Don't Go Pro Se

A recent article in USA Today highlights the perils of trying to handle your own litigation without the benefit of counsel. According to the article, a Massachusetts man sold his used black and white printer on Craigslist for $40 in 2009. Unfortunately, for the seller, the purchaser was a vexatious litigator - someone who frequently uses lawsuits to harass people. The purchaser  sued the seller for all sorts of frivolous claims, starting out first in small claims court. But, over the course of the litigation, the seller missed a deadline in responding to written requests for admissions and eventually ended up with a judgment against him in an amount over $30,000.

The seller's pain continued with the trial court upholding the verdict on a technicality. At some point, the seller finally hired counsel - one who had litigated against the same purchaser before - and took the case to the court of appeals. Eventually, but only recently, the court of appeals reversed the trial court's damages award. 

Handling a case pro se is difficult enough, but when one is up against a vexatious litigator, the task can be even more daunting. Fortunately, the seller in this situation appears to have found solid counsel, albeit late, to help him hopefully bring this matter to a close. One wonders whether the seller's problems could have been avoided had counsel been hired sooner.

The article is found here.

Defend Trade Secrets Act of 2016

Earlier this week, the President signed a bill into law granting federal civil protection for trade secret theft. The new law is called the Defend Trade Secrets Act of 2016. In its basic form, the law tacks on civil penalties and the right to bring a civil lawsuit for trade secret theft in addition to already existing federal criminal penalties.
Trade secrets are legally protectable information such as designs, processes, techniques, software and other similar information. In general, to be a trade secret, the information must possess independent economic value, not be generally known, and the owner takes reasonable steps to keep the information secret. Prior to this new federal law, trade secrets were most often protected under an individual state's version of the Uniform Trade Secrets Act and/or state common law.
Unique to the new federal law, however, are several features. The federal law:
1) provides an avenue for federal lawsuits to be brought to enforce trade secret protection,
2) does not preempt other causes of action such as fraud, which are most often precluded by existing state laws,
3) provides for additional damages not otherwise available under existing law, and
4) provides for an ex parte seizure order prior to notice of the lawsuit to the defendant.
This new law appears to offer several compelling reasons to consider invoking it in a trade secret lawsuit. Trade secret litigation is complex, but necessary if the owner of the trade secrets wishes to continue to maintain an advantage over his or her competitors in today's ever changing market. Businesses facing trade secret theft or simply desiring to explore more secure measures to protect existing information are well advised to seek the advice of counsel who have familiarity in this area.

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.

Confidentiality and Non-Solicitation Agreements

At the outset of new employment, an employer requires that new employees sign a series of documents. Many of these are required government forms. However, some employers who are in highly competitive industries present their new hires with confidentiality and/or non-solicitation agreements. Generally, a confidentiality agreement precludes an employee from sharing what he or she learned on the job after departing (e.g. trade secrets, formulations, software programs, etc.). A non-solicitation agreement on the other hand, generally precludes a departed employee from seeking out his or her former employer's customers or current employees. Both documents are frequently litigated.
The recent appellate case of Healthcare Horizons, Inc. v. James Brooks is illustrative of such litigation. Healthcare Horizons was the employer of two former employees, James Brooks and John Graham. Both Brooks and Graham signed similar confidentiality and non-solicitation agreements, but the documents varied in one material way – the Graham agreements had a binding arbitration clause over all claims and the Brooks agreements had a binding arbitration clause over only some claims. After Graham and Brooks left Healthcare Horizons, they worked for a new employee, which was a direct competitor.
Healthcare Horizons sued only Brooks for violation of the confidentiality and non-solicitation agreements, and included claims which removed the lawsuit from the arbitration requirement. For reasons unknown, Brooks preferred arbitration as opposed to litigation. Brooks attempted to invoke the arbitration clause that Graham signed, not Brooks. Both the trial court and the court of appeals found that Brooks could not rely on the Graham agreements to compel arbitration. Instead, the Brooks lawsuit would proceed in court.
Of note for employers is remembering that one size doesn't always fit all and the perpetual reusing of the same set of documents over and over without reexamination of whether the documents still fit, is ill advised. Employees, on the other hand, should be cognizant of understanding what they agree to when commencing new employment and attempt to negotiate out undesired terms. Competent counsel can help in both regards.

