In the case of Edwards v. Urosite Partners, the Tennessee Court of Appeals was presented with an interesting fact situation involving a physician and a real estate investment limited partnership.
Dr. Edwards was a partner in a medical group of urologists in the Nashville area. In 2000, Dr. Edwards and twenty-one other physician/shareholders in the medical group formed a limited partnership for the purpose of purchasing, owning, managing, and operating the real and personal property located at the medical group’s primary office location. The limited partnership agreement provided that partnership in the limited partnership was conditioned on continuing employment with the medical group. The language of the agreement was that the limited partnership had the right to purchase a limited partner’s units in the limited partnership “upon the termination of a Limited Partner’s employment agreement with [the medical group] for any reason other than death, disability or retirement from the practice of medicine.”
Dr. Edwards worked at the medical group under an employment agreement through June 2011. Thereafter, he worked as an employee at will through December 2013. In January 2014, he entered into a separation agreement and mutual release with the medical group and the limited partnership that if he practiced outside Hickman or Giles Counties, the limited partnership could exercise its right to redeem his interest in the limited partnership.
In the spring of 2014, Dr. Edwards began providing medical services to veterans in Rutherford and Davidson Counties at the request of the Veterans Administration. In March 2015, the limited partnership notified Dr. Edwards that it was exercising its right to redeem his interest in the limited partnership.
Dr. Edwards filed suit, claiming a breach of contract. He essentially raised three issues: (1) that the limited partnership’s exercise of its right to purchase his interest in the limited partnership forty-five months after his employment agreement with the medical group terminated in June 2011 was too long and not reasonable under the circumstances; (2) that the work that he did for the VA in Rutherford and Davidson Counties was not material because the VA does not compete with the medical group for urology patients; and (3) that allowing the limited partnership to redeem his limited partnership interest due to his practice in Rutherford and Davidson Counties amounts to a restriction on his ability to practice medicine and violates Tennessee public policy.
The Court disagreed with all of the points raised by Dr. Edwards. On the first two points, the Court noted that its responsibility was to enforce the contract as written. Since the separation agreement and mutual release did not set an outside date within which the limited partnership could purchase Dr. Edwards’ limited partnership interest if he practiced medicine outside of Hickman or Giles Counties, the time between the end of Dr. Edwards’ employment agreement and the date of exercise of the limited partnership’s option was not relevant. In addition, it was also irrelevant that the medical group and the VA did not compete for urology patients, since that was not a requirement in the agreement between the parties. Finally, with respect to the third point, the Court said that Dr. Edwards’ was not restricted from practicing medicine wherever he wished by an employer–rather, he could practice medicine in Rutherford and Davidson Counties if he wished to do so, but the cost of that action would be that the limited partnership had the right to purchase his limited partnership interest.
Tennessee joined Alabama and South Dakota in adopting a tax rule aimed in subjecting online retailers in Tennessee to the burden of collecting and paying over sales tax on sales to customers in the Volunteer State.
Some people call these new state revenue rules “Amazon rules,” since Amazon is the 500-lb gorilla in the online retail world.
Ever since the U.S. Supreme Court decided the Quill case in 1992, the law has been clear that an online retailer is only subject to a particular state’s sales tax regime if the online retailer has a physical presence in the state. Since 1992, then, the challenge has been whether one can find a physical presence to establish sales tax nexus. Physical presence has been found, for example, if an online retailer engages the services of independent affiliate marketers who promote the out-of-state retailer on the websites of the in-state affiliate marketers.
And, it is true that Amazon has a physical presences in a number of states (including Tennessee; so perhaps, the new Tennessee rule should not be called an Amazon rule in Tennessee), so that it is already subject to the requirement to collect and pay over sales tax in those states.
But what about other online retailers who operate a retail website and have ZERO physical presence in Tennessee?
Under the Quill decision, an online retailer who is totally out-of-state and has no physical presence in Tennessee could not be constitutionally required to collect and pay over Tennessee sales tax.
So, what’s up with the new Tennessee Department of Revenue Rule (it is Rule 1320-05-01-.129, and you can find a copy of it here.
Public Chapter 1051 became effective January 1, 2013, and it makes changes to the Tennessee Business Corporation Act.
You can read Public Chapter 1051 here: pc1051-1.
The New Year is less than 48 hours old, so is it too early to speculate on the course of business law in Tennessee this year?
Still, we can look forward to developments in a number of areas.
First, with Obamacare set to reach full implementation in 2014, health laws will be high on the list to watch this year.
Second, with the national economy coming under an ever larger media microscope, one should expect that finance bills will be important this year.
One thing is for sure–there will be change. Laws will be enacted that will make life easier or harder for businesses in Tennessee (depending on the business and one’s perspective). Cases will be decided and rules and regulations will be promulgated.
Keep a wary eye out, and check back here often, as Tennessee business law developments are discussed and explained.
Happy New Year!