Recovery of Attorney Fees in Enforcement of your Texas Construction Contract - Texas Legislature Adopts Changes to 38.001, Allowing for Recovery of Fees Against LLCs and Others

Kilpatrick Townsend & Stockton LLP

The Texas Legislature recently adopted Texas HB No. 1578, fixing the loophole created by multiple appellate courts’ strict statutory interpretations of Texas Civil Practice and Remedies Code § 38.001. Section 38.001 allows a person to recover reasonable attorney’s fees, in addition to the amount of the valid claim and costs, for “rendered services; performed labor; furnished material; freight or express overcharges; lost or damaged freight or express; killed or injured stock; a sworn account; or an oral or written contract.” TEX. CIV. PRAC. & REM. CODE § 38.001. However, as previously written, the Texas law only permitted a party to recover its attorney’s fees where the party brought one of the above listed claims against an “individual” or a “corporation”, failing to provide for attorney’s fees where a claim was brought against a limited liability company, partnership, or other entity. The revision to Section 38.001 replaces “corporation” with “organization”, as defined in Section 1.002 of the Business Organizations Code.   

Section 1.002 defines "Organization" as:  “a corporation, limited or general partnership, limited liability company, business trust, real estate investment trust, joint venture, joint stock company, cooperative, association, bank, insurance company, credit union, savings and loan association, or other organization, regardless of whether the organization is for-profit, nonprofit, domestic, or foreign.” TEX. BUS. ORG. CODE § 1.002.

Texas follows the “American Rule”, which requires a litigant to incur its own attorney’s fees and litigation costs, unless recovery of such fees is provided for pursuant to a contract provision or statute. Although many construction contracts provide for the recovery of attorney’s fees, many others are silent regarding fees and litigation costs, especially sworn accounts and oral agreements. There are also certain statutes that allow for the recovery of fees, such as the mechanic’s and materialmen’s lien statute or the prompt payment statutes within the Texas Property Code or Texas Government Code, but these are not applicable in all cases. Therefore, a claimant previously seeking to bring a contract claim against an LLC (or other above listed entity other than corporation), without a contract provision or other supporting statute providing for the recovery of fees, had to consider and balance the risks associated with incurring litigation costs versus potential recovery under such claim.  The legislature’s adoption of the changes to Texas Civil Practice and Remedies Code § 38.001, adding multiple entities to the class of parties for which attorney’s fees can be awarded against, will relieve claimants of such burden.  

Texas HB No. 1578 was sent to Governor Abbott for signature on May 31, 2021 and ten days have now passed.  The bill will be filed and the change to Texas Civil Practice and Remedies Code § 38.001 will be effective for actions commenced on or after the effective date of September 1, 2021.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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