Tag Archives: Tennessee Contract Law

Tennessee Supreme Court Holds that Divorce Contracts Must be Enforced as Written

By Daniel Horwitz:

In a common-sense opinion that clarified a muddled conflict among lower courts, the Tennessee Supreme Court has held that fee-shifting provisions in divorce agreements must be enforced as written.  Offering a forceful defense of the right to contract, Chief Justice Bivins’ unanimous opinion in Eberach v. Eberach instructs all lower courts that they do not have any discretion to deny attorney’s fees to a prevailing party if a contract agreed to by both parties makes such an award mandatory.

Eberach involved litigation between a former husband and wife following their divorce.  In 2011, the couple divorced and entered into a “marital dissolution agreement,” or “MDA.”  In lay terms, an MDA is a binding contract that sets out the terms of a divorce.  Among other things, the parties’ MDA provided that:

“In the event it becomes reasonably necessary for either party to institute legal proceedings to procure the enforcement of any provision of this Agreement, the prevailing party shall also be entitled to a judgment for reasonable expenses, including attorney’s fees, incurred in prosecuting the action.”

Three years later, the ex-couple found themselves embroiled in litigation over the wife’s plan to relocate to Ohio with their three children.  Ultimately, the trial court granted the wife permission to move to Ohio and awarded her $20,000.00 in attorney’s fees.  Thereafter, the trial court’s decision was affirmed by the Court of Appeals, which upheld both the relocation and the trial court’s fee award.  However, the Court of Appeals declined to award the wife additional compensation for the attorney’s fees that she had incurred on appeal.

Upon review, the Tennessee Supreme Court observed that various tribunals of the Court of Appeals had “been inconsistent in their analysis of claims for attorney’s fees in cases in which the claim is based on a contractual provision in a MDA.”  One line of cases held that appellate courts have discretion to deny attorney’s fees to a prevailing party “even in the face of a controlling contractual fee provision requiring such an award.”[1]  Another line of authority held that “when a MDA fee provision mandates an award of attorney’s fees to the prevailing party, the Court of Appeals does not have discretion to deny an award of appellate attorney’s fees.”[2]  Additionally, a third line of cases “observed that an award of appellate attorney fees in Tennessee is within the court’s sound discretion,” but then went on “to award attorney’s fees on appeal solely on the basis of the parties’ MDA fee provisions without further discussion.”[3]

Clarifying this conflicting precedent, the Tennessee Supreme Court instructed with unmistakable clarity that “parties are contractually entitled to recover their reasonable attorney’s fees when they have an agreement that provides the prevailing party in a [lawsuit] is entitled to such fees.”   “In such cases,” the Court explained, trial courts “do[] not have the discretion to set aside the parties’ agreement and supplant it with its own judgment.”  The Court further instructed that “[t]he same is and must be true of our appellate courts.”  Thus, “[a]bsent fraud, mistake, or some other defect, our courts are required to interpret contracts as written.”

As a general matter, litigants in the United States must pay their own attorney’s fees regardless of whether they win or lose.  Under this so-called “American Rule”—to which Tennessee adheres—“a party in a civil action may recover attorney’s fees only if: (1) a contractual or statutory provision creates a right to recover attorney’s fees; or (2) some other recognized exception to the American Rule applies, allowing for recovery of such fees in a particular case.”[4]  “Otherwise,” as the Eberach court observed, “litigants are responsible for their own attorney’s fees.”  Of note, the general presumption that parties must bear their own legal fees places the United States at odds with the legal regimes of many European nations, which generally adhere to a “loser pays” framework.

The most common exception to the American rule is a private agreement between parties which provides that in the event of litigation, the loser must pay the winner’s attorney’s fees.  Significantly, in Eberach, the husband and wife had executed such an agreement.  Thus, the only question presented in Eberach was whether the Court of Appeals was required to enforce it.

