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In many Tennessee cases involving written contracts, the contracts will contain provisions whereby the parties agreed that the substantive law of a state other than Tennessee would apply in any litigation between them. (In the absence of such a provision, Tennessee follows the rule of lex loci contractus whereby it is presumed that the law of the state where the contract was signed applies).  Since there is substantial similarity between the laws of the States, especially the common law of breach of contract, which State’s law applies may not make a big difference in most cases. It can, however, make a big difference in some cases.

Where the parties have agreed that the law of a particular state will govern any litigation, a Tennessee court will enforce that agreement unless the jurisdiction whose law is chosen does not bear a material connection to the transaction or unless the law of the jurisdiction chosen is contrary to the fundamental policies of Tennessee. This blog focuses on the issue of when a Tennessee court might not enforce a choice of law provision because the law of the state chosen by the parties does not bear a material connection to the transaction.

There is scant published Tennessee case law that addresses this issue. In a 1931 opinion, Manufacturers Finance Co. v. B. L. Johnson & Co., 15 Tenn. App. 236, the Court of Appeals of Tennessee refused to apply the law of Delaware, which the parties had agreed would govern any dispute between them. In that case, the plaintiff was a finance company organized under Delaware law, but which had a principal place of business in Maryland.  The defendant was a Tennessee corporation with a principal place of business in Knoxville.  No part of the disputed transaction touched Delaware.  The court held that it would not apply Delaware law under those circumstances.

In a 2012 breach of contract case, the Tennessee Court of Appeals enforced a contractual provision whereby the law of Kentucky was to govern any litigation between the parties. In that case, the prospective buyer claimed that it was entitled to a refund of an earnest money deposit it had made to purchase land located in Kentucky from the seller. In that case, the buyer was from Tennessee, but the sellers were from Kentucky and the land being sold was in Kentucky.  Under those facts, the court held that there was a material connection between Kentucky and the transaction being litigated.

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In a recent Tennessee real estate case involving the sale of a lot, the plaintiffs/buyers alleged that the defendants/sellers made misrepresentations that the lot would have the ability to connect to the sewer. Not only did the court order that the real estate contract be set aside and that the buyers be refunded the full purchase price, but also, it awarded the buyers their attorney’s fees under the Tennessee Consumer Protection Act (“TCPA”).

Here are the key facts:

  • The buyers (a husband and wife) were interested in buying a lot, for investment purposes, in a development called the Preserve at English Mountain
  • An agent for the real estate agency which had the exclusive listing for the Preserve showed the husband buyer the lot in early June of 2006
  • Husband buyer testified that the agent who showed him the lot represented that the lot would be able to connect to the sewer
  • The agent disputed that she had told the husband buyer this
  • It was undisputed that, when husband buyer visited the lot, there was a sewer manhole cover adjacent to the property
  • It was also undisputed that, at the time the husband buyer viewed the lot, the MLS listing clearly stated that the lot had sewer and that the website set up for the Preserve stated that each lot had city sewer
  • On June 8, 2006, unbeknownst to the buyers until three years later, the county health department had issued a certification for the lot, but only for a septic system serving a maximum of two bedrooms
  • On June 16, 2006, the buyers signed a contract for $124,000 to buy the lot
  • The sale was closed on June 30, 2006
  • At the closing, the buyers signed a disclosure statement indicating that the lot did not have public sewer
  • Three years after closing, the buyers discovered that any house to be built on the property was limited to two bedrooms

The buyers filed a misrepresentation lawsuit. They alleged that they would never have purchased the lot had they known that any house to be built on it had to be limited to two bedrooms. The buyers sought to have the real estate contract rescinded and for their purchase money to be returned.

The trial court held for the buyers. It also held that the buyers were entitled to attorney’s fees under the TCPA because the agent who signed as agent for the buyers failed to disclose that he had an ownership interest in the LLC which sold the lot to buyers.

