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Attorney’s Fees: Always Include A Prevailing Party Provision In Your Contracts

A common misconception among potential and existing clients is that when they sue, they will likely be able to recoup their attorney’s fees. This is especially true when the client brings you a breach of contract case. However, such is not always the case. In fact, the default position in Texas jurisprudence is that a party must pay its own attorneys’ fees…unless permitted by statute or a rule of procedure, by contract, or under principles of equity.

Statutory Basis:

There exists a litany of statutes that authorize a court to award attorney’s fees to respective litigants. One of the commonly used mechanisms to seek fees is Chapter 38 of the Texas Civil Practice and Remedies Code, which authorizes recovery of fees and costs for the following claims:

  • Rendered services;
  • Performed Labor;
  • Furnished Material;
  • Freight or express overcharges;
  • Lost or damaged freight or express;
  • Killed or injured stock;
  • Sworn account; or
  • Oral or written contract

To be entitled to recover under 38.001, a plaintiff must plead and prove the following: (a) the underlying claim is covered by 38.001 of the CPRC; (b) that the party was represented by an attorney; (c) the party whose fees are to be assessed against is an individual or a corporation; (d)  presentment was made; (e) the opposing party did not tender payment within 30 days after presentment; (f) the party “prevailed” and recovered damages on a claim for which fees are recoverable under 38.001 of the CPRC; and (g) all elements of proof were established at trial regarding attorney’s fees.

Examples of other statutes that allow for the recovery of attorney’s fees include, but are not limited to, the following: Texas Business & Commerce Code § 17.50 (“DTPA”); Insurance Code § 541.152; Texas Property Code § 53.156; Texas Tax Code § 42.29. One notable distinction is the foregoing statutes, unlike Chapter 38, which all expressly provide that a prevailing defendant may recover fees. Moreover, while corporations can be sued and fees assessed against them under Chapter 38, a prevailing party that has not contracted for the award of attorneys’ fees is unable to recover said fees against a limited liability company. This makes it all the more critical to include attorney’s fees provisions in contracts when dealing with LLCs.

By Contract:

In the context of a written contract, Texas Courts will enforce an attorneys’ fees provision if the parties to the contract have agreed to such an award. If the parties are precise in their definition of what constitutes the “prevailing party,” and as such, entitled to attorneys’ fees, courts will typically not disturb such an arrangement. However,  In the absence of a precise definition of “prevailing party,” the Texas Supreme Court will invoke the default definition under 38.001. Under this scenario, Chapter 38 does not provide for the recovery of attorney’s fees by a defendant who only defends a claim if no contract claim of its own has been presented and proven. Put another way, even if the defendant is successful in defending itself in a lawsuit, unless the said defendant has affirmative counter-claims upon which it prevails, a successful defendant will not be able to recoup its attorneys’ fees under the default standard set forth in 38.001.

For further questions and updates please check our website or contact Senior Counsel Brandon Smith, at PLGLitigation@patellegal.com

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