Failure to Enforce Contract Terms Resulted in Modification

Many contracts which require payment in exchange for performance, require that the payment be made by a date certain. One would assume that the failure to pay by the agreed date would result in a breach of contract. But, this isn’t always true as the parties in the recent case of Bull Market, Inc. v. Elrafei discovered.

In Bull Market, Mr. Elrafei agreed to buy a gas station from Bull Market. Elrafei promised to make his monthly payment by the 15th day of each month. If Elrafei failed to pay as promised, then Bull Market could declare him in breach and foreclose on the gas station.

From 2009 through late 2015, Elrafei paid, albeit on irregular dates roughly within 5 days both before and after the 15th day of each month. Bull Market accepted the irregular payments without complaint until August 2015, when Bull Market suddenly returned Elrafei’s August 18th payment with a letter declaring Elrafei in breach and demanding that Elrafei abandon the gas station. Eventually Bull Market sued and obtained an eviction.

Elrafei appealed and the Court of Appeals reversed, finding that over the course of time, the irregular payments by Elrafei, and the continued acceptance of same by Bull Market, resulted in a modification of the contract’s terms. Bull Market and Elrafei created a new contract regarding the, “monthly amount, the maturity date, and the day of the month when the payments are due.” In other words, unintentionally or not, the parties had an entirely new deal.

The Court did not discuss whether or not the written contract contained a “no waiver or modification” provision, which generally provides that the failure to enforce strict compliance of an obligation doesn’t result in a waiver of strict compliance or modification going forward. It seems that had the contract at issue contained such a clause, the result may have been different. In any event, understanding all the terms of a contract is crucial and it is equally crucial to consider what omitted provisions should be included as well.

Statutory Immunity for AED Use

Tragedies happen too often. And, when tragedies do occur, it’s difficult not to place blame. Placing blame, however, does not always mean that someone is legally liable for the tragedy.

In the recent case of Sandra Wallis v. Brainerd Baptist Church, et al., a tragedy occurred. During a cycling class, the Plaintiff’s husband collapsed and ultimately died. The instructor and other responders immediately gave first aid. It appears that since a slight pulse was found, the responders chose not to use the onsite AED (defibrillator). The Plaintiff-Widow sued the church arguing that it was liable primarily because the AED was not used. The church denied liability and filed a claim against the company that sold it the AED, provided training, and agreed to maintain the church’s physician oversight program.

The very lengthy Tennessee Supreme Court decision addressed numerous legal and factual issues, which won’t all be discussed in this post. However, relevant to this post is the Court’s discussion about the legislature’s decision to adopt laws intend to increase the availability of AEDs. See Tenn. Code Ann. §§ 68-140-401. Although encouraging the use of AEDs, the laws, however, do not mandate their use if a business chooses to have one onsite. But, if a business chooses to have an AED, the business must satisfy Tenn. Code Ann. §§ 68-140-408 and the TN Dept. of Health requirements. These laws generally require certain training, maintenance, registration and program development before an AED may actually be used.

Of note to the Wallis case, is the law which generally statesthat if a business acquires an AED and complies with the law, the business “receives statutory immunity from civil liability for negligent acts or omissions arising from use of an AED, although this immunity does not extend to willful or wanton misconduct or gross negligence.” Wallis at p. 17.

In other words, the business having an onsite AED, which follows the training/registration laws, shouldn’t be liable for a tragic situation such as the one the Plaintiff went through.

Although, the Court didn’t dismiss the entire case due to the current way in which it was on appeal, it seems clear that businesses which choose to have, maintain, and properly use AEDs in emergency situations should not be liable under most tragic situations. As with any application of the law to a specific set of facts, businesses wishing to explore whether they are in compliance with the law should do so in conjunction with legal counsel.

Post-Divorce Agreement about a...Parrot?

I recently came across an article about a tweet from an attorney:

Just settled a divorce over visitation of a parrot. Neither may teach it negative phrases about the other. I went to law school for this.

— Michael Adler (@madler9000) November 14, 2016.

At first glance, this statement may be seen as funny or even sad. Some readers may focus on the apparent pettiness of the divorce clients and their fighting over every last crumb.

An entirely different lesson, however, can also be gleaned. In this case, the divorcing couple identified a problem: Don't train the parrot to say mean things about the other ex-spouse. Maybe this couple had a history of teaching the parrot to mock people that the couple didn't care for? Maybe they were concerned that once separated, their parrot would be used to verbally attack the other spouse? Whatever the reason was, the divorcing couple identified an issue and seemingly communicated it to Mr. Adler.

