We won a breach-of-contract case against a limited
liability company. Can we recover the attorney’s fees we spent doing it?
In 2016 this blog noted that Texas follows the “American
Rule”: each side pays its own lawyers unless a statute or a contract provides
otherwise. Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 310–11
(Tex. 2006); Epps v. Fowler, 351 S.W.3d 862, 865 (Tex. 2011). The most
commonly invoked statute is Chapter 38 of the Civil Practice and Remedies Code,
which permits a prevailing party to recover reasonable attorney’s fees on a
claim for, among other things, breach of an oral or written contract. Tex. Civ.
Prac. & Rem. Code § 38.001. That much has not changed. What has changed,
and what the 2016 post did not address, is who can be made to pay.
For most of its history, § 38.001 allowed recovery “from
an individual or corporation.” Beginning in the 2010s, Texas courts of appeals
read those words literally and held that fees could not be recovered from
entities that were neither — limited liability companies, limited partnerships,
and limited liability partnerships among them. Fleming & Assocs., L.L.P.
v. Barton, 425 S.W.3d 560, 574–76 (Tex. App.—Houston [14th Dist.] 2014,
pet. denied); Alta Mesa Holdings, L.P. v. Ives, 488 S.W.3d 438, 452–55
(Tex. App.—Houston [14th Dist.] 2016, pet. denied); Choice! Power, L.P. v.
Feeley, 501 S.W.3d 199, 213–14 (Tex. App.—Houston [1st Dist.] 2016, no
pet.); First Cash, Ltd. v. JQ-Parkdale, LLC, 538 S.W.3d 189,
199–200 (Tex. App.—Corpus Christi–Edinburg 2018, no pet.). Because a large
share of commercial defendants are organized as LLCs or partnerships, the
practical effect was that a business could win its contract case outright and
still absorb the entire cost of the litigation. The Supreme Court of Texas
never took up the question, and the intermediate courts’ reading became the
working rule.
The Legislature closed the gap in 2021. House Bill 1578,
signed June 15, 2021, and effective September 1, 2021, amended § 38.001 so that
a person may recover reasonable attorney’s fees “from an individual or
organization.” Act of May 26, 2021, 87th Leg., R.S., ch. 665 (H.B. 1578).
“Organization” carries the definition in § 1.002 of the Business Organizations
Code, which includes corporations, limited liability companies, limited
partnerships, limited liability partnerships, and most other business entities.
The amended statute excludes a “quasi-governmental entity authorized to perform
a function by state law,” a religious organization, a charitable organization,
and a charitable trust. Tex. Civ. Prac. & Rem. Code § 38.001(a)–(b). The
change applies to actions commenced on or after September 1, 2021; suits filed
earlier remain governed by the prior text.
Two other features of Chapter 38 remain as they were and
are worth restating. First, the statute requires presentment: the claim must be
presented to the opposing party, and payment must not have been tendered within
thirty days, before fees may be recovered. Id. § 38.002. Second, Chapter
38 authorizes fees only for a party that both prevails on a claim the statute
covers and recovers damages on it. Green Int’l, Inc. v. Solis, 951
S.W.2d 384, 390 (Tex. 1997); MBM Fin. Corp. v. Woodlands Operating Co.,
292 S.W.3d 660, 666 (Tex. 2009). The Supreme Court applied that requirement in
June of this year in Champion Food Service, Inc. v. ProAlamo Foods,
L.L.C., No. 25-0297 (Tex. June 19, 2026), where a fee award fell with
the quantum meruit recovery on which it depended.
For a business considering suit on a contract, the 2021
amendment appears to remove what had been a significant asymmetry: a plaintiff
suing an LLC or partnership on a contract filed after September 1, 2021, may
now seek fees on the same footing as one suing a corporation. Whether fees are
ultimately awarded will still depend on presentment, on prevailing, on
recovering damages, and on proof that the amount sought is reasonable and
necessary.
This post updates our April 2016 post, “When
are attorney’s fees recoverable as part of a lawsuit.” See also our
post on Champion Food Service v. ProAlamo Foods.
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