If you ever receive notice of a lawsuit against you (which hopefully you won't), don't respond like the Williams did in the recent case of Martin Lewis, et al. v. Michael Williams, et al. – the Court may not look too kindly upon you.
In this case, the Williams bought real estate in Henry County, Tennessee. They took out a mortgage to purchase the property from a local bank. For some reason not discussed in the case, Martin Lewis and Randall Bowden agreed to personally guarantee the mortgage. Well, the Williams defaulted and the bank asked Mr. Lewis and Mr. Bowden to buy out the mortgage – which they (presumably reluctantly) did.
Mr. Lewis and Mr. Bowden were never paid by the Williams either, so they started foreclosure proceedings. While the foreclosure was pending, the Williams thought it was a good idea to quitclaim the property to their son instead of paying on the mortgage. Eventually the property was sold at auction for a deficiency (meaning the property sold for less than the Williams owed). Mr. Lewis and Mr. Bowden sought to collect the deficiency from the Williams and to declare the quitclaim conveyance a fraud.
Not surprisingly, the Williams offered excuse after excuse to the trial court seeking numerous continuances. Eventually they hired a lawyer who appeared and offered similar excuses. But notable to this decision, neither the Williams nor their attorney ever answered the Amended Complaint despite multiple hearings, motions, and orders to do so. Thus, the trial court granted default judgment against them for the full amount owed and declared the conveyance to the son a fraud.
On appeal, the Williams (and seemingly their attorney as well), failed to comply with the appellate rules, failed to transmit the full record to the appellate court, and otherwise failed to give the appellate court a reason they should win. Not surprisingly, the Williams lost again. But, in losing, the court of appeals found their appeal frivolous and ordered them to pay additional damages for their conduct.
The moral of this story, don't act like the Williams if you are sued. It's far better to face the reality of the lawsuit and assess exposure coupled with an appropriate response.
Martin Lewis, et al. v. Michael Williams, et al., No. W2015-00150-COA-R3-CV, (Tenn. Ct. App. Aug. 6, 2015).
Choose Your Words Carefully
Word choice in drafting wills carries significant ramifications. A recent Tennessee Appellate Court's decision turned on whether land that was to "be given to my son…" meant the same thing as "devised to my son…" or "bequeathed to my son…". This interpretation mattered as the verb chosen impacted the timing of the legal conveyance of the land (i.e. immediately at his mother's death or as part of the administration of her estate).
In the case of In re: Estate of Martha B. Schubert, there was a disagreement as to how a will was to be interpreted regarding specific gifts of real property. On one hand, the property would pass to her one son immediately upon his mother's death, while on the other hand, the same property would pass through the mother's estate. The trial court resolved the issue by determining that the property transferred to the son immediately upon his mother's death by statute (T.C.A. 31-2-103) since the will did not permissibly opt out of the automatic transfer.
The Court of Appeals disagreed, finding that the mother's choice of both sentence structure and words showed her intent was that the transfer was for a future act, not an immediate act upon her death. The Court observed, "[t]he specific phrase with regard to the [land], however, contains only the words 'be given,' not the words 'devise' or 'bequeath.' The direction that the property 'be given' indicates that this property is to be administered as part of [mother's] estate and 'given' to [her son] 'as part of his share of [her] estate' by the personal representative of the estate. The words 'be given' without words such as 'devise' or 'bequeath' show that further action is necessary before the property can vest in [her son], especially in light of [the mother's] specific direction that it be a 'part of [her son's] share of my estate.'"
Choosing words in legal drafting, whether in business contracts, employment agreements, releases, or wills, is crucially important. Words and phrases can have numerous meanings and result in unintended consequences. As such, it is important to work closely with your trusted advisors while drafting. Further, always remember to read and then re-read important documents before they are finalized.
In re: Estate of Martha B. Schubert, No. E2014-01754-COA-R3-CV, (Tenn. Ct. App. July 15, 2015).
