Tennessee Business Litigation Lawyers Blog

Lessor Held Individually Liable in Breach of Commercial Lease and Piercing the Veil Case

Published on: April 30, 2014 | by J. Ross Pepper

In a recent breach of contract case and fraud case arising out of a commercial lease for a doggy day care facility in Nashville (Dog House Investments, LLC v. Teal Properties, Inc.), the Court of Appeals of Tennessee discussed several areas of Tennessee law including: (1) The law related to piercing the corporate veil; (2) the law of breach of contract in commercial lease cases; (3) fraud; and, (4) the award of punitive damages in commercial disputes. For Tennessee lawyers who handle breach of contract cases and piercing the veil cases, the opinion is a worthwhile read.

Here are the facts of the case:
• An individual named Jerry Teal (“Teal”) owned a commercial building in Nashville, Tennessee
• Although Jerry Teal owned the building, he leased it through a corporation of which he was the sole owner (“Corporation”)
• The tenant (“Tenant”) which signed the lease with Corporation for the building was an LLC
• The lease agreement between Tenant and Corporation required Corporation to make all repairs to the building
• The May 2010 flood in Nashville caused substantial flooding and damage to the building
• Tenant immediately notified Teal of the damage
• Because it was critical to Tenant’s business that the water removal and repairs be done quickly, Tenant began handling the water removal and repairs with the knowledge and consent of Teal
• Teal informed Tenant that the building was covered by insurance
• Teal engaged in a series of conduct that unquestionably led Tenant to believe that Teal would submit a claim to the insurance company for repairs made by Tenant and that Tenant would be reimbursed
• Tenant paid for $39,000 in repairs and submitted documentation to Teal so that he could submit a claim to the insurance company
• Teal submitted a claim to the insurance company and Corporation received over $40,000 from it
• Teal never paid Tenant any money and concealed that the insurance company had paid Corporation anything
• The insurance money paid to Corporation was used by Teal for his individual purposes

Tennessee Evidence Law: A Few Basic Rules Helpful to Clients

Published on: April 24, 2014 | by J. Ross Pepper

Whether you are involved with a breach of contract case, will dispute case, real estate case or any type of commercial litigation case in a Tennessee court, you can help yourself by knowing a little about the basic rules of evidence that apply in Tennessee state court cases. In my experience, many clients assume that some piece of evidence will be admissible at trial when it will not be admissible.

The Tennessee Rules of Evidence act like a filter. While there may be all kinds of statements and documents related to a dispute, the odds are that some, even many of those statements and documents, will not be admissible at trial. They get “filtered” from the courtroom by the Tennessee Rules of Evidence. Here are a few basic rules of evidence in Tennessee of which it would behoove any party to have at least passing knowledge.

FIRST-HAND KNOWLEDGE: In order to be allowed to testify about a matter, a witness must have first-hand knowledge of the matter. Let’s assume there is a breach of contract case in Tennessee in which Defendant contracted to provide computer programmers to Plaintiff for work on a project which was the subject of a separate contract between Plaintiff and its client (“Client”). The programmers worked on-site with Client and directly under Client’s supervision. The programmers, according to Client, did not have adequate experience or skills and performed inadequately. Because of that, Client cancelled the contract between it and Plaintiff which resulted in Plaintiff losing substantial profits.

Valuing the Shares of Dissenting Shareholders in Tennessee

Published on: April 6, 2014 | by J. Ross Pepper

Shareholders of Tennessee corporations, under certain circumstances set forth in Tenn. Code Ann. §48-23-102, have the right to “dissent” and to require the corporation to pay them for the “fair value” of their shares. How do Tennessee courts determine the “fair value” of a dissenter’s shares? For Tennessee lawyers who handle shareholder disputes, the three Tennessee cases discussed below provide a valuable road map in dissenters cases.

The Supreme Court of Tennessee, in the 1983 case Blasingame v. America Materials, Inc., held that the “Delaware Block Method” should be used in Tennessee to determine the fair value of a dissenting shareholder’s shares. The Delaware Block Method requires that the court consider three different methods used to value shares: (1) the market value method; (2) the asset value method; and (3) the earnings value method. Once the court determines the value of a share of the dissenter’ stock according to each method, the court must assign a weight, expressed as a percentage of 100%, to the stock value as determined by each method.

The market value method looks at the price for which a share of the corporation’s stock could be sold if there were a willing buyer. The asset value method values a share of the corporation’s stock according to its pro rata value as to the net assets of the corporation. The earnings value method values a share of the corporation’s stock based on its earnings potential which, in turn, will be based on historical earnings.

Defending a Breach of Contract Case in Tennessee on the Grounds of Unilateral Mistake

Published on: March 31, 2014 | by J. Ross Pepper

In Tennessee breach of contract cases, the defense of unilateral mistake falls in the category of legal defenses (and claims) that are fairly often asserted, but rarely successful. Nevertheless, for lawyers who handle breach of contract cases in Tennessee, this is a defense that, in some cases, can be outcome determinative.

Tennessee contract law recognizes two categories of mistakes as defenses to breach of contract claims: (1) Mutual mistakes; and (2) unilateral mistakes. The defense of mutual mistake applies when both parties are mistaken as to a fact material to the contract. The unilateral mistake defense applies when only the party invoking the defense was mistaken.
Both defenses, mutual mistake and unilateral mistake, apply only to mistakes about facts that existed at the time the parties’ contract was formed. In situations where facts arise after the formation of the contract that a party believes may excuse it from performance of its obligations, that party should look to the doctrines of impracticability and frustration of purpose, but not to mistake.