Emphatically answering this question in the affirmative, the Court’s opinion in Eberach furthers Tennessee’s longstanding commitment to protecting the right to contract.  In Tennessee, the right to contract has constitutional origins, and it is enforceable as a fundamental right.[5]  Tennessee statutory law also provides that: “All contracts, . . . in writing and signed by the party to be bound, . . .  shall be enforced as written.”[6]  In keeping with this tradition, the Eberach court explained that “one of the bedrocks of Tennessee law is that our courts are without power to make another and different contract from the one executed by the parties themselves.”  As such, the Court mandated that the terms of the husband’s and wife’s MDA be enforced.

Having resolved that the wife was entitled to attorney’s fees for her successful litigation in the Court of Appeals, the Court then remanded the case to the trial court to “determine the appropriate amount of Wife’s reasonable attorney’s fees on the appeal.”  Additionally, applying its just-announced holding to itself, the Tennessee Supreme Court also explained that the attorney’s fee award must cover the costs of the wife’s appeal “to this Court” as well.  Thus, going forward, litigants in Tennessee—and divorcees in particular—can have renewed faith that the terms of their contracts will, in fact, be enforced as written.

Read the Court’s unanimous opinion in Eberach v. Eberach here.

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[1] See Grisham v. Grisham, No. W2010- 00618-COA-R3-CV, 2011 WL 607377, at *11 (Tenn. Ct. App. Feb. 22, 2011) (holding that the trial court erred in failing to award wife her reasonable trial court attorney’s fees pursuant to MDA fee provision, but declining to award appellate attorney’s fees pursuant to the Court of Appeals’ discretion); Brown v. Brown, No. W2005-00811-COA-R3-CV, 2006 WL 784788, at *6 (Tenn. Ct. App. Mar. 29, 2006) (affirming the trial court’s award of trial court fees under the parties’ MDA, but equitably denying wife’s request for appellate fees pursuant to the Court of Appeals’ discretion); Elliott v. Elliott, 149 S.W.3d 77, 88 (Tenn. Ct. App. 2004) (affirming the trial court’s award of fees to wife pursuant to parties’ MDA fee provision, but denying wife’s request for appellate attorney’s fees); Dulin v. Dulin, No. W2001-02969-COA-R3-CV, 2003 WL 22071454, at *8, *10 (Tenn. Ct. App. Sept. 3, 2003) (affirming trial court’s award of attorney’s fees pursuant to MDA, but equitably declining to award either party attorney’s fees incurred on appeal).

[2] See, e.g., Beem v. Beem, No. W2009-00800-COA-R3-CV, 2010 WL 1687782, at *9-10 (Tenn. Ct. App. Apr. 28, 2010) (affirming trial court’s award of fees pursuant to MDA and holding that wife was entitled to attorney’s fees on appeal pursuant to the parties’ MDA); Treadway v. Treadway, No. M2014-00898-COA-R3-CV, 2015 WL 1396652, at *7 (Tenn. Ct. App. Mar. 24, 2015) (awarding appellate attorney’s fees pursuant to the parties’ MDA); Brinton v. Brinton, No. M2009-02215-COA-R3-CV, 2010 WL 2025473, at *6 (Tenn. Ct. App. May 19, 2010) (same); Corbin v. Corbin, No. W2008-00437-COAR3-CV, 2009 WL 454134, at *7 (Tenn. Ct. App. Feb. 24, 2009) (same); Waugh v. Waugh, No. M2006-021540COA-R3-CV, 2007 WL 2200278, at *4 (Tenn. Ct. App. July 30, 2007) (same); Hogan, 1999 WL 1097983, at *4-5 (reversing trial court’s denial of attorney’s fees, and awarding attorney’s fees to Mother for trial court and appellate level proceedings pursuant to the parties’ MDA).