The Tax Man Cometh
The State of Tennessee imposes numerous taxes, one of which is the sales and use tax. This tax, in part, essentially taxes the sale of tangible personal property "when the tangible personal property is not sold, but is used, consumed, distributed, or stored for use or consumption in this state." T.C.A. 67-6-203. In the case of McCurry Expeditions, LLC, et al. v. Richard Roberts,Tennessee imposed a $100,000 plus tax bill on an out of state limited liability company (LLC), which had its single owner maintaining his personal residence in Tennessee. The LLC previously bought a $900,000 motor home for the purpose of traveling throughout the United States to use it as a "mobile office to research, develop and purchase recreational parks and other real property in states outside the State of Tennessee." The LLC stored the motor home in Tennessee part of the year and all trips originated from its owner's residence in Tennessee.
The LLC challenged the tax bill and penalty in Chancery Court. The LLC and the State of Tennessee both presented their evidence via summary judgment motions. The case turned on the interpretation of the statutory terms "used" in Tennessee or "stored for use" in Tennessee. The LLC, which prevailed at the trial court level, argued, " that it did not “exercise any right or power” over the motor home in Tennessee because the motor home is “used exclusively for out of state purposes, was not maintained in the State of Tennessee for operational purposes and driven any distance on a Tennessee roadway to a state line to begin the out of state use trip."
The Court of Appeals didn't agree and found that the act of driving the motor home in Tennessee constituted use. Thus, the motor home was subject to taxation. The Court of Appeals went on to determine other issues, but ultimately reversed the trial court. Thus, the LLC owed the tax bill.
Taxation is not something to be taken lightly. I often hear from accountants and bookkeepers that the sales and use tax is one of the more vexing state taxes for their clients. Thus, it is crucial that competent accountants and bookkeepers are on each and every company's core team of professionals.
McCurry Expeditions, LLC, et al. v. Richard Roberts, No. M2014-00526-COA-R3-CV, (Tenn. Ct. App. Nov. 14, 2014).
Not All Assignments Are Valid?
In Action Chiropractic Clinic., LLC v. Prentice Hyler, Prentice Hyler, was involved in a car crash, which was apparently not his fault. Following the crash, he sought chiropractic treatment with Action Chiropractic. Before beginning treatment, he executed an assignment prepared by Action Chiropractic, which apparently was intended to ensure that Action Chiropractic got paid for the services it rendered and attempted to impose a payment obligation on the at fault insurance carrier. The assignment stated in part, that the injured party's “medical expense benefits allowable, and otherwise payable” to Hyler by his “Health Insurance, Auto Insurance, or any other party involved,” were assigned to Action Chiropractic. However, the court deemed this assignment ineffective as to the tortfeasor's insurance carrier, finding it didn't do what Action intended it to do.
Mr. Hyler ran up about $5,000 in bills and settled his case with the at-fault party's insurance carrier for about $8,500. In the release he signed – provided by the at-fault insurance carrier – he released the at-fault driver and his carrier, but did not explicitly promise to pay off any outstanding medical bills from the settlement funds. Mr. Hyler cashed the check and no one paid Action Chiropractic.
Action sued both Mr. Hyler and the at-fault insurance carrier for the $5,000 in services rendered. The insurance carrier filed a Motion for Summary Judgment arguing that the assignment executed by Mr. Hyler was not effective as against it. Both the trial court and court of appeals agreed finding that Mr. Hyler did not actually execute a valid assignment of potential third-party insurance proceeds. At best, he assigned insurance proceeds from his own policy of insurance, not the at-fault party's policy. In other words, inartful drafting killed the assignment.
The court of appeals did not address whether with proper drafting an assignment by an injured party of the at-fault party's insurance carrier's payment obligation could be effective. Likewise, the court did not address any policy defenses that may preclude such an assignment. Finally, the court didn't address Mr. Hyler's remaining obligation to Action Chiropractic. At the end of the day, Hyler received the services and didn't pay the bill. It seems that both Mr. Hyler and Action Chiropractic may have been better served had they engaged counsel to prepare the assignment and handle the resolution of the personal injury claim respectively.
Action Chiropractic Clinic, LLC v. Prentice Hyler, No. M2013-01468-SC-R11-CV, (Tenn. Ct. App. July 1, 2015).
Does U.S. Post Office Mean FedEx?