Judge Didn't Have Judicial Immunity for Firing

The Tennessee Supreme Court decided an interesting case earlier this week, when it considered whether a newly elected judge could raise the defense of judicial immunity in an effort to defeat a tortious interference with employment lawsuit filed by a terminated judicial assistant. The Court ultimately said no.
The underlying facts show that the Plaintiff had been a judicial assistant with a former judge in Knox County. However, said judge lost his reelection bid. The newly elected judge told the Plaintiff that she was let go and HR issued her a separation notice shortly thereafter. Well, the Plaintiff sued, creatively arguing that the new judge tortiously (i.e. wrongfully) interfered with her employment with the prior judge.
The Plaintiff argued that the timing of her firing was crucial. Seemingly although the new judge could have fired her after he took office as he was permitted to choose his staff, he actually fired her during the interim period of time between his election victory and the swearing in ceremony. In other words, he wasn't actually a judge when he told HR to let her go. Further, he wasn't even her employer – the prior judge was. In other words, the newly elected judge was merely a third party interfering with the Plaintiff's employment with the prior judge.
This argument was enough for the Tennessee Supreme Court, which found that the timing of the firing was crucial. When the new judge acted, he did so as a private citizen, not in his capacity as a judge (as he wasn't yet one), and not as the Plaintiff's employer. The Court allowed the case to go forward. As time passes it will be interesting to see what damages the Plaintiff suffered (presuming she wins) given that her job seemingly could have been terminated a few days later after the swearing in ceremony took place.
Although this case will likely never impact the average person, it does highlight a few key points to remember. First, details, contracts, or laws can never be read too carefully when making crucial decisions. And second, if you are facing a problematic situation, engaging competent and creative counsel is important.

Hypothetical Analysis of the Erin Andrews Verdict

Recently, the topic of the Erin Andrews Nashville lawsuit against Michael David Barrett, West End Hotel Partners and Capital Group (hotel owner and operator franchisees), and Marriott International has been in the news. On March 7, 2016, a jury found that Mr. Barrett was 51% liable to Ms. Andrews and that West End Hotel Partners/Capital Group were 49% liable to Ms. Andrews for Mr. Barrett's actions in surreptitiously filming Ms. Andrews nude in her hotel room. The jury awarded $55M as the total amount of damages. Earlier in the year, the Judge dismissed Marriott International, finding that the franchisee, not the franchisor, was responsible for security at the hotel.
This case is interesting on several levels. However, for brevity, we'll look at the damages here. First, how does Tennessee's adoption of comparative fault affect the numbers? Presuming the verdict stands as it is now (uncertain as an appeal is likely), then Ms. Andrews can recover 49% of the total award from the hotel franchisees and 51% of the total award from Mr. Barrett. But, let's make a few reasonable assumptions. First, Ms. Andrews likely owes her attorneys anywhere from 33% to 50% of the total award, which comes off the top. So, using the lower percentage, about $18 Million is allocated to the attorneys, leaving about $37M. Second, Mr. Barrett is in prison and is likely broke. Thus, the approximate $28M he owed, will be uncollectible. What about the franchisees? They still owe about $27 Million and likely are collectible. But, remember, the attorneys get paid first ($18M), which leaves about $11M for Ms. Andrews.
Second, where does the franchisees' money come from? Insurance? Bank accounts? Assets? There is likely insurance, but, let's assume that the policy is a general commercial liability policy capped at $10M (this would be a large policy as many businesses carry lower amounts). Let's also assume that the carrier doesn't raise any policy defenses to payment. So, the carrier pays $10M and the franchisees need to scrape up the remaining $17M. Presuming this amount isn't sitting in their bank accounts, the franchisees will need to find other ways to pay this debt or Ms. Andrews's legal team may begin aggressive collection efforts.
Third, what about an appeal? If the franchisees appeal, Ms. Andrews's legal team presumably will insist upon the franchisees obtaining an appeal bond securing their portion of the judgment. Anyone want to underwrite that $27M bond?
All of this is important, but usually omitted from the headlines. But, in reality, getting paid on your judgment is the part that is most near and dear to the client's heart. Working with competent counsel enables one to understand the nuances of this process and to be fully informed about making crucial decisions.

