Piercing the Corporate Veil in Tennessee – When Can a Judgment Against a Corporation be the Personal Responsibility of the Shareholders?

The Tennessee Court of Appeals recently decided a case (F&M Marketing Services, Inc. v. Christenberry Trucking and Farm, Inc., E2016-00205-COA-R3-CV, 2017 WL 417223_(Tenn. Ct. App. 2017)) involving a request to pierce the corporate veil of a Defendant after the Plaintiff got a substantial judgment against that Defendant for breach of contract.  The total judgment in this case was $375,524.29.  After the initial judgment was entered, the Plaintiff learned that the Defendant had no assets to satisfy the judgment.  As a result, the Plaintiff petitioned the trial to hold the primary shareholder of the Defendant personally liable for the judgment against the Defendant corporation.  The Tennessee Court of Appeals did a good job discussing the circumstances when an individual shareholder can be found personally responsible for a judgment against a corporation in Tennessee. 

The Court noted that the most important case outlining when it is appropriate to pierce the corporate veil in Tennessee is the FDIC v. Allen, 584 F. Supp. 386 (E.D. Tenn. 1984) decision.  The Court noted that numerous Tennessee Court of Appeals and the Tennessee Supreme Court have nearly uniformly considered the “Allen factors” that were outlined in this case many years ago.  The factors to be considered when determining whether to allow a judgment to be against individual shareholders and simply disregarding the corporate veil include the following:

Factors to be considered in determining whether to disregard the corporate veil include not only whether the entity has been used to work a fraud or injustice in contravention of public policy, but also: (1) whether there was a failure to collect paid in capital; (2) whether the corporation was grossly undercapitalized; (3) the nonissuance of stock certificates; (4) the sole ownership of stock by one individual; (5) the use of the same office or business location; (6) the employment of the same employees or attorneys; (7) the use of the corporation as an instrumentality or business conduit for an individual or another corporation; (8) the diversion of corporate assets by or to a stockholder or other entity to the detriment of creditors, or the manipulation of assets and liabilities in another; (9) the use of the corporation as a subterfuge in illegal transactions; (10) the formation and use of the corporation to transfer to it the existing liability of another person or entity; and (11) the failure to maintain arms length relationships among related entities.

F&M Marketing at 3 (quoting Rogers v. Louisville Land Company, 367 S....

Tennessee Jury Award of Damages Significantly Less Than Medical Bills Overturned by Tennessee Court of Appeals

Sometimes juries make interesting decisions that need to be sorted out by the Tennessee Appellate Courts.  The recent case of Khadijeh Naraghian v. Darryle K. Wilson, No. W2014-02002-COA-R3-CV, 2015 WL 7012526 (Tenn. Ct. App. 2015) dealt with an automobile accident that occurred in Shelby County Tennessee.  In this case, the plaintiff alleged the defendant struck the plaintiff’s vehicle in the rear causing a neck injury to the plaintiff due to the accident.  Liability for the accident was disputed based upon the theory of alleged comparative fault of the plaintiff.  Regardless, there were approximately $13,440.00 of medical bills that were not contested by the defendant by any substantive counter medical proof. 

Ultimately, the jury found in favor of the plaintiff and awarded a total of $7,831.67.  The jury also found the plaintiff was 44.58% at fault for the accident and therefore the trial court reduced the award to $4,340.31.  The question on appeal was whether the jury award was disproportionate to the amount of damages actually proved at trial.

The Tennessee Court of Appeals found the award was not appropriate based on the evidence and therefore the award of damages was reversed.  The Court noted that it was basically undisputed that the plaintiff incurred approximately $13,440.00 in medical expenses.  The plaintiff asserted the jury cannot simply arbitrarily disallow part of the medical expenses that were incurred as a result of the injury.  The Tennessee Court of Appeals agreed.  The Court found the following:

As we have already stressed, there was no evidence in this case rebutting the necessity or reasonableness of the charges billed by Dr. Burford. His testimony was essentially unimpeached. Because we cannot reconcile the jury's verdict with the undisputed evidence that was presented, we must vacate the trial court's judgment and remand this matter for a new trial.

