The KBC Report
A Quarterly Judicial Review
Volume I, Issue 3
The third quarter brought important developments. Key among them is the watershed economic-loss-rule decision in Milan Supply Chain Solutions Inc. v. Navistar Inc., holding that a sophisticated purchaser cannot bring a tort claim to recover economic losses allegedly caused by a misrepresentation about the character or quality of purchased goods. (Disclosure: Bulso PLC is counsel to Navistar in that case.) This result will limit commercial actors to remedies set out in their contract or provided by the UCC: these latter are extensive, but they require decisive action soon after defects are discovered. Milan didn’t take those steps, so the loss of its tort claim (and of a TCPA claim barred by the plain text of the statute) left it without a remedy.
Other highlights include a bevy of decisions related to arbitration from the Sixth Circuit, a forum-selection decision, and a Fifth Circuit lesson on what the Lanham Act permits and prohibits in terms of using competitor’s trademarks to generate search results for your business. In Regions Bank v. Prager, the Tennessee Supreme Court attempts to ameliorate the harsh result that would otherwise result for a plaintiff who followed a trial judge’s erroneous advice about whether he was allowed to refile a case. Watch out for the unintended consequences of that decision. And do not expect similar outcomes in other courts. See, e.g., Weissman v. Dawn Joy Fashions Inc., 214 F.3d 224 (2d Cir. 2000) (finding rule 50 untimely when filed outside bounds set by rule but within longer period allowed by trial judge).
As always, I hope you find the KBC Report useful, and perhaps entertaining. You can subscribe to emails via the website, or sign up for updates via RSS. You can also follow us on Twitter. If you have comments or questions, feel free to send them my way.
St. Luke’s Hospital v. ProMedica Health System Inc., 8 F.4th 479 (6th Cir. 2021)
Defendant had a contract with plaintiff, under which plaintiff was an “in-network” provider for defendant’s healthcare plan. A contingency in the contract that allowed defendant to terminate it transpired (plaintiff was purchased by third party). But does defendant’s termination of the in-network agreement violate the Sherman Act? The economic factors guiding the Sherman Act inquiry suggest not (i.e., it made legitimate economic sense for defendant to do this); also, if it were a violation, there would be a damages remedy: so the preliminary injunction requiring the parties to keep working together is dissolved.
Guerry v. Jenkins, E2020-0709 (Tenn. Ct. App. July 30, 2021)
Plaintiff gets a $1 million judgment against defendant on a promissory note. Wait! Defendant appeals, saying he only promised to pay $14,000 in the note. Court of Appeals: too bad; you needed to make that argument to the trial court, and one oblique sentence at hearing is not a sufficient presentation below to have preserved the argument. Issue waived, judgment affirmed.
Robinson v. Robinson, No. E2021-0034 (Tenn. Ct. App. Aug. 20, 2021)
If you appeal two issues, but don’t set out an argument in favor of the first issue and rely for documents not contained in the record for your second issue, what will happen? Lola Robinson found out: the court will affirm and impose frivolous-appeal sanctions.
Boykin v. Family Dollar Stores of Michigan LLC, 3 F.4th 832 (6th Cir. 2021)
Plaintiff sues Defendant, and Defendant claims the parties have an arbitration agreement. What’s the proper vehicle for asserting that claim, how does the court review it, and what does a plaintiff have to do to withstand the motion and get to trial? The 6th Circuit answers all those questions and more under the Federal Arbitration Act. (Here, incidentally, the Plaintiff will get a trial on whether he signed the arbitration agreement the Defendant claims he signed.)
Southard v. Newcomb Oil Co., 7 F.4th 451 (6th Cir. 2021)
If your employee handbook says you “agree to Alternative Dispute Resolution,” without saying that such resolution will be arbitration, can you be compelled to arbitrate under the FAA? Not in the Sixth Circuit. Come for the quick primer on “what is an arbitration agreement” and stay for the refresher on permissible abstention from supplemental jurisdiction.
Regions Bank v. Crants, No. M2020-1703 (Tenn. Ct. App. Sept. 1, 2021)
You have an arbitration agreement governed by the Federal Arbitration Act. You want to enforce the agreement in State court. What statute governs the procedural aspects of the case? The State arbitration act. Here, that’s the Tennessee Arbitration Act, which (like the Federal Act) does not allow appeals as of right from orders staying litigation and compelling arbitration, even if the order includes a directive that a party pay the arbitration expenses.
