Creditors Rights 101

2018 Nashville Lawyer Memorial Service This Week

A few weeks ago, I was walking to my office after court, and another lawyer struck up a conversation with me while we walked. I’ve known this lawyer since I was a brand new lawyer, and, after talking for a little bit outside his building about the “old-timers,” he invited me to serve on the Nashville Bar Association’s Historical Committee and, specifically, the Memorial Service Committee.

Honestly, I didn’t think much about the invite at first, but, a few days later, I discovered the NBA’s photo archive from the 1970’s. It was so fun to see these lawyers and judges who I’ve known, back when they were young (or younger) lawyers.

Maybe seeing that gave me some perspective, that there’s a rich tradition and history here in Nashville, and how lucky we are to have these photo archives to tell these stories.

And, on a more morbid note, it reminded me that, someday, some new 2030 law graduate will be surfing whatever version of the internet exists and laugh about seeing David Anthony back when he had brown hair.

So, I called the Bar Association and told them, yes, I want on all these committees. We need to preserve these stories and this history, and the memories (and advice) of those who blazed trails for the rest of us.

Last note, the 2018 Fall Memorial Service takes place this Thursday, November 15, at 11:00am. Full details can be found here.

Tune in For Ethical Online Marketing at Next Week’s 2018 Law Conference

Real Quick: I’m scheduled to speak, next week, at the 2018 Law Conference for Tennessee Practitioners, presented by M. Lee Smith Publishers.

This a two day conference, set to take place at the Nashville School of Law. The full agenda can be found here.

My presentation is at 4pm on Thursday, which is the last section of the day. This is a great responsibility, since people are absolutely restless by the last session.

Fortunately, I have an interesting topic: Ethical Online Marketing.

I’ll be talking about the use of social media for lawyer marketing, and I’ll review a variety of ways that lawyers use (good and bad) social media for client development and engagement.

This is generally a fun topic. Terrible blogs, inappropriate tweets, and unwanted friend requests are all fair game.

New Court of Appeals Opinion Reminds Litigants to Plead Facts by Affidavit under Rule 56.06

Disclaimer: I read a lot of appellate opinions that might be, but aren’t always, relevant to something I’m working on. Sometimes, I’ll find a blurb on an issue of law that’s useful.

And, then, as you’ve seen before, I’ll post that blurb here, for my later use. (And, I guess, yours.)

I’ve just read yesterday’s opinion in Bank of America v. Calvin Dee Aycock, issued by the Tennessee Court of Appeals on a detainer action that followed an eviction. The pro se defendants lost in Shelby County General Sessions Court, and then appealed the possessory judgment to Circuit Court. The bank filed a Motion for Summary Judgment under Rule 56.

Ultimately, the Court noted the lee-way that pro se litigants get in proceedings, but the Court found their responses to the bank’s properly supported motion to be deficiency. In short, the defendants didn’t specify and demonstrate material facts in opposition to the bank’s motion.

The Court wrote that:

When a properly supported motion for summary judgment is made, “the nonmoving party ‘may not rest upon the mere allegations or denials of [its] pleading,’ but must respond, and by affidavits or one of the other means provided in [Rule 56 of the Tennessee Rules of Civil Procedure], ‘set forth specific facts’ at the summary judgment stage ‘showing that there is a genuine issue for trial.’” [Rye v. Women’s Care Center of Memphis, MPLLC, 477 S.W.3d 235, 265 (Tenn. 2015)] (quoting Tenn. R. Civ. P. 56.06). Summary judgment “shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Tenn. R. Civ. P. 56.04.

That’s the blurb.

When you oppose a Rule 56 motion for summary judgment, you have limited options in response to the moving party’s facts, under Tenn. R. Civ. P. 56.03. One of those is to “demonstrate that the fact is disputed.” Under Rule 56.06, that means you have to provide those facts via affidavit or some other admissible testimony.

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

Old habits die hard.

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

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

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

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

The difference in rights is significant.

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

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

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

New Banks Opening in Tennessee is Great News for Creditor Lawyers

Nashville is a hot market right now. One statistic I’ve seen says that anywhere from 70 to 100 new people move to the Nashville area every day.

And, it’s not just people. It’s also businesses. And banks. Today, the Nashville Business Journal reports that JPMorgan Chase is opening its first standalone branch in Nashville. Earlier this year, PNC Bank announced its own expansion into the Nashville market.

This great news for bank lawyers in Nashville, since more banks means more loans for lawyers to work on (both good and bad loans–we’ll take either).

And, it is particularly good news for Tennessee creditor rights lawyers when a national bank moves into Tennessee. As I mentioned a few years ago, it introduces new assets into Tennessee for garnishments and bank levies.

Like I said in that March 2018 post:

What if the debtor has all his assets in that foreign state, but he banks at a national bank with offices all over the country? And what if that bank has a branch in Tennessee? The answer is that you can levy on that bank account.

So, I say “Welcome” to all these new banks coming to Tennessee.

Good Article on Tennessee’s Post-Foreclosure Deficiency Statute

This month’s Tennessee Bar Association Journal has a good article on the new post-foreclosure deficiency statute, Tenn. Code Ann. § 35-5-118, titled “Deficiency Judgments after Foreclosure Sales.”

The article provides a detailed review of the cases construing that very ambiguous statute, which was enacted in 2010 and became effective September 1, 2010. Here’s what I wrote about the new law, back in 2010.

As you’ll recall, I litigated and won the first ever case construing the new law, in December 2012. My case was the GreenBank v. Sterling Ventures case, which is analyzed in the article.

If you’re a banker, a bank lawyer, or a defense lawyer helping some borrower clients, be sure to look at this article. It’s a weird law, and, as the last few paragraphs of the article suggest, there’s still a lot of things that are unknown/unclear about how Tennessee courts are going to apply it in the future.