[3] Wilkinson v. Wilkinson, No. W2012-00509-COA-R3-CV, 2013 WL 614708, at *10 (Tenn. Ct. App. Feb. 19, 2013); (citing Archer, 907 S.W.2d at 419) (emphasis supplied)). See also Hanna v. Hanna, No. W2014-02051- COA-R3-CV, 2015 WL 1951932, at *4 (Tenn. Ct. App. Apr. 30, 2015) (stating its discretion then awarding fees on appeal based on the parties’ MDA requiring that the “court shall award reasonable attorney’s fees to the party seeking to enforce [the MDA]”) (alterations in original); Williams v. Williams, No. M2013-01910-COA-R3-CV, 2015 WL 412985, at *14 (Tenn. Ct. App. Jan. 30, 2015) (affirming the trial court’s award of fees pursuant to the parties’ MDA, stating its discretion and determining that wife was entitled to attorney’s fees on appeal pursuant to the parties’ MDA); Dodd v. Dodd, No. M2011-02147-COA-R3-CV, 2012 WL 3193339, at *6 (Tenn. Ct. App. Aug. 6, 2012) (holding that Mother was entitled to recover her trial court attorney’s fees pursuant to the parties’ MDA, but using its discretion and concluding that Mother was justified in recovering attorney’s fees).

[4] Cracker Barrel Old Country Store, Inc. v. Epperson, 284 S.W.3d 303, 308 (Tenn. 2009) (citing Fezell, 158 S.W.3d at 359; John Kohl & Co. P.C. v. Dearborn & Ewing, 977 S.W.2d 528, 534 (Tenn. 1998)).

[5] See Tenn. Const. art. XI, § 2; Tenn. Const. art. I, § 20.  See also ARC LifeMed, Inc. v. AMC-Tennessee, Inc., 183 S.W.3d 1, 26 (Tenn. Ct. App. 2005) (“equity respects and upholds the fundamental right of the individual to complete freedom to contract”) (quotation omitted).

[6] Tenn. Code Ann. § 47-50-112(a).

A win for substance over form: Tennessee Supreme Court holds that Tennessee’s one-year savings statute applies to tolling agreements.

By Daniel Horwitz:

In an increasingly rare win for substantive law and justice over blind adherence to procedural technicalities, the Tennessee Supreme Court held in a 3-1 decision on Monday that Tennessee’s one-year savings statute applies to tolling agreements.

The case arose out of a legal malpractice dispute between a construction company and its law firm.  After the construction company found itself on the losing end of a $1.66 million judgment, the company notified its law firm that it was considering filing a malpractice claim against it.  Thereafter, the parties entered into an agreement that voluntarily extended the deadline for filing legal malpractice claims.  Pursuant to that agreement – known in legalese as a “tolling agreement” – the statute of limitations was extended by four months following the outcome of the company’s appeal.[1]  Notably, the tolling agreement also made no mention of Tennessee’s “savings statute,” the importance of which is discussed further below.

The company ultimately filed a legal malpractice lawsuit against its law firm on September 21, 2011.  Because the company’s appeal concerning its $1.66 million judgment had not yet been decided, there was also no doubt that based on the parties’ tolling agreement, the lawsuit was not time-barred.

Approximately seven months later, on April 16, 2012, the company voluntarily dismissed its lawsuit.  Like many other states, Tennessee has a “savings statute” that “allows a case that has been dismissed, for reasons other than a dismissal on the merits, to be refiled within a set period [of time]—even after the statute of limitations has run on the action.”[2]  Specifically, under Tennessee’s savings statute, a plaintiff that dismisses a lawsuit voluntarily is permitted to re-file the lawsuit “within one (1) year after” the dismissal.[3]

The Tennessee Supreme Court has explained on several occasions that the primary purpose of the savings statute is “to aid the Courts in administering the law fairly between litigants without binding them to minor and technical mistakes made by their counsel in interpreting the complexities of [Tennessee’s] laws of procedure.”[4]  In practice, though, the savings statute also provides several other benefits, such as giving parties an additional year to settle their claims, allowing a plaintiff to switch attorneys, or allowing an attorney to withdraw from a case after filing a lawsuit without unduly harming the plaintiff’s legal interests.  Thus, “the savings statute confers upon a plaintiff who files a second action within one year of a voluntary non-suit of a first action the same procedural and substantive benefits that were available to the plaintiff in the first action.”[5]

The company’s appeal was ultimately handed down on October 1, 2012.  Consequently, under the parties’ tolling agreement, the company’s (first) lawsuit had to be filed no more than four months later by January 29, 2013.  Because the company had already filed its first lawsuit and then taken a voluntary dismissal on April 16, 2012, however, the company relied on Tennessee’s savings statute for the proposition that it had an additional year after April 16, 2012 – meaning until April 16, 2013 – to re-file its claim.  Accordingly, the company re-filed its malpractice lawsuit on April 8, 2013.

