Opinion ID: 2773003
Heading Depth: 3
Heading Rank: 2

Heading: Test for Ascertaining Gravamen of Each Claim

Text: Having concluded that a court must consider each claim, rather than the entire complaint, when ascertaining gravamen and choosing the applicable statute of limitations, -11- we next determine the analysis courts should use when undertaking this task. As already noted, although gravamen has long been defined as the basis for which damages are sought, many Tennessee decisions have focused almost exclusively on the damages aspect of this formula and have given little or no consideration to the basis aspect of it. Although not clearly denoted at the time, in Vance v. Schulder, this Court modified the analysis to require consideration of both the basis of the claim and the type of injuries for which damages are sought. 547 S.W.2d at 932; see also Elizabeth J. Landrigan, The Weakest Link: Application of the Property Damage Statute of Limitation to Tort Claims for Purely Economic Damages, 32 U. Mem. L. Rev. 45, 56 (2001) (describing Vance as enunciating a two-step decisional process). In Vance, a minority shareholder sued the directors and majority shareholders of a company, alleging that they had intentionally deceived him about the price of the purchase offer for the company and had thereby induced him to sell his stock for half of what he should have received. 547 S.W.2d at 928-29. In determining which of the five possible statutes of limitation applied, the Court first held that the plaintiff’s claim was grounded in the tort of deceit. Id. at 931. The Court next determined that the loss in stock value the plaintiff sustained “from the alleged tort of fraud and deceit is included within the phrase, ‘injuries to personal property,’” used in the three-year statute of limitations contained in Tennessee Code Annotated section 28-3-105. Id. at 932. Thus, after considering both the basis of the plaintiff’s claim and the type of injuries for which recovery was sought, the Vance Court held that the three-year statute of limitations for injury to personal property applied. Id. at 932. The Court of Appeals applied this same two-step decisional process in Harvest Corp. v. Ernst & Whinney, 610 S.W.2d 727 (Tenn. Ct. App. 1980). There, the plaintiff engaged the defendant to audit the inventory of a plant nursery and to establish a price for the plaintiff’s contemplated purchase of the nursery. Id. at 728. Based on the audit report, the plaintiff proceeded with the purchase, only to discover later that the purchase price was excessive because of the audit firm’s negligent valuation. Id. The plaintiff sued, alleging, among other things, that the audit firm breached the employment contract, failed to exercise reasonable skill in auditing the inventory, failed to perform the audit in accordance with generally accepted accounting standards, and failed to investigate properly the status of the real property on which the nursery was located. Id. The question on appeal was the applicable statute of limitations. Id. at 729. Relevant to our discussion here, the Court of Appeals summarized the law in Tennessee as follows: -12- Where the damages for which recovery is sought represent the cost of repair or the replacement cost of property entrusted to another for the performance of a service and such accrued damages are the result of negligent acts, the action is for damage to property and covered by [the three-year statute of limitations]. Likewise, suits for fraud, deceit or conspiracy, whether they arise incident to a contract or not are actions in tort and must be governed by the applicable tort statute of limitations. Id. at 729-30 (emphasis added) (citations omitted). Because “neither fraud, deceit nor conspiracy” nor any facts “which could possibly constitute such” had been alleged, the Court of Appeals held that the plaintiff’s action involved “ordinary money damages that result[ed] from a breach of contract.” Id. at 730. Thus, the Court of Appeals in Harvest Corp. concluded that the purchase of property for more than its full value was not an injury to property, but was a purely economic loss. Id. The Vance Court, in contrast, found that the sale of personal property for less than its full value was an injury to property. Were the focus on damages and injuries alone, the results of these two cases would be irreconcilable because both cases involved financial losses. The differing results are consistent because the legal basis of the claim in Vance was tort, while the legal basis of the claim in Harvest Corp. was breach of contract. See also Resolution Trust Corp. v. Wood, 870 F. Supp. 797, 807 (W.D. Tenn. 1994) (explaining that, when determining the gravamen of a claim, Tennessee law requires courts to consider the cause of the injury, and holding that some claims were governed by the three-year statute of limitations while others were governed by the six-year statute of limitations). This Court’s decision in Alexander v. Third National Bank, further illustrated the twopart Vance analysis and affirmed that the result in Vance stemmed from the tort basis of the claim. In Alexander, the plaintiff, Guy Alexander, had been involved in a partnership that owned an apartment complex. 