Id. at 5. 

This case is certainly interesting because it shows that a jury cannot disregard competent uncont...

In Tennessee the Remittitur of a Jury Verdict is a Reduction of the Amount of the Award by the Trial Judge

In Tennessee the trial judge has the ability to reduce a jury verdict award if the court is of the opinion the verdict should be reduced based on the evidence before the trial court.  Specifically, T.C.A. § 20-10-102(a) provides as follows:

(a) In all jury trials had in civil actions, after the verdict has been rendered and on motion for a new trial, when the trial judge is of the opinion that the verdict in favor of a party should be reduced and a remittitur is suggested by the trial judge on that account, with the proviso that in case the party in whose favor the verdict has been rendered refuses to make the remittitur, a new trial will be awarded, the party in whose favor such verdict has been rendered may make such remittitur under protest, and appeal from the action of the trial judge to the court of appeals.

If the party in whose favor the verdict has been rendered refuses to accept the remittitur then a new trial will be awarded.  In the alternative, the remittitur can be accepted under protest and an appeal can be immediately pursued to the Court of Appeals to review the actual remittitur.

T.C.A. § 20-10-102(b) provides that the Appellate Court reviews the remittitur and can either approve the remittitur or award the amount originally awarded by the jury.  T.C.A. § 20-10-102(b) provides as follows:

(b) The court of appeals shall review the action of the trial court suggesting a remittitur using the standard of review provided for in T.R.A.P. 13(d) applicable to decisions of the trial court sitting without a jury. If, in the opinion of the court of appeals, the verdict of the jury should not have been reduced, but the judgment of the trial court is correct in other respects, the case shall be reversed to that extent, and judgment shall be rendered in the court of appeals for the full amount originally awarded by the jury in the trial court.

As a result, in Tennessee, just because a jury awards a specific damages amount does not mean this award is the final amount of damages in a case.  From a defense perspective, if an excessive award is assessed by the jury, defense counsel should pursue a remittitur in most circumstances.  There really is no downside to pursuing this remedy in the State of Tennessee.

Trial Court Remittitur Greater Than 60% Is At Risk of Destroying a Jury’s Award Under Tennessee Law and Therefore Considered Invalid (43% Reduction Acceptable)

A recent interesting Tennessee Court of Appeals decision, Donriel A. Borne v. Celadon Trucking Services, Inc., No. W2013-01949-COA-R3-CV, 2014 WL 3778743 (Tenn. Ct. App. 2014), discussed the extent a remittitur of a jury’s award can be allowed.  A remittitur is simply a process where the trial can reduce a jury verdict award in order to make sure the award is not excessive and is reasonable under Tennessee law.  However, a remittitur by the trial court is not allowed to “destroy” the jury’s actual award.  If the jury award is “destroyed” upon a remittitur (as found by an appellate court), then the verdict is “impermissible and must be modified or vacated.”  Borne at 21.

As a result, the question is, to what extent can an award be reduced under remittitur principles and not be “destroyed”?  The Borne decision provided a good analysis of this question.  It addressed a recent Tennessee Supreme Court decision that discussed the “destruction” of an award by remittitur as follows:

The trial court's authority to suggest a remittitur of a jury's verdict rather than grant a new trial when it disagrees solely with the award of damages is not absolute. A suggested remittitur should not be so substantial as to destroy the jury's verdict. See Foster v. Amcon Int'l, Inc., 621 S.W.2d 142, 148 (Tenn. 1981). There is no set percentage that represents the destruction of the jury's verdict. See Id. at 148 n. 9 (“[W]e do not intend to establish a numerical standard for reviewing additurs and remittiturs.”); Webb v. Canada, No. E2006–01701–COA–R3–CV, 2007 WL 1519536, at *4 (Tenn. Ct. App. May 25, 2007) (“While we decline to establish any particular percentage that would indicate a remittitur that has totally destroyed a jury verdict, we note that [large] remittiturs by percentage have been found acceptable by this Court and the Supreme Court of our state.”).

