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Attorney’s Fees are now Recoverable Against LLCs and More

Attorney’s Fees are now Recoverable Against LLCs and More
Buschi, Matt

Matthew Buschi

Counsel
Kellysitting

Kelly Christy

Law Clerk

A substantial change regarding the collection of attorney’s fees in Texas litigation took effect September 1, 2021. Texas law follows the “American Rule,” which provides that a plaintiff may only recover attorney’s fees if authorized by the contract or by statute. Section 38.001 of the Texas Civil Practice and Remedies Code (the TCPRC) is a major avenue for parties to collect attorney’s fees for claims such as breach of contract, however, the statute has previously been relatively limited as to whom you could recover attorney’s fees against.

Prior to the recent amendments, section 38.001 of the Texas Civil Practice and Remedies Code allowed for a person to recover attorney’s fees from “an individual or corporation” for rendered services, performed labor, furnished material, freight or express overcharges, lost or damages freight or express, killed or injured stock, a sworn account, or an oral or written agreement.

Texas courts had strictly construed the statute, giving the terms “individual” and “corporation” their literal meaning, refusing to expand the language against any other entity which was not an individual or corporation. This left parties with successful claims unable to recover attorney’s fees from business entities such as limited liability companies and partnerships.

For instance, in Fleming & Assocs., L.L.P. v. Barton, the 14th Court of Appeals refused to award attorney’s fees against a limited liability partnership because the language of section 38.001 of the TCPRC did not authorize such award. Fleming & Associates, LLP v. Barton, 425 S.W.3d 560 (Tex. App.–Houston [14 Dist.] 2014, rev. denied). There, the trial court ordered Fleming & Associates (F&A), a limited liability partnership to pay attorney’s fees under section 38.001 of the TCPRC. F&A appealed the judgment, asserting that the trial court erred in awarding attorney’s fees against F&A because it was neither an individual nor a corporation.

The plaintiff, Barton Law Firm, asserted that it should be awarded attorney’s fees against F&A based on section 38.001(8) of the TCPRC which provides that a person may recover attorney’s fees from “an individual or corporation” for a claim under an oral or written contract. See Tex. Civ. Prac. & Rem. Code. Ann. § 38.001(8). However, F&A claimed that the statute did not authorize an award of attorney’s fees against it because F&A was a limited liability partnership and not “an individual or corporation.”

The 14th Court of Appeals ultimately agreed with F&A and reversed the trial court’s award of attorney’s fees. Id. The court stated that “under the plain language of section 38.001(8), a person may not recover attorney’s fees against a partnership.” Id. at 576. F&A was neither an individual nor a corporation, but rather a limited liability partnership, therefore, section 38.001(8) of the TCPRC did not authorize an award of attorney’s fees against F&A. Id.

The Texas courts had made it clear – a prevailing party could not recover attorney’s fees against anyone other than an individual or a corporation under 38.001. However, the Texas Legislature has recently adopted House Bill 1578 which amends section 38.001 to allow recovery from “an individual or organization.” This amendment allows recovery of attorney’s fees against a multitude of entities which includes:

“a corporation, limited or general partnership, limited liability company, business trust, real estate investment trust, joint venture, joint stock company, cooperative, association, bank, insurance company, credit union, savings and loan association, or other organization, regardless of whether the organization is for-profit, nonprofit, domestic, or foreign.” See section 1.002(62) of the Texas Business Organizations Code.

House Bill 1578 significantly broadens a party’s ability to recover its attorney’s fees and no longer leaves parties who brought successful claims to pay their own attorney’s fees for an opposing party’s wrongs. Notedly, even under this revision, it is still recommended to include a prevailing party attorney’s

fees provision in contracts because the statute remains limited in scope in some regards. (The revision has not changed the fact that only a party who successfully brings a breach of contract claim can recover attorney’s fees, while a party who successfully defends a breach of contract claim cannot).

House Bill 1578 took effect September 1, 2021 and affects only those actions filed on or after that date. Any suit filed before September 1, 2021, will be governed by the previous statute and limited only to recovery against individuals and corporations, regardless of when the judgment is obtained

ABOUT THE AUTHOR: Matthew M. Buschi is Counsel at Rapp & Krock, PC in the Litigation group. Kelly M. Christy is an Associate at Rapp & Krock, PC in the Litigation group.

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