This tweet illustrates the importance of issue spotting – whether in business, a divorce, estate planning, or litigation. Mr. Adler used his best efforts to resolve one of his client's concerns: avoiding continuous post-divorce litigation over the parrot. Avoiding future issues is a noble pursuit and an integral part of the attorney-client relationship. For this divorcing couple's sake, I hope that the written compromise is indeed sufficient.

On another note, since the tweet was published on November 14th, Mr. Adler's story continued to circulate. Adding a somewhat ironic twist and underscoring the unlimited depth of Twitter research, an astute follower noted that Mr. Adler's tweet is remarkably similar to:

Just settled a divorce over Parrot custody/visitation. Neither may teach it negative phrases abt the other.

I went to law school for this.

— Lady Lawya (@Parkerlawyer) September 15, 2016.

It will be interesting to see how all of this plays out. Does "Lady Lawya" have a case against Mr. Adler? Or, are there a slew of parrot divorce cases out there as a recent article questions?

In any event, the fundamental lesson doesn't change: Identify issues and be cognizant of addressing those issues in writing.

Performance Following Purchase Orders can be Binding

The importance of understanding written terms and conditions and having written contracts cannot be stressed enough. The recent case of Aqua-Chem, Inc. v. D&H Machine Service, Inc., highlights these points.

Aqua-Chem owned large coolers that were to be installed on U.S. Navy destroyers. Aqua-Chem needed the coolers machined, and subsequently hired D&H to perform the machining. D&H incorrectly machined the coolers, damaging them. Aqua-Chem had to replace the coolers at an additional cost of approximately $191,000. Aqua-Chem sued D&H and prevailed following a bench trial.

Prior to D&H machining the coolers, Aqua-Chem sent purchase orders to D&H which specifically stated, among other conditions, that: 1) the written purchase orders controlled over all other documents and oral statements, and 2) performing the machining services constituted acceptance of the purchase orders in their entirety. D&H never signed the purchase orders, but did machine the coolers and returned them to Aqua-Chem.

D&H argued that it orally rejected the purchase orders and thus, did not perform the machining subject to the unilaterally imposed written terms and conditions. The Court rejected this argument finding that the purchase orders explicitly provided that performance of the job was acceptance of the terms and conditions as written. Any modification of those terms must have been in writing and before the job was performed.

D&H lost and the judgment awarding Aqua-Chem full replacement cooler costs was upheld on appeal. Additionally, D&H was ordered to pay Aqua-Chem's attorneys' fees.

This case highlights the importance of reading and understanding all the terms and conditions of a contract before performance. And, further, if certain terms are not desired, then those terms must be addressed in writing before performance is done.

Out of State Company's Failure to Obtain Tennessee Certificate of Authority Didn't Kill Lawsuit

In Tennessee, like many other states, a non-Tennessee company must obtain a Tennessee certificate of authority if it wishes to maintain lawsuits within the State of Tennessee. Curiously, the recent case of Sharper Impressions Painting, Co., et al. v. Dean Yoder interpreted this statute  as meaning that the non-authorized out of state company may file its lawsuit in Tennessee, however, once filed, it may not continue to prosecute the lawsuit. In other words, the Court didn't penalize the non-compliant company, which cured its omission mid-suit.

In Sharper Impressions Painting, Co., an Ohio company employed Dean Yoder who was fired for embezzlement. After termination, Mr. Yoder started his own competing painting business, which violated his Sharper Impressions non-compete agreement. Sharper Impressions sued Mr. Yoder in Tennessee where he was operating his business. Mr. Yoder filed a motion to dismiss arguing that the Ohio company could not sue him since it didn't have a Tennessee issued certificate of authority. The trial court agreed and dismissed the suit notwithstanding the fact that Sharper Impressions obtained the certificate during the pending litigation.

The Court of Appeals reversed, holding that T.C.A. §48-25-102's use of the word "maintain" merely meat that the non-authorized out of state company could not continue to prosecute the suit. It could however, commence the suit, and further, once the defect was cured, the Ohio company could then continue to litigate. Accordingly, the court reversed the dismissal.

Although this case essentially found "no harm, no foul", best practices for out of state companies doing business in Tennessee include obtaining the certificate of authority at the outset. Up front compliance is certainly a more prudent economic decision as it avoids not only the statutory imposed late filing penalties to obtain the certificate, but also obviates litigating ancillary issues.

Buyer Beware When Purchasing Without a Title

What happens when an innocent buyer spends his hard earned money buying a trailer from a seller without receiving a certificate of title? Well, the buyer runs the risk of being sued by the trailer's lawful owner, losing the trailer, and losing his money. The case of Duffy v. Elam focuses on this.