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In 1977, the Tennessee Consumer Protection Act was enacted. In 2011, the legislature of Tennessee modified it significantly. Here are some basic points to remember with respect to potential Tennessee Consumer Protection Act lawsuits:

  1. Since 2011, a party cannot bring a private cause of action for acts and practices which fall under the catch-all provision of T.C.A. §47-18-104(27).  The TCPA contains a laundry list of fairly specific acts or practices which are per se unfair and deceptive.  It also contains a catch-all subdivision which declares that “any other act or practice which is deceptive” is actionable.  In many cases, in my experience, it is difficult to shoe horn the conduct at issue into one of the defined unfair acts and practices.  In such cases, the catch-all provision may be the only avenue for a client to achieve the relief provided by the TCPA.  In 2011, however, the TCPA was revised to prohibit a private cause of action under the catch-all provision.  There are still other provisions for which a private cause of action is available, which are somewhat broad and which may fit a client’s case, particularly, T.C.A. §47-18-104(5)(7) and (19).
  2. The statute of limitations for lawsuits under the Tennessee Consumer Protection Act is one year. The one year period begins running from “a person’s discovery of the unlawful act or practice.”  Beware that a defendant can argue that the statute began running when a person had constructive knowledge of the act or practice. A plaintiff has constructive knowledge when the plaintiff is aware of facts which would put a reasonable person on notice that the plaintiff has suffered an injury because of the wrongful conduct and knows the identity of the entity or person who engaged in that conduct.  When a plaintiff had constructive knowledge is a question of fact to be decided by the jury, if a jury has been demanded.  There is an absolute outer limit, or statute of repose, for the filing of TCPA claims of 5 years after the date of the transaction which is the basis of the lawsuit.
  3. To recover under the Tennessee Consumer Act, a plaintiff has to show more than just an unfair or deceptive act or practice: A plaintiff must show that he or she suffered an ascertainable loss as the result of the act or practice. In other words, consistent with the common law tort claims for fraud and negligent misrepresentation, a plaintiff in a consumer protection lawsuit must show that the conduct at issue caused him or her damages.  The question of whether or not there has been an ascertainable loss, and the amount thereof, is a question of fact for the jury where a jury has been demanded.
  4. The Tennessee Consumer Protection Act can no longer be used as a cause of action against an insurance company.  In 2011, T.C.A. §56-8-113 became effective and it prohibits the use of the TCPA against insurance companies.
  5. A plaintiff cannot recover both treble damages under the TCPA and punitive damages for a common law claim which relates to the same conduct. Plaintiffs typically combine a TCPA cause of action with a common law cause of action like fraud.  Punitive damages are not available under the TCPA, but a court may treble the amount of any damages awarded by the jury under the TCPA.  If a plaintiff recovers punitive damages under a common law claim and treble damages under the TCPA, the plaintiff must then elect which award to take (which is a no brainer decision).
  6. The TCPA cannot be used against someone who has been engaged in the isolated sale of real estate. If you buy a home or other real estate from someone who you believe made a misrepresentation or who failed to disclose a material defect, and that person is not in the real estate business and does not frequently sell real estate, you may have common law causes of action and other statutory causes of action against that person, but it is unlikely you have a viable TCPA claim against them.  (The same cannot be said for real estate agents and agencies.)
  7. The TCPA applies to acts or practices in connection with the marketing or sale of securities.
  8. Under the TCPA, a court may award a successful plaintiff attorney’s fees.  

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In a recent Tennessee partition case, the Court of Appeals of Tennessee reversed the trial court’s finding that the plaintiff did not have an interest in the farm which he sought to partition by sale. The trial court held that, even though the plaintiff was listed as a joint tenant on the deed to the property, he had no interest based on the theories of title by prescription, and unjust enrichment and based on Tenn. Code Annotated §28-2-110 (the statute which prevents someone from bringing an action to assert title to property if that person has not paid property taxes for more than 20 years).

