Summary Judgment Vacated When Order Failed to State Reason for Decision

In Battery Alliance, Inc. v. Allegiant Power, LLC, No. W2015-02389-COA-R3-CV (Tenn. Ct. App. Jan. 30, 2017), the Tennessee Court of Appeals vacated a summary judgment order for defendants because the trial court failed to state the legal grounds for summary judgment before asking counsel for defendants to draft an order.

The facts underlying this case revolved around the president and other employees of a Tennessee battery company leaving and starting a competing battery company in Florida. Plaintiff, the Tennessee company, filed suit against the Florida company and several individual defendants, citing various causes of action including intentional interference with business relationships. Defendants filed a counterclaim against plaintiff and also filed a motion for summary judgment. In response to defendants’ filings, plaintiff filed a motion to dismiss the counterclaim.

The trial court held a hearing on the motions and denied plaintiff’s motion to dismiss, but it “took the motion for summary judgment under advisement.” The next day, the judge’s law clerk emailed counsel for the parties and said the judge was going to grant summary judgment to defendants, and further asked defense counsel to “draw up the order.” At a subsequent hearing on a motion to compel, “counsel for Plaintiffs requested that the court provide its legal reasoning supporting the decision to grant Defendants’ motion for summary judgment prior to entry of the judgment.” The trial court replied that the reasoning would be provided in its order. The trial court further stated that “counsel for Defendants was preparing only a ‘template’ for the court’s order and that the actual court order entered would be the court’s ‘work.’” Weeks later, defendants sent the template to the court, plaintiff lodged an objection to the template, and the court eventually entered an order granting summary judgment.

Rule 56.04 of the Tennessee Rules of Civil Procedure requires that a “trial court shall state the legal grounds upon which the court denies or grants” a summary judgment motion. The Tennessee Supreme Court has ruled that “a court’s decisions must be, and must appear to be, the result of the exercise of the trial court’s own judgment,” and that Rule 56.04 “requires the trial court, upon granting or denying a motion for summary judgment, to state the grounds for its decision before it invites or requests the prevailing party to draft a proposed order.” (Smith v. UHS of Lakeside, Inc., 439 S.W.3d 303 (Tenn. 2014)).

Here, the Court ruled that the “trial court did not provide or state the legal grounds upon which its decision was based prior to directing counsel to prepare the order.” In fact, even when plaintiff specifically asked for the reasoning while appearing before the court after learning that the judge would grant the motion for summary judgment, the trial court still failed to provide any reasoning for its decision. In an exchange at that appearance, counsel for plaintiff stated: “My point is that although opposing counsel can draft an order, he does not know your legal grounds for the grant of summary judgment.” The trial court replied: “He absolutely doesn’t. And I will put that part in the order….” In addition, the Court of Appeals noted that the template sent by defendants was “very similar” to the final order entered by the trial court, with only “slight differences” between the two.

Based on this record, the Court of Appeals held that “the trial court failed to fully comply with Tennessee Rule of Civil Procedure 56.04,” and thus vacated the order granting summary judgment to defendants.

The Court also affirmed the trial court’s refusal to dismiss the defendants’ counterclaim against plaintiff. Plaintiff argued that the counterclaim should be dismissed because defendant “lack[ed] standing…because [defendant] is conducting business within Tennessee without a certificate of authority pursuant to Tennessee Code Annotated § 48-246-601(a).” The Court pointed out, though, that section (f) of this same statute allows foreign LLCs to defend against suits filed in Tennessee. Because defendant “was merely asserting its counterclaim as a defense to the action filed against it by Plaintiffs,” the Court held that the trial court was correct in denying the motion to dismiss.

This case reinforces the importance of trial courts following the proper procedure before asking for proposed orders on summary judgment motions. Since the Supreme Court’s holding in Smith, we have seen several cases with summary judgment orders vacated due to the trial court’s failure to cite legal grounds for its decision. If a trial court grants summary judgment in your favor, be mindful of this requirement; if a court grants summary judgment for your opponent, remember that you can potentially use this strategy on appeal if the trial court did not properly state the basis of its ruling.