Clients often ask whether they can recover their attorney’s fees from the opposing party in a lawsuit. The general answer is no, unless you have a contract that provides for recovery of fees to the prevailing party or there is a statute that allows for the recovery of fees. Tort claims almost never result in recovery of attorney’s fees.
Fortunately, there are literally dozens of statutes that do provide for the recovery of attorney’s fees. Speaking only to the State of Texas, some of the most common statutes that can provide for recovery of attorney’s fees are: (1) the Texas Deceptive Trade Practices Act, Tex. Bus. & Comm. Code § 17.41, et. seq., which applies to a number of consumer and unfair competition claims; (2) the Texas Declaratory Judgment Act, Tex. Civ. Prac. & Rem. Code § 37.001, et. seq., which applies to claims to declare the parties’ rights and responsibilities under a contract or statute; and (3) the Texas Uniform Trade Secrets Act, Tex. Civ. Prac. & Rem. Code § 134A.001, et. seq., which applies to misappropriation of trade secrets claims. However, by far the most used statute for the recovery of attorney’s fees in Texas is Chapter 38 of the Texas Civil Practice and Remedies Code, which allows a plaintiff (but not a defendant) to recover its attorney’s fees if successful in proving a breach of a written or oral contract. Tex. Civ Prac. & Rem. Code § 38.001(8).
However, there is one significant caveat. As currently written, Section 38.001, states that “[a] person may recover reasonable attorney’s fees from an individual or corporation…” Tex. Civ Prac. & Rem. Code § 38.001. The predecessor statute to § 38.001 is Texas Revised Civil Statute Article 2226. See TX CIV ST Art. 2226 (Vernon Supp.1985) (repealed 1986). The prior Article 2226 provided that “any person, corporation, partnership, or other legal entity” may seek attorneys’ fees from such “person or corporation.” Id. However, when the Texas Legislature repealed Art. 2226 and replaced it with § 38.001, the classification of parties against whom attorney’s fees can be recovered was redefined. See Id., compare Tex. Civ Prac. & Rem. Code § 38.001.Therefore, the Legislature replaced the word “person” with “individual.”
This is of particular importance because under the Code Construction Act, “Person” includes a corporation, organization, government or governmental subdivision or agency, business trust, estate, trust, partnership, association, and any other legal entity. Tex. Gov’t Code § 311.005. However, since “person” was replaced with “individual,” by definition Section 38.001 no longer applies to other legal associations or entities but only to individual persons or corporations. Indeed, the reviser’s notes to § 38.001 indicate that the drafters chose not to use ‘person’ to identify those against whom attorney’s fees may be recovered because of the broadness of the definition of ‘person’ in the Code Construction Act.
The only courts that have specifically addressed the change in language have interpreted § 38.001 as excluding the following business entities or associations that are not corporations:
- Partnerships. Ganz v. Lyons P’ship, L.P., 173 F.R.D. 173, 176 (N.D. Tex. 1997)
- Benefit plans. Baylor Health Care System v. National Elevator Industry Health Ben. Plan, 3:06-CV-1888-P, 2008 WL 2245834, *4 (N.D. Tex. June 2, 2008)
- Governmental entities. Base-Seal, Inc. v. Jefferson County, 901 S.W.2d 783, 786 (Tex. App.-Beaumont 1995, writ denied).
- Limited liability partnerships. Fleming & Associates, L.L.P. v. Barton, 425 S.W.3d 560, 575 (Tex. App.—Houston [14th Dist.] 2014, pet. denied); Hoffman v. L & M Arts, 3:10-CV-0953-D, 2015 WL 1000838, at *10 (N.D. Tex. Mar. 6, 2015), Fleming v. Kirklin Law Firm, P.C., No. 14-14-00202-CV, 2015 WL 7258700, at *8 (Tex. App. – Houston [14th Dist.] Nov. 17, 2015, no. pet. h.).
- The National Football League. Greco v. Nat’l Football League, No. 3:13-CV-1005-M, 2015 WL 4475663, at *7 (N.D. Tex. July 21, 2015)
It may seem non-sensical that a prevailing plaintiff can only recover attorney’s fees on a breach of contract claim if the entity defendant happens to be a corporation, but not any other type of entity. Indeed, this change in Chapter 38 of the Texas Civil Practice & Remedies Code actually appears to have gone relatively unnoticed for most of the past 30 years, as parties commonly sought and were awarded attorney’s fees under Chapter 38 against a variety of different entities. But, savvy practitioners appear to have finally caught on to this, and as noted above, there have been several opinions in just the past few years, all of which have interpreted the statute in accordance with its plain terms.
The Texas Legislature also appeared to see the disparate impact of the statute as written; and in 2015 the House introduced HB 230, which would have revised Section 38.001 to include “other legal entities.” However, HB 230 died in the Senate and never became law, so the current version of the statute remains. As such, unless the contract specifically provides for the recovery of attorney’s fees, a prevailing plaintiff in a breach of contract action is not going to be able to recover attorney’s fees from the defendant entity if it is anything other than a corporation.
Update May 2016
Just last month, a Texas appellate court found that Section 38.001 of the Texas Civil Practice and Remedies Code does not allow a prevailing plaintiff to recover attorneys’ fees from a defendant who is a limited liability company (LLC). Alta Mesa Holdings, L.P. v. Ives, No. 14-14-00739-CV, 2016 WL 1534007, at *13 (Tex. App. – Houston [14th Dist.] Apr. 14, 2016, no. pet. h.). Although the court admitted that the question of whether an LLC is contained within the term “corporation” under the statute is a closer call than whether partnership is included within “individual” or “corporation, it ultimately concluded that an LLC is a separate and distinct entity under Texas law and would not be encompassed in the definition of “corporation” for purposes of the statute. Id. at *12.
Thus, unless or until the Texas Supreme Court opines on the issue – or the Texas Legislature revises Section 38.001 – it appears settled that corporations are the only types of entities that are covered under the statute. As such, parties entering into written contracts with entities that are anything other than corporations would be wise to include provisions in their contracts allowing for recovery of attorney’s fees instead of relying on Section 38.001.
© Eric C. Wood, 2016