Last week we saw the pitfalls of not following the rules. This week's case seems to suggest that not all rules mean what they say. Further, this week's case reinforces that there are differences between how States look at similar issues. In Arden v. Kozawa, et al., the Tennessee Supreme Court ultimately held that pre-suit notice by FedEx, a commercial carrier, was "substantial compliance" with a Tennessee statute that specifically required service by the United States Postal Service. In other words, close was indeed good enough.
In a medical malpractice case, a Plaintiff must provide the medical professional with pre-suit notice at least sixty days before filing suit. This is mandated by statute and the failure to do so will result in dismissal of the case. Tennessee Code Section 29-26-121(a)(4) states in part that pre-suit notice "shall be demonstrated by filing a certificate of mailing from the United States [P]ostal [S]ervice stamped with the date of mailing…return receipt requested." This statute, at least facially, seems clear, and the Monroe County Circuit Court as well as the Eastern Section of the Court of Appeals thought it meant what it said.
The Tennessee Supreme Court, however, disagreed with both lower courts and found that a Plaintiff who provided pre-suit notice to a medical professional via FedEx substantially complied with the statute and was permitted to proceed forward with his case. Thus, U.S. Post Office apparently also means FedEx.
On a side note, I remember dealing with a similar issue in Ohio regarding service of process for a lawsuit. At that time, the Summit County Clerk of Courts routinely served complaint summons by FedEx, even if the attorney requested service by the U.S. Post Office as mandated by the Ohio Civil Rules. Eventually, one such case was appealed and the Ninth District Court of Appeals found the exact opposite as the Arden Court discussed above. Instead of accepting "substantial compliance", the Ninth District observed that "[a]lthough a defendant's continued insistence on precise technical compliance with the Civil Rules pertaining to service may seem to be a dilatory tactic designed to unnecessarily prolong the litigation…perfection of service of process is the plaintiff's responsibility and a defendant has no duty to assist…in fulfilling this obligation." In other words, if the statute required service by U.S. Mail, then FedEx wouldn't cut it and the case was dismissed. J. Bowers Constr. Co. v. Vinez, 2012-Ohio-1171, ¶ 17 (internal citations and quotations omitted).
The moral of these two cases: read and follow the rule first. But, if you don't, you may be able to argue you "substantially complied" with the rule. However, if this excuse didn't work in school, your safest bet is not counting on it working in the real world either.
Rules and Not Following Them
Not hiring an attorney and not following the Rules of Procedure, can result in losing a case, as one recent pro se litigant found (i.e., she represented herself). In Ford Motor Credit Co., LLC v. McCormick-Jackson, Ms. Jackson co-signed a contract to purchase a vehicle along with her business, Event World, LLC. The seller ultimately assigned the financing contract to Ford Motor Credit Co. Unfortunately, Ms. Jackson had to close her business and fell behind on the car payments. Ford Motor Credit Co., tried unsuccessfully to repossess the car, and ended up suing Ms. Jackson for breach of contract.
Ms. Jackson filed a pro se answer wherein she raised several defenses. Ford filed a Motion for Judgment on the Pleadings (i.e., arguing that Ford wins despite Ms. Jackson's answer). Although Ms. Jackson filed her initial answer, she never filed an opposition to Ford's motion. Eventually, the trial court granted Ford's motion finding in Ford's favor on all its claims. Ms. Jackson appealed – again representing herself.
The Court of Appeals affirmed the trial court, finding that Ms. Jackson's brief failed to comply with the Rules of Appellate Procedure which require that the content of appellate briefs contain such things as a table of authorities (i.e., cited cases, statutes, etc.), an argument preceded by a summary thereof, a statement of issues, and a statement of supported facts. Although the Court of Appeals gave the pro se party the benefit of the doubt, it noted, "the shortcomings in her brief on appeal prevent this Court from reaching the substantive issues that she attempts to raise" and that there was no "cognizable legal argument" upon which the Court could rule. In other words, Ms. Jackson lost her appeal, and her chance to show that the trial court made a mistake in not considering her defenses to Ford's claims, because she didn't follow the rules.
Money is often the driving force behind personal and business decisions. In Ms. Jackson's case, she appears to have attempted to save on legal fees, but ultimately found herself facing a the loss of a car and a judgment of approximately $30,000. The reader is left wondering whether the case could have resulted in a different outcome had Ms. Jackson engaged legal counsel or at least followed the rules.
