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.”

read more »

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.

read more »

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. 

read more »

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.

read more »

Intellectual Property CLE Blast – May 10

Do not miss this blast style CLE! This program provides you with the flexibility to create your own schedule based on your individual interests, learning needs and time constraints. Come for one session or choose to stay the entire day - you only pay for the sessions you attend. The registration desk is open all day, so you can take the sessions you want and leave when you want.
It all takes place on Friday, May 10 at the Tennessee Bar Center in Nashville.
2019 Sessions:
Patent Litigation Update: SCOTUS and the Federal Circuit
Artificial Intelligence & Blockchain
Adding a few prongs to your step: Substance and Preliminary Effects of the 2019 Revised Patent Subject Matter Eligibility Guidance
What's in a Name: Surnames as TrademarksEthics & Professionalism in Intellectual Property Law
Explaining the MMA & A General Advocacy Update
Updates Regarding Copyright-Infringement Litigation
Ethics & Professionalism in Intellectual Property Law
Flying Safely in the Cloud: What Lawyers Must Consider When Moving to Cloud Computing
Click here to check out the agenda, read the session descriptions and plan your day! Don't forget to sign-up to let us know you plan on attending.

read more »

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.

read more »

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!

read more »

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.

read more »

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.

read more »

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.”

read more »

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 or
read more »

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.
read more »

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.

read more »

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.

read more »

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.

read more »

Metro Council Approves Infrastructure Funding for Nashville Yards Development

The Metro Nashville Council recently voted to grant preliminary approval for $15.2 million earmarked towards road, sewer and other infrastructure needs around the Nashville Yards project which will be home to Amazon’s HQ2, The Tennessean reports. The move also approves participation, easement and license agreements between Metro and Uptown Property Holdings, the building group in charge of development. Council member Kathleen Murphy — one of only three detractors — denounced the city’s interest in the infrastructure plan, saying that it was just "another incentive" for Amazon and that the money would be better spent on other projects throughout the city. The council will make its final decision regarding the infrastructure reimbursement on Feb. 5.

read more »

Real Estate Investments Safer than Other Sectors in Flailing Market

Real estate fund investments remain relatively stable despite a mercurial stock market, The New York Times reports. As the S&P 500 plunged 13.52 percent in the fourth quarter, FTSE Nareit All Equity R.E.I.T.s Index — the leading index of publicly traded real estate investment trusts — lost only 6.1 percent, marking a 4 percent loss for the entirety of 2018, compared to an S&P 500 loss of 4.4 percent, including dividends, for the same period. The sector has achieved comparative stability through tangible assets, banking on office buildings, malls and warehouses.

read more »

FedEx Agrees to Payout, Ceasing Tobacco Shipments in Settlement with New York

FedEx has reached a $35.4 million settlement with the city and state of New York for three lawsuits alleging illegal shipments of cigarettes in the state over a 10-year period, The Commercial Appeal reports. In announcing the case against FedEx in 2014, the New York Attorney General’s office said FedEx made close to 33,000 illegal cigarette shipments amounting to more than 400,000 untaxed cigarette cartons to consumers in the state. This meant New York lost out on more than $10 million in tax dollars. In its settlement, FedEx, beyond the payment, agreed to reforms like ceasing domestic tobacco shipments (with limited exceptions) and having an independent consultant monitor the company’s compliance going forward.
read more »

Republicans File Medical Marijuana Bill

Two Republican lawmakers are sponsoring legislation to regulate medical marijuana in Tennessee, The Times Free Press reports. State Sen. Janice Bowling, R-Tullahoma, and Rep. Ron Travis, R-Dayton, said their bill would apply to qualified patients with certain specific diagnoses. They could obtain medical cards and buy products from companies licensed by Tennessee and owned by Tennesseans to cultivate, process and dispense cannabis. The Tennessee Medical Cannabis Trade Association has endorsed the Bowling-Travis bill, which the sponsors tout as a tool to fight opioid addiction as well as provide therapy to individuals suffering from serious illnesses.
read more »

