Attorneys' Fees May Not Be Recoverable in Breach of Contract Actions

Posted By Hicks Thomas LLP || 12-Sep-2016

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.

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