By: Rob Harris
The Tennesee Court of Appeals issued a decision last week that serves to remind litigants and their attorneys of the dangers of overreaching on legal arguments.
Tennessee has a statute that permits the prevailing party in tax disputes to recover their attorneys’ fees. As we all know, attorneys’ fees can be substantial.
Five Oaks Golf & Country Club was not pleased that the state assessed sales and use tax on initiation fees and members’ monthly dues. The club grudgingly paid the tax and filed a claim for refund in the amount of $208,581.00, plus interest.
Five Oaks made two arguments. First, the club asserted that, under Tennessee law, the initiation fees and monthly dues were exempt from sales tax. Second, the club argued that, even if subject to tax, the statute of limitations precluded the state from assessing taxes on sums received by the club between January through November 2004.
After the state filed a motion to dismiss the club’s arguments, Five Oaks conceded to the court that the exemption argument was not meritorious. The court, therefore, dismissed this claim, but thereafter ruled in favor of the club on the statute of limitations issue, resulting in a refund of $61,887.00 plus interest.
The club, proclaiming that it was a prevailing party, sought to recoup the attorneys’ fees it expended in pursuing its tax appeal. Confronted with the fact that it effectively lost on its exemption argument, the club argued that, by “conceding” the argument, the court did not effectively rule against it on this issue.
Although the trial court agreed with Five Oaks, the Court of Appeals disagreed, finding that ”each party won one issue. Each received substantial relief. Consequently, we find that there is no prevailing party and reverse the award of attorney fees to Five Oaks.”
By overreaching initially, including a claim that had no merit, the club lost the opportunity to have its attorneys’ fees paid by the state. Message to parties and their lawyers: throwing the kitchen sink at a dispute is not always wise.