Texas follows the “American Rule,” which provides that “litigants may recover attorney’s fees only if specifically provided for by statute or contract.” Epps v. Fowler, 351 S.W.3d 862, 865 (Tex. 2011).
In the absence of a contractual provision providing for recovery of attorney’s fees, parties traditionally have utilized Section 38.001 of the Texas Civil Practice and Remedies Code as a basis for recovery of an attorney’s fee award to the prevailing party, which allows a “person [to] recover reasonable attorneys’ fees from an individual or corporation … if the claim is for … an oral or written contract.”
Following from its holding in Fleming & Associates, LLP v. Barton, 425 S.W. 3d 560, 574-75 (Tex. App.-Houston [14th Dist.] 2014, pet. denied)) that a court could not order a partnership to pay attorney’s fees under Chapter 38, the Fourteenth Court of Appeals recently extended its holding to further preclude recovery of attorney’s fees under Chapter 38 against limited liability companies. Alta Mesa Holdings, L.P. v. Ives, No. 14-14-00739-CV, 2016 WL 1534007, at *11 (Tex. App. Apr. 14, 2016). In Alta Mesa, the Plaintiffs (both of which are individuals or persons) brought suit against a limited partnership (“LP”) and a limited liability company (“LLC”) for breach of an employment contract and other related ERISA claims, seeking severance benefits. Plaintiffs sought recovery of their attorney’s fees for the alleged contractual breaches under Chapter 38 of the Civil Practices and Remedies Code. Following a jury trial, the court entered judgment and awarded attorneys against the LP and the LLC for the ERISA violations. The trial court also entered judgment against the LP and LLC for breach of contract, awarding attorney’s fees only against the LLC, apparently relying on Fleming & Associates to preclude recovery of attorney’s fees against the LP. On appeal, the Alta Mesa Holdings court found that while the question of whether an LLC satisfied the definition of “individual or corporation” was a close call, the legislative history of Chapter 38 and its predecessor statute supported the conclusion that “corporation” does not encompass an LLC. The court thus reversed the award of attorney’s fees “[b]ecause section 38.001 does not authorize the recovery of attorney’s fees in a breach of contract action against an LLC and appellees have not sought attorney’s fees for prosecution of that cause of action on any other basis.”
Unless the Supreme Court accepts a petition for appeal of the Alta Mesa or similar decision, the net effect is that when a Plaintiff asserts a breach of contract claim involving a contract that does not explicitly provide for the recovery of attorney’s fees, Plaintiffs may have difficulty recovering attorney’s fees against an LLP or LLC or other “non-corporate” entity under Chapter 38, even if it prevails on its breach of contract claim.
No information in this article is intended to constitute legal advice. For specific legal advice, please contact an attorney.
Michael F. Hord Jr., is a shareholder with the firm of Hirsch & Westheimer, P.C. and specializes in complex commercial litigation and loan workouts, including the representation of financial institutions and loan servicers. If you have questions about contract negotiations or recovery of attorney’s fees in the context of a contractual breach, please contact Michael F. Hord, Jr. at firstname.lastname@example.org or 713.220.9182.