The Tennessee General Assembly codified Tennessee’s “loser pays” statute (the “statute”) in 2012. The statute provides that upon successfully granting a motion to dismiss for failure to state a claim, the trial court must award the successful movant up to $10,000 for attorney’s fees incurred during the successful prosecution of the motion to dismiss.¹ Shortly after the Tennessee General Assembly passed the statute, I published a note in the University of Memphis Law Review explaining that the statute’s reach would be limited; its exceptions and requirements lessen its effectiveness in deterring meritless lawsuits.² In Donovan v. Hastings, the Tennessee Supreme Court strengthened the statute’s reach when it overturned the appellate court’s narrow reading of when attorney’s fees should be recovered.³

The Donovan parties entered into a residential construction contract in 2017. The homeowner was unsatisfied with the contractor’s work and in May 2018, sued the contractor, asserting, among other claims, breach of contract. The contractor answered the complaint and filed a countercomplaint alleging breach of contract in July 2018. Almost six months later, in February 2019, the contractor sought leave of the court to amend his complaint. The court granted the motion, and in March 2019, the contractor amended his countercomplaint, revising the amount of damages sought, but asserting the same breach of contract claim. The homeowner moved to dismiss the amended countercomplaint on the basis that the contract lacked mutuality of consideration and was therefore unenforceable. The trial court agreed and dismissed the countercomplaint.⁴

The trial court then certified its order as final, and the homeowner filed a motion under the statute to recover attorney fees and costs incurred in connection with her motion to dismiss. The homeowner requested the statutory maximum of $10,000, including entries dating back to Feb. 1, 2019, the date on which the contractor filed his motion to amend the countercomplaint. The trial court limited the homeowner’s attorney fees recovery to $3,600 because some of the entries were duplicative, some were unreasonable and, most relevant for the purposes of this discussion, because some were incurred prior to the date the contractor filed the amended countercomplaint.⁵

A divided panel of the Tennessee Court of Appeals affirmed the trial court’s decision.⁶ All judges agreed with the reductions for redundancies and unreasonableness, but the appellate court was split on the proper interpretation of the statute as it applied to the fees and costs incurred prior to the filing of the amended countercomplaint.⁷ The Tennessee Supreme Court then granted permission to appeal.

The Tennessee Supreme Court began its discussion by setting forth the principles of statutory construction, specifically delineating the court’s role in statutory interpretation to effectuate the legislative intent.⁸ In looking at the statute itself, the court focused on the language; the word “proceedings” is stated twice. First, at the beginning of the relevant subsection, the statute reads:

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.⁹

The statute goes on to state: “Costs shall include all reasonable and necessary litigation costs actually incurred due to the proceedings that resulted from the filing of the dismissed claims.”¹⁰ In the first instance, the statute states that the attorney’s fees in question are those relating to the “proceedings as a consequence of the dismissed claims,” and in the second instance, the statute states that the attorney’s fees in question are those that are relating to the “proceedings that resulted from the filing of the dismissed claims.” The trial court limited the fee recovery to those incurred after filing of the amended countercomplaint because that court concluded “that ‘proceedings’ means all acts and events that occur as a result of the dismissed claim(s) from the date the dismissed claim(s) is filed.”¹¹ Because the amended countercomplaint superseded the original countercomplaint, the breach of contract claim was dismissed based on the amended countercomplaint; the only claims “pending” at the time of the motion to dismiss were those in the amended countercomplaint. The fees recovered were limited to those “incurred as a result of the breach of contract claim from the date the amended countercomplaint was filed.”¹²

The appellate court’s dissenting judge, Judge Neal McBrayer, argued that the majority applied the statute too narrowly.¹³ Judge McBrayer reasoned that the homeowner should have recovered fees incurred from the filing of the original countercomplaint because the same breach of contract claim that was dismissed in the amended countercomplaint was also included in the original countercomplaint. Research and analysis performed on the original countercomplaint were incorporated into the motion to dismiss the amended countercomplaint.¹⁴

The Tennessee Supreme Court agreed with Judge McBrayer that the original countercomplaint was part of “the proceedings that resulted from the filing of the dismissed claim.”¹⁵ Based on its role as interpreter of legislative intent, the court relied on the statute’s purpose to discourage meritless lawsuits.¹⁶ The Tennessee Supreme Court construed the statute to not restrict the work “proceedings” to those based solely on the amended countercomplaint.¹⁷ Instead, the court construed the statute to include all “proceedings” related to the dismissal of the breach of contract claim. The claim was included in both the countercomplaint and the amended countercomplaint so that it remained pending until the trial court dismissed the amended countercomplaint. The court remanded the case to the trial court for reconsideration of the fee award.¹⁸

The Tennessee Supreme Court’s decision to include all attorney’s fees incurred in the proceedings due to the dismissed claims reinforces the purpose of the statute and value of motions to dismiss for defendants. Motions to dismiss have always been useful weapons in defendants’ arsenals, allowing for paring down issues and claims, educating a court about contours of cases and providing early resolution. With the passing of the statute and the Donovan decision, litigants should be further discouraged from overzealous pleading by the prospect of owing $10,000 in attorney fees. |||

EVERETT L. HIXSON III (Rett) is an attorney in the Chattanooga office of Chartwell Law. His primary practice areas are labor and employment and commercial litigation. He holds a bachelor’s degree from the University of Tennessee at Knoxville and a law degree from the University of Memphis Cecil C. Humphreys School of Law.

NOTES

1. Tenn. Code Ann. § 20-12-119(c).
2. See Everett L. Hixson III, Note, All Losers Should Pay in Tennessee: How to Amend T.C.A. Section 20-12-119 to Deter Meritless Claims, 44 U. Mem. L. Rev. 183, 193 (2013).
3. Donovan v. Hastings, 652 S.W. 3d 1 (Tenn. 2022).
4. Donovan, 652 S.W. 3d at 3-4.
5. Id.
6. See Donovan v. Hastings, No. M2019-01396-COA-R3-CV, 2020 Tenn. App. LEXIS 483, 2020 WL 6390134 (Tenn. Ct. App. Oct. 30, 2020).
7. Donovan, 652 S.W.3d at 5.
8. Id. at 6.
9. Tenn. Code Ann. § 20-12-119(c)(1) (emphasis added).
10. Tenn. Code Ann. § 20-12-119(c)(2).
11. Donovan, 2020 Tenn. App. LEXIS 483.
12. Donovan, 2020 Tenn. App. LEXIS 483.
13. Donovan, 652 S.W.3d at 8.
14. Id. at 7.
15. Tenn. Code Ann. §20-12-119(c)(2).
16. Donovan, 652 S.W.3d at 8 (citing First Cmty. Mortg., Inc. v. Appraisal Servs. Grp., Inc., 644 S.W.3d 354, 368 (Tenn. Ct. App. 2021) and Everett L. Hixson III, Note, All Losers Should Pay in Tennessee: How to Amend T.C.A. Section 20-12-119 to Deter Meritless Claims, 44 U. Mem. L. Rev. 183, 193 (2013)).
17. Id.
18. Id. at 9.