Using Promissory Estoppel to Recover Damages in Tennessee

Promissory estoppel may be used offensively as a cause of action to recover damages, unlike equitable estoppel, which may only be used to defend. It is a useful cause of action in those situations in which a promise was made to the plaintiff, but the promise does not rise to the level of an enforceable contract.

To prove a promissory estoppel claim, a plaintiff must prove that (1) the defendant made a promise; (2) the promise was definite enough and unambiguous enough to be enforced; and (3) that the plaintiff reasonably relied on the promise.  A plaintiff does not have to prove that there was an express contract between it and the defendant to prove a promissory estoppel case.

A review of Tennessee cases wherein courts have adjudicated promissory estoppel claims reveals a couple of important points. First, plaintiffs who assert it are not often successful with it. That is not a surprise since our courts have stated it is only appropriate to allow recovery for promissory estoppel in “exceptional cases.” Second, it is a cause of action that will be won or will be lost based on the unique equities of each case.

There are many Tennessee cases discussing why the courts in those cases found that plaintiffs were not entitled to recover under a promissory estoppel cause of action. What is more helpful, in my opinion, than looking at one of those many cases is to consider one of the “exceptional cases” in which a plaintiff recovered on a promissory estoppel claim. One such case is Engenius Entertainment, Inc. v. W.W. Herenton, 971 S.W.2d 12 (Tenn. Ct. App. 1997). The facts of that case are extensive, but necessary to discuss as they established equities strongly favoring the plaintiff and resulting in the plaintiff’s success. Here are the key facts:

  • The City of Memphis (“City”) decided, in 1993, to find a privately owned development company to build and to operate something in 121,000 square feet of space in the Pyramid (a large public arena)
  • The City issued an RFP (request for proposal)
  • The RFP required the developer to spend about $10 million on whatever improvement was decided upon
  • The RFP was sent to more than 200 potential developers
  • The City sent a letter to the plaintiff developer (“Developer”) informing it that its proposal had been selected provided it could prove that it had the financial capability to perform the work
  • Developer’s proposal was to build, in the space, a high-tech family entertainment park which would be called “Island Earth EcoCenter”
  • The Developer, thereafter, did prove to the City that it had the financial capability to complete the project
  • The City then ignored repeated requests by Developer to begin negotiating the terms of the lease between the City and the Developer for the space in which the EcoCenter would be located
  • The City then decided to revive a public agency known as PBA and to delegate to it the responsibility of developing the space at issue
  • Developer expressed concerns over the delay in formalizing the terms of the agreement between it and the City
  • In response, the City assured Developer that it would not reopen the RFP process, that Developer’s plan for development had been chosen, and that Developer’s plan was the only plan that would be considered
  • Thereafter, Developer spent more time and money in making presentations to the PBA
  • Despite the representations the City had made to Developer, it began discussions with other developers about the development of the 121,000 square feet of space at issue
  • Although Developer’s plan did not require any financial investment by the City, City attorneys recommended that Developer’s plan be rejected because it required investment by the City
  • Notwithstanding that the City had rejected Developer’s plan because the City’s attorneys wrongfully claimed that it called for investment by the City, the PBA recommended that the City pursue alternative plans that would require the City to invest up to $10 million
  • When Developer was notified, in 1995, that the City was considering other proposals, it was told by the City that it would be required to make another formal presentation, but that the City would select a developer
  • Developer then spent more time and money making a formal presentation which included details and plans which were themselves time-consuming and expensive to compile
  • In October 1995, the City again notified Developer that it had been selected to develop the space; notified it that it looked forward to finalizing a contractual arrangement; and, encouraged it to move quickly to formalize arrangements with subcontractors and vendors necessary for the project
  • Developer then spent more money finalizing a lease, creating construction drawings, and obtaining bids
  • After Developer refused to pay a non-refundable $50,000 fee demanded by the City for the right to negotiate with the City for the lease of the space, the mayor of the City allegedly told Developer the City could just use Developer’s ideas and plans to build the project without it
  • The City then notified Developer that the RFP process had ended and no development company had been selected

Developer sued the City on a promissory estoppel claim. It alleged that it had incurred more than $1 million in damages for time and expenses in reliance on the City’s promises. The trial court dismissed Developer’s promissory estoppel claim. The Court of Appeals of Tennessee reversed this holding.

The Court of Appeals concluded that the City made promises upon which the Developer had reasonably relied in spending substantial sums of money. As the Court of Appeals pointed out, it was not necessary, for Developer to succeed on its promissory estoppel claim, for it to prove that it and the City had formalized a contract.

In my opinion, having reviewed many Tennessee promissory estoppel cases, the extensive unscrupulous and underhanded conduct of the City in the EnGenius case is what differentiates the holding in that case from other commercial litigation cases where plaintiffs asserted promissory estoppel claims, but were not successful.

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