Supreme Court to Take Up Case of Liquor-store Owner Residency Requirements

The U.S. Supreme Court is soon due to hear the case of Doug and Mary Ketchum, who according to Tennessee law, cannot get a license to operate a liquor store because they have not lived in the state for more than a year, The Commercial Appeal reports. The state Alcoholic Beverage Commission recommended that the couple be allowed a license, but the Tennessee Wine & Spirits Retailers Association threatened to sue if they did. Instead, the commission filed its own suit, asking that the law be declared unconstitutional. The case is due to be heard on Jan. 16.
read more »

Appeals Court Delays Pilot Flying J Executive’s Prison Sentence

The 6th Circuit Court of Appeals says former Pilot Flying J Vice President Scott “Scooter” Wombold doesn’t have to go to prison just yet, due to Senior U.S. District Judge Curtis L. Collier Jr.'s decision during Wombold's trial to allow jurors to hear secret recordings of former company president Mark Hazelwood's drunken, racist rants during a corporate meeting. Knoxnews reports that this is the second such decision made by the 6th Circuit, as it also delayed Hazelwood's trip to prison back in November. Wombold claims the jury was unfairly prejudiced against him due to the recordings.

read more »

Planned Parenthood and Others Face Accusations of Mistreating Pregnant Employees

Planned Parenthood and four other organizations that serve or cater to women have been accused of engaging in discriminatory practices against potential and current pregnant employees, The New York Times reports. Employees from four states claim that Planned Parenthood managers in certain locations declined to hire pregnant job applicants and declined break requests from pregnant employees. Additionally, some employees were forced out of their position following child birth. Natera, a company that sells genetic tests for pregnant women, has been accused of demoting employees while on maternity leave. CNN adds to the story that beauty company Avon, hailed as “the company for women,” has been sued by two cosmetics-testing lab employees with claims that they were forced to handle toxic chemicals while pregnant. The law firm Mehri & Skalet faces accusations that Cyrus Mehri, a founding partner, mistreated three female lawyer employees. One claims she was pressured to return to work from her maternity leave earlier than planned, while another alleges that she was fired following her request to delay her performance review while she was on leave.  

read more »

Blog Reviews Most Important Legal Tech Developments in 2018 has published a roundup of the 20 most important legal tech developments in the past year, eschewing the traditional Top 10 list due to the overwhelming number of significant changes. Included on the list were analytics becoming an essential part of the legal practice, investments in legal tech topping $1 billion, the end of Avvo and the new American Bar Association rule emphasizing the duty of lawyers to be up-to-date on legal technology.
read more »

Lawsuit Claims Baker Donelson, Butler Snow Share Responsibility in Ponzi Scheme

The court-appointed receiver for the estates of confessed Ponzi schemer Arthur Lamar Adams and his disgraced company, Madison Timber Properties, has sued Baker, Donelson, Bearman, Caldwell & Berkowitz and Butler Snow for allegedly abetting or turning a blind eye to Adams’ $100 million scheme, reports. Receiver Alysson Mills argues responsibility for the scheme extends far beyond one individual, claiming that individuals at the firms ignored red flags and even abetted the scam. Both law firms issued statements adamantly denying the allegations against them and promising to vigorously defend themselves in the suit.
read more »

Forum Selection Provision in Corporate Charter or Bylaws Deemed Unenforceable Under Delaware Law for Securities Claims

While Delaware statutes permit corporations to include bylaws provisions specifying a forum for “internal affairs claims,” such provisions in corporate documents do not apply to external relationships. In a Dec. 19 opinion, the Delaware Chancery Court ruled in the case of Sciabacucchi v. Salzberg that a provision in an incorporation certificate stating that any claim under the Securities Act of 1933 must be brought in federal court was unenforceable. The court noted the fundamental principle that corporate charters are not ordinary contracts binding the rights and obligations of private individuals, but rather are instruments creating a corporate entity, whose existence is recognized and regulated by a state. Delaware’s authority over the internal affairs of corporations “does not extend to (a corporation’s) external relationships.”

read more »