly the type of place that has never, ever practiced social distancing.

The lawsuit alleges that Nationwide denied the claim by citing policy “exclusions” for losses related to bacteria or virus and by arguing that there was no physical damage or physical loss to the restaurant. These are exactly the arguments that I told you they’d be making.

This will be interesting to watch, and, of course, this lawsuit will be the first of many just like it. (Another free prediction? This will nearly instantly be removed to federal court.)

For more background, this article, titled Opposite Sides of the Table: Restaurants Seek Recovery From Insurers for Business Interruption in the Wake of COVID-19,  has a really good and comprehensive recap of the insurance issues facing restaurants.

“According to restaurant.org, since March 1, the industry has lost more than 3 million jobs and $25 billion in sales, and roughly 50% of restaurant operators anticipate additional layoffs in April.  The National Restaurant Association has predicted that the industry will suffer $225 billion in losses in the next few months, forcing the elimination of as many as 7 million industry jobs.”

 

The CARES Act’s Exclusion of Debtor-in-Possession may be a death sentence to pending bankruptcy cases.

The Coronavirus Aid, Relief and Economic Security Act of 2020 is a great legislative response in helping thousands of struggling businesses navigate the financial disaster presented by the coronavirus pandemic.  The response to COVID-19’s spread has shut down thriving businesses, put people out of work, and is having ripples throughout the economy.

Despite the intent to provide wide and sweeping economic relief to affected businesses, Congress made an ill-advised exclusion when determining what businesses can be an eligible participant in the CARES Act loan program:

“(V) the recipient is not a debtor in a bankruptcy proceeding…” 

As the plain language indicates, any business that is a debtor-in-possession in an active Chapter 11 bankruptcy reorganization is ineligible for relief under the CARES Act.

This is a terrible oversight.

When a business files for relief under chapter 11 of the Bankruptcy Code, it then operates as a “debtor-in-possession,” continuing its pre-bankruptcy operations under the oversight and subject to the approval of the Bankruptcy Court.

The goal for the debtor-in-possession is to address, correct, and overcome whatever financial or operational issues that caused the bankruptcy and then reorganize its operations, finances, or governance structure in a way that a more successful business will result.

So, in short, a business operated by a debtor-in-possession operates like any other business. It has employees. It pays rent. It pays taxes. It buys goods and inventory.

If the DIP struggles and can’t pay employees, rent, taxes, and other operational costs, it fails.  Just like any other business.

And, just like any other business, a global pandemic has a catastrophic impact on its operations.

The exclusion of CARES Act financial relief to a debtor-in-possession in a chapter 11 reorganization is, in essence, a death sentence to that debtor’s ability to reorganize. It lays off employees. It can’t pay rent. It can’t pay taxes. It can’t confirm a plan of reorganization. It simply figures out a way to survive, without any help, or close.

Here, I’m guessing that Congress wanted to exclude the shutting down or liquidating bankruptcy debtor’s ability grab some cash. But, by including a broad exclusion, they’re hurting legitimate businesses that may already be on a path to survival.

With this exclusion, the Act forces the debtor to ponder a strange choice: Whether to voluntarily dismiss an otherwise viable bankruptcy proceeding in order to apply for federal relief.

 

 

The Coronavirus sheds new light on an overlooked paragraph: The Force Majeure Provision

On January 30, 2020, the World Health Organization declared a global health emergency in response to the rapid spread of novel coronavirus (2019-nCoV).

Since then, it seemed to slowly make its way to the United States–but, then, once it arrived, it hit us rapidly and in ways that have unexpectedly changed how we conduct our personal and professional lives.

And, yes, I say this as someone who was scheduled to depart tomorrow on a Disney Cruise. We (obviously) cancelled our trip, and, in the past week, I’ve seen a nearly nationwide cancellation of events, with unimaginable impact on businesses and employees.

So, what if you’re thinking about cancelling an event? Where do you start your analysis? Well, closely review your written agreement for the terms and conditions related to cancellation.

Is there a “force majeure” provision? Those provisions account for an unforeseen, unavoidable, and uncontrollable circumstance that prevents performance by one party to a contract and, more importantly, “excuses” that party for non-performance. The circumstances are intended to be so extraordinary that they are sometimes referred to as an “Act of God” provision.

The first time many of us dealt with these issues were related to September 11, 2001, and most modern contracts reflect this changed world-view (and the acknowledgement that something short of a natural catastrophe can trigger the defense).

