News

Gov. Lee Provides Avenue for Public Feedback on Legislation

Gov. Bill Lee has taken an additional step in his commitment to “an open and transparent government,” creating a webpage for the public to view and provide feedback on legislation that has been submitted to him for consideration. Lee maintains that involving Tennesseans into the process more directly will increase accountability in how laws are made. The site will be updated regularly, as bills pass the Legislature and land on his desk.

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New Legislation Aims to Make Craft Brewing Easier

A new bill proposed by an East Tennessee senator aiming to encourage the craft beer industry would authorize beer makers to self-distribute beer within a 100-mile radius of production, the Nashville Post reports. State law currently only allows self-distribution within the county in which the brewery operates. The new proposal would limit qualified brewers to those that produce 50,000 gallons or fewer.
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TBA to Introduce Legal Document Generation

The TBA will soon launch a new subscription-based product for Tennessee lawyers — automated legal forms. The initiative will use HotDocs, a custom documentation generator that creates form templates and speeds up the preparation process based on client and case data. In order to provide this valuable resource to our members, we hope to obtain your comments and ideas on forms you deem beneficial for replication. With across-the-board participation, we can comprise a substantive, comprehensive database where subscribers will have access to forms submitted by all TBA sections. Please send suggestions and comments to TBA Membership Director Mindy Fulks.

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ABA President Lends Support to Paycheck Fairness Act

American Bar Association President Bob Carlson sent a letter this week to members of Congress expressing support for the Paycheck Fairness Act. The bill aims to update and strengthen the Equal Pay Act of 1963, which was passed by Congress expressly to prohibit “discrimination on account of sex in the payment of wages by employers.” The ABA believes the Paycheck Fairness Act will make critical, common-sense improvements to the law so the country can continue to make progress in eradicating the persistent problem of gender-based wage discrimination.
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Legal Clinic for Artists Planned for Nashville on Feb. 28

The Arts & Business Council has planned a pro bono legal clinic for visual artists, dancers, actors, musicians and other creatives. The event will take place at Watkins Park Community Center, 616 17th Ave N, on Feb. 28 from 5:30 to 7:30 p.m. Clients must sign up in advance and meet an income threshold. For more information or to volunteer, email vlpa@abcnashville.org.
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Former Vandy AD, Law Prof David Williams Has Died

Trailblazing Vanderbilt University law professor and former athletic director David Williams died today, school officials announced this afternoon. He was 71. “We are devastated by this loss,” Chancellor Nicholas S. Zeppos said. “His impact on our community is immeasurable and will be felt for generations to come.” The son of a Tuskegee Airmen and Detroit public school teacher, Williams was the first black athletics director hired by an SEC school and had served in that position 16 years before stepping down on Jan. 31. He was having breakfast this morning at Pancake Pantry near Vanderbilt when he collapsed, the Tennessean reports. In an interview with the Vanderbilt Hustler published in January, Williams talked about his career, his legacy at Vanderbilt and his excitement at returning to the classroom.
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Brentwood CEO Appears in Court After Capture in Florida

A former Brentwood CEO appeared before a U.S. Magistrate in Nashville Monday after his capture in Jacksonville earlier this month, The Nashville Post reports. Don Cochran, U.S. Attorney for the Middle District of Tennessee, said in a statement that George David George, who had led wellness-focused social networking company WellCity, faces several charges, many dating back to May 2015. George did not appear in U.S. District Court for a bond revocation hearing. He was later indicted in May 2017 for failing to appear in court. He was initially charged with felony counts of securities fraud, mail fraud, wire fraud and money laundering in connection with a multimillion-dollar investment scheme, and also faces additional counts of wire fraud.
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TSC Rules Employer Had No Duty to Use AED to Assist Employee in Need of Medical Care

The Tennessee Supreme Court has ruled that an employer is not liable for workers’ compensation benefits for not using an available automated external defibrillator (AED) to assist an employee who suffered a non-work related medical emergency. An AED is a medical device that delivers an electric shock to the heart to restore a normal heart rhythm after the heart suddenly stops beating or starts beating irregularly. Tennessee has statutes that encourage businesses to acquire AEDs and provide immunity from civil liability under certain conditions. Justice Sharon Lee wrote the unanimous opinion.
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Tennessee Court of Appeals Reverses Trial Court, Declines to Enforce Estate Sale Contract Due to Indefiniteness of Terms

