TENNESSEE: An Introduction to Litigation: General Commercial

TENNESSEE COMMERCIAL LITIGATION 

Over the past few years and in response to the COVID-19 pandemic, Tennessee has seen its share of impactful legal developments that have already significantly altered how businesses, organizations, and citizens participate in society and Tennessee’s economy. These developments include (i) the enactment of the Tennessee COVID-19 Recovery Act, which shields individuals and businesses from civil liability resulting from exposure to COVID-19, (ii) the Tennessee Public Participation Act, which operates to protect First Amendment rights (and rights protected by the Tennessee Constitution) from meritless lawsuits that operate to silence public participation, and the Tennessee Supreme Court’s recent decisions in (iii) McClay v. Airport Mgmt. Servs., LLC, 596 S.W.3d 686 (Tenn. 2020), and (iv) Milan Supply Chain Solutions, Inc. v. Navistar, 627 S.W.3d 125 (Tenn. 2021), which upheld the constitutionality of Tennessee’s noneconomic damages cap (McClay) and provided recent guidance on Tennessee’s economic loss doctrine (Milan Supply). This primer aims to help you better understand the impact of these changes.

I. Tennessee provides statutory immunity for COVID-19 civil liability.

In August 2020, Tennessee enacted the Tennessee COVID-19 Recovery Act (“the Recovery Act”), which generally shields individuals and businesses from civil liability resulting from exposure to COVID-19. Importantly, this immunity does not extend to actions of willful misconduct or gross negligence, provided that the claimant is able to prove “by clear and convincing evidence that the person proximately caused the loss, damage, injury, or death by an act or omission constituting gross negligence or willful misconduct.” Tenn. Code Ann. § 29-34-802(b). To move forward with a complaint for gross negligence or willful misconduct, the Recovery Act requires the claimant to file a verified complaint, setting forth facts and causation with particularity, as well as a certificate of good faith. Tenn. Code Ann. § 29-34-802(c)(1)-(2). Much like a healthcare liability case, the certificate of good faith must set forth the fact that that the claimant has consulted with a physician licensed in Tennessee or a contiguous state who is competent to testify concerning COVID-19 exposure and contraction, and the physician has provided a statement that they believe the “alleged loss, damage, injury, or death was caused by an alleged act or omission of the defendant or defendants.” Tenn. Code Ann. § 29-34-802(c)(2). The failure to file either a verified complaint or a certificate of good faith is fatal to a cause of action, as the complaint will be subject to dismissal with prejudice, meaning that it cannot be refiled. Tenn. Code Ann. § 29-34-802(b)(3). Notably, the Recovery Act does not create any independent cause of action, eliminate any required element of an existing cause of action, affect workers’ compensation claims, or otherwise alter or amend any immunity, defense, procedure, or limitation of liability available under law or contract. Tenn. Code Ann. § 29-34-802(d)(1)-(4).

II. Tennessee Public Participation Act 

In July 2019, Tennessee followed the growing “anti-SLAPP” legislation trend by enacting the Tennessee Public Participation Act (the “TPPA”), which was designed to allow for the early dismissal of claims brought to suppress First Amendment activity (claims that are commonly referred to as SLAPPs—Strategic Lawsuits Against Public Participation). See Tenn. Code Ann. § 20-17-101 et seq. Under the TPPA, if a lawsuit is filed in response to a party’s exercise of their First Amendment rights, the party may file a petition to dismiss the lawsuit within 60 days. Filing a TPPA petition stays all discovery in the matter pending a ruling on the petition. See Tenn. Code Ann. § 20-17-104. The effect of the TPPA allows for the expeditious disposition of these types of cases before the costly discovery process. The TPPA applies to lawsuits for libel, slander, or false light invasion of privacy where statements involve a matter of public concern.

To prevail on a TPPA petition, the petitioning party has the burden of making a prima facie case that the legal action relates to or is filed in response to the petitioning party’s exercise of free speech, right to petition, or right of association. Tenn. Code Ann. § 20-17-105(a). The court shall dismiss the legal action unless the respondent establishes a prima facie case for each essential element of the legal action. Tenn. Code Ann. § 20-17-105(b). The court may base its decision on supporting and opposing affidavits. Tenn. Code Ann. § 20-17-105(d). If the court dismisses the case, it is dismissed with prejudice, meaning that it cannot be refiled. Tenn. Code Ann. § 20-17-105(e). If the court does not dismiss the case upon a finding that the responding party has established a likelihood of prevailing on a claim, such a finding is not admissible into evidence later in the case, and the determination does not affect the standard of proof in the matter. Tenn. Code Ann. § 20-17-105(f).

