Non-compete agreements in Tennessee

Are non-compete agreements enforceable in Tennessee?

It depends. Generally speaking, non-compete agreements, also called ‘covenants not to compete’, are disfavored in Tennessee. See Hasty v. Rent-A-Driver, Inc., 671 S.W.2d 471 (Tenn. 1984). Courts interpret these agreements strictly in favor of the employee, in part because the agreement is a restraint on trade. Having said that, courts will uphold non-compete agreements if there is a legitimate business interest to be protected and the agreement sets reasonable time and territorial limitations. Id.

What makes a non-compete agreement reasonable?

When deciding whether a non-compete agreement is reasonable, Tennessee courts will consider the following relevant factors:

1. the consideration supporting the agreement;
2. the threatened danger to the employer in the absence of the agreement;
3. the economic hardship imposed on the employee by the agreement; and,
4. whether the agreement is against the public interest.

Additionally, the time and territorial limitations must be no greater than necessary to protect the employer’s legitimate business interest. In other words, a company cannot expect a court to uphold a non-compete agreement which purports to prevent an employee from ever taking a job with another company in the same general line of work.

Does the employer have a legitimate business interest which deserves protection?

Obviously, employers cannot restrain ordinary competition. Therefore, employers must show that without the non-compete agreement, the employee would gain an unfair advantage in future competition with the employer. Id.

Courts consider the following to determine whether an employee would have an unfair advantage:

1. whether the employer provided the employee with specialized training;
2. whether the employee is given access to trade or business secrets or other confidential information; and,
3. whether the employer’s customers tend to associate the employer’s business with the employee due to the employee’s repeated contacts with the customers on behalf of the employer.

Of course, an employer does not have a protectable interest in the general knowledge and skill of an employee. Id. However, an employer can typically prevent former employees from using its trade or business secrets or other confidential information in competition with the employer. While figuring out what constitutes a trade secret is generally easy, determining what constitutes confidential information can be much more difficult. Indeed, in one particular case, a Tennessee court held that customer lists, customer credit information, pricing information, and profit and loss statements did not constitute confidential information because such information is easily available from sources other than the employer. Id.

If you are an employee with a potential non-compete dispute or an employer looking to prevent unfair competition and/or protect confidential information from your competitors, you need a business litigation lawyer Memphis knows and trusts to handle the matter for you.

Call us today at 901.372.5003.

When can a subcontractor file a lien?

Under Tennessee law, a subcontractor is considered an indirect lien claimant since he or she typically does not have a contract with the owner of the property. Even though a subcontractor does not have a contract with the owner, he or she might still have lien rights. To determine if a subcontractor has lien rights, you must consider the following: Did the subcontractor contribute to an improvement in real property? Is the improvement part of a residential or commercial project? Has the subcontractor taken the necessary steps to ensure he or she has not lost whatever lien rights he or she may have had?

Improvements

In most situations, this is obvious. The subcontractor has either performed services or delivered materials as part of a construction or renovation project that permanently alters or “improves” the real property.

Residential or commercial property

For subcontractors, Tennessee law treats residential projects and commercial projects differently.

Residential projects

Generally speaking, subcontractors do NOT have lien rights for improvements made to residential property. One exception in which a subcontractor does have lien rights against residential property is when the owner is acting as the general contractor. In that situation, the subcontractor has a direct contract with the owner/general contractor. As an aside, a subcontractor may have a cause of action against an owner that is acting as the general contractor even if their contract is not in writing.

Commercial projects

Subcontractors have lien rights for improvements to commercial property. However, they must follow specific statutory requirements or they risk losing those rights. Subcontractors must send a Notice of Nonpayment to the owner and general contractor to keep their lien rights. Tennessee law has strict requirements for Notices of Nonpayment. Subcontractors must include very specific information and must send their Notice timely otherwise they risk losing their lien rights. After sending a timely Notice of Nonpayment with all the required information, subcontractors must then send a copy of their Notice of Lien to the owner and general contractor too. Once both the Notice of Nonpayment and Notice of Lien have been timely sent, a subcontractor can file his Notice of Lien.

Enforcing a valid lien

To enforce a valid lien claim, a subcontractor must file his or her lawsuit within ninety (90) days of their Notice of Lien. If they fail to file an appropriate lawsuit within that statutory time frame, he or she will lose his or her lien rights.

