A recent Tennessee Supreme Court decision issued on January 25, 2008 -- House v. Estate of Edmondson -- dealt the plaintiffs’ bar in Tennessee a severe blow. The court held that the Tennessee legislature in its Business Corporation Act of 1986 (codified at Tennessee Code Annotated Sections 48-11-101 to 27-103) intended to preclude plaintiff shareholders from obtaining an award of attorneys’ fees in derivative lawsuits. Thus, the “American Rule,” where each party pays its own attorneys’ fees should apply. House v. Estate of Edmondson, No. W2005-00092-SC-R11-CV, 2008 WL 199724, at *4-*5 (Tenn. Jan. 25, 2008).
The Tennessee legislature in 1986 explicitly repealed prior legislation that allowed a successful plaintiff an award of attorneys’ fees from the recovery made by the corporation in the lawsuit. The court noted that the 1986 law eliminated the language related to attorneys’ fees for plaintiffs, and specifically discussed only a fee recovery for successful defendants. The court held that this change did not reflect silence on the subject of attorneys’ fees for plaintiffs, but “raises a presumption that the departure from the old law was intended.” Id. at *6. The plaintiff in House had argued that the “common fund doctrine” should apply, which is designed to prevent the “beneficiaries of legal services from being unjustly enriched” and serves to “spread the costs of litigation appropriately.” See Id. at *5, *7 (quoting Kline v. Eyrich, 69 S.W.3d 197, 204 (Tenn. 2002)). The court held, however, that the cases cited by the plaintiff concerning this doctrine, such as Grant vs. Lookout Mountain Co., 28 S.W. 90 (Tenn. 1894), were either inapplicable or overruled by the 1986 statute. The court, thus, concluded that it could not circumvent the intent of the legislature in this regard. Accordingly, the court required the plaintiff to pay his own attorneys’ fees.