Texas Update: HB 1578 – Legal Fees – Construction Law and Government Procurement News, Q3 2021 | Bradley Arant Boult Cummings LLP
Effective September 1, 2021: HB 1578 fills the gap in the previous version of Chapter 38 of the Texas Civil Practice & Remedies Code so that parties can recover attorney fees from LLC, LLP, LP or other organizations in the framework of legal proceedings for breach of contract.
Generally, Texas law provides that each party to a lawsuit is responsible for the fees of their attorneys. However, Texas law has long provided that a party to a breach of contract claim can recover their attorney fees in addition to the damages they suffer. This exception to the rule has certain procedures that must be followed and is described in Chapter 38 of the Texas Civil Practice & Remedies Code.
While litigants have long used this exception to the rule, the wording of Chapter 38 did not explicitly authorize the recovery of attorney’s fees where the party held liable for the breach of contract was neither an individual nor a society. Although in practice it seems unreasonable, the plain language of Chapter 38 excluded other business entities such as limited partnerships (LPs), limited liability companies (LLP) and limited liability companies (LLC). This led to Texas court decisions that pointed out that if the legislature intended Chapter 38 to include LLCs, LLPs, and LPs, then it would have written the law to specifically include these entities. Ultimately, many Texas courts have denied recovery of attorney fees in cases involving entities other than corporations and individuals.
HB 1578, which comes into effect for lawsuits commenced on or after September 1, 2021, amends Chapter 38 to specifically include those business entities that are not traditional companies. Under the new law, with few exceptions, attorney fees are available in breach of contract lawsuits involving a: corporation, limited or general partnership, limited liability company, commercial trust, investment trust real estate, joint venture, corporation, cooperative, association, bank, insurance company, credit union, savings and loan association or other organization.
While fixing the law to work as intended, this change is a double-edged sword that can affect businesses. If a business chooses some form of entity in part to avoid potential attorney fees, this change in law will impact its business. It can also have an impact on how these companies, which find themselves in litigation, manage their legal risks and assess claims.
It is important to note that while a change to Chapter 38 will have a significant impact on breach of contract claims, companies can still use their contracts to ensure consistency with claims and the availability of attorney fees in the event of a breach. breach of these contracts. As always, business owners should consult with their attorney to discuss their contracts and the impact this may have on risk mitigation and claims management going forward.