Force majeure provisions are valid and enforceable under Tennessee law. The question frequently becomes a matter of contractual interpretation: Is the [event that occurred] truly a force majeure that prevents performance/excuses non-performance?

This is where the lawyers make their money, and it comes down to how clear and detailed the contract’s definition of a force majeure is. Tennessee law doesn’t define it, so it’s up to the parties to negotiate the definition, scope, and application.

I’ve prepared marketing agreements that are currently being used by the Big 12 Athletic Conference, with Fortune 50 businesses as the counter-parties. Needless to say, these were really big deals. In working on those documents, we spent hours on all sorts of negotiations, but rarely–maybe never–talking about the definition of a force majeure.

So, if you are a business that is shut down–either by choice or by necessity–and it’s preventing you from performing under an agreement, look at your contract and see what it says about cancellation (and damages for cancellation). And, skip to the end, and see if there’s a force majeure provision.

If there’s not one, make sure that your future agreements have them.

With the 2020 Legislature in full swing, here are three bills to watch.

The Tennessee Legislature is considering three new laws for 2020 that impact debtor-creditor lawyers and that you should know about. Here’s a quick recap:

Increased homestead exemptions. This is at Senate Bill 2235 and House Bill 2682. This bill increases the individual Tennessee homestead exemption to $35,000, increases the joint exemption to $52,500, and eliminates the enhanced exemptions based on age and parental status.

My thoughts? Current law provides for a $5,000 exemption for individuals and a joint $7,500 exemption for married couples. While a jump to $35,000 seems pretty steep, keep in mind that the homebuilder lobby is asking for an increase that ranges from “unlimited” to one million dollars to $250,000. Based on my conversations with the Tennessee Bar Association and Tennessee Bankers Association, the $35,000 is designed to both acknowledge that Tennessee currently has one of the lowest exemptions and to head off a greater increase.

This amount is going up, so why not participate in that process and have it go up to an amount everybody dislikes (but not enough to try to get it higher)?

Decrease in number of days to appeal a Detainer Judgment. This is Senate Bill 2563/House Bill 2372. Current law provides a tenant ten days to appeal an eviction judgment, which means that they have ten days to remain the property before the property owner can file a writ of possession to have them removed. This bill reduces that time period from ten days to two.

My thoughts? I don’t support this. This is too creditor friendly. The ten day appeal period gives a tenant time to either prepare an appeal (and the associated possessory bond) and also time to voluntarily move out. The current time period, frankly, feels like a reasonable amount of time. Two days feels inadequate and onerous.

I mean, if the guy who writes Creditor Rights 101 says something is too creditor-friendly…yikes.

The “Medical Debt Protection Act.” This is Senate Bill 2700/House Bill 2346. This proposed law proposes a number of protections onto the medical bill debtor, and it imposes a number of pre-lawsuit and filing requirements onto the medical bill collection agency/attorney, including a shortened statute of limitations. Further, once a judgment is entered, there are limitations on collection, limits on adverse credit reporting, and restrictions on post-judgment interest.

My thoughts? This is clearly in response to the crisis in our country’s healthcare system that impacts the poorest people, and we’ve seen this in Memphis over the past year. While I don’t agree with all the details of this proposed legislation, I see that it’s coming from a legitimate place. We need to do something.

But, according to insiders at the Capitol, it’s a moot issue. I’ve been told that this bill was taken off notice by Rep. John Ray Clemmons after the Tennessee Hospitals Association promised to create a task force to address this issue (and after the Tennessee Bar Association had already expressed concern with this bill).

A Service of Process challenge may not overcome your Judgment

Service of process is a hot issue in Tennessee law. The reason is obvious: Without proper service of process, any subsequent action taken in a case is void.

Part of the reason service issues are coming up so frequently lately is the comparison between the 2009 economy and the 2019 economy. Judgment debtors have more money (and reason) to fight now, including more money to fight old judgments.

A new appellate decision considered a service of process last week, in Warren Brothers Sash & Door Company v. Santoro Custom Builders, Inc., et. al., M2019-00374-COA-R3-CV, 2020 WL 91635 (Tenn. App. Jan. 8, 2020), where an individual defendant opposed a judgment creditor’s efforts to renew a judgment rendered in 2008 by contesting service of process.

Looking at the returned Summonses, the individual had a pretty good argument, since both the corporate and individual defendants were served at the business address, when the Sheriff served both Summonses at the corporate address, by serving the person at the front desk.

Under Tenn. R. Civ. P. 4.04, an individual defendant shall be served “personally” or, if she evades, by leaving the copies at her “dwelling house or usual place of abode with some person of suitable age and discretion then residing there…”

Long story short, the Sheriff didn’t serve Santoro personally and the business address wasn’t his house, and, as a result, Santoro had a really good argument on paper.

But, Plaintiff had some really good lawyers. Instead of stopping their work on the face of the Summons, they really dug in on who accepted service. They deposed the person, and they also found at other lawsuits where this person was authorized to accept service for the individual. And, they took care to get all this information properly introduced into the record.

With all this background proof in the record, the trial court found that the agent had implied authority to accept service. In affirming, the Court of Appeals wrote:

An individual may appoint an agent for the purpose of receiving service of process, giving that agent either actual or implied authority. Implied authority “embraces all powers which are necessary to carry into effect the granted power, in order to make effectual the purposes of the agency.” Implied authority can be “circumstantially established through conduct or a course of dealing between the principal and agent.’ ”  However, the existence of implied authority is determined by the “ ‘act or acquiescence of the principal,’ ” rather than the actions of the agent.” With respect to service of process, “the record must contain ‘evidence that the defendant intended to confer upon [the] agent the specific authority to receive and accept service of process for the defendant.’ ” 

Id. at * 5 (internal citations omitted).

In the end, Plaintiff’s counsel’s thorough analysis of the facts and getting those facts into the record carried the day.

It’s telling that this opinion was written by a fairly new appellate judge, Judge Carma McGee, who spent years as a trial judge. This is a smart, well-reasoned opinion, and all credit goes to the trial counsel, who gave the Judge the proper facts.

Remember: Detainer Appeals without the possessory bond are still valid appeals

Posting the proper bond in an eviction appeal in Tennessee is confusing and, sometimes, very expensive. Remember, though, if a landlord is granted an eviction judgment, the tenant can still have a valid appeal, even if the tenant doesn’t post the possessory bond required by Tenn. Code Ann. § 29-18-130(b)(2).

I thought this issue was settled–I was blogging about it 5 years ago–but it keeps coming up in circuit courts across Tennessee.

The Tennessee Court of Appeals issued an opinion yesterday, affirming this line of decisions, in Thomas v. Millen, W2019-00086-COA-R3-CV (Tenn. Ct. App., Dec. 19, 2019). This case cited the Court’s own recent, similar opinion at Belgravia Square, LLC v. White, No. W2018-02196-COA-R3-CV, 2019 WL 5837589 (Tenn. Ct. App. Nov. 7, 2019).

Long story short, the possessory bond is not jurisdictional, meaning the circuit court has jurisdiction to consider the issues, and an appeal remains valid despite the failure to post the § 29-18-130(b)(2) bond.

As a practical matter, most eviction appeals will die once the tenant loses the right to possession. But, not all. In that situation, the tenant could be dispossessed of the property, but the tenant can still challenge the landlord’s rights and, if successful, seek monetary damages against the landlord if the tenant wins.

That type of fight does happen. I’ve had an opposing party / tenant lose in Sessions, appeal to Circuit, lose possession in Circuit, but continue fighting my matter…all the way to the Supreme Court. The United States Supreme Court.

Give your time this season, and volunteer next weekend.

It’s the holiday season, where we’re bombarded with commercials about door-buster sales and new Lexus cars with red bows on them.

But, at the movie theatres, there’s that Mr. Rogers movie, with the one scene that I’ve seen lots of people talking about.

The scene is based on an award acceptance speech, in which Mr. Rogers asks the audience to take ten seconds to think about the people who have helped him become who they are, to think of the people who have cared about them and helped them in their lives. Here’s a full clip, courtesy of Taye Diggs.

It’s an awesome moment. For this holiday season, I’d take it one step further: Who are the people who are thinking about you and the help that you gave to them?

This is a really indirect way by me of asking you to volunteer your legal skills to help others before the year is over.

Here is an incredible opportunity. Next Saturday, on December 14, Judge Rachel Bell is hosting one of an expungement clinic in Nashville.

This is an incredible program, which helps people clear up their record and get better jobs. This can have a life changing impact on the people who need this service, and, the way the day is structured, you don’t need to know criminal law. You show up, and they’ll teach you everything you need to know.