Ford Motor Credit Co., LLC v. McCormick-Jackson, No. W2014-02485-COA-R3-CV, (Tenn. Ct. App. June 16, 2015).
Is Arson Malicious Mischief?
When a loss occurs, people often turn to their insurance companies to pay the loss. This is true whether the loss is due to a car crash, a slip and fall at one’s house, or theft. However, not all losses are insurable. Insurance companies sometimes do, and legally can, deny payment of claims based on language in the underlying policy or exclusions for certain types of losses. It is crucial to actually read the underlying insurance policy and to engage in a dialogue with one’s insurance agent to make sure the policy in fact covers what you think it does. The recent case of Southern Trust Co. v. Matthew Phillips illustrates why this is important.
In Southern Trust Co., the insured, Matthew Phillips, owned a vacant house. The house caught fire as a result of arson. Mr. Phillips, however, did not set the fire. The insurance company, Southern Trust, denied coverage for the loss due to an exclusion for losses caused by “vandalism and malicious mischief, theft or attempted theft” if the dwelling was vacant. Neither party disputed that the dwelling was vacant and that arson caused the loss. However, the parties did not agree on whether the loss was insurable.
A lawsuit for declaratory judgment was filed, which is a remedy available to both insureds and insurance companies (as well as others disputing the interpretation of a contract or document). In this case, Southern Trust asked a court to declare the rights and obligations under the underlying insurance policy while Mr. Phillips answered and counterclaimed arguing there was insurance coverage.
The arguments presented to both the trial court and court of appeals focused on how the policy was written, where within the policy certain terms were defined (i.e. “vandalism and malicious mischief, theft or attempted theft”), and the types of coverage discussed throughout the policy. In addition, both parties and the court looked to past cases dealing with insurance policy analysis.
The court of appeals issued a fairly lengthy decision describing how it reached its conclusion that fire and arson were in fact covered losses at a vacant dwelling, but that vandalism or malicious mischief were not insurable losses at a vacant dwelling. In other words, Mr. Phillips was entitled to coverage for the arson, but he wouldn’t have been had there been “malicious mischief”.
Understanding insurance policies is very important for individuals and businesses alike. Insurance agents are the gatekeeper to these discussions, but when disputes such as the one Mr. Phillips faced, occur, both insurance companies and individuals may be well served by including legal counsel in such discussions as well.
Southern Trust Co. v. Matthew Phillips, No. E2014-01581-COA-R3-CV, (Tenn. Ct. App. June 10, 2015).
No Duty, No Recovery
Following last week’s theme of “let’s sue”, another recent Tennessee Court of Appeals case reinforces why pre-lawsuit and risk mitigation advice are important. In Boykin v. The George P. Morehead Living Trust, the Plaintiff tripped and fell on a concrete landing in a parking lot while returning to his vehicle. Unfortunately, the Plaintiff got hurt. He sued the parking lot owner for his injuries alleging that the owner, “was negligent in maintaining and failing to correct the dangerous condition of the concrete landing, i.e., the four-inch height difference on the right side of the concrete landing.” In addition to his own testimony, the Plaintiff presented photographs of the parking lot on the day of the fall and the testimony of contractor who stated that the parking lot was not flush with the concrete landing.
The Court, however, found that the Plaintiff’s claim did not survive the parking lot owner’s Motion for Summary Judgment (i.e. to dismiss the case as a matter of law before a Jury hears the case). In its Motion, the Defendant successfully argued that it did not owe a duty to the Plaintiff.
Elaborating a bit further, the Court of Appeals concluded that the Plaintiff did not present sufficient evidence to “demonstrate that the height [differential] between the concrete parking landing and the parking lot was a dangerous or defective condition…[and that] [f]or a jury to conclude that the height differential was dangerous or defective would require speculation, conjecture, and guesswork.” Further, the Court noted that the Plaintiff “admitted that, if he had looked down where he was walking, he would have seen the height difference and avoided the fall.” Ultimately, the Court found the Defendant not liable to the Plaintiff.
