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 Tennessee Prompt Pay Act Requires Retainage to Held Separately and Imposes Penalties for Non-Compliance

After representing contractors and suppliers over the years, I’ve learned a good deal about the Tennessee Prompt Pay Act, which is found at Tenn. Code Ann. § 66-34-101, et. seq.

The Act has a lot of protections for real estate contractors, but one significant part to know is in Tenn. Code Ann. § 66-34-104, titled “Escrow; portion of contract price.” This statute governs those construction contracts that require retainage.

Under § 66-34-104(a), any retainage “shall be deposited in a separate, interest-bearing, escrow account with a third party which must be established upon the withholding of any retainage.” Under § 66-34-104 (b), “the funds shall become the sole and separate property of the prime contractor or remote contractor to whom they are owed….” Finally, the owner/general contractor must provide written notice that the escrow account has been set up, including the name of the bank, the account number, and the amount of funds on deposit.

The requirement that retainage be placed in a third party, separate account (not in the owner or the General Contractor’s accounts) is designed to protect contractors by: 1) making sure that money is, in fact, set aside for payment to contractors; and 2) held in the name of or for the benefit of the contractors.

There’s a $300 a day penalty for non-compliance. That doesn’t sound like much, but it can add up over time (especially on large, long term jobs).

It is those large, long term jobs that involve the most money being retained and, as a result, the deep pocketed owners who think they have the most bargaining power to refuse to comply with the retainage requirements. 

My advice to contractors is to confirm compliance with the escrow account requirements. Do it early in a project. If the project goes bad, it may be too late.

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.

The Cure for a B.S. Answer is the Power of a Motion for Summary Judgment

“All litigants have the right to defend themselves,” I tell my clients when I’ve received a B.S. Answer to a Complaint I’ve filed. As you know, I usually represent banks and other creditors, and, frankly, there are not many defenses to the lawsuits I generally file.

I generally have to prove: (1) the Defendant signed the Note; (2) the Plaintiff loaned money; (3) the Defendant didn’t pay the money back; and (4) how much wasn’t paid back.

Sometimes, the defendant calls and simply concedes judgment and, instead, focuses on the real issue at stake (setting a reasonable and “livable” repayment schedule). One of the results of a generally improving economy, however, is that a defendant may not have enough money to repay the debt, but they’ve got enough money to put up a little bit of fight.

In most cases, this involves “delay” tactics. In the Answer, the defendant will raise no real factual or legal defense, but they’ll deny everything, demanding that the plaintiff “prove” the facts.

That’s when I file a Motion for Summary Judgment under Tennessee Rule of Civil Procedure 56, which is a Motion that tells the Court that: (1) the material facts are not disputed (or cannot be disputed); and (2) on those undisputed facts, the plaintiff is entitled to judgment as a matter of law.

In response, a defendant’s broad denial of all facts will not win. Instead, Rule 56.03 says that a defendant must “demonstrate” that an important fact is disputed. If a fact is disputed, the defendant must support the denial with a specific citation to an affidavit or a deposition.   A general denial isn’t enough.

This focus on the need to “demonstrate” that relevant facts are disputed was discussed recently in Discover Bank Issuer of Discover Card v. Layton Howell, III,  No. M2013-00485-COA-R3-CV  (Tenn. Crt. Apps. Nov. 8, 2013).

Keep this case in your tool-box for the next time that a defendant tries to delay the inevitable without concrete facts.

You Say I Can’t Cite Unpublished Opinions: I Say Free Legal Research in Tennessee!

One of the most useful things about my Tennessee Bar Association membership is the “TBA Today” daily email, which has links to Tennessee legal news and blurbs/links to the recent Tennessee Appellate Opinions.

Just like I did earlier this week about quantum meruit, I frequently blog about the opinions, regardless of whether the opinion is going to be published. Invariably, some dummy comments that I shouldn’t mention the case because, under Tennessee Supreme Court Rule 4, an opinion that is designated as “Not for Citation” shall not be cited as authority in court pleadings.

Well, first off, I’m giving them too much credit: the dummy commenters never actually cite Rule 4. Secondly, they miss the point. Even if unpublished cases aren’t binding authority, they are still great resources for the most up-to-date statement of the law on a topic.

Nearly every day, new cases are posted, and those cases provide incredible overviews of a Judge’s very up-to-date research on issues of law.

Want to learn what the Tennessee Dead Man’s Statute? Look at this case from last week.

How will a court rule on a Motion for Judgment on the Pleadings? Here’s a case from two weeks ago.

Want to be shocked and amazed at how horrible divorce cases can be? Well, basically, the Court issues an opinion every other day with facts and attorneys fees that will make your hair raise, so I’m not going to cite to those.

Well, I’ll cite to the one from last week about the guy who married a blackjack dealer and brought her back to Tennessee.  And, also, check out this one about the millionaire who has basically lived the past 20 years of his life trying to not pay anything to his ex-wife. Marriage!