If you are dealing with a general contractor that has not paid, you need a construction lawyer Memphis trusts to help you through the process.

Article by Lang Wiseman Published on Law360.com — Insurance Bad Faith and Punitive Damages

Bad Faith

Insurance Bad Faith

Law360.com recently published an article by Lang Wiseman regarding Tennessee law on insurance bad faith and punitive damages.  The title of the article is “Are Punitive Damages Available in Tennessee Insurance Cases?

Following is an excerpt from the introduction of article:

“In recent years, state and federal court rulings in Tennessee have been inconsistent about whether punitive damages are available to a policyholder in an insurance coverage case.  This inconsistency arises out of differing interpretations of Tennessee’s “bad faith statute” in light of the Tennessee General Assembly’s passage of Tennessee Code Annotated § 56–8–113.”

For more information, please use the search tool on our website to locate and review additional articles and posts on business and insurance related matters, including FAQs.

_____________________________

Wiseman

Lang Wiseman

Lang Wiseman is the founding member of Wiseman Bray PLLC, and is a commercial litigator that Memphis, Tennessee knows and trusts when it comes to business and insurance matters. Lang is an honors graduate of Harvard Law School after graduating as the top graduate in the College of Business at the University of Tennessee where he was a scholarship basketball player for the Vols.  Lang concentrates his practice in commercial litigation and is an AV-rated lawyer annually recognized by his peers as one of the Top 100 Super Lawyers in Tennessee.  Among other civic endeavors, he serves on the Board of Trustees of the University of Tennessee, the Governor’s Council for Judicial Appointments, and the Vice-Chair of the Advisory Commission to the Tennessee Supreme Court on Rules and Practice of Procedure.

Get Specific! You Must Mention “FEES” in Your Attorney Fee Provisions

business lawyer Memphis, TN

Tennessee Requirements for Attorney Fee Provisions

As the business lawyer Memphis TN  trusts when it comes to contract negotiation and drafting, one piece of simple legal advice we frequently give our small business clients is to always include attorney fee provisions in your contracts and routine business forms. Why? Because if you don’t have such a provision and you end up in litigation, you’re on the hook for your own attorney fees and legal expenses even if the breach of contract, or the resulting litigation, isn’t your fault.

It has always been the case that a contractual provision allowing for the recovery of attorney fees must be specific. However, just last month, in Nyrstar Tennessee Mines-Strawberry Plains, LLC v. Claiborne Hauling, LLC, the Tennessee Court of Appeals went further to reinforce this principle by making clear that attorney fee provisions must specifically invoke the magic words “attorney fees.”   The Court held that it is not enough simply to provide recovery of “costs,” “expenses” or even “legal expenses” – all of which the Court held was simply not specific enough to permit recovery of attorney’s fees.

 In Nyrstar, the plaintiff won at trial on its breach of contract action against the defendant and the judge awarded the plaintiff $116,073.43 in damages. After winning the case, the plaintiff then sought attorney’s fees of $106,779.50 and expenses of $2,982.12 pursuant to the attorney fee provision in the applicable contract. The specific language of the contract in Nyrstar was as follows:

The Customer must pay Nyrstar all costs and expenses incurred by Nyrstar in connection with enforcing its rights against the Customer under an Agreement including legal expenses and other costs incurred in recovering monies owed by the Customer to Nyrstar.

The trial court awarded the plaintiff its expenses, but refused to award the plaintiff its attorney’s fees, despite the contract language providing for the recovery of “legal expenses.” The trial court stated:

[t]he plaintiff Nyrstar’s language does not use the term “fees.” It uses “expenses,” which has been found to be inadequate. Merely providing for the “recovery of ‘costs and expenses’” is insufficient to reach a contractual right to recover attorney’s fees.

(Emphasis added). The Tennessee Court of Appeals upheld this decision. The Nyrstar case means that you should pull out your contracts and regular business forms, and then call us today to make sure that the language you are using in your attorney fee provisions is correct. After all, what is the point of having an attorney fee provision in your contracts and forms if it’s not going to hold up in court?

Bottom Line

Your attorney fee provision MUST specifically provide for the recovery of “attorney’s fees,” and not merely “costs” or “expenses.”