Proving Intentional Interference With Contract In Tennessee

Published on: March 16, 2014 | by J. Ross Pepper

Tennessee recognizes both a statutory and a common law cause of action for intentional interference with contract, also sometimes called procurement of breach of contract or tortious interference with contract. The statutory cause of action is found at Tenn. Code Ann. §47-50-109.

To say that the public policy of Tennessee frowns on parties who interfere with the contracts of others is probably putting it mildly. A party who wins an intentional interference with contract case is entitled to the pretty rare remedy of treble damages (three times the damages which it would receive just for its breach of contract case). Tennessee business owners should have more than a passing knowledge of this tort as, in the heat of competition, what might seem like just a savvy move to obtain new business or a new employee might cause a lawsuit.

A useful way to consider how to try and stay out of the crosshairs of an intentional interference with contract case is to consider what a plaintiff must prove to win a lawsuit for intentional interference with contract in Tennessee:

Brick Salesman Held to Non-Compete Agreement by Court of Appeals of Tennessee

Published on: March 5, 2014 | by J. Ross Pepper

A recent case involving a non-competition agreement signed by a brick salesman proves the conclusion that, in many Tennessee non-competition agreement cases, the determination of whether or not a former employee should be bound by his or her non-compete agreement turns on very subjective considerations. In point of fact, in that case, the trial court determined that the non-competition agreement was unenforceable: The Court of Appeals of Tennessee then determined that it was enforceable.

For breach of contract lawyers who handle non-compete cases, the case also highlights the importance of whether or not the former employee had access to pricing information, pricing strategies and profit margin information about his or her former employer. One of the two pivotal factors which caused the Court of Appeals to reverse the trial court was that the former employee / brick salesman (“Employee”) had fairly extensive knowledge of his former employer’s pricing structure, margin targets and bidding strategies for brick sales. Notably, Employee even admitted that having such knowledge would give someone a competitive advantage over the former employer (“Employer”) when bidding and quoting brick.

Will Contests in Tennessee: Who Pays Attorneys’ Fees?

Published on: February 27, 2014 | by J. Ross Pepper

If you hire a will contest lawyer in Tennessee to defend a will which has been offered for probate and which is being challenged as invalid, or if you hire a lawyer to try to invalidate a will which has been offered for probate, will the attorneys’ fees of your attorney be your individual responsibility? Or can they be paid, or reimbursed to you, from the assets of the deceased (from the estate)? If you successfully defend a will contest, is the non-prevailing party who challenged the will required to reimburse you or the estate for the fees incurred to defend the will?

The answer to the later question is straightforward: One who is unsuccessful in a will contest action cannot, except in limited and unlikely circumstances, be required to pay the prevailing party’s attorneys’ fees. The answers to the former two questions are a little less straightforward.

Breach of Contract Cases in Tennessee State and Federal Courts: What to Expect From Filing to Trial

Published on: February 20, 2014 | by J. Ross Pepper

Clients in breach of contract cases, as well as other cases involving business disputes, are often new to the litigation process and have questions about it. Common questions I receive at the outset of a case from clients are: How long will the case take? What happens after the complaint is filed? When will the trial take place?

So, how long does it take for a breach of contract case to be finished? What I tell clients for cases filed in Tennessee state courts is that, if the case has to go all the way to trial, don’t expect the trial to take place any sooner than a year to a year and a half from the date the case was filed. If you have a trial date within one year of the date suit was filed in a case in Tennessee state court, you are doing well in terms of time.

For breach of contract cases filed in the federal court for Nashville and Middle Tennessee, the trial date will almost certainly, in my experience, be set on a date that is at least one year from the date the complaint was filed. In federal court in the Middle District of Tennessee, the court will automatically assign your case a trial date within, usually, a few weeks after the case was filed.

Recovering Under the Theory of Quantum Meruit In Tennessee

Published on: February 12, 2014 | by J. Ross Pepper

To recover in a breach of contract case in Tennessee, a party must prove that there was an enforceable contract. In Tennessee, an agreement must meet several requirements before it can be considered a legal contract. For example, there must have been a “meeting of the minds” between the parties and the terms of their agreement must be definite enough to be enforceable in order for a contract to be formed. Believe it or not, more often than you might think, two parties conduct some type of business together without having an agreement that amounts to what a court would consider a contract.

So what happens when an aggrieved party cannot prove that there was a contract? Is that party then totally without any legal recourse whatsoever? Not necessarily. Tennessee, as do most, if not all other states, recognizes the legal doctrine of quantum meruit – – -also called unjust enrichment or quasi-contract.

Quantum meruit allows a court to award money to a party who has provided goods or services to someone else even though those parties never had a contract. In fact, a court can use quantum meruit to provide relief only when no legal contract is found to exist between the parties.

Limited Liability Company Dissolution in Tennessee: To What Are Members Entitled? How Are Capital Contributions Treated?

Published on: February 7, 2014 | by J. Ross Pepper

Frequently in Tennessee, LLC members have to part ways. When that happens, it also may happen that one of the members will file a court action to have the limited liability company dissolved. Assuming that the LLC has assets, an issue that a Tennessee court is likely to have to decide in an LLC judicial dissolution action is how the assets should be divided between or among the LLC’s members. Of course, in dissolution proceedings, LLC members often disagree about the amount to which other members are entitled.

The first place a Tennessee court will (or should ) look to determine how the assets of an LLC which is being dissolved should be distributed is T.C.A. §48-249-620, which is part of the Tennessee Revised Limited Liability Company Act. To summarize, here is the pecking order for the distribution of an LLC’s assets upon dissolution:

First: Creditors of the LLC, which can include members who have made loans (as distinguished from contributions to the LLC).

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