The Tennessee Court of Appeals (Armstrong, J.) recently reversed the decision of Shelby County Circuit Judge Felicia Corbin Johnson in Acuff v. Baker. The plaintiff, Ms. Acuff, had engaged the defendant, Ms. Baker, for the purposes of organizing her belongings and conducting an estate sale. Ms. Acuff and Ms. Baker orally agreed that Ms. Baker would receive $3,000 plus 15 percent of the estate sale proceeds as her fee. The estate sale netted $6,782. Ms. Acuff was unhappy with this amount and sued, alleging that Ms. Baker either stole some of her possessions or sold them for an unreasonably low price. The trial court found for Ms. Acuff on her claims of breach of contract, negligent bailment, and violations of the Tennessee Consumer Protection Act (TCPA), and awarded Ms. Acuff over $157,000. The Court of Appeals determined that there was clear and convincing evidence to reverse virtually all of the trial court’s factual findings regarding witness credibility. Reiterating the black-letter principle that a contract’s terms must be definite enough to provide a basis for determining the existence of a breach and fashioning an appropriate remedy, the COA held that the trial court had created contractual obligations where there were none. In fact, there was no mutual assent or meeting of the minds between Ms. Acuff and Ms. Baker as to any terms except Ms. Baker’s fee. The COA remanded the case and reduced the judgment in favor of Ms. Acuff to $6,782.


Matt Lyon is the Chair of the TBA Business Law Section, and he is the Associate Dean for Academic Affairs and a Professor of Law at the Lincoln Memorial University Duncan School of Law in Knoxville. He teaches Contracts, Business Associations, Civil Procedure, and Payment Systems. Prior to joining the LMU Law faculty, Lyon served as Senior Judicial Clerk to Justice Gary R. Wade of the Tennessee Supreme Court and was a commercial litigation associate at Sidley Austin LLP in Chicago.

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Tennessee Supreme Court Adopts 'Functional Equivalent' Analysis for Extending Attorney-Client Privilege to Non-Employee Third Parties

The Tennessee Supreme Court, in a unanimous opinion written by Justice Sharon Lee, has adopted the “functional equivalent” test for determining whether communications between counsel and a third-party nonemployee of the client are subject to the attorney-client privilege. In Dialysis Clinic, Inc. v. Medley, the plaintiff, Dialysis Clinic, had hired an agent, XMi Commercial Real Estate, to manage several commercial rental properties it owned in Nashville. After Dialysis Clinic filed an unlawful detainer action against one of its tenants, the defendant tenant subpoenaed XMi, a nonparty, for production of documents related to the properties in question. XMi withheld as privileged emails it had exchanged between it and Dialysis Clinic’s in-house and outside counsel. Following the rationale previously set forth by the Eighth Circuit in In re Bieter, 16 F. 3d 929 (8th Cir. 1994), two federal district courts in Tennessee, the Tennessee Court of Appeals in Waste Administrative Services, Inc. v. Krystal Co. (summarized in our Oct. 30, 2018 Connect), and numerous other federal and state courts, the Supreme Court held that “the functional equivalent analysis is a sound approach” for determining whether the attorney-client privilege should extend to communications between counsel and a third-party non-employee. The court adopted a non-exclusive list of factors for courts to use in determining whether the third party is the “functional equivalent” of an employee, including:

• whether the nonemployee performs a specific role on behalf of the entity;

• whether the nonemployee acts as a representative of the entity in interactions with other people or other entities;

• whether, as a result of performing its role, the nonemployee possesses information no one else has;

• whether the nonemployee is authorized by the entity to communicate with its attorneys on matters within the nonemployee’s scope of work to facilitate the attorney’s representation of the entity; and

• whether the nonemployee’s communications with the entity’s attorneys are treated as confidential.

Once a court, by applying these factors, determines that the third-party non-employee is the “functional equivalent” of an employee of the client, “the court should use the standard already in place in Tennessee to determine whether the privilege attaches.” Applying the new standard to the facts of the case, the court held that the attorney-client privilege covered the communications between Dialysis Clinic’s attorneys and XMi.