Even if a provision provides for the recovery of “legal expenses” or “costs and expenses of any suit or proceeding,” the right to recover attorney’s fees is not created because the provision does not specifically implicate “fees” as part of the recovery.

If you’d like the small business lawyer Memphis TN  trusts to review your small business contracts and routine business forms to make sure your language complies with the requirements in Tennessee for attorney fee provisions, call us today at (901) 372-5003.

Wiseman Bray Wins on Motion to Dismiss

motion to dismiss

Victory for Wiseman Bray!

Wiseman Bray PLLC is happy to announce a victory in a business litigation case. Our strategy? A Rule 12 Motion to Dismiss. Our client, a former officer and employee of a factoring corporation, was wrongfully sued in his individual capacity by a former customer of his employer. Our client served as Chief Financial Officer, and had merely signed agreements on behalf of the company. The Plaintiff alleged that our client’s employer had misapplied payments and committed other improper acts in connection with their Factoring and Buyout Agreements.

Our Strategy

The Complaint contained numerous allegations against the factoring corporation, but its only mention of our client was that he was an officer of the company, and that, as an officer he was somehow responsible for implementing the policies and procedures that damaged Plaintiff.

After our firm was hired to represent the former officer, we carefully analyzed the Complaint filed against him in Federal Court. In our judgment, the claims in the lawsuit were neither valid nor properly stated, so we filed a Motion to Dismiss for Failure to State a Claim. See Federal Rule of Civil Procedure 12.

What is a Motion to Dismiss for Failure to State a Claim?

A motion to dismiss for failure to state a claim is filed at the very beginning of a case which argues, essentially, that a plaintiff’s claim is either not legally correct, or that insufficient facts have been alleged to suppose an otherwise valid legal claim.

When such a motion is filed, the judge must assume that all the allegations of the plaintiff’s complaint are true, resolving any and all doubts in favor of the plaintiff. For obvious reasons, then, such motions are usually very difficult to win. The corresponding benefit is equally obvious, though, because dismissal at this early stage allows the client to avoid most of the costs of litigation.

The Court’s Ruling in Our Case

The Federal District Court judge agreed with our argument and granted the Motion to Dismiss filed on behalf of our client. In dismissing the breach of contract claim, the Federal District Court Judge said:

A corporate officer cannot be held liable for a corporation’s debts merely because he exercises dominion or control over the organization. Schlater v. Haynie, 833 S.W.2d 919, 924 (Tenn. Ct. App. 1991). Likewise, a corporate officer signing a contract on behalf of corporation does not bind himself to the contract. Bill Walker & Associates, Inc. v. Parrish, 770 S.W.2d 764, 770 (Tenn. Ct. App. 1989). Instead, a court will only hold an officer liable on a contract if it appears that the officer signed the contract in his personal capacity.

Here, Plaintiff has alleged no facts showing that [the former officer] was a party to the Factoring Agreement in his personal capacity. The Factoring Agreement’s signature page clearly shows that [his] signature was in his capacity as CFO. (ECF No. 1-1 at 3.) Additionally, he is not even a signatory to the Buyout Agreement. Plaintiff’s Complaint instead apparently attempts to hold [the former officer] liable because he exercised control over [the corporation’s] actions.  However, Tennessee law does not allow this. See Schlater 833 S.W.2d at 924. Therefore, its breach of contract claim against [the former officer] fails.

In dismissing the Plaintiff’s additional claims of conversion and fraud, the Judge went on to say:

A director or officer of a corporation does not incur personal liability for its torts merely by reason of his official character; he is not liable for torts committed by or for the corporation unless he has participated in the wrong.’” Cooper v. Cordova Sand & Gravel Co., Inc., 485 S.W.2d 261, 271–72 (Tenn. Ct. App. 1971).

Here, the only allegation against [the former officer] himself is that he “was responsible for implementing the policies and procedures that damaged Plaintiff,” or, in other words, acted as an officer of the corporation. Because Plaintiff’s Complaint lacks any reference to any tortious conduct on the part of [the former officer], it fails to state a claim against him for both conversion and fraudulent inducement.

This case was handled by Civil Litigation Attorneys Chris Patterson and Erin Shea.

Need a Business Litigation Attorney?

