People seeking to enforce their rights against another party frequently wonder whether they may be entitled to receive the fees they paid their attorneys as damages. Many contracts provide for reasonable attorneys fees to be refunded to the side that prevails in a lawsuit to enforce the contract’s terms. However, when the winning party seeks to collect the damages they may be owed, say through garnishment, they are frustrated to discover that “attorneys fees” typically don’t cover post-judgment collection fees. However, what happens if the contract explicitly says that post-judgment attorneys fees are refundable?
Res Judicata and the Merger Doctrine
Res judicata—meaning a thing adjudicated —is a legal principle that stops parties from litigating issues that have already been decided. In re Graves, 555 B.R. 603, 606 (Bankr. W.D. Tex. 2016); Res judicata. Black's Law Dictionary (10th ed. 2014). It applies when a new case has the same “identity of parties, issues, subject matter, relief sought and cause of action” as a previous case. Franklin v. Rainey, 556 S.W.2d 583, 585 (Tex.Civ.App.—Dallas 1977, no writ). The Texas Supreme Court has adopted the “transaction test” to determine whether res judicata preempts litigation, stating that “[a] subsequent suit will be barred if it arises out of the same subject matter [as] a previous suit and which through the exercise of diligence, could have been litigated in a prior suit.” Barr v. Resolution Trust Corp. ex rel. Sunbelt Fed. Sav., 837 S.W.2d 627, 631 (Tex.1992). However, res judicata “extends only to facts in issue as they existed at the time the judgment was rendered, and does not prevent a re-examination of the same question between the same parties, where, in the interval, the facts have changed, or new facts have occurred which may alter the legal rights or relations of the parties.” City of Lubbock v. Stubbs, 160 Tex. 111, 327 S.W.2d 411, 414 (Tex.1959); see also Franklin v. Rainey, 556 S.W.2d 583, 585 (Tex.Civ.App.—Dallas 1977, no writ).
The doctrine of merger is a specific application of res judicata, and operates with the same principles. Puga v. Donna Fruit Co., 634 S.W.2d 677, 679 (Tex.1982). Under the doctrine, “if a plaintiff prevails in a lawsuit, his cause of action merges into the judgment and the cause of action dissolves.” Jeanes v. Henderson, 688 S.W.2d 100, 103 (Tex.1985). That typically means that, if a contract provides for attorneys fees being refunded to the winning side of a dispute, those claims “merge” into the judgment from the court awarding a specific amount of money damages (including attorneys fees). That means a party cannot sue again under the same contract for attorneys fees they have to incur later, say for efforts to collect the money that was owed under the court’s judgment. At least, that is usually the case, unless the contract specifically says otherwise.
Is There Any Way to Receive Post-Judgment Attorneys Fees?
Although general references to “attorneys fees” in any contract are unlikely to provide for post-judgment attorneys fees, there might be an exception – in contracts where the attorneys fees clause explicitly provides for post-judgment attorneys fees.
In In re Graves, 555 B.R. 603 (Bankr. W.D. Tex. 2016), a federal bankruptcy court interpreted Texas state law to decide whether a party was entitled to post-judgment attorneys fees when they were specifically agreed to be refunded under the original promissory note. In that case, a creditor won a judgment on a promissory note from a court, but had to pay more than $33,000 in attorneys fees as they tried to collect what they were owed according to the judgment. The original judgment only provided $4,500 in attorneys fees.
Nevertheless, the court found that there was an exception to the merger doctrine that covers terms in a contract that were clearly intended by parties to survive a judgment – which should be the case when the contract explicitly provides for “post-judgment attorneys fees.” The creditor was awarded their post-judgment attorneys fees as agreed in the promissory note.
This represents just one of many ways that a carefully written contract can protect a party. Had the creditor in this case used a more typical kind of contract that only provided for attorneys fees to be awarded, they may have had to pay tens of thousands of non-refundable dollars just to get the money that a court said they were owed. It is just another demonstration of how important it is to work with qualified attorneys whenever you draft or sign a contract.
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