Texas Legislature Expands Recovery of Attorneys’ Fees under Texas Civil Practice and Remedies Code Chapter 38

The Texas Legislature passed House Bill 1578 on May 31, 2021. Governor Abbott signed it into law on June 15, 2021. Effective September 1, 2021, Texas Civil Practice and Remedies Code Chapter 38.001(b) will allow successful plaintiffs in breach of contract actions to recover attorneys’ fees against an “individual or organization.” Prior to the passage of House Bill 1578, successful breach of contract plaintiffs could not collect attorneys’ fees from defendants organized as limited liability companies under Chapter 38, but could collect attorneys’ fees from defendant-corporations. Rather, successful breach of contract plaintiffs could only recover attorneys’ fees from business entities other than corporations if the underlying contract provided for such remedy. By incorporating the definition of “organization” as used in Texas Business Organizations Code Section 1.002(62), the amended Chapter 38.001(b), allows for the recovery of attorneys’ fees against corporations, partnerships, limited liability companies, associations, and other entities regardless of whether the underlying contract provides for the payment of attorneys’ fees to a successful breach of contract plaintiff. Thus, the passage of House Bill 1578 serves to benefit successful breach of contract plaintiffs, who may now collect attorneys’ fees from defendants regardless of the defendant’s corporate structure or the underlying contract’s terms, with few exceptions.

Chapter 38 is a one-way street in that it only allows parties pursuing a claim for breach of contract to collect attorneys’ fees, if successful. That being said, parties to a contract are free to draft their own provisions regarding the award of attorneys’ fees in breach of contract actions. In fact, many contracts include “prevailing party provisions,” which allow a successful party to a breach of contract action to recover attorneys’ fees regardless of whether the party is pursuing or defending the claim. In addition to “prevailing party provisions,” there are a number of other means by which a contract may control the attorneys’ fees and other damages awarded to parties to breach of contract actions. Thus, entities concerned about recouping fees expended in defense of unsuccessful breach of contract claims can contract around the one-sidedness of Chapter 38.

In short, for breach of contract actions brought after September 1, 2021, House Bill 1578 stands to benefit successful plaintiffs bringing such claims against business entities other than corporations, as these plaintiffs will now be able to recover attorneys’ fees under either Chapter 38, or the underlying contract, if the contract provides such a remedy. Although Chapter 38 does not provide relief to parties that successfully defend against breach of contract actions, thoughtful drafting can circumvent the one-sided nature of Chapter 38.