Under the TPPA, attorney’s fees may be awarded in one of two ways. Should the court dismiss the case pursuant to the TPPA petition, the prevailing party shall be awarded attorney’s fees as well as court costs, expenses, and discretionary costs, along with any additional relief, including sanctions. Tenn. Code Ann. § 20-17-107(a)(1)-(2). However, if the TPPA petition is found to be frivolous or otherwise filed for the purpose of delay, and the court makes specific written findings in that regard, the court may award reasonable attorney’s fees and court costs to the party opposing the TPPA petition. Tenn. Code Ann. § 20-17-107(b). Whether the court dismisses or refuses to dismiss an action pursuant to a TPPA petition, the court’s order is immediately appealable as of right to the Tennessee Court of Appeals. Tenn. Code Ann. § 20-17-106.

Recently, the Tennessee Court of Appeals reviewed a trial court’s denial of a defendant’s motion to dismiss premised on the TPPA. In particular, the court examined whether the defendant’s filing of a Title IX complaint was a protected activity under the TPPA. See Doe v. Roe, 2021 WL 2588394, at *1 (Tenn. Ct. App. June 24, 2021). Importantly, the court determined that the allegations of sexual assault contained within the Title IX complaint constitute issues of public concern as contemplated by Tenn. Code Ann. § 20-17-103(6). Id. at *4. The court further decided that the defendant had exercised her constitutional right to petition by filing the Title IX complaint. See id. at *7. Based on the court’s determination that the defendant’s Title IX filing constituted an exercise of free speech and petition under the TPPA, the court reversed the trial court’s order and remanded the case. Id.

III. Tennessee Caps on Damages 

Tennessee, like many states, has enacted statutory caps on the maximum amount of noneconomic compensatory damages (such as pain and suffering) and punitive damages that may be awarded at trial. See Tenn. Code Ann. §§ 29-39-102 & -104. Since the passage of these caps in 2011, businesses in Tennessee have enjoyed more predictability regarding the worst-case scenario at trial in civil actions.

In 2018, the Sixth Circuit injected a degree of uncertainty into this statutory scheme, ruling that Tennessee’s cap on punitive damages “violates the individual right to a trial by jury set forth in the Tennessee Constitution” and therefore is unenforceable. Lindenberg v. Jackson Nat'l Life Ins. Co., 912 F.3d 348, 364 (6th Cir. 2018). This ruling, however, was nothing more than an Erie guess. That means that, while it was enforceable in federal district courts, until and unless a contrary state appellate court ruling appeared, it was not binding on Tennessee state courts and was not an indication as to how Tennessee state courts would rule on the question. In other words, the fate of these damages caps was unclear and uncertain.

Last year, the Tennessee Supreme Court went a long way towards resolving this ambiguity. Specifically, in McClay v. Airport Mgmt. Servs., LLC, the court upheld the constitutionality of the noneconomic damages cap. 596 S.W.3d 686, 696 (Tenn. 2020). And, although the court didn’t reach the issue of the constitutionality of the punitive damages cap, it described the Sixth Circuit’s reasoning in Lindenberg as “unpersuasive.” Id. at 693 n.6. As a result, it seems likely that the caps are here to stay. In all likelihood, it is simply a matter of time before the Tennessee Supreme Court clarifies that the punitive damages cap—like the cap on noneconomic damages—is constitutional and enforceable. Until then, however, businesses and individuals should beware of punitive damages cases applying Tennessee law in federal court.

IV. Economic Loss Doctrine 

Tennessee’s Supreme Court has also provided recent guidance on the economic loss doctrine. The case was Milan Supply Chain Solutions, Inc. v. Navistar, 627 S.W.3d 125 (Tenn. 2021), and the facts centered upon the purchase of 200 allegedly defective trucks. The dissatisfied buyer sued for breach of contract, breach of warranty, and fraud (both common law and statutory). After trial, the jury awarded $10 million in compensatory damages and $20 million in punitive damages, finding that the seller made fraudulent misrepresentations regarding the quality of the trucks.

On appeal, the Tennessee Supreme Court confronted a simple question: can a party to a contract seek tort recovery for purely economic or commercial losses associated with that contract? Under a rule known as the “economic loss doctrine,” which has been adopted in the majority of states, the answer to that question is no: contracting parties are limited to the remedies set forth in the contract. Tennessee, however, had never applied that rule outside the context of products liability actions, and it was unclear whether it would apply to a standard breach-of-contract claim.

The ambiguity has now been resolved, at least in some small part. While expressly declining to address the exact extent of the interplay between the economic loss doctrine and fraud claims, the court clearly stated that, when two sophisticated commercial business entities enter into a contract, there can be no fraud claim related to misrepresentations regarding the quality or character of the goods sold.

Milan Supply is likely the first in what will be a long chain of cases fleshing out the applicability and scope of the economic loss doctrine in Tennessee. Even as those uncertainties work themselves out, however, one thing is clear: sophisticated commercial clients will be well served to focus on the warranties contained in contracts for the sale of goods, as those warranties—not any alleged fraud—will determine liability for any defects in those goods.

Conclusion 

As these statutes and cases illustrate, the law is constantly changing and impacting how businesses, organizations, and citizens participate in society and Tennessee’s economy. You should stay informed of legal developments and how they affect you and your ability to assert various claims or defenses. In that connection, we hope that this primer has been helpful in highlighting a few noteworthy developments.