Property Damage Appraisal Methods in Insurance Contracts

Insurance policies are often an overlooked part of our day-to-day lives. However, when a claim must be made, those overlooked (or never read) provisions may limit your recovery. After over four years of arguing and litigation, two homeowners may have learned this lesson.

In the case of Thomas v. The Standard Fire Ins. Co., et al., a home in Chattanooga suffered extensive storm damage in April 2011. Over 130 trees on the property were damaged along with the house. The homeowners turned in a claim and quickly reached an agreement on the value of the tree damage. However, the insurance company and the homeowners had differing opinions on the cost to repair the home. The difference in estimates is unknown; however, the court noted that a neutral umpire found the damage to be approximately $133,000. The homeowners were unhappy and sued.

At issue in the lawsuit was the appraisal process contractually agreed to by the homeowners and the insurance company. In short, the appraisal process stated that if the parties can't agree on the repair estimate, then each party will pick an independent appraiser, and, if those two can't agree, they will then select a "competent, impartial umpire" to determine the cost of the repairs. This was the process that the parties agreed to, and did, follow, yet the homeowners were unhappy with the resulting number.

Both the trial court and court of appeals found in favor of the insurance company. The courts concluded that the appraisal process was not an arbitration clause subject to the Uniform Arbitration Act. Further, the courts found that the homeowners did not take issue with the appraisal clause or practically any part of the process taken under the clause. Rather, they just wanted more money. The courts found that this was not a sufficient reason to vacate the umpire's finding, and further that the valuation should stand, as the umpire clearly acted within the scope of authority granted to him under the appraisal clause. In other words, the homeowners were stuck.

Although insurance policies are often non-negotiable, there are a multitude of carriers which may offer differing policy terms and valuation methods. Understanding what such policies say upfront can be helpful in knowing what you are or are not entitled to as an insured. Further, understanding the policy is crucial in determining the appropriate path to resolve disputes should they arise.    

Sirens, Flashers and Car Crashes

I had the privilege of trying a case with a skilled and hard-working local trial attorney, Flossie Weil, in late 2014. The Court of Appeals recently affirmed the favorable verdict.

The case of Jones, et al. v. Bradley County involved personal injury claims resulting from a motor vehicle crash between a responding emergency vehicle and another motorist, Ms. Jones. The emergency vehicle approached an intersection on a red light. The emergency responder testified that had his flashers and sirens on as he approached the red light. He further testified that he "eased into [the other driver's] lane of traffic" without being able to determine whether or not the lane was clear. It turned out that the lane wasn't clear and he struck Ms. Jones’s vehicle, resulting in serious injuries to Ms. Jones.
Since the emergency responder was working at the time of the accident for the County, the suit was filed as a permissible claim under Tennessee's version of the Governmental Tort Liability Act. The case was tried over four days and resulted in a verdict in favor of Ms. Jones. The trial court, determined that the emergency responder was 60% at fault in causing the accident, notwithstanding his use of flashers and sirens. The court of appeals agreed and affirmed the judgment award in favor of Ms. Jones.
This case is illustrative for a few reasons. First, the mere use of flashers and sirens by an emergency vehicle does not remove the need for that driver to still use reasonable care. In this case, the driver's failure to clear all the lanes of travel before entering the intersection was one shortcoming. Second, the Government Tort Liability Act does not exist to prevent a person injured by an emergency vehicle, as here, to be left without recourse. Rather, these laws try to strike a balance between public and private interests. In Ms. Jones' case, her interests were protected as shown by the resulting favorable verdict. Third, establishing a theme is a crucial component to any trial. In this case, the theme of "he took a chance" carried through at trial and into the court of appeals, which cited to the emergency responder's admission that he did, in fact, “take a chance,” as the court went on to ultimately uphold Ms. Jones’ verdict.