AtriCure Inc. v. Meng, 12 F.4th 516 (6th Cir. 2021)
The Plaintiff signed a distribution agreement with a company called ZenoMed, and that contract contained an arbitration clause. The Plaintiff, however, sued ZenoMed’s owner, Meng, and another related company, prompting Meng and the related company to invoke the arbitration provision in ZenoMed’s contract. Can they, as nonparties, do that? The answer to that question turns on whether state law would allow them to enforce the contract generally. The Sixth Circuit concluded that inquiry (under Ohio law) entailed a fact question for one defendant, so it remanded.
Sound Inpatient Physicians Inc. v. Carr, No. 20-6440 (6th Cir. 2021)
If two parties agree to have certain disputes resolved by a neutral third party, and that arrangement has the four fundamental features of arbitration, is the agreement an arbitration agreement even if the parties don’t call it that? You bet. Here, that means the Defendant, who prevailed in proceedings before the “expert accountant” chosen to resolve their dispute, wins.
State v. Delinquent Taxpayers 2015, No. W2020-0981 (Tenn. Ct. App. July 20, 2021)
Can a trustee appear pro se on behalf of the trust? No. Appeal dismissed for want of a proper appeal (and the trial court properly prevented the trustee from appearing pro se below). Query whether this the correct rule in light of the principle that the trustee, and not the trust, is the sole party capable of suing and being sued.
Alliance WOR Properties LLC v. Illinois Methane LLC (In re HNRC Dissolution Co.), 3 F.4th 912 (6th Cir. 2021)
If you sell the gas rights to a coal mine to another company and then file bankruptcy, you are going to have to notify that company. The debtor here didn’t, and its 363 sale of the mine failed to extinguish the purchaser’s rights to extract gas and collect related payments from the coal operator. Because the purchaser was well-known to the debtor and maintained the same registered agent as when the sale originally took place, and because Illinois law made its interest a vested covenant running with the land, the purchaser was entitled to better notice than newspaper publication.
Potter v. Commissioner of Social Security, 9 F.4th 369 (6th Cir. 2021)
A putative class action tolls statutes of limitations for members of the class. Here, the Sixth Circuit holds (possibly splitting with the Fourth) that denial of a motion for certification entered administratively, without prejudice as a docket-clearing mechanism, does not restart the limitations clock. But the dismissal of an uncertified action does restart it, even if that decision subsequently goes up on appeal.
City of Morristown v. Ball, No. E2020-1567 (Tenn. Ct. App. Sept. 29, 2021)
Factually, this case is a maze of issues related to sewage treatment, foreclosure sales of choses in action, trusts, and LLC dissolution. Legally, it poses the question of whether disputes over the manner of a contract’s performance are sufficient to preclude judgment on the pleadings over its enforcement. The answer to that question is “yes,” at least if the parties have competing plausible theories about the contract’s interpretation, one of which is supported by claims in the pleadings of a given course of performance.
Los Pumas Concrete v. Harmony Hospitality LLC, No. M2020-0956 (Tenn. Ct. App. Aug. 11, 2021)
Landowner hires a contractor to build a hotel, and landowner pays the contractor for some (but not all) of the concrete work on the project. The contractor doesn’t get paid the rest because it goes out of business and fails to pay even more of what is owed the subcontractor. The subcontractor sues in unjust enrichment and prevails: the owner does not escape liability by having paid something to the prime contractor, because it paid less than the concrete services were worth. Several procedural missteps by the owner, such as attempting to rely on affidavits by persons without personal knowledge, do not help its case.
Economic Loss Doctrine
Milan Supply Chain Solutions Inc. v. Navistar Inc., 627 S.W.3d 125 (Tenn. 2021)
If you buy trucks, and later decide you were misled about the durability of the trucks, can you keep them and sue for fraud, instead of returning them and suing under your contract? No: given “a contract between sophisticated commercial business entities and a fraudulent inducement claim seeking recovery of economic losses only, the economic loss doctrine [bars the tort claim] if the only misrepresentations by the dishonest party concern the quality or character of the goods sold” (cleaned up).