Here are the key facts:

  • Defendants, the parents of the plaintiff (“Parents”), owned several separate tracts of farmland as joint tenants in common (also sometimes referred to as “co-tenants”) with their sons — Plaintiff and his brother
  • Plaintiff sought to partition several tracts of the farmland
  • The tract known as the McLemoresville Farm (the “Farm”) was the subject of the appeal
  • In 1979, Parents had executed a deed transferring to Plaintiff and his brother a one-fourth interest each in the Farm
  • The purchase of the Farm had been financed, and Parents, Plaintiff and his brother had all signed the deed of trust which secured the loan
  • Only parents signed the note for the Farm, and they paid all of the payments
  • In addition to the loan payments, Parents paid all property taxes and other expenses related to the Farm for nearly 30 years
  • All parties agreed that Parents, Plaintiff and Plaintiff’s brother farmed harmoniously on the Farm, and on other jointly owned tracts, for years and until Plaintiff filed the partition lawsuit

The trial court held that Plaintiff could not partition the Farm because only parents had an ownership interest in the Farm for three reasons: (1) Tenn. Code Ann. §28-2-110 barred Plaintiff from asserting any ownership in the Farm; (2) Parents had obtained title by prescription to all interest in the Farm; and (3) Parents were entitled to exclusive ownership of the Farm based on the theory of unjust enrichment. The court of appeals reversed the trial court on all three holdings.

Tenn. Code Ann. §28-2-110 provides that no one may bring an action to claim title to land if that person has failed to pay property taxes for more than 20 years. The court of appeals held that the statute did not apply to Plaintiff because the Supreme Court of Tennessee has held that the statute does not bar a lawsuit by one joint tenant against another unless the plaintiff in such a lawsuit was ousted by the other joint tenant.  Because Plaintiff and Parents had cooperatively farmed the Farm for many years, there was no ouster and, therefore, the statute did not apply.

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The Tennessee Statute of Frauds requires several types of contracts to be memorialized in a writing (or combination of writings) and signed in order to be enforceable. The three most important types of contracts covered by the Statute of Frauds, at least from a commercial standpoint, are contracts for the sale of land and leases longer than one year; agreements to pay the debts of another; and contracts that cannot possibly be performed within one year.

If a contract is covered by the Statute, does a modification of that contract also have to meet the requirements of the Statute? There is Tennessee case law to support that argument.  The case of Davidson v. Wilson is such a case, and one that demonstrates the ability of the Statute of Frauds to cause what many would describe as an inequitable result in a breach of contract case.

Here are the key facts of that case:

  • Buyer and Seller entered into a written contract providing that Seller would sell a specific 50 acre tract to Buyers for $124,750
  • The closing date for the sale in the written contract was December 5, 2005
  • On the closing date of December 5, the Seller sent, by U.S. mail, a warranty deed to the Buyers
  • The warranty deed recited that the tract was 50 acres “more or less”
  • The warranty deed also provided that the legal description of the tract was provided “without the benefit of a survey”
  • Buyers were concerned, as they should have been, about the deed
  • According to Buyers, after they received the deed, they had numerous conversations with the Seller which resulted in an oral modification of the terms of the written contract
  • According to Buyers, the oral modification was an agreement to extend the closing date until the Buyers had obtained a survey
  • The Seller denied that any such agreement modifying the written contract had been reached
  • The facts of the case strongly compelled the conclusion reached by the trial court: That the Seller’s version of events was not credible and that he had taken the position that the Buyers had breached by not closing on time only after he was able to obtain a contract for a significantly higher price for the tract from a third party

The Court of Appeals of Tennessee reversed the trial court. It did not challenge the trial court’s findings about the respective testimony of the litigants. It held that, since the alleged oral agreement changed the “essential terms” of the contract, it had to be in a writing which complied with the Statute of Frauds.

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In Tennessee will contest cases where wills are challenged on the basis of undue influence, outcomes are often difficult to predict and depend on the unique facts of each case. A recent Tennessee case proves that point. As the Court of Appeals of Tennessee noted when it affirmed the decision of the jury that there was no undue influence, there was evidence in the case to support that the will was the result of undue influence, but there was also evidence to support that it was not.

