Motion to Dismiss - Tennessee's new "loser pays" law … that isn’t

Brief Summary:  The new “loser pays” law in Tennessee provides very limited circumstances where the “loser” plaintiff actually is required to pay for the attorney’s fees and costs of the defendant.  Generally, this new law only applies to Rule 12.02(6) motions to dismiss for failure to state a claim upon which relief may be granted.  Even when a Rule 12.02(6) motion to dismiss is granted, there are many exceptions to this requirement.

Analysis:  The Tennessee legislature adopted Public Chapter No. 1046 which was signed into law by Governor Bill Haslam on May 21, 2012.  This law applies to all claims filed on or after July 1, 2012.  As a result, this “loser pays” law is currently in effect for all new claims filed in Tennessee.  This law is effectively a “loser pays” statute but is has many exceptions and is very limited in scope.  The new bill added T.C.A. § 20-12-119(c).  The key operative portion of this “loser pays” statute is subsection (c)(1) which provides as follows:

(c)(1) Notwithstanding subsection (a) or (b), in a civil proceeding, where a trial court grants a motion to dismiss pursuant to Rule 12 of the Tennessee Rules of Civil Procedure for failure to state a claim upon which relief may be granted, the court shall award the party or parties against whom the dismissed claims were pending at the time the successful motion to dismiss was granted the costs and reasonable and necessary attorney's fees incurred in the proceedings as a consequence of the dismissed claims by that party or parties. The awarded costs and fees shall be paid by the party or parties whose claim or claims were dismissed as a result of the granted motion to dismiss.

As a result, attorney’s fees and costs “shall” be paid by the party who brought the claims that are dismissed under Tennessee Rule of Civil Procedure 12.02(6) for failure to state a claim upon which relief may be granted.  This requirement is mandatory, unless one of the many exceptions applies.

Subsection (c)(3) provides that the award of attorney’s fees and costs can only be made after the appeal process is exhausted and the dismissal is final.  Additionally, subsection (c)(4) provides there is a maximum potential award for attorney’s fees and costs of $10,000.00 under this statute for any single lawsuit.  Even if multiple parties are dismissed under a Rule 12.02(6) motion to dismiss for failure to state a claim upon which relief can be granted, the $10,000.00 maximum is still in place and must be apportioned between the dismissed parties. 

Further T.C.A. § 20-12-119(c)(5) provides six exceptions to the “loser pays” requirement under this statute.  An award of attorney’s fees and costs under this statute can not be made in the following circumstances:

(1)        Actions against governmental entities or public officials (See T.C.A. § 20-12-119(c)(5)(A)).

(2)        Any motion to dismiss filed sixty days after the latest complaint, counter-complaint or cross-complaint (See T.C.A. § 20-12-119(c)(5)(B)).

(3)        Any claim that is withdrawn or amended in good faith in order to state a claim upon which relief can be granted.  However, this must be done at least three days prior to the hearing date for the motion to dismiss for this exception to apply (See T.C.A. § 20-12-119(c)(5)(C)).

(4)        Actions by pro se litigants unless they “acted unreasonably in bringing, or refusing to voluntarily withdraw, the dismissed claim” (See T.C.A. § 20-12-119(c)(5)(D)).

(5)        Any claim that is a “good faith, non-frivolous claim filed for the express purpose of extending, modifying or reversing existing precedent, law or regulation…”  This subsection also prevents an award of “loser pays” damages for constitutionality issues of first impression that have not been addressed in a published opinion.  Interestingly, the exception in this subsection does not apply unless the party who made the claim specifically pleads in the latest complaint that the dismissed claim is made for one of the expressed purposes found in this subsection (See T.C.A. § 20-12-119(c)(5)(E)).

(6)        Any time the law changes between the time the complaint is filed and the time the motion to dismiss is granted (See T.C.A. § 20-12-119(c)(5)(F)). 

These exceptions are rather extensive and must be considered in every case to determine if the “loser” must actually pay.

The Tennessee Supreme Court in Webb v. Nashville Area Habitat for Humanity, 346 S.W.3d 422 (Tenn. 2011) recently addressed the appropriate standard that Tennessee Court’s should use for a Rule 12.02(6) motion to dismiss for failure to state a claim upon which relied may be granted.  The Court stated as follows:

A Rule 12.02(6) motion challenges only the legal sufficiency of the complaint, not the strength of the plaintiff's proof or evidence.  The resolution of a 12.02(6) motion to dismiss is determined by an examination of the pleadings alone.  A defendant who files a motion to dismiss ‘admits the truth of all of the relevant and material allegations contained in the complaint, but ... asserts that the allegations fail to establish a cause of action.’

In considering a motion to dismiss, courts ‘must construe the complaint liberally, presuming all factual allegations to be true and giving the plaintiff the benefit of all reasonable inferences.’ A trial court should grant a motion to dismiss “only when it appears that the plaintiff can prove no set of facts in support of the claim that would entitle the plaintiff to relief. (citations omitted)

Webb at 426.  This Webb case shows how it can be difficult to obtain a dismissal based on Rule 12.02(6) in Tennessee.  One negative result of this “loser pays” statute is it may actually make it even more difficult to obtain a dismissal based on a Rule 12.02(6) motion to dismiss because the Court will be aware of the consequences if the motion is granted (that the losing party will have to pay up to $10,000.00 in attorney fees and costs) and may therefore be hesitant to grant the motion.

The “loser pays” statute language found in this bill is significantly watered down from what a true “loser pays” system would look like.  It is expected that the “loser pays” provisions in this statute will not likely be awarded very often.  This is especially true because it is already difficult in Tennessee to be successful on a motion to dismiss for failure to state a claim upon which relief can be granted under Rule 12.02(6) due to the stringent requirements to sustain such a motion.  Of course an additional issue that comes up with this statute is after a “loser pays” award is made, how will we collect this award from the plaintiff?