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In a recent opinion of the Court of Appeals of Tennessee in the case of Stokely v. Stokely, it upheld the trial court’s decision in a Tennessee partition case in which the trial court had dismissed the claims of the joint owners who sought to partition the land in question.  The case is notable for a couple of points.

First, it is authority that establishes that, in Tennessee, real estate cannot be partitioned when one joint owner has a life estate (at least as long as that joint owner is alive). This is an exception to the general rule that any joint owner is entitled to a partition whenever that owner so desires one. Second, it reiterates the rule that, when you sign legal documents, you cannot avoid the consequences by claiming that you did not fully understand what you signed.

Here are the basic facts of the case:

  • Mother owned a house and land (“Property”) in which she lived with one of her children, Anna
  • Including Anna, there were seven siblings (“Siblings”)
  • Mother died without a will in 2003
  • Because Mother died without a will, all of her children, Siblings, inherited an equal interest in the Property
  • After Mother’s death, Siblings signed a Quitclaim Deed granting Anna a life estate in the Property
  • Some of the Siblings signed the Quitclaim Deed themselves, but the signature of four of them was effectuated by the use of a Power of Attorney they gave to a brother, who was one of the Siblings
  • The Power of Attorney expressly referenced that it was given so that the brother could sign a Quitclaim Deed reserving a life estate to Anna

Disagreements arose between the Siblings. In 2015, four of the Siblings filed a partition case in order to have the Property partitioned.  The trial court dismissed the partition case on two separate grounds. First, it found that a partition could not occur due to the life estate held by Anna. Second, it held that the cause of action to reform the Quitclaim Deed to rescind the life estate given to Anna, which was asserted by the Siblings who had filed the case, was barred by the statute of limitations.

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At the outset of a will contest case or undue influence case, clients often ask what to expect in terms of how the case will progress, what will need to be done before trial, and how long it will take to resolve the case.

For starters, let’s talk about the chances that a will contest or undue influence case will make it as far as a trial. The overwhelming majority of civil actions which are filed in Tennessee courts are settled or are resolved by a dispositive motion before a trial becomes necessary. In my experience, undue influence and will contest cases are generally more difficult to have dismissed before trial than many other types of Tennessee cases.  As well, they are often not as amenable to settlement, in my experience. So, the chances that a will contest or undue influence case will actually go to trial is somewhat greater than the chances that other types of cases will go to trial. Still, in my experience, most do settle short of a trial.

You are most likely to obtain an expedient settlement and a larger settlement if you retain a lawyer with experience handling will contest and undue influence cases and who opposing counsel knows will prepare your case for trial and try it unless a fair settlement is reached.

Our firm defends and prosecutes Tennessee will contest cases and undue influence cases. For purposes of this blog, I will give a perspective of how such cases progress when we are representing the will contestant or the party challenging a transaction on the basis of undue influence or fraud.

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Under Tennessee law (T.C.A. §48-25-102), a foreign business entity which is transacting, or has transacted, business in Tennessee without obtaining a certificate of authority from the Secretary of State of Tennessee cannot maintain an action in a Tennessee court. This rule applies to lawsuits filed in Tennessee state courts, as well as to those filed in federal district courts located in Tennessee. See, e.g., In Re Meyer & Judd, 1 F. 2d 513, 526 (W.D. Tenn. 1924); G.M.L., Inc. v. Mayhew, 188 F. Supp. 2d 891, 893-94 (M.D. Tenn. 2002).

The process of obtaining a certificate of authority is also referred to as registering to do business in Tennessee. When a business entity registers to do business in Tennessee, it may be referred to as having been “domesticated” in Tennessee.

Any action filed in a Tennessee state court or a federal court located in Tennessee by a business entity transacting business in Tennessee without registering to do business in the state is subject to dismissal. Importantly, it is never too late to register to do business in Tennessee, and Tennessee law expressly allows an entity to register to do business and, thereafter, to continue its lawsuit. However, registering, after having failed to register for a number of years, can become expensive.

What does it mean to “transact business” in Tennessee such that a business must register to do business in Tennessee? The general rule is that a foreign business entity is transacting business in Tennessee when it transacts some substantial part of its ordinary business in Tennessee and its operations in Tennessee do not consist of mere casual or occasional transactions.  There is a Tennessee statute (T.C.A. §48-25-101) which delineates a number of things that do not constitute the transaction of business in Tennessee.  Perhaps a few of the most relevant are:

  • Holding meetings related to internal governance
  • Owning real estate
  • Maintaining bank accounts
  • Selling through independent contractors
  • Soliciting orders by mail which require acceptance outside of Tennessee
  • Creating or acquiring loans, security interests and deeds of trust
  • Conducting isolated transactions that are completed in one month
  • Transacting business in interstate commerce

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In a fairly recent Tennessee undue influence case, relatives claiming undue influence by another relative argued that there was undue influence because the provisions of the decedent’s last will were inconsistent with payable on death designations to CDs and bank accounts. That argument was rejected by the trial court and appellate court.  In Frank v. Fields (Tenn. Ct. App. 2017), the Court of Appeals of Tennessee upheld the decision of the trial court that the defendant had rebutted the presumption of undue influence.