The proof at trial showed:

  • The maker of the will, a Elizabeth Jones (“Decedent”), was about 93 years old in 2010 when she changed a will she had made in 1985
  • In her 1985 will, the Decedent had left her assets, except for certain real property, to her nieces (who were the parties challenging the 2010 will)
  • In the 1985 will, the Decedent had left the real estate in question to her stepson
  • In her 2010 will, the Decedent left all of her assets to her stepson and disinherited her nieces
  • Stepson began living with the Decedent when he was 5 years old, and then moved next door to her with his wife in 1985
  • Decedent suffered a stroke in 1985, but her doctor testified that she was mentally competent and had no mental deficits from the stroke at the time Decedent executed her 2010 will
  • Stepson admitted that he assisted Decedent by cashing her checks, and taking her to doctors appointments
  • Stepson had a gate installed at Decedent’s house which he claimed he did to keep strangers from coming to her home when she was alone
  • A family friend testified that the Decedent was “always sharp-minded”
  • Another friend of Decedent testified that Decedent’s home smelled of urine and caused her to call the Tennessee Department of Human Services (“Department”)
  • An employee of the Department visited with Decedent and concluded that she was not being neglected
  • Another friend of the Decedent testified that Decedent had expressed to him that she wanted to make a new will and that, thereafter, he helped her obtain the will she executed in 2010 from Legal Zoom
  • The friend who helped Decedent with the 2010 will testified that, although she was frail, Decedent was still competent

The jury determined that there was no undue influence and upheld the validity of the 2010 will. The nieces appealed. The court of appeals affirmed the jury verdict. On the facts of this case, and considering the deference given to jury verdicts on appeal, that outcome was a foregone conclusion, in my opinion.

Setting aside a jury verdict in this will contest case would have required the court of appeals to conclude that there was no material evidence to support the jury’s verdict.

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In a recent breach of contract case involving a former employee who was promised 2.5% of the stock of the company which had employed him for twenty-six years, the Court of Appeals of Tennessee made some significant new law on the six year statute of limitations applicable to breach of contract actions.

The case is Powers v. A & W Supply, Inc., and here are the important facts:

  • In 1988, Mr. Powers became employed by A & W
  • In 1993, Mr. Powers and A & W signed an agreement whereby A & W promised Mr. Powers 2.5 % of the total number of issued and outstanding shares of A & W if he remained employed and in good standing with A & W until December 31, 2001
  • The agreement provided that A & W would execute and deliver the promised shares to Mr. Powers when they vested
  • Mr. Powers was still employed and in good standing with A & W as of December 31, 2001
  • No shares were issued to Mr. Powers on December 31, 2001, or ever
  • Mr. Powers was terminated from employment in October 2014
  • After being terminated, Mr. Powers asked about his shares and was told by A & W that it had never made him a shareholder and that the statute of limitations had expired on any breach of contract claim he had against A & W

The breach of contract statute of limitations which was applicable to Mr. Power’s claim was the six year statute. Under Tennessee law, the six year period begins to run when a party’s cause of action accrues.  A & W’s position was that Mr. Powers cause of action accrued on December 31, 2001, the date when his shares vested and on which he was supposed to receive the shares.  If A & W’s position was correct, then the six year statute did bar Mr. Power’s breach of contract claim.

The trial court held that Mr. Power’s breach of contract claim was not barred and the Court of Appeals affirmed. The Court of Appeals reasoned that a principle of equity was applicable:  “Equity regards that as done which in good conscience ought to be done.”  A corollary of this equitable maxim is: “No one can take advantage of his own wrong.”  The Court of Appeals, to reach the result which it reached, also recognized that Tennessee law does not require someone to have actual shares in order to have ownership in a corporation, and that a transfer of stock does not have to be memorialized in writing.

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For a former employee or contractor who has signed a non-competition agreement, the threshold question is quite often this: Is the non-compete agreement enforceable or not?

How Tennessee courts treat non-compete agreements varies by court and by the unique facts of each case. In my experience, there is quite a bit of subjectivity involved when a court undertakes to determine if a non-competition agreement is enforceable and, if so, to what extent.

Despite the reality that each non-compete case turns on its own facts and on the particular court making the ruling, there are some guidelines that any court must apply when ruling on a non-compete agreement. For employers and employees who want to understand those guidelines, a very good case to read is Vantage Technology, LLC v. Cross, a 1999 decision of the Court of Appeals of Tennessee.