Ellis v. Duggan, No. E2020-0723 (Tenn. Ct. App. Sep. 10, 2021)
Defendant, holding power of attorney for her elderly, ill aunt, receives a house worth $175,000 from the aunt. And the Court of Appeals holds that was a violation of her power of attorney (which prohibited gifts to the agent) and an undue-influence transaction (the background and “suspicious circumstances” take thirty pages to relate). The Court also holds that a common-law exception to the American Rule entitles the plaintiffs to their attorney’s fees.
Johnson v. Tomcat USA Inc., No. E2021-0057 (Tenn. Ct. App. Aug. 24, 2021) (via interlocutory appeal)
Plaintiff, a Tennessean, and Defendant, a business located in Tennessee, sign a contract related to Plaintiff’s work in Tennessee. The contract contains a forum-selection clause naming New York. Does the clause require dismissal of Plaintiff’s Tennessee lawsuit? No, because New York is a sufficiently inconvenient forum in which to litigate a claim centered on Tennessee, and for which all the witnesses are in Tennessee, that the forum-selection clause is unenforceable.
Bash v. Textron Financial Corp., 13 F.4th 547 (6th Cir. 2021)
Textron has a revolving-credit agreement with a company called Fair Finance. Eventually, it (rightly) begins to suspect Fair Finance is a Ponzi scheme. Are the payments Fair Finance made to Textron under their credit agreement fraudulent transfers? No. Textron had a valid lien on the assets used to pay it, and that lien was perfected at the beginning of the parties’ relationship, before Textron knew about the Ponzi scheme. Textron’s alleged bad faith afterwards did not invalidate its lien under the Uniform Fraudulent Transfer Act, making the payments nonfraudulent.
Medders v. Newby, No. M2020-01094 (Tenn. Ct. App. July 6, 2021)
Plaintiff 1 buys a car for his fiancée, Plaintiff 2. But Plaintiff 1 doesn’t add the car to his insurance, and Plaintiff 2 has a “non-owner’s” policy that excludes coverage for vehicles “available for [her] regular use.” Does either Plaintiff’s policy cover the car when it is hit by an uninsured motorist? No: bench judgment in favor of the insurance carrier affirmed.
Moorehead v. Tennessee Farmers Mutual Insurance Co., No. M2020-1319 (Tenn. Ct. App. July 13, 2021)
Policyholder plaintiffs have an uninsured-motorist policy with specified limits. in the course of litigation the insurer and the policyholders sign a settlement agreement that requires that insurer “will pay” an amount that takes the insurer’s total payments over the limits. The agreement says nothing about the policy or its limits: is the insurer obligated to pay under the settlement agreement’s plain terms, even though the payment exceeds the policy limits? You bet. Judgment for the insurer reversed.
Sentry Select Insurance Co. v. Tennessee Farmers Mutual Insurance Co., No. M2020-0110 (Tenn. Ct. App. Sept. 24, 2021)
This is a case about dueling other-insurance clauses. One policy says it “is excess over any other insurance” and applies “only if the limits of all other insurance have been exhausted.” The other policy also has an other-insurance clause purporting to make it an excess policy, but only if there is “other insurance covering the same loss.” The Court of Appeals concluded that the first policy’s language prevented it from being “other insurance covering the same loss,” so the second policy became the primary insurance and the first policy the excess coverage. N.B. – the case includes a thorough overview of other-insurance cases in Tennessee and prevailing approaches in other states.
Turner v. WW Steeplechase LLC, No. E2020-0579 (Tenn. Ct. App. July 23, 2021)
The floor in plaintiffs’ apartment gave way, allegedly due to an oversized air vent. So the plaintiffs sued. But they didn’t present evidence that the landlord knew or should have known of the defect (their expert’s affidavit that he found a defect in the subfloor by removing the vent and carpet and measuring didn’t suffice), so their negligence claim was properly dismissed. Nor did the trial court err in dismissing a negligence-per-se claim based on a building code: the code applied to builders, not operators. (The plaintiff might have been able to salvage the negligence claim with a late deposition in which a management-company witness gave favorable testimony, but the plaintiff failed to raise the appropriate issue on appeal.)