Personally Guaranteeing Company Debt

One of the benefits of forming a company instead of operating as a sole proprietorship, is to try and limit personal liability for company debts. Generally, an owner of a company is not liable for the company's obligations so long as the company and its owner act as distinct and separate entities. However, in practice, personal liability cannot always be guarded against, especially when the company's owner signs a personal guaranty.
In the recent case of Cardinal Health 108, Inc., et al. v. East Tenn. Hematology-Oncology Associates, P.C., et al., a physician medical practice entered into a credit application with a specialty pharmaceutical supplier for various medications. As part of the application, the three physician-owners of the medical practice company each signed a personal guaranty for all supplies purchased. The medical practice racked up over $1.2 Million in unpaid orders and the supplier demanded payment. Ultimately, the supplier filed a lawsuit and obtained a judgment against the practice as well as the individual practice owner physicians. The Court of Appeals affirmed the judgment.
Personal guarantees may appear inescapable as many business owners find that suppliers or lenders require such documents. However, in negotiating for any business transaction which seemingly requires such a guaranty, it never hurts to try to negotiate the guaranty out of the transaction, a limitation on the amount guaranteed, or simply negotiate with other suppliers who may not require such agreements. If a guaranty is in place, however, and a dispute arises between the company and the supplier, care must be taken in the approach to resolving that dispute, or more than just the company's assets will be at stake. Legal counsel can be helpful with both the negotiations as well as if a dispute arises.

Family Business Woes

Family businesses are everywhere. They often start with an idea, a part-time job, and a transition to full-time work. Running a business involves understanding a myriad of employment laws, tax issues, and filing requirements, all on top of simply trying to make a profit. More often than should occur, family run businesses fall short in one crucial area – transitioning from current to successive owners while instilling that founder mindset in second or third generations. The recent case of Carlene Guye Judd v. Carlton Guye, et al. highlights these issues.
In short, the parents started a business in 1961. They had two children. In 1995, the parents incorporated the business. One year later, the parents and both children entered into a series of agreements, whereby all shares in the company were sold equally to the two children, with the company making the required payments.
In 2013, Carlene Judd, the daughter/sister, became concerned that Carlton Guye, the son/brother, was misusing company funds for his own personal benefit. Ms. Judd sued her brother to recover the misused funds and to judicially dissolve the company. These issues went to trial and Ms. Judd won. The court ordered the company dissolved and found that Mr. Guye misused company funds. The parents appealed, but neglected to have the order stayed (halted) during the pending appeal. By the time oral argument took place, the company's assets were fully liquidated.
The court of appeals never weighed in on the merits of the case because it found that the parents' failure to seek a stay made moot the entire appeal. Compounding the founding parents' problems, the court of appeals additionally found the appeal frivolous and awarded Ms. Judd her attorneys' fees in defending against the appeal.
Without weighing in on whether the case was lost due to procedural or substantive reasons, it can't be overlooked that the family business, which existed for four decades, is now shut down completely. Readers are left to ponder whether the involvement of trusted legal and financial counsel earlier in the company's history may have helped to safeguard against the problems of greed which apparently afflicted one of the second generation owners. Unfortunately, absent such safeguards, litigating this type of dispute can be costly and involves an understanding of both corporate and trial law. In the end, it is unclear if this case saw any real winners.

Whether a Funeral Home Consumer Expects to Arbitrate

After a rather lengthy, albeit unintentional hiatus, we are back and looking at a topic previously explored but apparently recurring: whether arbitration clauses in certain consumer contracts are enforceable.

In the recent case of Akilah Wofford, et al. v. Edwards & Sons Funeral Home, Inc., et al., the Court of Appeals said no. The case turned on the discussions had and paperwork signed over a two day period following the death of Ms. Wofford's father. Three days after her father died, Ms. Wofford began making the funeral arrangements with Edwards & Sons Funeral Home which included embalming, ordering a casket, and the general cost of the funeral home's services. Ms. Wofford signed a document titled "Statement of Funeral Goods and Services" that day too. The following day, Ms. Wofford was asked to return and complete the final paperwork, which she did. Unlike the first day's documents, however, the final paperwork included a clear, all capital letters, and bold notice of an arbitration clause directly above Ms. Wofford's signature line. However, the notice referenced a "part 3" containing the actual arbitration clause, which was never given to Ms. Wofford. 