Understanding when and under what circumstances a duty arises is important before pursuing litigation. In the absence of a duty, there cannot be a successful negligence claim. Further, landowners should read this case and be reminded that although liability was not found under these facts, a landowner – especially one who invites the public to visit – must maintain the property in a reasonably safe manner, free from both known defects and those defects the landowner should have known about had the landowner exercised reasonable diligence. From a practical standpoint, landowners should also talk with their insurance agents to make sure that there is adequate premises liability coverage in place.
Boykin v. The George P. Morehead Living Trust, No. M2014-00575-COA-R3-CV, (Tenn. Ct. App. May 29, 2015).
Proving Damages
When a client has been wronged, attorneys often hear the line, “let’s sue.” Lawsuits are important and integral to our justice system. Litigation can sometimes be the most appropriate response to a dispute between two parties. However, before filing suit, it is crucial that the client and the attorney have substantial discussions about reasonable expectations and what a victory (or a loss) in a lawsuit can mean to the client’s bottom line. Part of these discussions must involve understanding how the client proves his or her damages and what level of evidence is required. A recent Tennessee appellate case reinforces this concept.
In Borla, the Plaintiff designed and manufactured automobile exhaust systems. Borla hired the Defendant to repair and refurbish several of its pipe bending machines. The facts are more complex than this short summary needs to explore. Essentially, the Plaintiff (manufacturer), claimed that the Defendant (repairer) breached a series of contracts which caused the Plaintiff to lose $1 Million in lost revenue in 2008, which would have equated to $486,166 in lost profits.
In an effort to prove its lost profits of $486,166, the Plaintiff offered the testimony of its chief financial officer. The Defendant, however, attacked this testimony with a hired damages expert who reviewed the Plaintiff’s losses in 2008 ($3.4 Million) and attributed these losses to factors such as “general sharp economic downturn, the initially inefficient operation of the new plant, and unrelated labor issues” – none of which had anything to do with the Defendant’s actions. Further, the Defendant’s expert opined that the damages estimate was “speculative and unfounded.”
At the end of the trial, the court found in the Plaintiff’s favor, but only in the amount of $11,839.98, a substantial difference from the $486,166 the Plaintiff tried to prove. Both the trial court and the court of appeals found that the Plaintiff failed to prove its lost profits with reasonable certainty or with sufficient evidence supporting its claim. The court of appeals noted, “the trial court quite rationally observed that [the Plaintiff] would have been well served to provide documentation of the lost or cancelled sales that it alleged were the cause of its financial losses in 2008.”
In other words, the Plaintiff simply didn’t put on sufficient evidence to support its claimed damages. The reader is left to speculate as to whether substantive discussions regarding expectation of damages at the commencement of the litigation may have led to a different result or at least a different presentation of evidence at trial.
Borla Performance Industries, Inc. v. Universal Tool and Engineering, Inc. No. E2014-00192-COA-R3-CV, 2015 WL 3381293 (Tenn. Ct. App. May 26, 2015).
Arbitration Clause Found Unenforceable
A recent Tennessee Court of Appeals case, Capps v. Adams Wholesale Co., Inc., found that an arbitration agreement contained within a decking manufacturer’s limited warranty was unenforceable as there was no meeting of the minds between the purchaser/homeowner and the manufacturer – despite the fact that “similar arbitration agreements had been upheld” in other cases. Six months after installation of the deck, the decking started to fail. The homeowner sought to replace the material directly from the manufacturer pre-suit; however, the manufacturer refused to do so, stating the complaints were merely cosmetic.
Without the manufacturer’s cooperation, the homeowner filed a lawsuit in the Greene County Chancery Court. In response, the manufacturer moved to dismiss the lawsuit and compel arbitration based on the mandatory arbitration clause in the limited warranty. The decking was sold without any documentation about the warranty or arbitration clause other than a small written notice with each decking bundle stating that the product was subject to a limited lifetime warranty and that the customer could obtain a copy by either calling the provided 1-800-number or visiting the manufacturer’s website. The manufacturer never gave the homeowner a copy of the limited warranty until after the homeowner requested replacement of the defective product.