Your time is an incredible gift, and you’ll leave knowing that you’ve done something to help others. You’ll be the person on people’s minds when they think about those who help.

New Tennessee Court of Appeals decision provides advice for foreclosures of real property developments

A new opinion from the Tennessee Court of Appeals provides valuable guidance to attorneys foreclosing on commercial properties.

The matter is Tennessee Funding, LLC. v. William Worley (No. M2019-01099- COA-R-CV, Tenn. Ct. App. Nov. 26, 2019), and the issue was whether a foreclosing lender took ownership of the contract rights associated with the real property–specifically, whether the foreclosure sale of the entire residential development transfer ownership of the “developer’s” or “declarant’s” rights of the property.

The actual issue was more nuanced than that and, trust me, I know (I represented the prevailing party in both the trial and appellate courts). The full opinion can be found here.

For purposes of this blog post, I won’t bore you with the deep analysis, but here are the main takeaways from yesterday’s decision:

  • In many development loan/construction loan transactions, the lender will be granted both a lien on the real property and a UCC lien on all the “other stuff” associated with the development project.
  • A real property foreclosure pursuant to the Deed of Trust and Tenn. Code Ann. § 35-5-101, et. seq., transfers to the foreclosure buyer all of the dirt.
  • The real property foreclosure does not transfer ownership of all the “other stuff,” including contract rights associated with the development.
  • These contract rights can include plans, drawings, and, yes, developer’s rights under a Master Deed or Declarations (i.e. the right to manage the development/developed property).
  • The rights are personal property, and those rights must be transferred by a creditor’s UCC Sale under Article 9, including Tenn. Code Ann. § 47-9-610.

Ultimately, that was the critical factor in this case–that the foreclosing lender did a dual sale–a foreclosure under the Deed of Trust to purchase the dirt and a UCC sale under the Security Agreement to purchase the personal property.

Keep this case in mind the next time you represent a creditor contemplating a foreclosure on a property development. You may not be doing your job if you only foreclose on the land.

341: Nashville lawyers go to US Supreme Court, while Memphis lawyers settle the most talked about Tennessee lawsuit

From the Supreme Court to Nashville... I’m on a plane from Washington, DC, with about 7 Nashville lawyers riding with me, after yesterday’s United States Supreme Court oral arguments that featured Nashville bankruptcy lawyers on both sides.

Here’s how SCOTUS Blog framed the issue: whether a bankruptcy court’s denial of a creditor’s motion seeking relief from the automatic stay is a “final” order that is immediately appealable.

This was a pretty obscure procedural issue, and I pity those poor student groups who sat through the animated back-and-forth about what a “proceeding” is in Bankruptcy Court.

It was a great day for the Nashville bankruptcy bar, and the lawyers on both sides really shined. It was also my first trip to the Big Courthouse, and I’m planning a longer post about the experience for early next week.

Save Bluff City Law! I was forwarded the attached e-mail petition, created by a Memphis lawyer, trying to rally support for NBC’s legal drama Bluff City Law.

I’m impressed by the grass-roots activism from the Memphis bar, and I have to admit, the show makes the practice of law in Memphis look very exciting and scenic. I’m signing the petition.

Bluff City Law, Indeed. Talking about national attention focused on the Memphis bar, it looks like there’s a potential resolution in the James Wiseman v. NCAA and the University of Memphis lawsuit filed in Shelby County Chancery Court.

Here’s my blog post about it from the weekend.

The Daily Memphian interviewed me for their story, What comes next in James Wiseman’s eligibility saga?, about the various legal issues and strategies presented (which, I’ve been told, ESPN’s Jay Bilas quoted in an on air interview!)

No deed goes unpunished, and this involved me diving deep into federal court jurisdictional issues, whether a “nominal defendant” destroys complete diversity, and looking up the exact nuances of Injunctive relief procedure.

Trust me, this was the first time this 26 year old reporter ever cited Wright on Federal Procedure.

Regardless, I love the Daily Memphian, and it got me this close to appearing on the Geoff Calkins radio show as a legal expert. I was scheduled to appear on Monday, but a producer bumped my appearance.

It was with great shame that I notified my Memphis friends and family that I was bumped to make room for listener call-ins.

Speaking of great shame… I was alerted that the following blurb and text auto-posted over the weekend. To be clear, the words below this blurb are a quote from the advice column, not how I feel (at least not all the time).

The opening line? “I’m a litigation attorney and am absolutely miserable.”