Eventually a dispute arose, Ms. Wofford sued, and Edwards & Sons moved to compel arbitration. Sadly, the dispute dealt with Ms. Wofford's class action claims involving the alleged improper handling of human remains at the cemetery. The Court of Appeals noted that although arbitration clauses are enforceable and favored in Tennessee, parties "cannot be forced to arbitrate claims that they did not agree to arbitrate." On the record before it, the Court concluded that Ms. Wofford didn't agree to arbitrate her claims and thus, the clause was unenforceable. The Court found that the signed notice referencing the actual arbitration clause in part 3 without giving part 3 to Ms. Wofford was not enough. The Court went even further, however, and found that the particular contract was a contract of adhesion (i.e. Ms. Wofford had no realistic chance to negotiate its terms differently in light of the multiple day signing period) and that the arbitration clause was unconscionable.

Several important items can be learned from this case including not just what the contract says, but how it's presented and under what time period. Also, clients in emotionally taxing situations such as funeral home service providers, should be especially mindful of these issues.

Undue Influence and Will Contests

We've reviewed several cases which show the value of proper estate planning through the lens of post-death lawsuits. This week's case is another example. However, the facts can be read to either support the argument that the son tampered with his dad's will or that the dad truly wanted to leave an unbalanced estate to his children. In any event, the litigation was costly to the entire family.
Without getting into the lengthy, but interesting, fact pattern, the decedent, Doyle I. Dukes, had seven children from two marriages. At one point, Doyle was a successful jewelry store and rental unit owner despite only finishing fourth grade. As he aged, there was conflicting evidence that he suffered from dementia and may have been susceptible to undue influence. Most of his life, Mr. Dukes treated his children equally, but in his later years he seemingly relied more on one son, Doyle E. Dukes, than other children.
Prior to passing away in 2009, Mr. Dukes executed a will in 2007. The 2007 will left $1,000 to each of his children, but the balance of the estate passed to his one son, Doyle E. Dukes. Several of the other children challenged the will primarily arguing that it was the result of the son's undue influence. Both the trial court and the court of appeals agreed, and they invalidated the will and found that the estate passed equally to all the children.
The evidence can be presented in ways to either show that the son's actions were selfish or that the decedent truly wanted to effectively disinherit his remaining children. In the end, however, the court found that it was the son's motives that drove the drafting of the 2007 will, despite the fact that the decedent hired an attorney to draft it. The moral of this story, if you're planning on making alternative or unbalanced estate planning decisions, it's important to document those choices in conjunction with an attorney who understands the family dynamics and possible implications of such choices. Additionally, if you're an heir facing an uneven distribution with suspicion of wrongdoing by other heirs, your rights aren't necessarily foreclosed, and competent counsel can help guide you toward understanding those rights and resolving such disputes.
In re: The Estate of Doyle I. Dukes, No. E2014-01966-COA-R3-CV, (Tenn. Sept. 11, 2015).

Quitclaims and Partitions

Real estate is often one of the larger assets someone owns, and it can form the basis around which proper estate planning occurs. However, when no organized plan is put in place, then there is often room for issues and, in some cases, litigation. A surviving brother and sister recently found this out.
The deceased mother had two children, a son (B.F. Bunch) and a daughter (Honey Bunch). The mother once owned 35 acres of land. In 1994, the mother executed a quitclaim deed giving approximately 17 acres to herself and her daughter with rights of survivorship. The mother kept the remaining approximate 17 acres in her own name. The mother died in 2010 and in 2012, the daughter sued her brother for partition asking the court to either equitably divide the real estate or if that wasn't possible, to sell off the remaining 17 acres and split the proceeds between the brother and the sister. The brother also sued alleging that the 1994 quitclaim deed was the product of the daughter's undue influence over their mother, fraud and that the mother lacked capacity.
A trial eventually took place and the court at first ordered the property to be split, but after further disagreements between the siblings, ordered the property to be sold. The trial court also found that the 1994 deed was valid and thus the sister owned 17 acres outright, while the brother and sister owned the remaining 17 acres jointly. The court of appeals upheld the trial court, thus confirming the sale.
Although sad, it is far too common to see family members left arguing over money or property long after an ancestor passed away. In this case, proper estate planning may have helped avoid the litigation entirely. However, in the absence of such planning, hiring competent counsel to handle the litigation is important.
Honey Bunch v. B.F. Bunch, No. E2014-02121-COA-R3-CV, (Tenn. Oct. 15, 2015).