The law firm ultimately filed a motion to dismiss the company’s second lawsuit on the basis that it had been filed too late.  According to the law firm, Tennessee’s savings statute did not apply to tolling agreements, and the company’s initial lawsuit had not been filed within the applicable statute of limitations.  Thus, the law firm argued, the merits of the company’s re-filed lawsuit could not be considered.

The hyper-technical justification offered to support the law firm’s position in this regard was that Tennessee’s savings statute applies only if an action “is commenced within the time limited by a rule or statute of limitation[.]”  Because, according to the law firm, the company’s lawsuit had only been commenced within the time permitted by the parties’ tolling agreement – rather than having been commenced within the time permitted by “a rule or statute of limitation” – Tennessee’s savings statute didn’t apply.

Upon review, a majority of the Tennessee Supreme Court summarily rejected this conclusion for several reasons.

First, the court explained, based on longstanding precedent, “the rights and obligations of contracting parties are governed by the law in effect when they entered into their contract, and existing law becomes as much a part of the contract as if specifically incorporated therein.”  Thus, the court reasoned, “in the absence of evidence of contrary intention, the parties must be held to have contemplated the application of [the savings statute] to the terms of their agreement.”

Second, the court held that even assuming that a tolling agreement itself doesn’t qualify as “a rule or statute of limitation,” the company’s first lawsuit had nonetheless been filed “within the time limited by [the] statute of limitation” because the parties’ tolling agreement had expressly “paused and extended the applicable statute of limitations.”  Accordingly, Tennessee’s savings statute had to be given effect.

Third, the court reiterated once again that “[b]ecause the savings statute is remedial, courts must give it a broad and liberal construction.”  Accordingly, the court concluded, when applying Tennessee’s savings statute, hyper-technical procedural claims should not prohibit a party’s lawsuit from going forward.

With these concerns in mind, the court held that “[i]f parties to a tolling agreement wish to foreclose application of the savings statute, they must include clear, explicit language in the tolling agreement to that effect.  Otherwise, without such explicit indication that the parties intend to circumvent the savings statute, it will normally apply.”  Accordingly, if parties that enter into tolling agreements wish to foreclose the application of Tennessee’s savings statute going forward, then the parties must specifically state in their tolling agreements that Tennessee’s savings statute is not intended to apply.

Commendably, the court’s majority decision in Circle C. Construction breaks a recent trend in decisions that have eschewed Tennessee’s longstanding tradition of “decid[ing cases] on the merits whenever possible,”[6] and have instead permitted “technical procedural hurdles to prevent otherwise valid claims from being adjudicated on their merits.”[7]  Specifically, following the recent retirements of Tennessee Supreme Court Justices Wade and Holder, civil plaintiffs have increasingly found themselves trapped by procedural obstacles that have prevented them from getting their claims past the courtroom door.  In particular, Justice Kirby has provided an especially reliable pro-civil defendant vote, having consistently voted to dismiss plaintiffs’ claims before a trial in employment cases, governmental tort cases, and in traditional tort cases like the one discussed above—in which Justice Kirby served as the court’s lone dissenter.

In fairness, however, Justice Kirby’s jurisprudential bent in favor of civil defendants can also be described as foreseeable in light of her tenure as a Court of Appeals judge.  For example, careful court-watchers will recall that one of the first cases decided by the Tennessee Supreme Court following Justice Kirby’s confirmation was a 4-0 decision by her future colleagues to reinstate a jury’s $3 million verdict in a retaliatory discharge action that then-Judge Kirby had dismissed while presiding as a member of the Court of Appeals.[8]  Where Justice Page – just confirmed by the General Assembly as the Tennessee Supreme Court’s fifth member – will come down on this increasingly prevalent dispute, however, only time will tell.

