by Saba Syed
For civil litigators, Section 38.001 of the Civil Practice & Remedies Code is a provision to recover attorneys’ fees in disputes involving contracts, quantum meruit, and sworn accounts, among other things.
Importantly, Section 38.001 allows any “person” to sue under this provision to recover attorneys’ fees. The provision, however, only allows for recovery against individuals and corporations. The failure to allow for recovery against limited liability companies and limited partnerships was widely acknowledged as an error in the legislation. Nevertheless, numerous defendants were able to successfully avoid attorneys’ fees liability simply because they were a limited liability company and not a corporation.
That day has now come to an end. House Bill 1578 was signed into law on June 15, 2021 to correct a loophole that has long been used by counsel for defendants. The text of the legislation can be found here: https://legiscan.com/TX/text/HB1578/2021.
Does the new language allow for recovery of attorneys’ fees against limited liability companies and other organizations?
Yes, with some caveats. The language allows any “person” to recover fees against an “individual” or “organization other than a quasi-governmental entity authorized to perform a function by state law, a religious organization, a charitable organization, or a charitable trust.” In other words, any person (including non-profit or quasi-governmental organizations) can sue under Section 38.001 to recover attorneys’ fees. This claim can now be brought against all individuals and organizations, except for any non-profit institutions and quasi-governmental institutions. See Tex. Bus. Org. Code § 1.002 (62) (defining “organization”); Tex. Bus. Org. Code § 1.002 (69-b) (defining “person”).
Does H.B. 1578 apply retroactively?
H.B. 1578 only applies to actions commenced on or after September 1, 2021. This is important for attorneys to keep in mind in the event they intend to recover against limited liability companies or limited partnerships.
What can I do to protect my clients from changes in the law?
If you are drafting a contract that includes a provision for attorneys’ fees, you can specifically waive the parties’ rights to recover attorneys’ fees under Chapter 38, or modify the parties’ rights to recover attorneys’ fees only in certain instances.
Can defendants use Section 38.001 to recovery attorneys’ fees if they prevail in defending the suit?
Section 38.001 only permits claimants the right to recover attorneys’ fees if they prevail on their claims. Defendants who are seeking to recover fees after successfully defending a suit should consider adding contractual language to modify their rights to recover attorneys’ fees.
Saba Syed is a senior associate at Bell Nunnally & Martin LLP practicing in their Litigation and Appellate sections. She can be reached at email@example.com.
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