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In a recent case involving a challenge to an amendment to a revocable trust, the Court of Appeals of Tennessee upheld the trial court’s grant of a directed verdict to the defendants and against the two sons who had challenged the amendment.  The case is significant because it demonstrates that basing a challenge to a will or trust exclusively on the argument that the deceased was of advanced age, and, therefore, must have had reduced mental capacity and increased dependence on others, will not carry the day (as it should not).  Although the case was not technically a will contest, the principles and law applied were the same as those applied in will contest cases.

Based on the facts set forth in the opinion in the case, the sons who challenged the trust amendment on the grounds of undue influence and lack of mental capacity must have pretty much expected to prove both just by proving that their father was older and that one of their sisters lived with him. They had no medical proof that would support either that their father was lacking mental capacity, or that he was so physically infirm that he was susceptible to his live-in daughter establishing a dominant relationship over him.

Summary judgments and directed verdicts, both of which were granted by the trial court in this case, are pretty rare in will contest cases where undue influence or lack of testamentary capacity are at issue. That they are makes this case worth analyzing and understanding.

Here are the key facts of the case:

  • Father had six children comprised of three sons and three daughters
  • The opinion, remarkably, does not provide Father’s age, though it is clear he was elderly
  • In 2008, Father executed a will and revocable trust
  • Father appointed one of his daughters as his personal representative
  • In 2010, Father executed an amendment to the trust
  • Although the opinion does not state how Father’s assets were to be distributed under the 2010 amendment, it is clear from the opinion that, under that amendment, two sons were bequeathed less than what was bequeathed to some, or all, of the other siblings
  • After Father died in 2011, the above two sons (the “Plaintiff Sons”) filed a lawsuit challenging the 2010 amendment on the grounds that Father was unduly influenced to make the amendment and lacked the testamentary capacity to understand the consequences of the amendment

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In cases involving non-competition agreements, the battle is almost always fought, and won or lost, at the preliminary injunction stage.  Once the court rules on whether the former employer (or other party which has obtained a non-compete agreement) is, or is not, entitled to a preliminary injunction, in my experience, a trial rarely occurs. Thus, the importance of prevailing, or not, at the preliminary injunction stage cannot be overstated.

Broadly speaking, one of the main types of relief typically sought in a motion for a preliminary injunction arising out of an employment agreement is that the court enter an order prohibiting the former employee from competing with his or her former employer. The exact terms of an order obtained at the preliminary injunction stage will vary according to the terms of the non-compete agreement at issue and the court’s modification of those terms, if it modifies them (which it is empowered to do).

In deciding whether to grant a motion for a preliminary injunction, a court will consider the following factors:  (1) Whether the former employer is likely to prevail on the merits at trial; (2) whether, without an injunction, the former employer will suffer irreparable harm; (3) whether the preliminary injunction will cause substantial harm to the former employee or others; and (4) the public interest. In my experience, the most important factor is (1), followed by (3).

Our firm has handled many of these cases over the years and factors (2) and (4) have mostly been inconsequential. With respect to factor (2), irreparable harm means harm which has occurred, but for which a court cannot calculate damages, and thus, for which it cannot award damages. There is a large body of case law that supports the conclusion that a former employer will suffer irreparable harm from unfair competition by a former employee.  This is so because it is almost always impossible for a former employer to prove, with any degree of specificity, the damages it will incur from lost business and lost opportunities resulting from the former employee, even when they will most assuredly occur without an injunction.  Thus, in our experience, once a court determines that the former employer is likely to prevail on the merits, it is infrequent that a preliminary injunction is not granted on the basis that the former employer did not prove irreparable harm.

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Most construction contracts, including those based on the American Institute of Architects (“AIA”) forms, contain terms requiring that any change orders be in writing and signed. Tennessee courts have, with some frequency, not enforced those provisions. Usually, the legal theory used by those courts is waiver.

