Tennessee Business Litigation Report

A Holiday Treat for Employees

Julie Burnstein — Tue, 29 Dec 2009 10:34:41 -0600

In a decision released yesterday, the Eastern Section of the Tennessee Court of Appeals delivered a post-holiday gift for employees. In Jones v. United Propane Gas, Inc., the Court of Appeals addressed a situation where an employer was enforcing a non-compete where there was no confidential information, no special customer relationships and no specialized training. While it had long been the law that covenants not to compete are not enforceable under these circumstances, the Jones opinion provides some good analysis of facts that will support a finding of unenforceability.

Happy reading this holiday week.

Tennessee Supreme Court Just Says No to Ratios

Julie Burnstein — Fri, 13 Nov 2009 10:06:04 -0600

In a decision issued November 3, 2009, the Tennessee Supreme Court made clear that there is no bright line test for the ratio between compensatory and punitive damages. The case, Goff v. Elmo Greer & Sons, is a must read for anyone interested in business torts, although it's a nuisance/blasting case, not a business tort case. In Goff, the jury awarded around $3,000 in compensatory damages and then hit the defendant for a whopping $2,000,000.00 in punitives. The trial court reduced the award to $1,000,000 to conform to the amount requested in the pleadings. On appeal, the Tennessee Supreme Court reduced the punitives award to $500,000, still a ratio of about 150 to 1.

Many lawyers have focused on language from the United States Supreme Court's decision in State Farm v. Campbell, to conclude that a punitive award can never exceed nine times the compensatory award. Not surprisingly, the defense lawyers in Goff argued that the award violated due process because the punitive verdict exceeded a single digit ration to the compensatory award.

In evaluating the constitutionality of the award in Goff, the Tennessee Supreme Court put this notion to rest. With a very nice (and helpful) string cite, the Court recognized that other courts "have been willing to affirm ratios exceeding single digits when damages were relatively low but the actions of the wrongdoer were egregious. The Court's decision can be read to conclude that the focus on the single digit ration reflects an overly restrictive view that does not comport with the Supreme Court's jurisprudence on the subject.

This decision should prove most helpful to plaintiffs in all kinds of tort cases where injuries may be slight but conduct is egregious.

Reliance Not Required

Julie Burnstein — Fri, 11 Sep 2009 09:55:58 -0600

In an interesting decision, the Tennessee Supreme Court has held that reliance is not an element of a private cause of action under the Tennessee Securities Act. The case is a great read if you're into that sort of thing. And, really, when you have Justice Koch tracing the evolution of the securities laws from 1285 and the reign of Edward I through the Tennessee General Assembly's adoption of the Act, what would you rather do on a Friday afternoon than read Green v. Green?

The Court rejected the parties' attempts to rely on the federal securities laws for their arguments as to why reliance was or was not an element. Rather, the Court applied the familiar rules of statutory interpretation to reach the conclusion that reliance is not an element.

An interesting and important decision for all of us that litigate business cases.

Happy reading!

Change is in the Air!

Julie Burnstein — Tue, 01 Sep 2009 13:19:48 -0600

Happily, we received our first comment on our new blog from our friend, John Day, of the Day on Torts blog. As a member of the Advisory Commission on the Rules of Practice and Procedure, John advises that a rule permitting service by email has passed the commission and is currently before the Tennessee Supreme Court. That's good news!

Thanks for the update, John. Stay tuned to the Tennessee Business Litigation Report to see if we can think of other needed changes to the Rules before John does.

Public interest trumps business interest in non-compete case

Julie Burnstein — Fri, 21 Aug 2009 13:30:45 -0600

An interesting decision from the Western Section of the Tennessee Court of Appeals last week in Columbus Medical Service, LLC v. Thomas and Liberty Healthcare Corporation. In summary, Columbus, a staffing agency, provided occupational, physical and speech therapists to a residential State facility for people with very severe physical and mental disabilities. The therapists all signed covenants not compete. After Liberty won the contract with the State, Columbus sued to enforce the non-competes.

The decision recognizes that Columbus, as a staffing agency, had a protectable business interest in preventing "opportunistic disintermediation." A fancy word that just means that the staffing agency had an in interest in either the improper elimination of its status as the middle man or the appropriation of the staffing agency's services without compensation. This is, however, the first time a Tennessee court has recognized such an interest.

More interestingly, the Court ultimately concluded the non-competes were unenforceable due to the public interest. Citing the Tennessee Supreme Court's 2005 decision in Murfreesboro Medical Clinic v. Udom (download), the court recognized that "restrictive covenants in the medical profession raise concerns regarding the public good." In Udom, of course, the Supreme Court held physician covenants not to compete unenforceable as against public policy. The Tennessee General Assembly, however, reversed Udom in 2007 enacting a statute that made physician non-competes enforceable under certain circumstances. Nonetheless, the Court relied, in part, on the public's interest in continuity of health care in finding the covenants not to compete unenforceable.

