Attorney’s Fees Now Recoverable Against LLC’s and Partnerships in Texas Breach of Contract Cases

Texas Civil Practice and Remedies Code Section 38.001 has been expanded for lawsuits filed on or after September 1, 2021 to allow for the recovery of attorney’s fees against LLC’s and partnerships.

Under the old version of 38.001, the recovery of attorney’s fees was permitted “from an individual or corporation.” Courts interpreting this provision overwhelmingly concluded that it did not support recovery of attorney’s fees from an LLC and other corporate forms not listed in the statute.  See e.g. Varel Int’l Indus., L.P. v. PetroDrillbits Int’l, Inc., 05-14-01556-CV, 2016 WL 4535779, at *7 (Tex. App.—Dallas Aug. 30, 2016, pet. denied) (“Under the plain language of section 38.001, a trial court cannot order limited liability partnerships, limited liability companies, or limited partnerships to pay attorney’s fees.”).

In that vein, legislation was proposed in 2017 to amend the statute and allow recovery of attorney’s fees from additional entities by adding language including “other legal entities”, but the bill did not pass. See Tex. H.B. 744, 85th Leg., R.S. (2017). However, the Texas Legislature revisited this issue with Texas House Bill No. 1578. The bill revised Section 38.001 by replacing “corporation” with the more expansive “organization”, as defined in Section 1.002 of the Business Organizations Code. This includes “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. The new statute does add a caveat to exclude the recovery of fees against certain quasi-governmental entities, religious organizations, charitable organizations and charitable trusts.

These changes provide additional certainty to contracting parties who no longer have to rely upon the terms and conditions of their particular construction contracts, which were often silent regarding the issue of attorney’s fees.  The revisions also provide additional protections for wronged parties who previously may have had non-economic claims in light of the inability to recover attorney’s fees and costs/risks associated with pursuing construction litigation. Those who desire clarity at the contracting stage (or a different outcome) can still include provisions that address the ability to recover attorney’s fees in their particular contract; for instance, by adding a waiver that prohibits any party from recovering attorney’s fees or by adopting the English rule – “loser pays.”