Two Tennessee construction cases involving construction contracts with change order requirements, and in which the courts reached different outcomes, provide a good view of the legal landscape in which a contractor which has not strictly complied with a written change order provision will find itself.  The first case is Moore Construction Company, Inc. v. Clarksville Department of Electricity (Tenn. Ct. App. 1985).  Here are the key facts in that case:

  • The project was for the construction of a new office building
  • The owner contracted with two prime contractors, Moore and Kennon
  • Moore was to perform the site work and other exterior work
  • Kennon was to construct the building
  • All parties understood that Moore would be able to complete only part of its work before Kennon finished constructing the building, and that, it would not be able to complete its work until Kennon had finished constructing the building
  • Moore completed its initial work timely
  • Once Kennon started, it fell behind schedule due to its subcontractors
  • In September of 1981, Moore began to complain that it could not complete its work due to the delays by Kennon
  • A meeting was held among the owner, Moore and Kennon at which meeting it was agreed that the parties would have to adjust their schedules
  • No written change order was prepared after this meeting, but the owner prepared a job site memo stating that the parties had agreed to extend the time for Moore to complete its work
  • When Moore went back to work, the owner directed it to perform extra work and it did
  • The extra work was done without a change order and the owner ultimately paid Moore for that extra work without protest
  • Moore requested that the owner pay it an additional $22,000 in delay damages above the contract price which resulted to Moore from the delays caused by Kennon

The owner refused to pay Moore the delay damages. It argued that it had no obligation to do so because it had not signed a change order for an increased contract price. The construction contract in the Moore case incorporated the AIA General Conditions which provided: “If the Contractor wishes to make a claim for an increase in the Contract Sum, he shall give the Architect written notice thereof within twenty days after the occurrence of the event giving rise to such claim.”  Article 12.1 of the General Conditions also required that the contractor obtain a written change order to enlarge the scope of work.

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In a recent breach of contract case, In re Estate of John E. Mayfield, the Court of Appeals of Tennessee reversed the decision of the trial court which had held that a contract for the sale of a storage facility was unenforceable because there was no mutual assent of the parties.  This opinion is a very helpful reminder to practitioners of how fundamental contract law principles can determine the outcome of a substantial transaction, and of how easy it can be to lose sight of the importance of paying attention to basic contract law principles, as the trial court did.

Here are the key facts:

  • Clayton worked for Mr. Mayfield as a housekeeper and manager of his rental storage facility
  • At some point, she heard Mr. Mayfield say that someone had offered him $1 million for the facility
  • Realizing that Mr. Mayfield might be interested in selling the facility, Ms. Clayton contacted Mr. Saltsman, whom she thought might be interested in purchasing it
  • Saltsman was interested in the facility and wanted to see it
  • The day that Mr. Saltsman was scheduled to visit the facility, Mr. Mayfield could not make it because he had been moved to Alive Hospice, so Ms. Clayton met Mr. Saltsman at the facility
  • The day of the visit to the storage facility, Mr. Saltsman told Ms. Clayton that he would like to buy the property and that he would start with an offer “around” $900,000
  • Clayton did not make an offer of $900,000 to Mr. Mayfield on behalf of Mr. Salstman, but instead, she made an offer on his behalf of $950,000
  • Clayton explained that she made the offer of $950,000, instead of $900,000, because she knew that Mr. Mayfield already, as he had told her, had received an offer of $1 million. So, she decided to make an offer in the middle.
  • When Ms. Clayton informed Mr. Mayfield that Mr. Saltsman would buy the property for $950,000, he said “I’ll take it.”
  • Saltsman testified that, when Ms. Clayton came back to him and told him that Mr. Mayfield was willing to sell the property for $950,000, he said: “Sounds good to me. Send me a contract.”
  • Mayfield asked Ms. Clayton to go to his lawyer’s office to have a contract prepared
  • Clayton testified that, before those instructions, Mr. Mayfield had accepted Mr. Saltsman’s offer
  • Once Ms. Mayfield had the written contract from Mr. Mayfield’s lawyer, she went to Alive Hospice where Mr. Mayfield was
  • Mayfield signed the contract
  • Since Mr. Saltsman was traveling, he told Ms. Clayton to take the signed contract to his house and told her that he would sign it when he returned home
  • After Ms. Clayton dropped off the signed contract at Mr. Saltsman’s house, Mr. Mayfield’s lawyer’s assistant called and told her that it was the “wrong” contract, was “invalid,” and would need to be re-written
  • Clayton informed Mr. Saltsman of the conversation she had had with Mr. Mayfield’s lawyer’s office. Mr. Saltsman said “okay” and that the name of the buyer would need to be changed to another entity than was on the current contract
  • Before a new contract could be drawn up, Mr. Mayfield died
  • Saltsman did not return to town and see the contract Mr. Mayfield had signed until after Mr. Mayfield had died

Mr. Saltsman filed a claim with the estate of Mr. Mayfield. To support the claim, he attached the contract signed by Mr. Mayfield, but it was not signed by Mr. Saltsman. Several months after filing his initial claim, Mr. Saltsman signed the contract and filed an amended claim with a copy of the contract bearing his signature and Mr. Mayfield’s.