Here is a summary of the facts of the case:

  • Cross (“Employee”) went to work for Vantage (“Employer”) in 1994
  • Employer was in the business of providing equipment and support to doctors who performed cataract surgeries in rural hospitals
  • Employee’s title was “technician” and his duties included transporting materials and instruments to doctors performing cataract surgeries and assisting them during surgery
  • An important part of Employee’s job was building relationships with doctors and learning about their surgical preferences
  • Employer also provided machines to doctors who performed cataract surgeries in rural hospitals, which machines were crucial for the surgeries
  • Employer provided Employee about 241 hours of training during his first month of employment
  • By the time Employee resigned, about two years after he started, he had built a strong relationship with a doctor who performed a substantial number of surgeries with the help of Employer
  • Employee resigned and immediately formed a business relationship with that physician whereby they started a company which competed with Employer
  • Employer filed suit against the Employee alleging that he had breached the non-compete agreement

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Spouses, children and parents, or other persons, who may be heirs of each other, sometimes die because of common accidents or disasters. As well, even in the absence of a common disaster or accident, sometimes spouses die within a short time of each other.  When those tragic events or nearly contemporaneous deaths occur, the Tennessee Uniform Simultaneous Death Act may be applicable.

Under the Act, the operative time period is 120 hours, or 5 days. If a spouse dies within 120 hours of his or her wife or husband, then, that spouse is deemed to have predeceased the other spouse for purposes of receiving homestead allowance, year’s support allowance, exempt property, and elective share.  The presumption also applies, importantly, for purposes of determining who the heirs are when the spouse who died first died without a will (when someone dies without a will, his or her property is distributed according to the laws of intestate succession).

Here is an example of how the Act would apply in a situation where the spouse who died first died without a will: Husband and Wife were married late in life and each has a child by another marriage who is not the child of the other spouse. Wife has an investment account worth $300,000 which she, alone, owns. As well, Wife has made no payable on death or survivorship designation on the account. Neither Husband nor Wife has a will.

Husband and Wife are in an accident. Wife dies at the scene of the accident and Husband dies two days later.  If not for the Act, Husband’s child would inherit one-half of Wife’s account, or $150,000. This is so because, under Tennessee intestate succession law, Husband would be entitled to one-half of the $300,000, and Wife’s child would be entitled to the other one-half.

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In condemnation cases, it is understandable that a landowner would want a jury to be able to consider the value of the landowner’s property based on its highest and best use. For example, if the landowner’s property is uniquely situated such that a party wanting to construct a hotel on it would likely pay significantly more for it than any other buyer, the landowner would probably do better at trial if an expert appraiser was able to base his or her valuation on the amount that a buyer wanting to construct a hotel on it would pay for the property.  While such an approach to valuation would certainly favor a landowner in many cases, under Tennessee condemnation law, such an approach is not allowed. That has long been the rule in Tennessee eminent domain cases.

To see how this rule can play out to the detriment of a landowner, consider the recent case of Ocoee Utility District of Bradley and Polk Counties v. The Wildwood Company, Inc. (Sept. 2016).  Here are the key facts:

  • The Landowners owned land with springs which could provide a water source for the condemning authority, the Utility District
  • The Utility District’s appraiser had appraised the property being taken at $21,500
  • The Utility District offered to buy the property for $35,000
  • The Landowners retained, as an expert witness, a commercial appraiser who valued the property at $417,000
  • To arrive at the $417,000 figure, the appraiser testified, in his deposition, that the highest and best use of the property was for the sale of water and that his valuation involved an analysis of the income which could be generated from the sale of water from the property
  • The expert appraiser testified that he based his valuation of fair market value on the rental income that the Landowners could generate by leasing the water rights and acknowledged that his “rental rate is based on water.”
  • The appraiser also testified that his value was based on what rate the Utility District was willing to pay for the water rights
  • The jury returned a verdict for the Landowners in the amount of $417,000

The Court of Appeals of Tennessee set aside the jury verdict. It held that the testimony of the Landowners’ appraiser should have been excluded at trial.

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