Fire Loss and New Home Construction

Lawsuits often involve the interplay of several theories of recovery (e.g. breach of contract, negligence, etc.) and after-the-fact critiquing of the parties' actions (e.g. was insurance purchased?, what did the construction contract say?, who was the last to leave the property?, etc.). Skilled attorneys can help clients both plan for certain contingencies as well as craft arguments if litigation commences. The recent case of Jenkins v. Big City Remodeling, et al., highlights such concepts.
In sum, the Jenkins hired a general contractor ("GC") to build a house. The GC and the Jenkins entered into a construction contract with neither party seemingly understanding all the terms (more on this below). The GC hired subs to do the work. The flooring sub apparently left flammable rags behind along with discarded cigarette butts. The house exploded and burned to the ground (captured on a neighbor's security camera). Everyone blamed everyone else and a lawsuit commenced.
Although the case dealt with numerous interesting issues, only two will be addressed here.
First, the homeowners never procured "all risk" insurance as specifically required by the construction contract. At the trial court level, the court found that this was a material breach by the homeowners and thus, the GC was off the hook. The court of appeals reversed this finding, but the import here is that if a person is entering into a contract (especially as important as building a 6,000 square foot home), then that person really ought to read, understand, and follow the contractual obligations.
Second, notwithstanding the video evidence of the flooring sub being the last to leave the house before the fire, the evidence that flammable rags were left out, and the evidence that the flooring sub didn't dispose of cigarettes butts properly, the trial court still dismissed it as a party finding that the Jenkins failed to meet their legal burden of proof. The court of appeals however, reversed, noting that this was a jury question.
The case makes for an interesting read and the saga between these parties isn't yet resolved. However, hopefully by now the GC took a closer look at its contract documents, the flooring sub learned how to dispose of flammable rags and cigarette butts, and the homeowner found the phone number of its insurance agent.

Jenkins v. Big City Remodeling, et al., No. E2014-01612-COA-R3-CV, (Tenn. Sep. 29, 2015).

Arbitration and Nursing Home Admittance Agreements

Last week we looked at the perils of not having a well-crafted estate plan in place. This week we examine a component of a well-crafted estate plan - a health care power of attorney - in light of a nursing home admittance, and why fully understanding both sets of documents is crucial.

In the recent case of Bockelman, et al. v. GGNSC Gallatin Brandywood, LLC, et al., Mrs. Wilson appointed her daughter, Billy Bockelman, to serve as her health care agent. The specific power of attorney that Ms. Wilson signed only triggered the health care agency when Ms. Wilson could no longer make health care decisions on her own. In 2010, a physician declared that Ms. Wilson lacked mental capacity. 

Thereafter, Ms. Bockelman admitted her mother to a nursing home where she executed all of the admission forms as her mother's health care agent. One such form was an agreement which stated that any disputes with the nursing home must be arbitrated.

Ms. Wilson subsequently died and her daughter filed a lawsuit for several claims, essentially asserting that the nursing home was negligent. The nursing home moved to compel arbitration, which Ms. Brockelman opposed. In opposition, she testified that she didn't read the papers she signed, that her mother in fact had capacity, which rendered the health care power of attorney ineffective, and that the arbitration agreement was not a health care decision which she had the power make as her mother's agent.

Both the trial court and the court of appeals disagreed and found that the arbitration agreement, as part of the nursing home admittance packet, was a health care decision, even though it was not a prerequisite for admission. Further, the court reasoned that the arbitration agreement was not unconscionable, and hence, it was enforceable.

In practice, arbitration agreements appear in numerous contracts clients likely see daily. They can be either effective or completely ineffective depending on the circumstances. Further, arbitration may not be desirable in every situation, yet often clients will include arbitration agreements in their contracts without really considering all of the pros and cons of it and whether such a clause actually fits the transaction, let alone is enforceable. Finally, regarding the health care power of attorney, having such a form in place is a great first step, but clients should understand how and when to properly use it. 