Mr. Mayfield’s estate took the position that no enforceable contract existed. The trial court held that no enforceable contract existed because there was no mutual assent.  The trial court held that there was no mutual assent because, first, Ms. Clayton had testified that someone from Mr. Mayfield’s lawyer’s office had told her the contract was not valid and would have to be redrafted. Second, the trial court found that there was no mutual assent because Mr. Saltsman had not signed the contract until seven months after Mr. Mayfield had signed it.

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The economic loss doctrine prohibits a party, which is seeking only damages for economic loss, from recovering those damages pursuant to a tort cause of action.  Under the doctrine, economic losses are the damages suffered by a party, other than damages for personal injury or property damage to “other” property.  Here is an example of the application of the economic loss doctrine:

  • Plaintiff bought 1,000 widgets from Defendant
  • The widgets all malfunctioned and were virtually useless because Defendant defectively manufactured them
  • Plaintiff’s losses include the cost of the widgets and profits it lost from the anticipated resell of the widgets
  • Under the economic loss doctrine, the Plaintiff can recover under breach of contract and breach of warranty causes of action, but cannot recover under tort causes of action for misrepresentation or products liability

If, in the above example, one of the widgets, because of a defect, had caused personal injury to a warehouse worker of Plaintiff or had burned down Plaintiff’s warehouse, Plaintiff could recover, under tort theories, for the damages caused by that widget because they were for personal injuries or to “other property” (property other than the widgets).

The purpose of the doctrine is to preserve the boundaries between tort and contract law, or, as it has been put: To keep contract law from drowning in a sea of tort law.  Another principle underpinning the doctrine was stated as follows by a Tennessee court: “Courts should be particularly skeptical of business plaintiffs who – having negotiated an elaborate contract or having signed a form when they wish they had not – claim to have a right in tort.”

The economic loss doctrine, as it exists in Tennessee, took a new twist based on a recent decision of the Court of Appeals of Tennessee in the case of Milan Supply Chain Solutions, Inc. v. Navistar, IncIn that case, the trial court held that Tennessee’s economic loss doctrine did not apply to fraud claims.  The court of appeals, at least on the facts before it, disagreed and reversed.  The case is a very significant case dealing with a very significant defense that is sure to become even more litigated in commercial disputes in Tennessee courts in the coming years.

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The United States District Court for the Northern District of Tennessee decided against a former employee in a breach of contract case for failure to pay sales commissions on the grounds that he was required to do more than just connect the new customer with his employer (“Employer”). It should be noted, at the outset, that this case turned largely on the specific language of the former employee’s employment contract, and should not be taken as establishing a general rule that independent sales representatives and employees cannot collect commissions for just initiating the contact with the new customer. In some cases, they can.

Even though the case, Jackson v. Maine Pointe, LLC, 2018 WL 1371488, was decided largely on its unique facts, valuable lessons for commissioned sales representatives and employees can be derived from an understanding of what happened in the case.  Perhaps the most important lesson is how important it is for employees and representatives to pay attention to the terms of their written commission agreements and, where possible, to bargain for terms that leave no doubt about when they are entitled to be paid commissions.

Here are the key facts of the case:

  • Jackson was an at-will employee of a company which specialized in operations consulting
  • Jackson’s position was Vice-President of Food and Beverage
  • Jackson’s offer letter provided that Employer would pay him commissions of 7% for “sales of $0 to $6,000,000” and 8% for “sales of $6,000,001 and above” for “New Name Client Work Developed by you”
  • The specific language about commissions, which became critical, provided: “You will be eligible to earn sales commissions on collected engagement revenue (not analysis, nor reimbursed T&E Revenue … All commissions are paid monthly as project revenue is collected . . . “
  • While employed, Jackson identified Colony Brands as a potential customer for Employer
  • Jackson agreed to pay a referral fee of 1.5% to another employee of Employer who had a relationship with Colony Brands for helping Jackson connect with Colony Brands
  • Just days prior to his termination from employment with Employer, Jackson sent an email to, and left a voicemail with, a contact at Colony Brands
  • After Jackson was terminated, another employee of Employer resent Jackson’s email to the contact at Colony Brands, a Mr. Hughes
  • Mr. Hughes responded to the email and even referenced Mr. Jackson’s name in his response
  • Thereafter, other employees of Employer met with Mr. Hughes, and Colony Brands ultimately paid $6.3 million to Employer
  • The employees who met with Colony Brands and brought the contract with it to fruition were paid commissions and the employee to whom Jackson had promised a 1.5% commission as a referral fee was paid that amount
  • Jackson received no commission whatsoever