Call us at 901-372-5003 or visit our website to learn more about our services as business litigation attorneys.

We handle other kinds of cases as well, including: personal injury, apartment crime injuries, auto accidents, premises liability, wrongful death, contract drafting and review, general civil litigation, estate planning, wills, trusts, probate, business planning, and business entity formation.

How to Dissolve a Tennessee LLC

dissolve tennessee llcNeed to dissolve your Tennessee LLC? The method for dissolving a business entity depends on the type of entity and its structure.  This post will focus on the termination of a Tennessee Limited Liability Company (LLC).  In addition, while LLCs can be dissolved both judicially and administratively, we will focus on dissolution by the person or persons associated with the LLC.

Disclaimer: This information is intended to be a general overview of the LLC termination process in Tennessee.  The termination process may be different depending on the LLC, its makeup, or a client’s specific circumstances. This information should not be used as a substitute for consulting an attorney about terminating your LLC.

 Statute on how to dissolve a Tennessee LLC

LLCs formed on or after January 1, 2006, are governed by the Tennessee Revised Limited Liability Company Act.  Tenn. Code Ann. 48-249-601  provides the various methods for dissolving a Tennessee LLC and provides that an LLC is dissolved upon the first of the following to occur:

  • Expiration of the period fixed in the Articles of Organization, if any:
  • The occurrence of an event specified in the LLC documents;
  • Action of the members in accordance with Tenn. Code Ann. § 48-249-603;
  • Action of the organizers under Tenn. Code Ann. § 48-249-602 if not contributions have been accepted by the LLC;
  • An order of the court under Tenn. Code Ann. § 48-249-616 or § 48-249-617, also known as judicial dissolution;
  • An action of the Secretary of State under Tenn. Code Ann. § 48-249-605; also known as administrative dissolution; or
  • If there are no LLC members and a notice of dissolution is filed within 90 days of the occurrence of the event terminating the interest of the last remaining member and the LLC documents specify that the termination of the interest of the last member dissolves the LLC.

The statute specifically provides that the “termination, dissociation, death, incapacity, withdrawal, retirement, resignation, expulsion, bankruptcy or dissolution of any member, or the occurrence of any other event that terminates the membership interest of any member, shall not cause the LLC to be dissolved.”  If any LLC is to be dissolved in any of these instances, it must be stated in the LLC documents.

What to Do Before Termination

Before terminating your entity with the Tennessee Secretary of State, the entity must file a Final Tax Return with the Tennessee Department of Revenue and obtain a Tax Clearance Letter to submit with its termination documents.

Submitting Termination Documents

If a Tennessee LLC is terminated by the organizers, Articles of Termination by the organizers must be filed with the Tennessee Secretary of State. If the LLC is terminated after a designated period, under the LLC documents, if there are no members left, or if by consent of the members, Notice of Dissolution must also be filed with the Secretary of State.    Be sure to have appropriate documentation filed with your LLC documents showing any action that was taken to effect this decision, if necessary.

What to Do After Termination

Once an entity is terminated with the State, the LLC must stop doing business and wind up its affairs.  To wind up the business, management must collect and pay all debts, sell assets, and distribute any remaining funds to the members of the LLC.

You Still Need to Consult a Business Lawyer

This information is only a general overview of the LLC termination process in Tennessee.  The process may be different depending on the LLC, its makeup or a client’s specific circumstances.  For this reason, it is important that you consult an attorney before taking steps to terminate your LLC.

If you need help terminating your LLC, we would be honored to assist you.  Please call us at 901-372-5003 or email us here.

Wyoming Close LLCs Protect Assets

Wyoming Close LLC Asset Protection Memphis TNA popular asset protection tool we use at Wiseman Bray PLLC is the Wyoming Close Limited Liability Company.  One or more people can establish and own this type of entity and may also manage the LLC.   

Anyone can establish a Wyoming Close LLC, even if you do not live in Wyoming or conduct your business there.

Protection from Lawsuits

Under current law, assets inside a Wyoming Close LLC are protected from “outside” lawsuits and creditors, such as those resulting from a car accident or malpractice action.  In a few states, like Wyoming, the sole remedy for a creditor of an LLC member against that member’s LLC interest is a “charging order.”  A charging order only allows the creditor access to the debtor’s LLC interest to the extent distributions are made to the member.