Tiger Lily LLC v. United State Department of Housing & Urban Development, 5 F.4th 666 (6th Cir. 2021)
The Centers for Disease Control issued a regulation in 2020 prohibiting landlords from carrying out evictions, and it extended the regulation’s moratorium multiple times in 2021. Can the CDC do that? Not in the Sixth Circuit: injunction against enforcement of the eviction moratorium affirmed. N.B. – The Supreme Court reached essentially the same conclusion a month later in response to an application concerning a stay pending appeal in Alabama Association of Realtors v. Department of Health & Human Services, 141 S. Ct. 2485 (2021).
Hicks v. Chears, No. M2019-1428 (Tenn. Ct. App. July 29, 2021)
The defendants sign an agreement to lease a house from the plaintiff, with an option to purchase. But defendants don’t read the agreement and allegedly think they have a purchase agreement financed by the plaintiff. They never exercise the option. When defendants skip a payment over a dispute with the plaintiff and the plaintiff proceeds to evict them for default, who wins? The plaintiff does: the terms of the agreement were clear, so the defendants cannot claim fraud, equitable estoppel, or even unjust enrichment for the value of improvements, because the agreement’s terms clarified everything (including the impermissibility of improving the property).
Heatherly v. Off the Wagon Tours LLC, No. M2019-1582 (Tenn. Ct. App. Aug. 23, 2021)
One LLC act is good, but are two LLC acts better? The plaintiff may not think so: he filed his action to inspect the defendant’s books and records under the LLC Act applicable to entities formed before 2006, but this LLC was formed in 2016, so it falls under the Revised LLC Act. Thus the Court of Appeals vacated the trial court’s order entitling him to inspection and awarding him fees and costs. The good news? He might be able to get them back on remand, assuming the Revised Act supports his claim to them.
Whitford v. Village Groomer & Animal Inn Inc., No. M2020-0946 (Tenn. Ct. App. Sept. 17, 2021)
Causing water to flow onto and damage a neighbor’s property can constitute both a nuisance and a trespass. But what if a jury verdict finding no nuisance and no trespass is supported by material evidence (say, because, witnesses testify the defendant didn’t cause an increase in flow, and there could be an implied easement for the water that has long flowed)? Then the defendant will prevail on appeal, which is what happened here.
Adamo Demolition Co. v. Int’l Union of Operating Engineers, No. 20-1163 (6th Cir. 2021)
Plaintiff has Defendant union send it workers for a job, but claims the workers are too few, too inexperienced, and interfere with supplemental workers Plaintiff hires. Is the Plaintiff’s tortious-interference claim based on resulting loss of the job preempted by the Labor Management Relations Act in favor of arbitration under the parties’ collective-bargaining agreement? Yes, because the court would have to consider the agreement to determine if the union’s acts were improper, as required for the tort. Dismissal affirmed.
Canaday v. Anthem Companies Inc., 9 F.4th 392 (6th Cir. 2021)
Canaday, who worked in Tennessee for a corporation headquartered and organized in Indiana, filed a class action against that corporation under the Fair Labor Standards Act in Tennessee. Can the class include people who do not live in Tennessee? No, because the FLSA does not permit nationwide service of process and, under Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773 (2017), each claim must relate to the forum state somehow. Because those of non-Tennessean plaintiffs don’t, they couldn’t sue here: they have to go to the defendant’s home state or the state where they work.
Regions Bank v. Prager, 625 S.W.3d 842, No. W2019-0782 (Tenn. 2021)
Plaintiff fails to prosecute, so trial court sua sponte dismisses the case; under Rule 41.02(3), the order qualifies as a with-prejudice adjudication on the merits. The parties don’t discover the dismissal for ten months, upon which plaintiff moves for relief under Rule 60. The trial court refuses, but enters an order saying the prior order doesn’t prevent the plaintiff from refiling the lawsuit. The plaintiff refiles. The trial court then determines (per the plain terms of the Rule) that he was wrong, and that the earlier judgment does bar the second suit. What happens when plaintiff appeals? The Supreme Court says the order denying Rule 60 relief modified the parties’ rights and so constituted the true final judgment in the first case, while reflecting an intent not to dismiss the case with prejudice. The Supreme Court thus reinstates the second lawsuit. N.B. – Do not attempt to rely on this ruling in federal court, where the principles at issue are interpreted differently.