915 S.W.2d at 798. The apartment complex was encumbered by a deed of trust securing a loan in the approximate amount of $250,000 owed to Sovran Bank. Id. Third National Bank agreed to loan the partnership $650,000, which was to be used to pay off the debts that were secured by the property and to renovate the property. Third National Bank obtained a deed of trust for the $650,000 loan, which was executed but not recorded. Id. Third National Bank then advanced the partnership $350,000, but it refused to provide the remainder of the promised money because the plaintiffs were unable to obtain a release or subordination agreement on one of the debts secured by the property. Id. Third National Bank removed the signature page of the previously executed deed of trust, attached the signature page to a deed of trust securing a $350,000 loan, and recorded the -13- altered deed of trust. Id. Third National Bank later foreclosed the recorded deed of trust, and the apartments were sold pursuant to the foreclosure. Id. Mr. Alexander later sued Third National Bank, alleging claims of “breach of contract, breach of ‘implied duty of good faith and fair dealing,’ ‘fraudulent and/or negligent misrepresentation,’ and fraud.” Id. Mr. Alexander sought to recover as damages: additional costs of renovation caused by the delay in obtaining even partial financing from [Third National Bank]; additional interest expense caused by an increase in interest rates; lost rent as a result of the delay in completing renovations; and loss of its equity in the apartments caused by its inability to find substitute financing. Id. The trial court granted Third National Bank summary judgment based on the statute of limitations, and the Court of Appeals affirmed, finding that the economic losses the plaintiff sought to recover stemmed from an injury to property, and as such, the three-year statute of limitations of Tennessee Code Annotated section 28-3-105 applied. Alexander v. Third Nat’l Bank, No. 01-A-01-9310-CV-00452, 1994 WL 424287, at  (Tenn. Ct. App. Aug. 12, 1994). This Court reversed. Alexander, 915 S.W.2d at 799. Consistent with Vance, the Alexander Court engaged in a two-step decisional process. Id. The Alexander Court first concluded that the legal basis of Mr. Alexander’s claim was breach of contract. Id. The Court next determined that the damages for which recovery was sought were for “interference with [Mr. Alexander’s] anticipated economic gain from the use of the loan proceeds,” not for an injury to property. Id. These damages, the Alexander Court concluded, flowed from the breach of contract. Thus, given the basis of the legal claim and the type of injury sustained, the Alexander Court concluded that the six-year statute of limitations for contracts provided in Tennessee Code Annotated section 28-3-109 applied. Id. at 800. In so holding, the Alexander Court distinguished Vance, on which Third National Bank relied, pointing out that the claim in Vance was grounded in tort and thus the decision to apply the three-year statute of limitations in Vance was “not inconsistent” with the decision in Alexander, where “the gravamen of the complaint [was] breach of contract.” Id. at 799. Although it is possible to detect the two-step decisional approach at work in Vance and other subsequent decisions, the lines of authority, regretfully, have not been clear or clean. In fact, some commentators have opined that Tennessee appellate decisions addressing gravamen for purposes of the statute of limitations are irreconcilable. Donald F. -14- Paine, Please Pass the Biscuits and Gravamen, 29 Tenn. B.J. 20, 20 (1993). We recognize that clarity is very important because “parties dealing with statutes of limitations can face a bewildering number of possible statutes and possible defenses to these statutes, especially with a plaintiff pleading multiple theories of substantive liability.” 22 Steven W. Feldman, Tennessee Practice: Contract Law and Practice § 12:92, at 192 (Supp. 2014) [hereinafter Contract Law and Practice]. Today we clarify that the two-step approach articulated in Vance and applied in Alexander and Harvest Corp. is the correct framework for courts to employ when ascertaining the gravamen of a claim for the purpose of choosing the applicable statute of limitations. When utilizing this approach, a court must first consider the legal basis of the claim and then consider the type of injuries for which damages are sought. This analysis is necessarily fact-intensive and requires a careful examination of the allegations of the complaint as to each claim for the types of injuries asserted and damages sought. Contract Law and Practice § 12:78, at 595 (2006).