Peloton Faces $150 Million Music Licensing Suit

The National Music Publishers’ Association has sued exercise bike maker Peloton for $150 million in damages over its improper use of songs, Billboard reports. The suit claims the company used more than 1,000 songs for its streaming exercise classes without obtaining the correct music licenses. CEO John Foley sent a letter to Peloton members on Monday responding to the lawsuit and informing them that classes featuring songs named in the lawsuit would no longer be available.

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SEC Charges Volkswagen, Former CEO

Volkswagen and former CEO Martin Winterkorn have been charged by the U.S. Securities and Exchange Commission for defrauding investors during its diesel emissions scandal, The New York Times reports.  Despite settling with the U.S. two years ago over criminal and civil charges and paying out over $30 billion in penalties, the company is being accused of violating the antifraud provisions of the federal securities laws. The SEC’s complaint involves $13 billion in bonds and other securities and alleges that the company mislead and made false statements to investors about the financial health of the company and the environmental impact of its technology in order to sell securities to investors at inflated prices. The SEC seeks permanent injunctions, repayment of ill-gotten gains, civil penalties and to bar Winterkorn from serving in a corporate officer or director role in the United States.

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Purdue Pharma Considers Bankruptcy

Facing numerous lawsuits over its role in the U.S. opioid crisis, Purdue Pharma is considering filing for bankruptcy, USA Today reports. As the first trial date is nearing in hundreds of lawsuits aiming to hold the company accountable for its role in the nationwide crisis, bankruptcy proceedings would likely pause litigation. A federal bankruptcy judge would have wide discretion on how to proceed with the claims against the company and other drugmakers and distributers. Hundreds of claims from local and state governments that have sued the company could be impacted. While Purdue's role is just one aspect of the litigation, critics assign a lot of blame to the company because it developed OxyContin and pursued an aggressive marketing strategy for the drug. 

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LGBT Law Annual Forum 2019

Register now for the TBA LGBT Law Annual Forum to take place on June 21 at the Tennessee Bar Center in Nashville. Timely topics for this year’s program will include laws concerning conversion therapy, an inside look at Vanderbilt’s Clinic for Transgender Health, ethical considerations regarding discrimination and employment law, ending the day with an LGBT community advocacy panel open to the public. The forum will be held in conjunction with the 2019 Nashville Pride Festival, allowing attendees to take advantage of the fun and activities surrounding the celebration. Don’t miss what guarantees to be an insightful forum and one of the nation’s premier Pride festivals! Here’s the key info:
When: Friday, June 21, registration begins at 11 a.m., CDT
Where: Tennessee Bar Center, 221 Fourth Ave. N., Nashville
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Tennessee Legislature Considers Raising the Smoking Age to 21

There are at least three proposals at the Tennessee legislature that would increase the age to buy tobacco products, including electronic cigarettes, from 18 to 21, WPLN reports. Altria — which owns Philip Morris USA — is backing one of the proposals to raise Tennessee's tobacco age, primarily to address underage vaping. The growth of e-cigarettes among teens has been so rapid that the Centers for Disease Control issued a special warning late last year. Sen. Shane Reeves, R-Murfreesboro, says the only resistance he's found is among a few convenience store owners worried about sales. Tennessee has one of the highest rates of smoking and deaths from related disease.

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Next Thursday: Business Law Forum

Register now for the TBA Business Law Forum 2019.
This program will help business lawyers learn and refresh their knowledge about issues that may arise when drafting an LLC operating agreement. Topics will include an overview of the two extant Tennessee LLC acts and a comparison of those acts with the Delaware LLC Act; other distinctions of Tennessee law that impact the operating agreement; drafting key provisions, including distribution and allocation, employee and member compensation, and exit rights; and ethical considerations for lawyers drafting LLC operating agreements.
When: Thursday, May 9. Registration begins at 9 a.m.
Where: Tennessee Bar Center, 221 Fourth Ave. N., Nashville

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Legislation Affecting Business Law Practice

As the legislative session progresses, many bills of interest to business law practitioners are on the move. Here is a list of notable legislation that has the potential to affect your practice area:

Prohibits state and local governmental entities from taking discriminatory action against a business based on that business's internal policies, regarding health insurance policies, family leave policies, minimum wage policies, or anti-discrimination policies. 