Read the Tennessee Supreme Court’s majority opinion in Circle C. Construction, LLC v. D. Sean Nilsen et al. here, and Justice Kirby’s dissenting opinion here.

Questions about this article?  Email Daniel Horwitz at daniel.a.horwitz@gmail.com.

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[1] Traditionally, legal malpractice claims must be filed within one year.  In this case, if it had not been extended, then the company’s lawsuit would have had to be filed by March 15, 2011.

[2] Decision at 6 (citing Clark v. Hoops, LP, 709 F. Supp. 2d 657, 669 (W.D. Tenn. 2010)).

[3] Tenn. Code Ann. § 28-1-105.  See also Rajvongs v. Wright, 432 S.W.3d 808, 811 (Tenn. 2013) (“The saving statute provides that if a timely filed action is dismissed without prejudice, a plaintiff may ‘commence a new action within one (1) year after’ the dismissal.”); Tenn. R. Civ. P. 41.01 (“Subject to the provisions of Rule 23.05, Rule 23.06, or Rule 66 or of any statute, and except when a motion for summary judgment made by an adverse party is pending, the plaintiff shall have the right to take a voluntary nonsuit to dismiss an action without prejudice by filing a written notice of dismissal at any time before the trial of a cause . . . .”).

[4] Gen. Acc. Fire & Life Assur. Corp. v. Kirkland, 356 S.W.2d 283, 285 (1962).

[5] Cronin v. Howe, 906 S.W.2d 910, 913 (Tenn. 1995)

[6] Moreno v. City of Clarksville, No. M201301465SCR11CV, 2015 WL 5526858, at *16 (Tenn. Sept. 18, 2015) (Wade, J., dissenting).

[7] Daniel A. Horwitz, The Law of Unintended Consequences: Avoiding the Health Care Liability Act Booby Trap, Vol. 15, No. 5 Nashville Bar Journal 14 (June 2015) (feature article), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2577156.

[8] See Ferguson v. Middle Tennessee State Univ., 451 S.W.3d 375 (Tenn. 2014) (reversing Ferguson v. Middle Tennessee State Univ., No. M2012-00890-COA-R3CV, 2013 WL 1304490 (Tenn. Ct. App. Mar. 28, 2013)).

Tennessee Supreme Court holds that insurance assignment clause was ineffective.

By Daniel A. Horwitz

A Victim was injured in a car accident, and he sought chiropractic services from the Plaintiff, Action Chiropractic Clinic.  Prior to receiving the chiropractic services, the Victim signed a contract with an “Assignment of Rights” clause.  In pertinent part, the Assignment of Rights clause stated:

For treatment provided, I hereby require my Health Insurance, Auto Insurance, or any other party involved to pay by check and mail directly to: ACTION CHIROPRACTIC

. . . .

For the medical expense benefits allowable, and otherwise payable to me under the current Insurance Policy, as payment toward the total charges for Professional Services rendered.

The Assignment of Rights clause specifically named Erie Insurance Exchange as the policy holder.  Of note, however, Erie Insurance Exchange was not the Victim’s insurance company.  Instead, Erie Insurance Exchange was the insurance provider for the driver who had injured the Victim in the car accident.

Action Chiropractic Clinic ultimately charged the Victim $5,010.00 for its chiropractic services.  Shortly thereafter, Erie Insurance Exchange entered into a settlement with the Victim and paid him $8,510.00 for all claims relating to the car accident.  However, neither the Victim nor Erie Insurance Exchange paid Action Chiropractic Clinic anything for the chiropractic services that it rendered to the Victim.  As a result, Action Chiropractic Clinic sued both the Victim and Erie Insurance Exchange seeking payment, among other things, under the “Assignment of Rights” provision. Continue reading Tennessee Supreme Court holds that insurance assignment clause was ineffective.

Tennessee Supreme Court approves one-sided arbitration clauses that require one party to arbitrate all disputes while allowing the other party to seek judicial review for limited purposes. 