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Tennessee Supreme Court Issues Landmark Opinion on Use of Extrinsic Evidence

In a unanimous opinion written by Justice Holly Kirby, the Tennessee Supreme Court has held that extrinsic evidence cannot be used to interpret a contract if it contradicts the contract’s written terms. Individual Healthcare Specialists, Inc. v. BlueCross BlueShield of Tennessee, Inc. arose out of a dispute between BlueCross BlueShield of Tennessee (BCBS) and Individual Healthcare Specialists (IHS), which was authorized to hire subagents to solicit applications for BCBS policies. IHS claimed that BCBS breached the parties’ Agency Agreements: (1) when it reduced commission rates for IHS and its subagents upon renewal of its existing policies and; (2) when it, after terminating its agreement with IHS, began paying commissions directly to the subagents. IHS also claimed it was entitled to attorney’s fees under the general indemnity provision in the parties’ contract. The trial court had found in favor of IHS and awarded it more than $2.1 million in damages and prejudgment interest, based in part on extrinsic evidence – namely, the testimony of three former BCBS employees who, despite language in the contract to the contrary, claimed that the parties never intended BCBS to be able to unilaterally modify commission rates on renewed BCBS policies.

The opinion engages in a lengthy analysis of the history and use of extrinsic evidence in contract interpretation and the application of the parol evidence rule, both generally and in Tennessee. With regard to contract interpretation, the court observes that “Tennessee’s jurisprudence  … cannot be neatly characterized as wholly textualist or wholly contextualist.” Dating back to the 19th century, there are cases supporting a textualist approach that grounds interpretation in the written words of the contract and other cases supporting a contextualist approach that considers extrinsic evidence of the parties’ intent in divining the meaning of the contract. On the whole, Tennessee cases “reflect balance; they demonstrate a definite focus on the written words in the parties’ contract, but they also consider evidence related to the situation of the parties and the circumstances of the transaction in interpreting those words.” While Tennessee courts have taken a “balanced” approach to use of extrinsic evidence in contract interpretation, they also have consistently enforced the parol evidence rule, which “represents a straight line through Tennessee contract caselaw.” The court makes clear that “the parol evidence rule prohibits the use of evidence of pre-contract negotiations in order to vary, contradict, or supplement the contractual terms of a fully integrated agreement.” Moreover, the court implies strongly that the inclusion of a boilerplate merger or integration clause is sufficient to show the parties intended their agreement to be fully integrated.

Applying these legal principles to the facts of the case, the court determined that the modification provision in the Agency Agreements was clear: “[BlueCross] reserves the right to modify or change the commission and payment schedules with appropriate notice.” Moreover, the Agency Agreements included an integration clause. Therefore, it was error for the trial court to have considered testimony on the parties’ intent during pre-contract negotiations that “directly contradicts the carte blanche authority granted to BlueCross by the modification provision.” The trial court could, however, consider extrinsic evidence regarding the parties’ intent that commissions be paid directly to IHS, rather than directly to the subagents, because such evidence “illuminates the parties’ intent and is consistent with the plain language of the contract.” Finally, applying its decision in Cracker Barrel Old Country Store, Inc. v. Epperson, 284 S.W.3d 303 (Tenn. 2009), the court held that the indemnity provision was not “sufficiently specific to apply to the recovery of attorney’s fees in this interparty lawsuit.”

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State Lawmakers to Consider Transparency Measures for Business Tax Incentives

State lawmakers are reconsidering state laws that keep information on business tax credits confidential, the Tennessean reports. Proponents of transparency will introduce a bill that would require companies seeking incentives to release tax information along with business grant details, an approach that advocates contend is essential for formulating good economic development policy. Gov. Bill Lee after a budget hearing last Friday for the Department of Economic and Community Development, referring to the release of tax information for these companies, said: "Under the right circumstances things would be made public, but until it's the right timing … If it may not allow a job creating deal to come to Tennessee, then we certainly would be smart about that so that we bring jobs here." Details of the legislation will be made public by the bill filing deadline on Feb. 7.

