Can a Person Recover Attorney’s Fees Against an LLC for Breach of Contract in Texas?
It might surprise you to know that until recently, the answer was “yes.”
Chapter 38 of the Texas Civil Practice and Remedies Code (“Chapter 38”), states that “a person may recover reasonable attorney's fees from an individual or corporation, in addition to the amount of a valid claim and costs” for a breach of contract. However, the assumption that attorney’s fees can be recovered against any business entity has recently been challenged with success. We must look closely at what the legislature meant by recovery against “an individual or corporation.”
Cases interpreting the relevant language have found that the recodification of the statute in 1986 amounted to a major change. In 1997, Judge Urbom, in the U.S. District Court for the Northern District of Texas, interpreted this change to mean that Chapter 38 does not allow a successful plaintiff to recover attorney’s fees against an LLC. Ganz v. Lyons P’ship, L.P., 173 F.R.D. 173, 176 (N.D. Tex. 1997). He reasoned that when the statute was recodified, in 1986, the change in terminology from “person” to “individual” narrowed the types of entities that could be liable for attorney’s fees under Chapter 38. Despite the significance of this major change to Texas law, this decision received very little attention until recently.
There were similar rulings in 2014 and 2015 and again in April 2016 by the Houston Fourteenth Court of Appeals. See Alta Mesa Holdings, L.P. v. Ives, 488 S.W.3d 438, 452–55 (Tex. App.—Houston [14th Dist.] April 14, 2016, pet. denied).
Despite the recent opinion in 2016, there are numerous Texas cases, both state and federal, that have upheld awards of attorney’s fees against partnerships and LLCs based on Chapter 38; however, it appears the that the issue at hand was not directly addressed by either party.
It is now clear in some jurisdictions in Texas that attorney's fees are not recoverable under Chapter 38 against limited liability companies.
Other Ways to Recover your Attorney’s Fees
Protect yourself by including a prevailing party provision in all contracts allowing for the recovery of fees against all parties to the contract.
Rely on other statutes that can be applied in order to recover your attorney’s fees.
These changes affect everyone who is negotiating contracts in Texas, as well as those litigating them. For attorneys and clients who are negotiating contracts, special attention should be paid to whether a prevailing party provision should be included in the contract.
Attorneys representing clients in active litigation with breach of contract claims should consider whether a claim for attorney’s fees is supported in light of these recent decisions. A plaintiff in a breach of contract case may wish to consider other causes of action (e.g., declaratory judgment) that allow for the recovery of attorney’s fees.
Like it or not, this change in law is now the law in some areas in Texas.
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