Estate Planning Choices

The failure to carefully and deliberately plan your property distribution choices upon death can result in unnecessary expenses, heartache, and in some cases litigation. A recent appellate case showcases this. In the case of In re: Estate of Warren Elrod, the decedent (i.e. person who died) had a biological son born in 1966 from his first marriage. The first marriage ended in divorce a few years later. In 1973, the decedent remarried a woman who was already the mother of two of her own children. The decedent treated his new step-children as his own and had a strong and active relationship with both of them until the day he died, forty years later.
His relationship with his biological son, however, was not as smooth. Essentially, the decedent and the biological son had little to no contact (seemingly not by the choice of the decedent) until the 2000's. Thereafter, the relationship appeared to consist nearly exclusively of the decedent sending birthday and holiday cards with almost no reciprocity from the son.
At the time the decedent died, he had a written will which split the estate into equal thirds between the two stepchildren and the biological son. Evidence was introduced to the court that that decedent intended to remove his biological son from the will, but this step never occurred before the decedent died.
The decedent also owned an IRA at the time of his death which listed his spouse as his primary beneficiary and his "children" as the secondary beneficiaries. (An IRA with a living beneficiary does not pass via the will, but instead per the beneficiary designation.) The decedent's spouse died before him, and thus the primary beneficiary failed. The biological son claimed that he was the only "child" under the IRA and as such, should take 100% of it as the secondary beneficiary. The stepchildren disagreed.
The case touched upon numerous interesting legal issues but eventually, the court concluded that the IRA would pass to all three "children" equally (i.e. consistent with the will). Ultimately the court appears to have made the most logical decision based on the facts as presented. But, the sad part of this case is that the outcome could have been avoided with an estate plan that included a review of the decedent's property and financial account beneficiary designations. In the absence of such pre-planning, the parties were forced to spend time and money arguing their positions in court.
In re: Estate of Warren Elrod, No. E2014-02205-COA-R3-CV, (Tenn. Sep. 10, 2015).

Business Purchase Agreement Litigation

Last week we examined an appellate case dealing with a poorly thought out severance agreement. This week's case involves the purchase of an existing insurance agency that didn't produce the post-sale level of business the buyer expected. When business wasn't as good post-sale, the buyer sued the seller for fraud, breach of contract, that the seller failed to shred the old client files as promised, and allegations that the seller improperly diverted business to his wife's competing insurance agency. The seller also sued the buyer when the buyer failed to make the monthly payments on the promissory note for the purchase of the business assets. The seller additionally claimed that the post-sale agency suffered business losses due to the poor management of the buyer.
The case was tried to a Judge. The Court eventually found that the seller failed to shred all the files as agreed and therefore breached the contract. However, the Court noted that the seller's breach was not material, and thus the buyer was not relieved of its obligations to pay on the note. Rather, the Court noted the buyer's after-the-fact arguments of breached contract were hyper technical. Further, the Court found that the buyer fully disclosed all matters to the seller before closing and thus the seller had a complete picture at the time of the sale. Finally, the Court found that the buyer not only owed the remaining balance of the promissory note, but that the payments were accelerated so that the entire balance was now due. In other words, the buyer lost.
Buying or selling a business or its assets requires careful deliberation, time, and attention to details. This process necessarily involves working with professional advisors in the accounting and legal industries. Crafting the correct documents in advance is crucial, although this doesn't guarantee that litigation won't occur. When litigation does arise, as in this case, understanding the issues and big picture as opposed to relying on hyper technical arguments may result in a smoother resolution.
Ensures, LLC v. Douglas S. Oliver, et al., No. M2014-00410-COA-R3-CV, (Tenn. Aug. 31, 2015).

