Chapter 38 of the Texas Civil Practice & Remedies Code (“Chapter 38”) provides for the statutory recovery of attorneys’ fees on breach-of-contract claims in Texas, even in the absence of a contractual provision for fee recovery. Appellate courts have interpreted Chapter 38 to only allow fee recovery against individual persons and corporations—to the exclusion of limited partnerships (LPs), limited liability partnerships (LLPs), limited liability companies (LLCs), and governmental entities.
This year, the Texas Legislature passed House Bill 1578 to amend Chapter 38’s fee-recovery provision, effective in lawsuits commenced on or after September 1, 2021. The revised statute provides that a “person may recover reasonable attorney’s fees from an individual or organization other than a quasi-governmental entity authorized to perform a function by state law, a religious organization, a charitable organization, or a charitable trust . . . .”
“Organization” is clearly defined (assigned the same meaning as under the Texas Business Organizations Code), allowing fee recovery against LPs, LLCs, and “other organizations.” However, the application to governmental entities is less clear. And, because House Bill 1578 is not yet effective, no courts have interpreted its meaning.
The language and structure of the statute as amended may suggest the Texas Legislature’s intention to continue to insulate governmental entities from fee awards under Chapter 38. First, the fee-recovery provision still retains the distinction between “person” and “individual.” In various other statutes—including within the Texas Business Organizations Code—“person” is defined to include governmental entities along with other types of private entities. See Texas Business Organizations Code § 1.002(69-b); see also Texas Government Code § 311.005(2). If the Texas Legislature wanted to provide for fee recovery against governmental entities in the revised statute, it could have changed “individual” to “person,” which it did not. Second, the revised statute incorporates the Texas Business Organizations Code’s definition of “organization,” which excludes governmental entities. While the revised statute addresses “quasi-governmental entities,” it appears to do so for the purpose of protecting such entities from fee awards under Chapter 38 when they are acting in certain capacities, including when “authorized to perform a function by state law.”
Parties should take care to draft specific language in their contracts to accomplish their intended goals for the recovery of attorneys’ fees. This is a crucial safety measure, as the statute will only affect cases filed on or after September 1, 2021, and the exact timing of future breach-of-contract actions cannot be known. Parties should also consider whether Chapter 38’s structure, which allows only a successful plaintiff to recover fees, adequately addresses their needs. They may instead want to allow whichever party prevails to recover fees, not just the plaintiff, to create downside risk for all parties. The terms chosen may also have a resulting effect on other issues, possibly including insurance coverage, and should therefore be selected very carefully.