Enacts the "Uniform Power of Attorney Act." Specifies that a power of attorney created under this chapter is durable unless it expressly provides that it is terminated by the incapacity of the principal. Requires a power of attorney to be signed by the principal or in the principal's conscious presence by another individual directed by the principal to sign the principal's name on the power of attorney. Specifies that a signature on a power of attorney is presumed to be genuine if the principal acknowledges the signature before a notary public or other individual authorized by law to take acknowledgments. Specifies requirements for validity of power of attorney. Permits a principal, in a power of attorney, to nominate a conservator or guardian of the principal's estate or guardian of the principal's person for consideration by the court if protective proceedings for the principal's estate or person are begun after the principal executes the power of attorney. Specifies when power of attorney is effective and establishes other requirements for power of attorney. (50 pp)

Authorizes the transmission and filing of nonprofit corporations’ annual reports to the Secretary of State in an electronic format. Authorizes the transmission of the Secretary of State’s list of new nonprofit corporations that were licensed or authorized to operate in the state during the preceding month and the Secretary of State’s list of nonprofit corporations that surrendered their charters, had charters revoke, or ceased to do business in this state, during the preceding month, to the Commissioner of Revenue in an electronic format.  

Reduces the amount in fees charged to a foreign LLC transacting business in the state without a certificate of authority. Exempts from the application of such fees certain foreign LLCs that the state has already granted a certificate of sales and use tax exemption or certificate of registration, or otherwise has formally and in writing acknowledged the company’s authority to conduct business in this state.  

Makes various changes to the “Revised Tennessee Captive Insurance Act,” including allowing captives to get one change of business plan for free each year, allowing captives to hold their capital and surplus in currencies other than U.S. dollars such as cryptocurrency, with the approval of the commissioner, and other changes. 


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Facial Recognition Scanning on the Rise Amid Concerns for Privacy, Accuracy

A new piece in the ABA Journal examines the rise of facial recognition software and addresses the reality that it’s likely here to stay. Prominent examples include the use of facial recognition at Taylor Swift concerts to spot known stalkers of the pop star, plans to add such capabilities to customs inspection areas at Tokyo Narita Airport, as well as numerous uses in retail. Despite advances in the technology, privacy and civil rights groups are concerned that it remains prone to error. A 2018 study, for example, showed a 34 percent error rate in identifying darker-skinned women.
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4 Former Pilot Flying J Account Reps Granted Probation in Fraud Case

Senior U.S. District Judge Curtis L. Collier Jr. has granted Holly Radford, Lexie Holden, Janet Welch and Ashley Judd — all former regional account representatives for Pilot Flying J — probation for their involvement in the Pilot Flying J fraud case, Knoxnews reports. He also ordered all but Holden to perform community service. The women were the final four in the list of 19 former Pilot Flying J executives and support staffers caught cheating customers to face sentencing since federal agents raided the firm’s Knoxville headquarters in April 2013. They cooked the books to hide their bosses' scheme.
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Court Seeking Comments on Proposed Rule 46A

The Tennessee Supreme Court is considering the adoption of Tennessee Supreme Court Rule 46A, which would govern the electronic service of papers that are e-filed, and it is seeking comments from the legal community and the public on the proposed rule. The deadline for submitting written comments is March 22. Comments should be e-mailed to or mailed to: James M. Hivner, Clerk, Tennessee Appellate Courts, 100 Supreme Court Building, 401 7th Avenue North, Nashville, TN 37219-1407.
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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 earlier this month 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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Nashville Mayor's Order Recognizes LGBT-Owned Businesses

Nashville Mayor David Briley recently signed an executive order that recognizes LGBT-owned businesses as a category for Metro procurement and contracting, The Nashville Business Journal reports. Briley’s order aligns with recent changes announced by the Nashville Metro Council, which intends to address complaints that minority-owned businesses are not equally benefitting from the city’s economic growth. “It’s my job as mayor to make sure that everyone in our city, regardless of who they are or where they come from, has equal access to economic opportunities,” said Briley. “Today, we’ve taken an important step towards better equity for LGBT-owned businesses in Nashville.” Nashville will be the first city in the South to instill such a policy.
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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. 
Attorneys interested in volunteering should email Jesse Harbison. Volunteering would involve meeting with low-income artists (in 30 minute appointment slots) to answer their legal questions. The legal clinic clients most frequently need assistance with: contract review; questions about business entity formation; questions about copyrights; and questions about trademarks. Attorneys will not be required to maintain ongoing attorney-client relationships with any of the clients. 
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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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