Here is a summary of the facts of the case:

  • Ray Frank (“Frank”) had no children of his own, but was survived by two nieces and three nephews
  • One of Frank’s nephews was Fields
  • Fields moved back to Monroe County in 2004 at which time he began to spend quite a bit of time with his elderly uncle, Frank, and to help him quite a bit
  • Fields visited with his uncle about every day and transported him wherever he needed to go
  • The nieces and nephews who brought the undue influence case against Fields admitted that Fields never tried to isolate his uncle from them or to interfere with their relationship with their uncle (in my opinion, in most cases where undue influence has been exerted, there were efforts at isolation)
  • Prior to his death at age 95, Frank was almost blind for several years, and then totally blind
  • Prior to his death, Frank executed a power of attorney in favor of his nephew, Fields
  • In Frank’s last will, made in 2010, two years before he died, he bequeathed 50% of his estate to his two sisters and the remaining 50% to his two nieces and three nephews, which included Fields, to be divided equally among them
  • Prior to his death, Frank made changes to CDs and bank accounts worth at least $450,000 which resulted in Fields receiving those funds after Frank passed away
  • The monies from the CDs and accounts did not pass through the estate so none of the other nieces and nephews received any of those funds
  • Besides the money from the CDs and bank accounts, it does not appear from the opinion that Frank had any other significant assets

Since Fields did not dispute that he had a confidential relationship with Frank, under Tennessee law, a presumption arose that the changes Frank made to his accounts, which resulted in the funds therein passing outside of his will, were the result of the undue influence of Fields.

Besides arguing that Frank was old and blind, and therefore, presumably, did not appreciate his actions, the nieces and nephews challenging the transactions alleged that the undue influence of Fields was proven by Frank’s last will. The last will, they argued, showed that Frank wanted his nieces and nephews to share equally in half of his assets. Since that is what he wanted in his will, they argued, he could not have intended, of his own free will, to leave $450,000 exclusively to Fields.

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A lien lis pendens can be a very effective tool not only to preserve a claim against real estate, but also, to create leverage in litigation. Tennessee’s lien lis pendens statute is about as clear as mud, even to those of us accustomed to deciphering statutes drafted in the early twentieth century. To boot, Tennessee courts have given as little guidance to practitioners on the matter of liens lis pendens than on about any other legal topic of comparable significance of which I am aware.

What is a Lien Lis Pendens and What Does It Do? 

Before the enactment of the Tennessee lien lis pendens statute in 1932, under Tennessee common law, whenever a lawsuit was filed which asserted a claim in, or against, a specific piece of land, a lien was created against the land from the date of the filing of the suit. That lien was effective against all persons who might acquire an interest in the land after the lawsuit was filed.

The purpose of the lien lis pendens was to enable the court hearing the lawsuit to retain jurisdiction over the land pending the conclusion of the lawsuit. Without the lien lis pendens tool, a defendant sued over an interest in land might easily avoid justice by selling the land after the filing of the lawsuit. (If the defendant sold it to a bona fide purchaser, it would not be a fraudulent transfer which could be set aside.)  Court’s don’t like their judgments frustrated, and the lien lis pendens was created to prevent that.

Before the enactment of the lien lis pendens statute, the mere filing of the lawsuit created the lien lis pendens. That is not the case anymore (as discussed below).

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A recent opinion of the Court of Appeals of Tennessee in a fraudulent transfer case provides an excellent summary and roadmap of what it takes to prove a fraudulent transfer under Tennessee law. The Uniform Fraudulent Transfer Act, which has been adopted in Tennessee, can be a bit much to get one’s head around, at least without a good bit of review and study.  The recent opinion is useful because the facts of it are tailor-made to demonstrate how the provisions of the Act are applied and the result.

Here are the key facts of the case:

  • Father owned an LLC, the business of which was installing drywall
  • Father owed a Drywall Supplier about $350,000
  • In October of 2007, Father signed a note to the Drywall Supplier for the amount he owed
  • In March of 2009, Father sold the LLC to his Son for $12,000
  • Drywall Supplier filed a lawsuit to set aside the transfer of the LLC to Son, alleging it was a fraudulent transfer

In its fraudulent transfer case, Drywall Supplier alleged that the transfer of the LLC to Son was a fraudulent transfer under the actual fraud statute and, also, under the constructive fraud statute, both of which are part of the Uniform Fraudulent Transfer Act. The trial court found that the transfer was not fraudulent under either provision of the Act. The Court of Appeals affirmed the trial court in all respects.

Under the actual fraud statute, a plaintiff must prove that the transfer was made “with actual intent to hinder, delay, or defraud” a creditor. Since proving fraudulent intent almost always requires circumstantial evidence, the statute lists eleven (11) factors that are to be considered in determining whether there was intent to defraud.  If a plaintiff is able to prove the existence of one or more of those factors (often called “badges of fraud”), a presumption of fraud arises.  Once that presumption has arisen, the burden shifts to the defendant to prove that there was no fraudulent intent.

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In Tennessee partition cases, a court has wide latitude in determining (and ordering) the sale of property. It can order an auction sale or that the property be listed and sold through an agent. What a Tennessee court cannot do is what one did in a recent case decided by the Court of Appeals of Tennessee.

In the case of In Re Estate of Donald Carl Battle, the party who filed the partition action requested that the property be sold and that the proceeds be distributed. In that case, the partitioning party and the other party with an ownership interest agreed that the property could not be partitioned in kind, that the partitioning party had a 25% ownership interest in the property and that the other party owned a 75% interest.

The trial court ordered an appraisal. The appraisal valued the property at $340,000. The trial court then ordered that the 75% owner could pay 25% of the appraised value to the partitioning party and buy out its interest.  The partitioning party objected and appealed.

The Court of Appeals reversed the trial court. It did so based on long-standing Tennessee law which prohibits a Tennessee court, in a partition case, from divesting property out of one co-owner and placing it in another. In Tennessee, as the Court of Appeals pointed out, if a co-owner wants the property sold, it is entitled to a sale.

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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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