Contracts are Enforceable

If you think you may change your mind about the terms in a proposed contract, don’t sign it. One farmer’s co-op apparently had a change of heart, which resulted in a $380,000 mistake.
In the recent case of Hensley vs. Cocke Farmer’s Cooperative, the employer, Cocke Farmer’s Cooperative, entered into a written agreement with a senior level employee, Jimmy Hensley, which was designed to induce him into ceasing his job search and retiring with the co-op. To provide him with incentive to sign, the co-op essentially guaranteed his salary and health insurance through 2024 – 14 years after signing the contract. Mr. Hensley was convinced. He quit job searching and signed on the dotted line, testifying at trial that he planned to retire with the co-op.
A mere 3 months later, the co-op had a change of heart and terminated Mr. Hensley. He sued for breach of contract. In Court, the co-op argued the contract – presumably drafted by the co-op – was vague, ambiguous, unenforceable, and lacked consideration. The Court didn’t buy it and found in favor of Mr. Hensley awarding him $380,000 in accrued benefits plus health insurance premiums through 2024.
Employment issues, as seen last week, are often intertwined with other legal and practical considerations. In this case, it appears that the lack of attention to all these issues led to this very costly financial and HR mistake.
Hensley v. Cocke Farmer’s Cooperative, No. E2014-01775-COA-R3-CV, (Tenn. Aug. 31, 2015).

When Not Hiring Someone Results in a Lawsuit

Tennessee, like many states, recognize employment at will – either the employee or the employer may terminate the employment with or without cause, so long as the firing doesn't fall within a public policy or statutory exception. One such exception prevents an employer from firing an employee simply because the employee filed a workers' compensation claim.
What happens when a prospective employer refuses to hire an applicant for the stated reason that the applicant filed a workers' compensation claim with her former employer. A hospital cleaning company in Lebanon, Tennessee recently found out when Kighwaunda Yardley sued it for failing to hire her. Ms. Yardley acknowledged that Tennessee law didn't currently permit such a suit, but argued instead that the Court should create such a law based on public policy grounds. She argued that the absence of this private cause of action would have a chilling effect on employees who were afraid of filing workers' compensation claims.
The Tennessee Supreme Court disagreed with Ms. Yardley, holding that "a job applicant does not have a cause of action under the Tennessee Workers’ Compensation Act against a prospective employer for failure to hire if the prospective employer refused to hire the job applicant because that applicant had filed, or is likely to file, a workers’ compensation claim against a previous employer." In other words, the Court told Ms. Yardley that she couldn’t sue for not being hired.
Surprisingly, the Court noted that several states including Florida, Illinois, Louisiana, Maine, and Massachusetts have statutory provisions expressly allowing claims for "retaliatory failure to hire." Maybe had Ms. Yardley not been hired in one of these other states she would have a claim. But, not so in Tennessee.
Employment issues such as hiring and firing implicate numerous state and federal laws and are often ripe with litigation. Employers need to guard against such litigation by making sure that they understand their obligations, while employees who have been wrongfully terminated may find that their rights were in fact violated. But, not so for Ms. Yardley. 

Read Carefully and don't Procrastinate

When buying or selling real estate, it's a good idea to make sure the deed actually conveys what you intend to covey. However, if it doesn't, acting sooner rather than later to correct the deed is preferable to waiting 2 ½ years.
In the recent case of Brenda Benz-Elliott v. Barrett Enterprises, LP, et al., the Court discussed the nearly 7 year history of litigation between the buyer and seller which included at least 1 trip to the Tennessee Supreme Court. In essence, the litigation resulted from an omission in the real estate deed which failed to include the seller's reservation of a 60-foot strip of land providing her road access to her remaining 86 acres of land after agreeing to sell 5 acres to her neighbor, the noted firearms manufacturer. The sales contract specifically reserved the strip of land, but whoever drafted the deed of conveyance apparently failed to include the reservation and the property was conveyed without the reservation.
Once the seller realized the mistake – 2 ½ years after the property was sold – she requested a deed of correction, but was rebuffed, thus setting in motion nearly a decade of litigation. Eventually, the seller prevailed, received monetary compensation, and ended up with a road leading to her back acreage. In prevailing, she defeated several seemingly reasonable arguments that she waived her right to enforce the contract by waiting as long as she did to bring suit. Fortunately for her; however, the Court found her suit to be timely.
One can only wonder how much money and time could have been saved had the seller paid more attention to her deed before signing it or at least read it before 2 ½ years passed.
Brenda Benz-Elliott v. Barrett Enterprises, LP, et al., No. M2013-00270-COA-R3-CV, (Tenn. Ct. App. Aug. 14, 2015).