Estate and Gift Tax Benefits

Under current law, the value of a membership interest in a Wyoming Close LLC may be subject to valuation discounts for estate and gift tax purposes. We anticipate in the future that the IRS will institute regulations limiting tax benefits.

Separation of  “Hot” and “Cool” Assets 

A “hot” asset is something like a rental property.  A “cool” asset is something like a brokerage account. Separate LLCs should be formed to keep “hot” and “cool” assets separate.  “Cool” assets should be isolated from “hot” assets because any “inside” lawsuits, such as those resulting from accidents occurring on property inside the LLC, will subject “cool” assets to claims of creditors of the “hot” assets.

Is a Wyoming Close LLC right for you?

If you have questions about whether a Wyoming Close LLC might be right for you, or if you’re curious about other forms of asset protection and business organizations, please call us at 901-372-5003 or email us here. We will examine your personal situation and work to develop the asset protection strategy that is right for you.

Small Business Tip: Include Provision in Your Contracts to Recover Attorneys’ Fees

small business lawyer, small business attorney

Reason to Add an Attorney Fee Provision

You’re running a small business. You have a form, purchase order, or other short contract you always use.  Take a moment to look at your forms and contracts. Do they include an attorney fee provision?  If not, we recommend that you add one.

If someone fails to pay you, you might need to file a lawsuit to recover what you are owed. Going to court is expensive.  In Tennessee, each party is responsible for paying their own attorney fees. That’s right–even if you win in court, you generally can’t make the other side pay your attorney fees unless you have an attorney fee provision in your contract.  For more information on attorney fees, read this blog post.

Sample Attorney Fee Provision

If any party institutes any action or proceeding to enforce any provision of this contract by reason of any alleged breach of any provision herein, the prevailing party shall be entitled to receive from the losing party all legal fees and costs incurred in connection with any such proceeding.

We are Small Business Lawyers.

Check out our team at Wiseman Bray PLLC.  If you need help with your small business contracts, agreements, or forms, or if you have a question about business litigation or the recovery of attorney fees in a lawsuit, please call us at 901-372-5003 or email us here. We have offices in Memphis and Nashville TN.

 

 

The Other Side is Lying. Can I Sue for Defamation?

defamation, slander, libel, attorney“Can we sue them for defamation?” That is a question we receive very frequently from both Plaintiffs and Defendants we are representing in pending litigation. Typically, the question is a reaction to reading or hearing something alleged in the lawsuit, whether in a complaint, answer, discovery responses, or during courtroom or deposition testimony.  The client asking that question usually feels that his or her integrity is being questioned, is very upset, and wants to know if he or she can “counter-sue.”   In the context of litigation, the answer is no.  Let’s explore why.

What is Defamation?

To win a defamation case, you must prove that:

(1) Someone “published” a statement about you. (“Publication” is a legal term of art meaning the communication of the subject defamatory matter to a third person.)

(2) The publication occurred with knowledge that the statement was false and defaming to you, or with reckless disregard for the truth, or with negligence in failing to ascertain the truth.

(3) Your reputation was injured.  Damages from false or inaccurate statements cannot be presumed. Actual damages must be suffered and proved.

Brown v. Christian Bros. Univ., 428 S.W.3d 38 (Tenn. Ct. App. 2013). A statement is not defamatory just because it is annoying, offensive or embarrassing. Rather, the statement must be a serious threat to your reputation. Defamation includes both libel and slander. Libel is written defamation. Slander is spoken defamation.

But wait . . . there’s the Judicial Proceeding Exception

Statements made in the course of judicial proceedings which are relevant and pertinent to the issues cannot be used as a basis for a libel action for damages. This is true even if the statements are known to be false or even malicious.

The policy behind this rule is the paramount importance of access to the judicial process and the freedom to institute, defend, and participate in a lawsuit without fear of being sued for defamation.  This exception in Tennessee may leave a wronged individual with no remedy, but our courts have determined that the rights of the individual must be sacrificed for the public good. Desgranges v. Meyer, No. E2003-02006-COA-R3CV, 2004 WL 1056603, at *5 (Tenn. Ct. App. May 11, 2004).

What should I do if I think I have a defamation, libel, or slander case?