This raises an interesting question. If there is a public interest in continuity of care by occupational, speech and physical therapists for the severely disabled, isn't there a public interest in continuity of care by a physician for the general public? I would think so, but the legislature says not.

Changes to the Rules -- and a Change We Can Believe In

Julie Burnstein — Thu, 13 Aug 2009 16:02:39 -0600

As I've previously written (download), kudos are due the Tennessee Supreme Court for adopting amendments to the Tennessee Supreme Court applicable to electronic discovery. But, amid all the discussion about the E-Discovery amendments, it’s easy to overlook another change that’s particularly important for plaintiffs.

Tennessee Civil Rule 55 was amended to address what happens when you file a motion for default after obtaining service by publication. Prior to the amendment, a plaintiff could obtain service by publication and file a motion for default. BUT, the plaintiff then needed to serve the motion for default by publication. What a waste. The amendment now appropriately recognizes that the motion for default need not be served by publication and that, in fact, no service is necessary. Another round of applause for the Drafters.

Now, I (with all respect) suggest the Drafters should consider another revision – a revision to permit service of pleadings by email. The Federal Rules permit service by electronic mail when the other lawyer consents in writing.

This would be an important revision to the Tennessee Rules. As it currently stands, if you serve a motion by mail and email as a courtesy, your opponent is entitled to the three extra days to file his response. (I know you are wondering how I know this; perhaps because I was relying on service by email to limit the amount of time to respond?…. )

An amendment to allow service by email would conform the Rules to the reality of practice in 2009 – that’s change we can believe in!

Justice Sonia Sotomayor: Why should a business tort plaintiff care?

Julie Burnstein — Thu, 13 Aug 2009 15:47:44 -0600

The Senate has confirmed Justice Sonia Sotomayor as the newest Justice on the United States Supreme Court. For me, as a Tennessee lawyer with a practice primarily in state court, it’s sometimes hard to connect the dots between what goes on in Washington and my practice in Middle Tennessee. But, developments in the Supreme Court impact the practice of law in state court and the claims of plaintiff’s with business cases, particularly business torts.

The Tennessee Court of Appeals has already stated that the U.S. Supreme Court’s decision in Bell Atlantic Corporation v. Twombly applying Rule 12(b)(6) on a motion to dismiss for failure to state a claim is consistent with Tennessee law. Hermosa Holdings, Inc. v. Mid Tennessee Bone and Joint Clinic. This should cause any Tennessee lawyer representing plaintiffs to take a renewed interest in the happenings on the Supreme Court.

In 2007, the Supreme Court issued its opinion in Twombly, authored by the now retired Justice David Souter. In Twombly, an anti-trust case, the court rejected the standard applicable to a motion to dismiss brought under Rule 12(b)(6) established in Conley v. Gibson. For 60 years, litigants in federal courts applied Conley to argue that a complaint could not be dismissed on a Rule 12 motion unless “it appears beyond doubt that that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” In Twombly, the Court changed the standard holding that a plaintiff must allege facts “plausibly suggesting” a right to relief. In a vigorous dissent, Justice Stevens wrote that the “plausibility standard is irreconcilable with Rule 8 and … governing precedents.”

Earlier this year, this time with Justice Souter in dissent, the Court held in Ashcroft v. Iqbal that “to survive a motion to dismiss, a complaint must contain factual matter, accepted as true, that states a claim for relief that is plausible on its face.” Simply put, under Iqbal, the plaintiff’s complaint must contain facts demonstrating more than the a sheer possibility that the defendant acted unlawfully.

Having authored the predecessor opinion in Twombly, Justice Souter characterized its application in Iqbal as unfair to the plaintiff. Justice Souter recognized that the majority’s application of Twombly seems to permit the court to weigh the veracity of the allegations in deciding whether to grant a motion to dismiss.

What? How did this happen? Such an interpretation represents a fundamental departure from practice under Rule 12 for the last 50 years. As Tennessee courts rely on decisions interpreting analogous Federal rules all the time, this application of Rule 12 will likely affect the application of Tennessee Rule of Civil Procedure 12.

Even if a business tort complaint is filed in state court, the plaintiff and his lawyer must be cognizant of Twombly and Iqbal in drafting the complaint. Decisions like these two will affect practice in state court. Justice Sotomayor replaces Justice Souter, obviously an important voice in applying the Rules of Civil Procedure. That’s why we all should care.

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