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Southeastern States Continue to Lead in Bankruptcy Filings

Data compiled for the American Bankruptcy Institute shows that Alabama, Tennessee and Georgia again led the nation in the per capita rate of bankruptcy filings for last year, the Times Free Press Reports. While bankruptcy filings decreased nationwide, the city of Chattanooga saw an increase for the second consecutive year, specifically a 1.8 percent increase with 6,011 total cases filed. One Chattanooga bankruptcy attorney attributes the increase to wages not increasing enough to keep up with the rising cost of living. The article notes that 59 percent of the filings in Tennessee were Chapter 13 petitions. Despite average job growth in Tennessee over the past year, the state’s bankruptcy filings were twice the nation’s per capita rate. 

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Woodbridge Ponzi Scheme Involves East Tennessee Victims

Dozens of Woodbridge investors from East Tennessee fell victim to a billion-dollar Ponzi scheme involving Richard Fritts of Farragut-based Fritts Financial, Knox News reports. The U.S. Securities and Exchange Commission (SEC) filed charges last month against Fritts because neither he nor his company were registered to sell securities in Tennessee, a legal requirement. He claims that he believed the loans did not qualify as securities. Fritts earned over $800,000 in commissions between July 2014 and November 2017. Regulators with the SEC have filed civil charges against 18 people and 10 companies for their roles in recruiting investors; the SEC is seeking fines and repayment of commissions. Bankruptcy proceedings for Woodbridge are ongoing, so it is unclear how much money, if any, the investors will recoup.

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Intellectual Property Forum Set for May 10

Plan to Attend!

The Intellectual Property Forum is set for Friday, May 10 at the Tennessee Bar Center in Nashville.  

The program will be blast style, allowing attendees the flexibility to create their own schedule. 

Sessions and speakers will be addressing a wide-variety of IP topics. Specific details are coming soon ...

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IP, Trade Talks Between China and U.S. Continue This Week

Officials from China and the U.S. have yet to come to an agreement regarding trade and intellectual property issues, Bloomberg reports, but talks are set to resume this week. American officials confirmed the lack of progress and reported that China continued to deny the alleged IP theft and requested proof. China’s top economic emissary, Liu He, is scheduled to attend the next round of talks in Washington, D.C. this week.

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Register Now! International Law Forum on Feb. 22

 
Stay on track earning your CLE credits by attending the International Law Forum on Feb. 22 at the Tennessee Bar Center in Nashville. Early bird registration ends tomorrow, Feb. 16!
 
This program is applicable to a wide variety of practice areas, including business law, corporate counsel, employment law, law tech and immigration. Three international business panels make up this afternoon program and include a stacked line-up of speakers. Topics to be discussed include Government & Private International Manufacturing Perspectives, International Sourcing, Importing & Exporting Perspectives and International Entertainment & Tourism Perspectives.
 
Join us for an evening reception immediately following the program for a chance to network with attendees and speakers. Read more about the panels and register for the program here.
 
Unable to attend the live course? Join us virtually for the live webcast!

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Ballad Health Provides New Details Regarding NICU Plans in East Tennessee

Ballad Health has issued a new response to the Tennessee Department of Health regarding questions about its proposed changes for the neonatal intensive care unit (NICU) in two east Tennessee hospitals, the Johnson City Press reports. In its response, Ballad provided specific details and statistics requested by former Health Commissioner John Dreyzehner. Under the proposed plan, newborns requiring Level III NICU services will be transported to Niswonger Children’s Hospital in Johnson City instead of current Level III hospital Holston Valley Medical Center, which will be downgraded to a Level I provider.

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Pilot Flying J Execs Sentenced to Probation

Four former Pilot Flying J sales executives who pleaded guilty to fraud charges will receive probation for their crimes, The Knoxville News Sentinel reports. Senior U.S. District Court Judge Curtis L. Collier on Wednesday ordered that Kevin Clark, Michael Scott Fenwick, Chris Andrews and Katy Bibee serve probation in lieu of jail time because of their cooperation with law enforcement and the fact the defendants suffered from “the shame, the embarrassment, the loss of jobs” that come with their conviction. Former Pilot Flying J President Mark Hazelwood so far has received the harshest punishment in the case, after Collier ordered him to serve more than 12 years in prison.

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Walgreens Assumes Operations of Fred's Pharmacies

Memphis-based discount retailer Fred’s has completed its multimillion-dollar deal with Walgreens, which will assume operations of pharmacies in 179 Fred’s stores, The Memphis Business Journal reports. Fred’s received $156.1 million in cash proceeds and an additional $20.6 million for its pharmacy inventory in the agreement, announced last September. According to a Jan. 24 filing with the SEC, “the company continues to use the proceeds received in the transaction to pay down the company’s existing indebtedness or for general corporate purposes.”