F&M Bank v. Fleming, No. M2020-1086 (Tenn. Ct. App. Sept. 28, 2021)
Bank sues defendant on a note; defendant files an answer pleading no affirmative defenses but purporting to “reserve all affirmative defenses … available.” Defendant never moves to amend his answer. Did the trial court commit reversible error by precluding him from raising an affirmative defense at summary judgment? No: the statement in the answer is not an affirmative defense, and there’s no abuse of discretion in declining to grant a motion to amend that is never filed. What about defendant’s Rule 56.07 motion for more time? Properly denied, because defendant didn’t explain what he would get with more time, and he served no discovery in the two years before the motion or the three months between its filing and disposition. Summary judgment for the bank affirmed.
Wilmington Savings Fund Society FSB v. Jackson, No. E2021-0300 (Tenn. Ct. App. Sept. 30, 2021)
Plaintiff sues Defendant in 2020 for breach of a promissory note that indisputably hasn’t been paid since 2007. But wait! Defendant moves for summary judgment, swearing that he received notice of acceleration in 2008 and that (as shown by a trustee’s deed) the deed of trust securing the note was foreclosed then, making the present suit time-barred. Plaintiff disputes the claim of acceleration, but does not produce supporting evidence. The failure to oppose the motion for summary judgment with evidence proves fatal: judgment for the defendant affirmed.
Ward v. National Patient Account Services Solutions Inc., 9 F.4th 357 (6th Cir. 2021)
The days of federal lawsuits over technical violations of statutes such as the Fair Debt Collections Practices Act appear to be over. Here, the defendant left the plaintiff a debt-collection voicemail in which it incompletely stated its corporate name. This neither “resembles a harm traditionally regarded as providing a basis for a lawsuit” nor inflicted a discrete concrete harm. Therefore, the plaintiff lacked the injury in fact needed to support Article III standing, resulting in dismissal.
Guidesoft Inc. v. State Protest Committee, No. M2020-0964 (Tenn. Ct. App. Sep. 2, 2021)
State law provides an administrative-review process for parties claiming to be aggrieved by a state contract-bidding process. The statute requires claimants post a bond—in one of four amounts. How to tell which applies? Look for the “one that addresses the State’s exposure under the proposed contract.” Still unsure? Post the amount the State’s Central Procurement Office tells you to post. Because the plaintiff calculated the bond for itself and posted far less than the CPO said (or the appropriate statutory calculation yielded), the CPO lacked jurisdiction over its protest; dismissal of application for writ of certiorari affirmed.
Statutes of Limitation
Riccardi v. Carl Little Construction Co., No. E2020-0678 (Tenn. Ct. App. July 26, 2021)
Defendant builds a condo, and the plaintiff buys the condo. Yikes! Cracks soon appear in the walls. But the defendant repairs the cracks for several years and tells the plaintiff the condition is “normal settling.” It turns out this isn’t true, and roughly seven years after completion the defendant admits not compacting the fill dirt under the foundation. That would support a finding of equitable estoppel or fraudulent concealment tolling the three-year statute of limitations (§ 28-3-105) and the four-year statute of repose (§ 28-3-202). Summary judgment in favor of the defendant reversed.
Jim S. Adler PC v. McNeil Consultants LLC, 10 F.4th 422 (5th Cir. 2021)
Defendant buys Google ads using plaintiff’s name, so that a generic result, linked to defendant’s business but not labeled as such, appears in search results for the plaintiff. Defendant then runs bait-and-switch marketing when searchers (intending to call the plaintiff) call defendant instead. Trademark infringement? Could be, says the 5th Circuit: using plaintiff’s trademarks to create customer confusion would be a Lanham Act violation, and the fact that the trademark use is hidden from view (it’s in the search code, not on the results page) isn’t dispositive. 12(b)(6) dismissal reversed. N.B. – the court made clear the result would be different if defendant had purchased ads that yielded results clearly labeled with its name. That’s “distraction,” which is legal, rather than “confusion,” which is not.