Until 2015, most Texas attorneys were secure in their understanding that
in breach of contract actions, a successful plaintiff could recover its
“reasonable and necessary” attorneys’ fees under the
authority of Chapter 38 of the Texas Civil Practice and Remedies Code.
For decades, Texas trial courts had awarded, and appellate courts (including
the Texas Supreme Court) had affirmed awards of attorneys’ fees
to the successful plaintiff against all sorts of business entities. Thus,
countless awards and settlements over the years have included some provision
for attorneys’ fees to the successful plaintiff.
Little did most practitioners realize, they were overreading Chapter 38.
The statute provides that attorneys’ fees may be recovered in contract
actions “from an individual or corporation.” In a 2014 opinion,
the Houston Court of Appeals (14th District) held that this language is
exclusive, so the successful plaintiff in a breach of contract action may
not recover attorneys’ fees against a partnership under the statute
because a partnership is neither an individual nor a corporation.
See Fleming & Assocs., LLP v. Barton, 425 S.W.3d 560 (Tex. App.—Houston [14th Dist.] 2014, pet. denied).
This means some of the most common types of business entities today, including
limited liability companies (LLCs) and limited partnerships (LPs), may
not be liable for attorneys’ fees in a breach of contract action
unless the contract itself provides for attorneys’ fees –
only individuals and corporations.
It is hard to find a coherent reason why individuals and corporations should
be subject to attorneys’ fees in breach of contract actions while
other common business types are not. Thus, in 2015, two attempts were
made to change or correct the court of appeals’ conclusion –
an appeal of the
Fleming decision to the Texas Supreme Court, and the introduction of a bill in
the Texas Legislature to amend the statute to include other legal business
entities. Both efforts, however, were unsuccessful: The Texas Supreme
Court declined to review the appellate court’s ruling in
Fleming, and the legislation (H.B. 230) died in committee. Since then, courts
in Texas have consistently held that Chapter 38
only applies to corporations and individuals, and “individuals”
is limited to natural human beings.
The take-away from this recent development in Texas law is that, in breach
of contract actions, unless the governing contract expressly provides
otherwise, the type of entity you are dealing with is dispositive of whether
attorneys’ fees are recoverable. If it is a corporation or individual,
attorneys’ fees may be recovered under Chapter 38 of the Texas Civil
Practice and Remedies Code. But if it is any other type of business entity,
Chapter 38 does not apply, and attorneys’ fees may only be recovered
if the governing agreement provides for them.