Business Litigation Alert: "Will Texas Change the Recovery of Attorneys' Fees in 2017?"

The general rule in Texas is that litigants must pay their own attorneys’ fees. Texas only allows the recovery of attorneys’ fees where it is authorized by statute, called for in the contract between the parties, or – in rare circumstances – for equitable reasons.

One of the most commonly used Texas statutes to recover attorneys’ fees is Texas Civil Practice and Remedies Code Chapter 38. Chapter 38 allows the recovery of attorneys’ fees from “an individual or corporation” if the claim is for breach of contract. The text of Chapter 38 allows recovery only from “individuals” and “corporations.” Texas courts have interpreted this language to exclude recovery of attorneys’ fees in breach of contract cases from other business entities, such as limited partnerships and limited liability companies. This has provided some advantages to those forms of business in Texas because they are not required by statute to pay attorneys’ fees if they are liable for breach of contract.

This loophole, however, may be removed in 2017. Texas State Representative Jessica Farrar (D – Houston) has filed HB 744, which would amend Chapter 38 to provide for the recovery of attorneys’ fees from “an individual, corporation, or other legal entity.” This amended text would subject all entities, including partnerships and limited liability companies, to liability for attorneys’ fees in breach of contract cases.

There is no guarantee that HB 744 will pass in 2017. In fact, Rep. Farrar introduced a very similar bill in the 84th Texas Legislature (HB 230, 2015). Although the 2015 bill was approved by the Texas House in April 2015, it was never passed by the Senate.

We will continue to monitor HB 744 during the 85th Texas Legislature and provide updates on any changes to the recovery of attorneys’ fees under Chapter 38. If you have any questions about the potential impact of these changes on your business, please contact us to discuss.