Articles Posted in Business Torts

Justifiable reliance is one of four elements a plaintiff must prove in a negligent misrepresentation case. In the recent case of Pritchett v. Comas Montgomery Realty & Auction Co., Inc., No. M2014-00583-COA-R3-CV (Tenn. Ct. App. April 15, 2015), the Court of Appeals held that a plaintiff who signed an agreement stating that the sale of real estate was “as is” and that he would only rely upon his own inspection could not prove this essential reliance element of his negligent misrepresentation claim.

The plaintiff in Pritchett went to an auction for commercial real estate that had been advertised as being 11,556 square feet. Before the auction began, plaintiff signed a “Terms of Sale” form that stated that everything was being sold “as is” and that “buyer shall rely entirely on their own inspection and information.” The auctioneer also announced that all property was sold “as is.” Plaintiff was the highest bidder and thus signed a contract of sale. The contract stated that “buyer specifically acknowledges herein that the property is being purchased ‘as is’ and that neither the Seller nor [Defendant] makes any warranties or representations, express or implied, as to the habitability or condition of the real property contained herein.” The sales contract did not state the square feet of the building. After taking possession of the property, plaintiff discovered that the building was actually only 9,353 square feet and accordingly brought this negligent misrepresentation claim. The trial court granted summary judgment to defendant, and the Court of Appeals affirmed, although on different grounds.

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This case arises from the housing market crash. First Community Bank had purchased asset-backed securities primarily in the form of collateralized debt obligations (CDOs) and residential mortgage-backed securities (RMBSs) from a number of entities including First Tennessee Bank, Morgan Keegan & Company, Merrill Lynch, Pierce, Fenner & Smith, Inc., Bear Stearns & Company and Sun Trust Robinson Humphrey, Inc. and Keefe, Bruyette & Woods, Inc. The sale of each security was conditioned upon the receipt of a minimum rating, and all sales received the rating. While initially First Community Bank profited from these transactions, in August of 2008, after Moody’s downgraded the rating on a number of the investments, the bottom fell out. First Community Bank lost nearly 100 million dollars. 

Trying to recoup some of its massive losses, First Community sued everyone involved: the rating agencies, the placement agents and the issuing entities. In its 207 page complaint, which was later amended and expanded to 260 pages, First Community Bank alleged fraud, constructive fraud, negligent misrepresentation, civil conspiracy, unjust enrichment and a violation of the Tennessee Securities Act. Procedurally, the case took some twists and turns. The defendants initially moved to dismiss on multiple grounds: statute of limitations, statute of repose, failure to plead with specificity, the losses were caused by general market conditions and, for some defendants, lack of personal jurisdiction. The trial court granted the motions to dismiss and First Community Bank appealed. The Court of Appeals upheld the dismissal of some of the defendants based on lack of personal jurisdiction. As to the other defendants, the Court of Appeals found the trial court had considered matters outside the pleadings thereby converting the motions to dismiss into motions for summary judgment. As such, First Community Bank was entitled to discovery. The remaining defendants appealed to the Tennessee Supreme Court who found the Court of Appeals had failed to consider the trial court’s alternative basis for dismissal i.e., the failure to state a claim upon which relief may be granted (other than statute of limitations or statute of repose).   Accordingly, the case was remanded to the Court of Appeals for consideration of that lone issue. The Court of Appeals ultimately reversed the trial court’s decision on that issue and remanded for further proceedings.

Given the issue on appeal, the Court of Appeals’ analysis was limited to whether the complaint was legally sufficient as opposed to the strength of the plaintiff’s proof. Ultimately, after construing the complaint “liberally and presuming all factual allegations to be true and giving the plaintiff the benefit of all reasonable inferences”, the Court of Appeals concluded the amended complaint was sufficient to survive the motions to dismiss. 

Here is a link to a blog on covenants not to compete – a fascinating area of litigation.

Tennessee has a lot of law in this area, and a recent Tennessee Supreme Court case on the subject was essentially reversed by a new statute. 

If you do this type of work you may find this blog of assistance to you.

B2B tort litigation is a growing phenomena, as big firm lawyers start to think outside of the box.  Here is a new blog dedicated to the subject –Unfair Business Practices.

The blog focuses on unfair business and trade practices such as business conspiracy, breach of fiduciary duty, misappropriation of trade secrets and other proprietary information, fraud, tortious interference with contracts and other unfair business practices that are not neatly defined."

The blog is published by the Williams Mullen firm in Virginia.

The Tennessee Supreme Court has ruled that a parent corporation may be sued for intentional interference with a contractual relationship between a partially owned subsidiary and a third party.

The Court had ruled in an earlier case that " a parent corporation has a privilege pursuant to which it can cause a wholly-owned subsidiary to breach a contract without becoming liable for tortiously interfering with a contractual relationship.”  However, in this case the Court said that "[w]e conclude that the privilege does not extend when a parent owns less than 100% of a subsidiary.  The foundation of [our prior decision in] Waste Conversion and the reasoning upon which it rests is that the qualified  privilege should be extended when there is a full and complete identity of interest between a parent  corporation and its subsidiary. When there exists such an identity of interest, courts are justified in  treating two legally separate entities as one and in extending the immunity from tortious interference  that is normally enjoyed only by the parties to a contract. However, courts are not justified in  extending the privilege when the interests of the parent and the subsidiary are not identical."

The Court said this as well:  "Having availed themselves of the benefits of separate corporations, the [defendant] Companies argue that we should now disregard their corporate structure in order to shield them from liability. … Because we respect the separate legal status of a corporation and its shareholders, we are equally reluctant to disregard corporateness to create liability as we are to disregard corporateness to remove liability."

Judge Bill Koch has written a opinion that is worth a read by everyone who visits this blog. The case is Johnson v. John Hancock Funds, No. M2005-00356-COA-R3-CV (Tenn. Ct. App., M.S., June 30, 2006).

Plaintiffs claimed that they received poor advice from their financial advisor and suffered a loss of money. They brought suit under the Tennessee Consumer Protection Act and also asserted several common law torts.

The trial court dismissed the TCPA claim. The Court of Appeals reversed, saying, in part, that: