Texas Solves Chapter 38 Lawyer Fee Recovery Issue

Texas courts denied parties to breach of contract actions the right to recover attorney fees from limited liability companies and partnerships under Chapter 38 of the Texas Code of Civil Practices and Remedies, even if the parties could recover the fees of the “companies”. Last month, Governor Greg Abbott enacted an amendment to Chapter 38 ensuring that the right to recover attorneys’ fees in breach of contract claims is again available, whether the offending party is an LLC, partnership or corporation. society. .

Background – Chapter 38: Legal recovery of attorney’s fees for plaintiffs resulting in breach of contract

Texas follows the “American rule” regarding the collection of attorney fees, which means that the default is that each party pays their own attorney fees in litigation. In order to transfer the responsibility for paying these costs, the parties must rely either on a provision of the contract or on a law. Fortunately, Texas has long provided for a statutory right to recover attorney fees in Chapter 38 breach of contract cases. Section 38.001 states that “[a] no one can recover reasonable legal fees from an individual or company. . . if the claim is for. . . an oral or written contract. The award of attorneys’ fees is intended to compensate the winning party by making that party whole and constitutes a completely separate claim for damages. Rohrmoos Venture v. UTSW DVA Healthcare, LLP.

Recent case law denies the recovery of LLCs and LPs

For years, Chapter 38 courts have allowed successful breach of contract plaintiffs to recover attorneys’ fees from business entities other than “corporations”. See Bohatch v. Butler & Binion; RM Crowe Prop. Serv. Co., LP v. Strategic Energy, LLC In 2014, however, a contrary interpretation began to solidify when courts read section 38.001 to exclude recovery against any entity that is not an “individual or societyOn the basis of the clear language of the law. See Alta Mesa Holdings, LP v. Ives; Fleming & Associates, LLP v. Barton; Choice! Power, LP v. Feeley; First Cash, Ltd. vs. JQ-Parkdale, LLC. This interpretation meant that a successful breach of contract plaintiff could recover attorney fees under Chapter 38 if the defendant was “Sunshine, Inc.“, For example, but not if the defendant was” Sunshine, SARL“Or” Sun, LP. ”

Texas Legislature Amendment to Chapter 38

The Texas Legislature introduced bills in three previous legislative sessions to clarify that collection against LLCs and partnerships was permitted under Chapter 38. Bill 370 (2019); Bill 744 (2017); Bill 230 House (2015). All of those previous bills have failed.

On May 31, 2021, the Texas Legislature passed House Bill 1578 – promulgated by Governor Abbott on June 15, 2021 – to finally fill this gap. As amended, section 38.001 (b) will allow successful plaintiffs to recover legal fees against an “individual or organization. The law incorporates the definition of “organization” under Section 1.002 (62) of the Texas Business Organizations Code, which includes corporations, partnerships, LLCs, associations and other entities. To address concerns about collection against government entities, the amendment excludes collection from quasi-government entities that perform a function by state law, as well as religious organizations, charities and charitable trusts. will apply to lawsuits commenced on September 1, 2021 and later.

Don’t be fooled by chapter 38

While House Bill 1578 is an enhancement to Chapter 38, we continue to recommend that clients consider including legal fee provisions in their contracts. Customers may be able to rely more reliably on Chapter 38 in the future, but the scope of the law remains limited. For example, only a party who successfully pursues a breach of contract claim and recovers damages can recover attorney fees under Chapter 38; a part that succeeded defends a breach of contract claim cannot. By including provisions on attorney’s fees in the contract, parties can define what it means to be a winning party, limit the recovery of attorney’s fees in proportion to the claimant’s recovery on the claim as a whole, and include recovery. fees for the successful defense of the breach of contract claim.

Danielle Kinchen also contributed to this article.

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