See Meals v. Ford Motor Co., 417 S.W.3d 414 (Tenn. 2013). The Borne court noted “no numerical standard has been established by which remittiturs...

2014 Tennessee Legislature Makes Judgments Permanent if Injury or Death Caused by Criminal Conduct

Analysis:  The Tennessee Legislature made an interesting change to the typical rule in Tennessee that judgments are only good for ten years unless renewed (See T.C.A. § 28-3-110 and Tennessee Rule of Civil Procedure 69.04).  The Tennessee Legislature in the 2014 Tennessee legislative session passed Public Chapter No. 596 which was signed into law by Governor Bill Haslam on March 28, 2014.  This statute essentially allows a party to make a judgment permanent (as opposed to the current law where it expires after 10 years unless renewed) if the injury or death was caused by criminal conduct.  This act applies to any civil judgments that go into effect after July 1, 2014.  Additionally, there is actually a way for this act to apply to judgments entered before July 1, 2014, if a specific procedure is followed.

The new T.C.A. § 28-3-110(B)(1) provides as follows:

(b)(1) Notwithstanding the provisions of subsection (a), there is no time within which a judgment or decree of a court of record entered on or after July 1, 2014, must be acted upon in the following circumstances:

(A) The judgment is for the injury or death of a person that resulted from the judgment debtor's criminal conduct; and

(B) The judgment debtor is convicted of a crim...

What is an Additur and When can it be Applied to Change a Jury Verdict in Tennessee?

Analysis:  Judges in Tennessee are often called the “thirteenth juror” because they have the ability to modify a jury’s verdict.  One such way they can change a jury verdict is under T.C.A. § 20-10-101 which provides for an “additur” which simply means the judge can add an amount to the damages that are awarded by a jury.  Specifically, T.C.A. § 20-10-101(a)(1) provides as follows:

(a)(1) In cases where, in the opinion of the trial judge, a jury verdict is not adequate to compensate the plaintiff or plaintiffs in compensatory damages or punitive damages, the trial judge may suggest an additur in such amount or amounts as the trial judge deems proper to the compensatory or punitive damages awarded by the jury, or both such classes of damages.

As a result, if the trial judge considers the jury verdict to be inadequate to compensate the plaintiff, then the judge can suggest an amount to add to the compensatory or punitive damages awarded by the jury.  If this occurs, the defendant has the option to simply accept the additur and then it is considered to be the verdict of the court.  Specifically, T.C.A. § 20-10-101(a)(2) provides as follows:

(2) If the additur is accepted by the defense, it shall then be ordered by the trial judge and become the verdict, and if not accepted, the trial judge shall grant the plaintiff's motion for a new trial because of the inadequacy of the verdict upon proper motion being made by the plaintiff.

If the defendant does not accept the additur, then the trial judge is required to grant the plaintiff’s motion for a new trial and the new trial can then proceed.  The defendant also has the option to appeal the judge’s additur to the Tennessee Court of Appeals.  Specifically, T.C.A. § 20-10-101(b)(1) provides as follows:

(b)(1) In all jury trials had in civil actions, after the verdict has been rendered and on motion for a new trial, when...

Judgments - How long do judgments last in Tennessee? Ten years, but they can be extended further.

Analysis:  A recent Tennessee Court of Appeals case discussed the length of time that a judgment lasts in Tennessee.  The recent Tennessee Court of Appeals decision of Hilda Porter v. Larry Melton, 2013 WL 440575 (Tenn. Ct. App. 2013) also discussed how a judgment can be extended beyond the 10 years.  T.C.A. § 28-3-110(2) provides that an action on a judgment must be commenced within ten (10) years following accrual of the cause of action (this is basically a statute of limitations for enforcing judgments).  The full text of the statute is as follows:

The following actions shall be commenced within ten (10) years after the cause of action accrued:

(1) Actions against guardians, executors, administrators, sheriffs, clerks, and other public officers on their bonds;

(2) Actions on judgments and decrees of courts of record of this or any other state or government; and

(3) All other cases not expressly provided for.