Duffy owned a trailer that was originally purchased for about $45,000. Duffy had a side business with Smith, who had been using the trailer for several years. Eventually, Duffy demanded that Smith return the trailer, but Smith claimed the trailer was stolen some time ago. Duffy called the police, who promptly located the trailer on the property of a Mr. Elam. Elam testified that Smith sold him the trailer and gave him a bill of sale, but no certificate of title transferring ownership. After making the purchase, Elam then invested about $20,000 in repairs and upgrades to the trailer. When Duffy asked Elam to return the trailer, Elam said no, claiming he was an innocent good faith purchaser. Ultimately, the court agreed with Duffy, finding that the trailer should be returned to him, but that Elam could remove improvements he made from the trailer so long as he didn't damage it.

What about Smith, the man who initially refused to return the trailer to Duffy, then claimed the trailer was stolen, but in fact had sold it to Elam? Nothing in this case. However, the court noted in passing that Smith was in bankruptcy and was under federal investigation.

Individuals and business buy and sell assets regularly. Many assets, such as cars or trailers can be transferred using a certificate of title. In situations involving the buying or selling of assets, it is important to document the transaction and make sure that all evidence of title is properly conveyed.

When an Employee Serves Two Masters

An interesting case arose out of the Middle District of Tennessee, which explored the overlapping claims involving an employer suing some of its former employees for trade secret misappropriation, breach of the duty of good faith and loyalty, and civil conspiracy. In Ram Tool & Supply Company, Inc. v. HD Supply Construction LTD., et al., the court allowed the common law claims of breach of duty of good faith/loyalty and civil conspiracy to survive the former employees' motion for summary judgment, notwithstanding the preemption of factually similar claims by the Tennessee Uniform Trade Secrets Act.

The facts appear quite colorful. Briefly, two businesses (Ram Tool & Supply and White Cap Construction Supply) compete in the construction tools and materials distribution industry. Ram Tool had a sales team in Nashville. White Cap didn't, but planned on opening one. Ram Tool alleged that over a period of about six months, White Cap targeted Ram Tool's Nashville manager, who agreed to move over to White Cap. While still employed with Ram Tool, the Nashville manager heavily recruited other Ram Tool employees; negotiated the hiring of Ram Tool employees for White Cap, while the manager was still on the Ram Tool payroll; and identified himself as the White Cap branch manager on White Cap letterhead while still employed by Ram Tool. To add insult to injury, on his last day of employment with Ram Tool, the Nashville manager received an order at Ram Tool, which he promptly forwarded to his new White Cap team calling it the "first order".

None of the Ram Tool employees were bound by any non-compete agreements or non-solicitation agreements. Rather, the claims against them were brought under common law theories that apply to all employees.

The court did not reach the merits of the dispute or opine on fault as the matter must still be tried to conclusion. Instead, the case dealt with the legal ruling of whether the Tennessee Uniform Trade Secrets Act precluded all of the common law claims, as is often the result. The court said no – the common law claims (i.e. breach of duty of loyalty, etc.) survived as the facts supporting those claims did not involve any alleged trade secret theft. In other words, the former Nashville manager and others, have quite the uphill battle to tread as they attempt to defeat of multiple claims being levied against them.

Situations involving employee dishonesty and switching over to competitors, both with and without non-compete agreements, often result in contentious litigation. And, as shown by this case, require a solid understanding of the interplay of the various overlapping claims.

The Value of Operating Agreements

Small business owners have enough challenges considering taxes, regulations, laws, and other barriers to success. Having poorly thought out operating agreements doesn’t need to be on a list of challenges. The recent case of Hamer v. Southeast Resource Group, Inc., et al., highlights this issue.
John Hamer and Southeast Resource Group, Inc., were members (i.e. the owners) in a limited liability company called Action Financial Company, LLC. The owners had enough forethought to have a written operating agreement in place. Hamer and Southeast Resource Group, Inc., however, came to debate whether the terms of the operating agreement required that Hamer "must disclose and make available to [Action Financial Company, LLC]…" the new business opportunity that Hamer came across or whether the exception applied. The disclosure exception provided, "no such disclosure or offer shall be required with respect to business opportunities that are not within the scope and purpose of [Action]." Hamer said the exception applied, while Action and Southeast said the disclosure was mandatory.
Litigation followed and ultimately turned on the express word choice within the operating agreement. The court agreed with Hamer and found that the new business opportunity was not required to be disclosed or made available to Action as it was "not within the scope and purpose of [Action]."
An operating agreement is the LLC's controlling document and sets forth the "rules" for the members to follow. Although an operating agreement is not mandatory, it is good practice to have one in place. In this particular dispute, the written operating agreement provided a solid framework for the court to follow in resolving the dispute between the owners.
Hamer v. Southeast Resource Group, Inc., et al., Case No. M2015-00643-COA-R3-CV, March 3, 2016.