 

Jackson filed a breach of contract lawsuit against Employer. He argued that he was entitled to the agreed commission from the Colony Brands’ business because he had procured the business.  His former Employer argued that, under the terms of the written employment/commission agreement, to be entitled to a commission, Jackson had to do more than just “procure” the business — he had to “develop” it.

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With some frequency, we see the first material breach defense raised in cases where a sales representative is owed commissions. After placing the account, the party with whom it was placed desires to keep the revenue, but resents continuing to pay the agreed commissions. So, it alleges that it should not have to pay any more commissions because the party who generated the account and revenue somehow breached the terms of the contract.

A recent Tennessee commissions case illustrates how such an argument as above can fail, as it should. Here are the pertinent facts of the case:

  • Plaintiff was an insurance agent who had built what appears to have been a pretty substantial book of business which was renewing consistently
  • Plaintiff, apparently anticipating health problems, entered into a written contract with an insurance agency (“Defendant Agency”)
  • Pursuant to the terms of the contract, for a four- year period, Plaintiff was to receive 50% of the commissions from her accounts
  • Pursuant to the terms of the contract, after the four- year period, the accounts would be owned by the Defendant Agency, and it would owe no more commissions to Plaintiff
  • Pursuant to the terms of the contract, during the four-year term, Plaintiff was to assist in helping the Defendant Agency retain and produce business
  • The contract expressly contemplated that the Plaintiff might die within the four-year period as it provided that, if she did, any monies owed to her under the contract would be paid to her estate
  • About a year and a half into the four- year period, the Plaintiff died
  • The Defendant Agency continued to pay the Plaintiff’s commissions to her estate until about three months after her death

The Defendant Agency claimed that it was not required to pay any further commissions because, shortly after the contract was signed, the Plaintiff stopped coming into the office and assisting with the accounts; stopped returning phone calls of clients; failed to invite clients to the office of the Defendant Agency to meet its principals; and failed to learn how to use the Defendant Agency’s systems. In the lawsuit filed by the Plaintiff’s estate, the Defendant Agency asserted that it was not required to pay any further commissions due during the agreed four- year term because the Plaintiff had committed a first material breach by the above actions and inactions.

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With some frequency, subcontractors incur extra expense, or lose other opportunities to make money, because another subcontractor did not complete its work within the time by which it was represented it would be completed. There are situations in which it is possible that the general contractor might be responsible for money damages to a subcontractor which incurred a loss because of a delay by another subcontractor.

The starting point to analyze whether, given the facts of the case, the general contractor could be liable for the delay of one subcontractor to another is the written contract. Generally speaking, regardless of what the outcome of a case would be if there was no written contract, the terms of a valid written contract might change the outcome that would otherwise occur under Tennessee common law. That is why a thorough analysis of the terms of the written construction contract, out the outset, is a critical part of any construction case.

If the terms of the written contract do not speak to the issue of the responsibility of the general contractor to a subcontractor for money damages resulting to that subcontractor because of the delay of another subcontractor, the Tennessee case of Foster & Creighton v. Wilson Contracting Company, Inc. (Tenn. Ct. App. 1978) might come into play to assist the subcontractor. Here are the basic facts of that case:

  • The general contractor (the “General Contractor”) contracted for a project which required the resurfacing and repaving of airport runways
  • The General Contractor contracted with a subcontractor to perform earth moving and grading (the “Grading Subcontractor”)
  • The General Contractor also contracted with Foster & Creighton to perform all of the paving, which included: (1) Resurfacing existing runways; and, (2) paving new runways
  • It was possible for Foster & Creighton to perform the resurfacing work without the Grading Subcontractor having finished its work, but it was not possible for Foster & Creighton to pave new runways until the Grading Subcontractor’s work was finished
  • The provisions of subcontract between the Grading Subcontractor and the General Contractor and the provisions of the subcontract between Foster & Creighton and the General Contractor required work to be completed by the same date
  • Foster & Creighton’s work required it to set up, on site, a large concrete mixing plant, which would take three weeks to erect
  • In discussions about when Foster & Creighton should begin its work, the General Contractor expressed that it wanted Foster & Creighton to begin its work significantly sooner than Foster & Creighton wanted to begin based on Foster & Creighton’s opinion that the Grading Subcontractor was moving so slowly that it would not complete its work in time for Foster & Creighton to begin its paving work without having to have its crew and equipment remain idle on the project site
  • In the discussions, a representative of the General Contractor assured Foster & Creighton that, if it set up its plant and started on the resurfacing, by the time it finished the resurfacing, the Grading Subcontractor would have completed its work such that Foster & Creighton could “proceed” with its work
  • Foster & Creighton complied with the requests of the General Contractor, but the Grading Subcontractor’s work was delayed such that Foster & Creighton incurred significant expense while waiting in excess of two extra months for the Grading Subcontractor to finish its work to the point that Foster & Creighton could begin its paving work

Foster & Creighton filed a lawsuit against the General Contractor for its damages. The trial court awarded it $26,000.  On appeal, the Court of Appeals of Tennessee upheld the decision of the trial court that the General Contractor was liable to Foster & Creighton.

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General contractors typically have commercial general liability policies (“CGLs”). (CGL policies are not the same as performance bonds, which might also be in place for a particular construction job.)  In my experience, the key provisions of most CGL policies are identical or are substantially similar. In fact, one task of a consortium of insurance companies known as the Insurance Services Offices is to develop standardized CGL policy forms.

CGL policies are meant to cover damages for personal injuries and property damage caused by the general contractor or by its subcontractors. For example, if a worker drops a hammer on a passerby and causes personal injuries, a CGL policy will typically provide coverage. Similarly, if a wall collapses during construction and causes property damage to a third party, a CGL policy will typically provide coverage.

CGL policies do not provide coverage for the repair or replacement of defective work. For example, if a project owner sues a general contractor because the owner has had to incur the cost associated with repairing defective work of the contractor, a CGL policy will not provide coverage to the contractor. If, however, the defective work has caused damages other than the damages to repair or to replace the work, it is very likely that the contractor’s CGL policy might provide coverage to the contractor for those damages.

In 2007, the Supreme Court of Tennessee decided an important case involving defective construction work and a commercial general liability policy. Although the case involved a claim by the contractor that the insurance company which issued the CGL should have to provide a legal defense to it, the holdings in the case are still very much applicable to an insurance company’s obligation, not only to provide a defense, but also, to pay a claim.

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A recent opinion of the Court of Appeals of Tennessee provides a good roadmap of the law for joint owners of land involved in partition cases where there are claims that the proceeds from the sale of the property should not be divided equally because of rental value received by a joint owner and because of repair and maintenance paid by a joint owner.

Here are the basic facts:

  • Four siblings inherited a home (“Home”)
  • One sibling, Janella, lived at the Home with the parents before they passed and before the four children became joint tenants
  • After the parents died, Janella continued to reside at the Home
  • The siblings agreed that Janella would continue to reside at the Home, would maintain it, and have repairs made in preparation for its sale
  • Email correspondence established that all agreed that each sibling would contribute to the repairs and maintenance
  • All four siblings had some personal items at the Home
  • Janella informed her siblings that the necessary repairs would cost $48,000, but refused the requests of her siblings to provide more detailed information about the quotes and estimates
  • Janella began setting deadlines for her siblings to remove their personal property from the Home before she discarded the same
  • Janella stopped communicating with her siblings
  • One sibling went to the Home to remove her items and had to call the police to gain entry because Janella refused to allow her to enter the Home

The siblings filed a partition action. The trial court found that there had been an ouster. It held that Janella owed, to her siblings, three fourths of the rental value of the Home during the time she resided there. It also held that the siblings owed Janella $60,000 for repairs, maintenance and taxes which she had paid towards the Home.

Janella appealed the trial court’s decision that she owed her siblings rent. Her siblings appealed the trial court’s decision that they owed Janella the $60,000. The Court of Appeals of Tennessee affirmed the trial court’s decision on both rulings.

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