Additionally, there is a Tennessee Rule of Civil Procedure that allows for an extension of the ten (10) year time period for an action on a judgment.  Specifically, Tennessee Rule of Civil Procedure 69.04 provides as follows:

Within ten years from entry of a judgment, the judgment creditor whose judgment remains uns...

Tennessee Jurisdiction – When can Tennessee courts exercise personal jurisdiction on out-of-state corporations?

Analysis:  The recent Court of Appeals decision of Precision Castings of Tennessee, Inc. v. H and H Manufacturing Co., Inc., No. M2012-00334-COA-R3-CV, 2012 WL 3608668, (Tenn. Ct. App. August 22, 2012) discussed when Tennessee courts can exercise jurisdiction over non-Tennessee entities.  In this case, the defendant, H and H, contacted a Tennessee company, Precision, and requested Precision to manufacture and deliver certain metal castings and molds.  H and H failed to pay for the product.  A lawsuit was filed in Tennessee and a judgment was entered against H and H.   

H and H contended the Tennessee court did not have jurisdiction over H and H.  H and H argued it never agreed to come to Tennessee, had never been in Tennessee, had no prior business relationships in Tennessee, had not derived any revenue from people or entities in Tennessee and does not conduct any business enterprise in Tennessee.  The court, however, determined the key facts as used to determine whether jurisdiction was appropriate was that H and H made electronic contact (email) with Precision in Tennessee and asked Precision to give H and H a quote to produce the products in question.  Pursuant to this request, Precision provided an electronic quote to H and H and Precision delivered the product to H and H. 

This case provides a good overview of when jurisdiction is appropriate in Tennessee.  There are two types of jurisdiction, “general jurisdiction”, and “specific jurisdiction”.  The court noted that general jurisdiction exists “when a defendant has ‘continuous and systematic contacts with the forum state sufficient to justify the state's exercise of judicial power with respect to any and all claims.”  Precision Castings. at footnote 1 (citing Aristech Chem Int’l Ltd. V. Acrylic Fabricators LTD., 138 F.3d 624, 627 (6^th Cir. 1998)).  Specific jurisdiction on the other hand “confers jurisdiction only on claims that arise out of or relate to a defendant’s contacts with the forum.”  Precision Castings at footnote 1.

The Tennessee long arm statute is found in T.C.A. § 20-2-214(a) and allows Tennessee Courts to...

Settlement Agreement – Difficulty to overturn a settlement agreement

Brief Summary:  This new case shows how difficult it is to overturn a settlement agreement in Tennessee.  It is difficult even when the plaintiff misrepresents material facts that were in dispute in the settled lawsuit.  The Tennessee Court of Appeals found it is an important public policy to keep “circumstances by which a party may overturn a prior final judgment” very narrow.

Analysis:  The Tennessee Court of Appeals decision of Tia Gentry v. Dale Larkin, E2011-02402-COA-R3-CV, 389 S.W.3d 329 (filed July 13, 2012) decided a case involving the “slayer’s statute”.  This case has very interesting facts and deals with an important question of law in Tennessee pertaining to overturning a settlement agreement due to fraud. 

Tennessee has a “slayer’s statute” or “killing statute” found in T.C.A. § 31-1-106.  This statute provides: 

Any person who kills, or conspires with another to kill, or procures to be killed, any other person from whom the first named person would inherit the property, either real or personal, or any part of the property, belonging to the deceased person at the time of the deceased person's death, or who would take the property, or any part of the property, by will, deed, or otherwise, at the death of the deceased, shall forfeit all right in the property, and the property shall go as it would have gone under § 31-2-104, or by will, deed or other conveyance, as the case may be; provided, that this section shall not apply to any killing done by accident or in self-defense.

As a result, this statute basically forbids an individual from inheriting any property or recovering any life insurance proceeds from a deceased if that individual was responsible for killing that deceased.