The trial court denied the manufacturer’s motion to dismiss and the Court of Appeals affirmed. The Court reasoned that although the homeowner was not required to sign off on the arbitration clause or even to read it for it to be enforceable, the homeowner was never given notice of the arbitration clause prior to taking delivery of the decking material and thus never had a chance to refuse acceptance of the product. As such, the Court found the arbitration clause unenforceable due to the lack of mutual assent of the terms. The Court noted that its holding was limited to the specific fact pattern before it.
Warranties, both express and implied, are often the subject of litigation. In a situation like the one reviewed, the corporate defendant attempted to avoid a trial in a county court and instead force the homeowner into a private arbitration forum. Arbitration, however, may not be the most desirable forum, whether from a consumer’s or a manufacturer’s viewpoint. In deciding whether to incorporate a mandatory arbitration clause in a contract – whether for services or manufacturing – significant thought must be given to the risks and benefits of such a clause. Additionally, before a lawsuit is filed, it is important to determine whether an arbitration clause may apply as they often exist in both consumer and commercial contracts and are routinely enforced by courts.
Capps v. Adams Wholesale Co., No. E201401882COAR3CV, 2015 WL 2445970, at *3 (Tenn. Ct. App. May 21, 2015).
Litigating Undue Influence Claims in an Estate
When a loved one dies, the family and friends left behind sometimes find themselves in a dispute over the decedent’s property or money. In some cases, the remaining heirs find that the property they thought the decedent owned was already given away or transferred before the decedent died. In such cases, the surviving heirs may bring claims where they assert there was “undue influence” exerted upon the decedent before he passed away in an effort to invalidate the transfer.
In a recent Tennessee Court of Appeals case, In re Estate of Harold Curtis Morrison, the decedent’s surviving brother, and only heir, faced a situation where the decedent transferred all of his real estate and personal property to the decedent’s friend/on-property-live-in-resident/caregiver. The real estate was transferred via quit claim deeds approximately ten months before the decedent died.
The case was tried to a Judge, not a jury. The Judge heard testimony from the decedent’s attorney, the decedent’s doctor, longtime friends, the person who received the property, and the surviving brother. The Court concluded that the facts established that the decedent was “stubborn, headstrong, and opinionated” and that there was no proof that the property recipient exercised dominion or control over the decedent. The Court went on to find that no fiduciary relationship existed between the decedent and the property recipient. In other words, the lifetime gifts were done as a result of the decedent’s own free will and independent judgment and not the result of a more dominant party’s undue influence. Thus, the Court denied the surviving brother’s challenge to the lifetime real estate gifts and allowed them to remain as transferred.
Litigation over estate claims are often taxing financially and emotionally and can last for years. In this case, the decedent passed away in 2012, yet the litigation continued on for the next three years. Working with an attorney who understands these tolls and the process is very important, especially at the outset of the matter.
The Value of Legal Counsel
A recent case before the Tennessee Court of Appeals reinforces why it's crucial to obtain qualified counsel when involved in litigation, whether as a plaintiff or a defendant. In Russell Hippe, Jr. v. Miller & Martin, PLLC, Mr. Hippe, a licensed attorney and former partner at Miller & Martin, sued his former firm for breach of contract and an entitlement to retirement benefits. Unfortunately for Mr. Hippe, he chose to represent himself and did not hire an attorney to assist him. Further compounding the problem, Mr. Hippe originally sued his former firm in 2009; however, that suit was dismissed by the Court as it was filed beyond the statute of limitations. Mr. Hippe, undeterred, sued his former firm again in 2014 for a breach of the same contract, five years after his first suit.
The second time around was as unsuccessful as the first. The trial court again dismissed the lawsuit, finding that it was barred by the doctrine of res judicata - a judicial rule which essentially prevents a party a second bite of the same apple after a final judgment is rendered. Mr. Hippe appealed, only to find the Court of Appeals affirm the trial court, but, more problematic for him, also found the appeal frivolous. The Court of Appeals then ordered Mr. Hippe to pay his former firm's legal fees, breaking from the traditional "American Rule" that each party pays its own legal fees. The Court of Appeals observed, "This appeal is devoid of merit and had no reasonable chance of success."
One can read this case and wonder what the outcome would have been had Mr. Hippe engaged outside, unbiased counsel to represent him.