If you aren’t a TBA member, you can still look at the cases at the Tennessee Courts website. Even better, the website has a “search” button, so if you’re looking for a specific topic, you can search the case summaries. Up-to-date and free legal research can’t be beat, published or unpublished.

Service of Process: Just Like the Movies

There’s a reason that there’s never been an epic movie about Bankruptcy lawyers: To the rest of the world, it’s not very exciting work.

In fact, the only movie about it (that I know of) is Heart and Souls (1993), starring Robert Downey, Jr. as a creditor bankruptcy attorney who goes after struggling companies and shuts them down when they can’t pay their bills.  The premise is that his four childhood guardian angels come back to visit him and are shocked at the work he does. (Yikes).

But, there is one aspect of my practice that is just like the movies: Service of Process.

Under the Tennessee Rules of Civil Procedure, a lawsuit and summons must be physically served on an individual (Per Rule 4.04).

This part of the process can be frustrating to clients, because, until you get the other party served, they have no responsibility to answer and the case doesn’t move forward. Obviously, the other party in the lawsuit has every incentive to dodge, evade, and generally run from you when you go to serve them.

I wrote about this on Paid in Full–some of my clients get so upset that they want to serve the process themselves (which they can’t).

My advice: Find a really good process server, one who is willing to be creative in order to get the job done.

Have you ever seen the movie Pineapple Express? In that movie, Seth Rogen plays a sneaky process server, who has a car full of costumes and disguises. That’s who you want working for you.

I have a guy right now, who is great. He’s gone to the door with a big bouquet of flowers. He’s used a pizza delivery guy disguise. Around the holidays, he doesn’t serve “process”–he delivers “gifts.” Who doesn’t like gifts?

Sometimes you get efficient and good results because you’re a great lawyer. Sometimes, it’s because the other side thinks they have a secret admirer.

Creditors Rights 101: Double the Content, Same Low Price!

In addition to this fine blog, I now will also be blogging at a second location, on my law firm’s website.

That blog is called Paid in Full.

Paid in Full will cover some of the same ground that this blog covers, but, as corporate blogs sometimes do, that discussion may tend to have the “top button buttoned,” if you know what I mean.

I know, I know. The internet is littered with the carcasses of abandoned blogs. So, you might ask, why on earth keep two blogs?

I enjoy this forum and appreciate the growth I’ve seen in the three years I’ve been posting here.  A surprising number of you subscribe via email or follow me on WordPress, and the Google search results I get show that people want to see what I’m talking about here.

So, now, congratulations. You’ll either get double the content or, equally likely, you’ll get to see me slowly kill off two blogs.

Be sure to check out Paid in Full, subscribe to that blog via email as well, and keep Creditors Rights 101 bookmarked.

Remember how they did a spin-off of the TV show Baywatch, called Baywatch Nights? Well, this is sort of like that, except Paid in Full is the spin-off, and this blog is the fun one, with all the bikinis.

Think Before You Tweet: Your Online Rant Could Get You Sued in Tennessee

You do it. I do it. Everybody does it.

Your steak is burned.Your cable goes out. You have to wait 30 minutes too long in the waiting room.

Out of boredom, anger, or some mix of it all, you go on twitter or Facebook and complain. If you really want their attention, you link your target’s twitter account. That will get their attention, you might think. Maybe they respond and apologize.

Or, maybe, they file a lawsuit against you for defamation or invasion of privacy. Yes, in Tennessee, a twitter or Facebook rant can get you sued.

The Tennessee Court of Appeals recently considered this issue in the opinion of Jennifer Patterson v. Natalie Grant-Herms, decided on October 8, 2013. In that case, the Defendant (accomplished Christian music performer Natalie Grant) posted a number of complaints about the Plaintiff’s service (the Plaintiff is a boarding agent for Southwest Airlines), in which Defendant: mentioned Plaintiff by name; complained about a boarding decision involving Defendant’s child; and generally made a mountain out of a molehill regarding a trivial inconvenience.

(Edited to add: The underlying lawsuit had more of the tweets, including one from Natalie Grant where she bragged that her baby had a “MAJOR blowout” which was left as “a gift on the plane.”)

Ultimately, the Court found that the tweets did not rise to the level of actionable defamation (but, instead, were complaints showing “frustration”), but the Court found that the personally identifiable statements about the Plaintiff could constitute actionable false light/invasion of privacy.

The real take-away is this: Plaintiff brought a viable claim against Defendant as a result of tweets. Defendant had to hire a lawyer to defend herself, and the matter was litigated to the Court of Appeals (and, now, it’s remanded back for more proceedings).

Frankly, between you and me, I think the tweets, which were directed to Southwest, the Plaintiff’s employer, would constitute actionable defamation.

I tell my clients all the time to avoid any meaningless, unnecessary action that will result in exposure to a lawsuit. This is a classic example of a person letting anger lead them to action that invites a lawsuit.