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Meditation Apps Help Incorporate Mindfulness Each Day

Consider a meditation app for your phone to help incorporate mindfulness into your day. The accessibility and variety of meditation apps can make them beneficial and easy to try. Some, such as Mindbody, Stop, Breathe & Think, 10% Happier, Breethe, Omvana, Insight Timer, Sattva Meditations & Mantras, and Smiling Mind (which can be tailored to different age groups) are free. Others, such as Calm, Headspace, and the Mindfulness App, have free trials and can be upgraded to a paid subscription. Comparisons of various apps are available on www.healthline.com or www.bestproducts.com.
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Vandy Law Receives $12.75 Million Gift

The Vanderbilt University School of Law has landed a $12.75 million gift that will provide support for its law and business program, The Nashville Post reports. Vandy Law grad and former Board of Trust chairman Mark Dalton and his family are providing the gift. The Law and Business Program offers a certificate to upper-level law students who complete an interdisciplinary curriculum that includes five required courses and nine elective credit hours. Students also can pursue Vanderbilt’s J.D./M.S.F. joint degree program, allowing them to earn in only three years a law degree and a Master of Science degree in finance from the Owen Graduate School of Management. Conversely, they can choose the four-year joint J.D./M.B.A. degree path.
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Creditors File Motion Challenging Lampert’s Bid for Sears

Attorneys representing Sears’ unsecured creditors filed a motion last week challenging Sears Holdings chairman Eddie Lampert’s $5.2 billion bid to buy the company, USA Today reports. The creditors’ committee claims to have uncovered facts that demonstrate misconduct committed by Lampert and his hedge fund, ESL Investments, which contributed to the retailer’s downfall. The bid needs final approval from a bankruptcy judge at a hearing currently slated for Feb. 1. Sears maintains that the sale will prevent liquidation and preserve 45,000 jobs; however, the creditors allege that the deal is part of a pattern that enriches Lampert by acquiring the company at a discounted rate. The court filing claims Lampert engaged in two controversial and complex financial transactions in which he acted as both lender and borrower. One of those deals occurred in 2015; 235 of the most valuable Sears store properties were transferred to the real estate investment trust Seritage Growth Properties, where Lampert is the biggest shareholder and chairman. According to a public filing, in 2017, Sears paid Seritage $109 million in rent, $43 million in expenses and $35 million in lease termination fees. The creditors would like to recover the value of the properties transferred to Seritage. ESL stated that all business transactions involving Sears were done in good faith and on fair terms with the approval of the Sears Board of Directors.

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Will AI Technology be the Next Disrupter in the Legal World?

There is a growing prevalence of AI (artificial intelligence) technology being utilized in the legal sector, Crain’s Cleveland Business reports. Some fear that this technology will replace attorneys with computers. However, the Cleveland office of Baker Hostetler experienced an increase in lawyers a couple of years following the partnership of its bankruptcy practice and IBM’s ROSS intelligence. This technology was able to divert mundane and tedious tasks from the attorneys, such as legal research and case law analysis. Baker’s bankruptcy practice is using the AI technology to track case law and make predictions on the outcome of current cases. While Baker is open to partnering with various legal tech companies, the American Bar Association’s 2018 legal tech survey only found that 10 percent of attorneys polled utilized AI technology in some way. In addition to firms incorporating new technology, Cleveland-based law school Case Western University is also exploring ways to slowly incorporate programming, AI and blockchain technology into its curriculum in order to stay ahead of the disruptive curve.

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SCOTUS Justices Appear Ready to Void Tennessee Residency Requirement for Alcohol Sales

The U.S. Supreme Court appeared ready to strike down a Tennessee provision that requires people to live in the state for two years before obtaining a license to sell alcohol, The Associated Press reports. Several justices said the restriction unconstitutionally discriminates against out-of-state economic interests. A ruling invalidating the residency requirement would be a victory for The Ketchum family, who bought a Memphis liquor store and moved to Tennessee from Utah in search of a healthier climate for their disabled adult daughter. Thirty-five states and the District of Columbia are urging the court to uphold the two-year residency requirement.

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