By Christopher M. Myatt

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Tran v. Bui, No. E2016-00544-COA-R3-CV (Nov. 17, 2016)

The Tennessee Court of Appeals recently held that the “Loser Pays” statute at Tenn. Code Ann. § 20-12-119(c) is constitutional. This statutory provision applies in the very limited circumstance of a dismissal for failure to state a claim under Rule 12.02(6) of the Tennessee Rules of Civil Procedure. In Tran v. Bui, a case with complicated facts that do not merit mention here, the trial court assessed Plaintiff $10,000 for the defendant’s attorney fees pursuant to section 20-12-119(c) after dismissing her lawsuit for failure to state a claim. The plaintiff appealed and challenged the constitutionality of the statutory attorney fee assessment, arguing that it violated the separation of powers doctrine of the Tennessee Constitution.

The Tennessee Legislature enacted section 20-12-119(c) in 2012. This “Loser Pays” statute gives a trial court the discretion to award attorney fees to a prevailing party on a Motion to Dismiss for failure to statue a claim under Rule 12.02(6) of the Tennessee Rules of Civil Procedure. The statute has several exceptions and caps an award at $10,000. In this case, the plaintiff argued that the “Loser Pays” statute violates Article II, Section 2 of the Tennessee Constitution, which specifies that “no person or persons belonging to one of these departments [– Legislative, Judicial, Executive –] shall exercise any of the powers properly belonging to one of the others, except in the cases herein directed or permitted.”

The appellate court began its analysis by reviewing the familiar rules of statutory and constitutional interpretation. To address the specific separation of powers constitutional challenge, the Court first determined that the statute was remedial in nature, as opposed to substantive or procedural. Remedial statutes provide a “means or method whereby causes of action may be effectuated, wrongs redressed and relief obtained.” It is the province of the legislature, not the judiciary, “to establish and control the remedies that are available for persons seeking judicial relief.” As such, the Court held that remedial statutes do not typically infringe on judicial power, thereby violating the separation of powers doctrine.

The Court then dispensed with the plaintiff’s arguments that the “Loser Pays” statute was inconsistent with various Rules of Civil Procedure. Lastly, the Court found unpersuasive the plaintiff’s argument that the statute was unconstitutional because it treated unrepresented litigants differently.

In the end, the Tennessee Court of Appeals upheld the constitutionality of the “Loser Pays” statute, which provides a substantial disincentive to filing a lawsuit that may not survive a Motion to Dismiss for failure to state a claim. While there are several exceptions to the statute, the “Loser Pays” statute represents a powerful weapon in a defendant’s arsenal when facing a frivolous or defective lawsuit.

 

Chris is a partner in Spicer Rudstrom’s Memphis office. His practice is concentrated primarily in the areas of premises liability, business and commercial representation, products liability and insurance coverage.