Call a lawyer to discuss your case as soon as possible. The deadline for filing a slander suit is 6 months from the time the words are spoken. The deadline for filing a libel suit is 1 year after the words are written. Gathering and preserving your evidence is crucial. Remember you must prove not only that someone defamed you, but that you suffered actual damages.

Wiseman Bray PLLC

8001 Centerview Parkway, Suite 103

Memphis, Tennessee 38018

(901) 372-5003

Visit our website to learn why we’re not your everyday law firm.

We have offices in Memphis and Nashville and represent clients in Lakeland, Arlington, Cordova, Bartlett, Germantown, Collierville, and many other areas throughout Tennessee and Mississippi.

Top 8 Ways to Save Money on Attorney Fees

attorney fees, attorney's fees, legal fees

Let’s talk about attorney fees. When confronted with a legal claim or issue, some people simply want to “turn it over to the lawyer and be done with it.” Others prefer a more hands-on approach, and they prefer to work closely with legal counsel.  Some clients want to resolve a matter as quickly and cost-efficiently as possible, while others desire vindication and want nothing short of a judicial ruling or jury verdict. However, there is one thing that all clients probably agree on.  The lower the attorney fees, the better. 

How do you keep legal fees in check?

Make sure your goals and legal strategy are clear. Lawyers work for clients, and attorney fees are based on the amount of work the lawyer performs for the client.  Clear communication and responsiveness from both the lawyer and the client is critical.  Above all, you must make sure you communicate clear goals, and then to listen and understand what actions your lawyer is suggesting.

What can I do to save money on attorney fees?

There are also a few things you can do to reduce attorney fees, legal costs, and expenses:

(1)  Come prepared.  Each time you meet with your lawyer, anticipate questions and come prepared with information. Bring a timeline, notes, a list of witnesses and contact information, and relevant documents.  Don’t make your lawyer beg for the information he or she will need in order to best represent you.

(2)  Obtain, review and organize your documents.  The overwhelming majority of cases can be boiled down to a few key documents. You don’t want to pay your lawyer to obtain documents you could get yourself. Nor do you want to pay a lawyer to “find a needle in a haystack” or to review unorganized or unnecessary documents searching for one relevant piece of information.

(3)  Promptly do what your lawyer asks you to do.  Respond quickly to information and discovery requests from your attorney.  Failure to do so drives up costs immeasurably.  It can lead to unnecessary communications between opposing lawyers, and between clients and lawyers, and often leads to unnecessary motions being filed by opposing counsel.

(4)  Stay on top of your case. Keep copies of all papers, letters, and pleadings.  Take notes when you talk to your attorney.  Keep yourself informed about your case.  You’d be shocked at how often clients call and/or ask for meetings to re-review things they should already know, or to get copies of papers they already have.

(5)  Be an “information gatherer.”  This one is especially true for companies and small businesses. You know your business, employees, and contacts better than your lawyer. Utilize your knowledge and relationships. You can often obtain information and documents much more easily and cost efficiently than your lawyer can.

(6)  Utilize your lawyer’s assistant.  Many of your questions and phone calls can be directed to your lawyer’s assistant, most of which is not recorded as billable time.  For example, questions about scheduling, getting copies of documents, or coordinating meetings and events can easily be handled by a legal assistant much more cheaply than talking to the lawyer every time.

(7)  Understand the difference between legal advice and counseling.  It is obviously critical that you communicate effectively with your lawyer, but keep communications to the point. Oftentimes clients complain or vent about the opposing party, the unfairness of the situation and/or the legal process, or the tactics of the other lawyer.  It’s perfectly okay if you want to pay your attorney to be a sympathetic ear for you, but understand that you pay for your attorney’s time, and that you can very likely get a sympathetic ear elsewhere for free.

(8)  Compromise. Litigation is expensive. Realize that “wins” come in varying shapes and sizes, and that negotiating from a position of strength borne out of effective and thorough preparation can lead to the best long-term outcome.  Indeed, a lengthy lawsuit may not be the best long-term strategy even though you think might have a slam dunk case at trial two years from now.  Winning the battle isn’t worth losing the war.  Smart and tactical compromise can be a virtue, particularly when taking into account both the direct and indirect costs of litigation.

Wiseman Bray has offices in Memphis and Nashville, Tennessee.  Call us today at 901-372-5003.