Highlights from the Creditors Practice Annual Forum 2018: Stay Relief Violations

Last month, I taught a session at the Tennessee Bar Association’s Creditors Practice Annual Forum 2018. My section was called “Litigating Stay Violations.”

The CLE was on September 26, 2018, so, sorry, you missed it. But, to get more mileage out of the materials I prepared, I’m going to post some of the info here.

First off, the automatic stay at 11 U.S.C. § 362 operates as a stay of most collection activity against the debtor in bankruptcy.

When the stay is violated, 11 U.S.C. § 362(k) comes into play, which provides in part that “an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.”

And, no, a violation doesn’t have to mean that the creditor had bad intent.

Actually, a willful violation of the automatic stay requires only that: (i) the creditor knew of the stay and (ii) acted intentionally in violation of the stay. TranSouth Financial Corp. v. Sharon (In re Sharon), 234 B.R. 676, 687 (B.A.P. 6th Cir. 1999). “[P]roof of a specific intent to violate the stay” is not required, but instead only “an intentional violation by a party aware of the bankruptcy filing.” Id.

Basically, the debtor has to prove that the creditor had notice of the Bankruptcy and took intentional action that violated the stay. Long story short, it’s not a high bar to prove those factors.

Not all tenants are agents of their landlords, says Tenn. Code Ann. § 66-11-102(d)

When a mechanic’s lien claimant sits down with their attorney to file a mechanic’s lien on real property, the attorney generally leads with the same, initial question: Was your contract directly with the owner or did you deal with a general contractor? The lien laws can take drastically different paths, based on the answer.

But, what if the contractor says: Neither, I dealt with the tenant.

In that case, it depends.

In the past, I’ve generally included a broad allegation that the tenant acted as the owner’s agent for the improvements, based on a few old common law cases.

In 2007, the legislature enacted Tenn. Code Ann. § 66-11-102(d), which restricted the lien claimant’s ability to assert a lien “unless the lessee is deemed to be the fee owner’s agent.”

This new statute requires a far more detailed showing from mechanic lien claimants. In determining whether the tenant acted as the owner’s agent, the statute states that “the court shall determine whether the owner has the right to control the conduct of the lessee with respect to the improvement…” Further, the Court “shall consider” the following four factors:

Whether the lease requires the lessee to construct a specific improvement on the fee owner’s property;
Whether the cost of the improvement actually is borne by the fee owner through corresponding offsets in the amount of rent the lessee pays;
Whether the fee owner maintains control over the improvement; and
Whether the improvement becomes the property of the fee owner at the end of the lease.

So, to be clear, it’s no longer of simply alleging that a tenant was the owner’s agent. Instead, there is now a clear(er) statutory framework that must be followed.

Simply having a landlord tenant relationship isn’t enough to impute agency for lien purposes. This statute appears to require that the tenant truly acted at the direction of the landlord.

While there haven’t been any Tennessee cases on this statute, legal commentaries have described this as setting a fairly high burden on parties claiming a lien. This may reflect the fairly conservative nature of the Tennessee legislature, but, given the specific text, I’m betting our courts will enforce it as written.

Tennesee Legislature Expands Hours for Foreclosures

It’s always a surprise when I take a quick glance at a statute and discover a discrete, subtle change.

For instance, today, I was scheduling a foreclosure sale.

For years, the statute on “when” you could conduct the sale (Tenn. Code Ann. § 35-5-109) has said that a sale can be made on “any day Monday through Saturday” and “between the hours of ten o’clock a.m. (10:00 a.m.) and four o’clock p.m. (4:00 p.m.)” (excluding state or federal legal holidays).

Apparently, in 2017, the legislature changed Tenn. Code Ann. § 35-5-109 to expand the time of day you can do a sale. Now, you can conduct sales “between the hours of nine o’clock a.m. (9:00 a.m.) and seven o’clock p.m. (7:00 p.m.).”

Sometimes, the legislature works in mysterious ways. I have no idea why this was law was changed.

I understand the utility of allowing sales earlier in the day, but why allow them to be as late as 7pm at night? Who demanded this?

Oh well. I guess the good news is that I can coordinate my future foreclosures in Shelby County with the tip off for a Memphis Grizzlies game.

Will an Adversary Proceeding Survive the Dismissal of the Bankruptcy Case? Maybe.

Eight years ago (8 years! You are reading a law blog that has lasted for 8 years!), I talked about the difference between a bankruptcy discharge and a dismissal.

The tl;dr version for creditors? Discharge is bad; dismissal is good.

But, what if you’re a creditor and the debtor has filed an adversary proceeding against you, but then the bankruptcy case is dismissed?

The tl;dr version? It depends.

Generally, the dismissal of the underlying bankruptcy case results in the dismissal of related adversary proceedings because federal jurisdiction is “premised upon the nexus between the underlying bankruptcy case and the related proceedings.” But, there are exceptions.

One such exception is for proceedings to enforce sanctions and contempt for violation of the automatic stay. A Bankruptcy Court will retain jurisdiction “for the purpose of vindicating the court’s own authority and to enforce its own orders.” See In re Bankston, 1:12-BK-14022-SDR, 2015 WL 6126440, at *2 (Bankr. E.D. Tenn. Oct. 15, 2015)

Basically, the reasoning goes, an action for contempt of court resulting from a party’s blatant disregard of the Bankruptcy Code and the authority of the Bankruptcy Court is something that the Bankruptcy Court takes very seriously and will enforce, independent of whether the underlying case still exists.

The reasoning is different for other types of proceedings that are dependent on the underlying case, like actions to recover avoidance preferences.