By Daniel A. Horwitz

The Supreme Court of Tennessee has held that a contract that requires one party to arbitrate all of its legal claims but which allows the other party to litigate some of its claims in court is not inherently unconscionable under Tennessee law.  The Court’s opinion in Richard Berent v. CMH Homes, Inc. specifically held that a one-sided arbitration clause in an adhesive consumer contract was enforceable where the party that was not required to arbitrate all of its disputes was permitted to seek judicial review only for limited purposes.

Berent endeavored to “clarify” the Tennessee Supreme Court’s prior opinion in Taylor v. Butler, 142 S.W.3d 277 (Tenn. 2004), which had also addressed whether “non-mutuality of remedies” rendered one-sided arbitration clauses unenforceable under Tennessee law.  Taylor appeared to establish a rule that for purposes of Tennessee law, one-sided arbitration clauses which grant one party the option of litigating its claims while binding the other party to arbitrate its claims are unconscionable per se.[1]  Specifically, Taylor held that an arbitration clause in a consumer contract of adhesion was “unconscionable and therefore void because it reserve[d] the right to a judicial forum for [the seller] while requiring [the buyer] to submit all claims to arbitration.”  Taylor, 142 S.W.3d at 287.

While noting that the “the Court’s opinion in Taylor is not a model of clarity,” Berent rejected the notion that Taylor had held that one-sided arbitration clauses are categorically unconscionable under Tennessee law.  Instead, the Berent Court opined that “Taylor applied the doctrine of unconscionability in a nuanced manner, weighing the degree of one-sidedness in the arbitration provision as an important factor, but not the only factor, and viewing the arbitration provision in the context of the overall contract and the surrounding circumstances.”

Thus, following Berent, one-sided arbitration clauses are not unenforceable per se under Tennessee law, and non-mutuality of remedies is only one factor among many to be considered in determining whether an arbitration clause is unconscionable.  Based on the language of the Court’s opinion in Berent, additional factors that determine whether one-sided arbitration clauses are unconscionable (and thus unenforceable) under Tennessee law include:

  1. Whether the arbitration clause was included as part of a contract of adhesion—defined as a “standardized contract form that was offered on essentially a ‘take it or leave it’ basis without affording [the accepting party] a realistic opportunity to bargain.” Taylor, 142 S.W.3d at 286 (quoting Black’s Law Dictionary 40 (6th ed. 1990));
  1. Whether the arbitration provision was “completely one-sided,” or whether it permits one party to seek judicial review only for limited purposes (emphasis in original); and
  1. Whether there is “a reasonable business justification for the carve-out” that allows only one party to the contract to access the court system.

Taken together, and viewed in light of all the facts and circumstances of a particular case, the question then becomes “whether the terms of the contract are beyond the reasonable expectations of an ordinary person,” or alternatively, whether the contract “is one in which the provisions are so one-sided, in view of all the facts and circumstances, that the contracting party is denied any opportunity for meaningful choice.”  Taylor, 142 S.W.3d at 285-86.

Although the Tennessee Supreme Court described non-mutuality of remedies in a binding arbitration clause as an “important” factor, it is worth noting that whether such a clause was included as part of a contract of adhesion was described as a “significant” factor as well, but the Berent Court upheld a one-sided, adhesive arbitration clause nonetheless.  Thus, it stands to reason that the additional factors identified by the Berent Court – whether an exception to arbitration is carved out for limited purposes only, and whether there is a reasonable business justification for the carve-out – will play a more important role in determining whether one-sided arbitration provisions are enforceable going forward.

Read the Tennessee Supreme Court’s opinion in Richard Berent v. CMH Homes, Inc. here.

Questions about this article?  Email Daniel Horwitz at daniel.a.horwitz@gmail.com.

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[1] Expressing disagreement with that conclusion at the time, former Tennessee Supreme Court Justice Janice Holder penned a dissenting opinion in which she argued that “the mere fact that there are different forums available to the parties in this case does not make the arbitration provision unconscionable.”  Taylor, 142 S.W.3d at 287 (Holder, J., dissenting).  The Court’s opinion in Berent effectively adopts this view.