Prevailing Party Clauses and Recovery of Attorney Fees

The issue of who is a prevailing party and entitled to recovery of attorney fees has been the subject of more than one, to use a wrestling term, death match. Fortunately, the United States Supreme Court and Supreme Court of Texas have provided good guidance on what it means to be a “prevailing party” so as to be entitled to recover attorney fees under a prevailing party contract clause.

In Lefemine v. Wideman, 568 U.S. __ (Nov. 5, 2012), the United States Supreme Court held that a plaintiff who secured an injunction but no monetary damages was in fact a “prevailing party” because the injunction ordered the Greenwood County Sheriff’s Office to change behavior in a way that directly benefited plaintiff.  In Wideman, Lefemine and other members of an organization engaged in anti-abortion demonstrations. A Greenwood County officer informed Lefemine that if the graphic protest signs were not discarded, he would ticket Lefemine for breach of peace. Lefemine stopped protesting. Subsequently, Lefemine’s attorney sent a letter to the Sheriff informing the Sheriff that another protest was planned at the same site and if the Sheriff interfered, all available legal remedies would be pursued. The Deputy Sheriff responded saying that if Lefemine took the same action again, the same action would be taken by the Sheriff. Surprising no one, Lefemine filed suit seeking nominal damages, a declaratory judgment, a permanent injunction and attorney’s fees. Both Lefemine and the County filed motions for summary judgment and the District Court ruled that Lefemine’s rights had been infringed on but denied attorney’s fees. The U.S. Court of Appeals for the Fourth Circuit affirmed the denial of attorney’s fees on the ground that Lefemine was not a “prevailing party” under Section 1988 because the relief awarded did not alter the relative position of the parties and only prohibited unlawful, but not legitimate conduct.  In reversing the Fourth Circuit, the U.S. Supreme Court restated its prior holdings that “when actual relief on the merits…materially alters the legal relationship between the parties by modifying defendant’s behavior in a way that directly benefits the plaintiff”, the plaintiff is a prevailing party. Lefemine v. Wideman, 568 U.S. __ (Nov. 5, 2012), citing, Farrar v. Hobby, 506 U.S. 103, 111-112 (1992). The U.S. Supreme Court also held that an injunction or declaratory judgment satisfies that test. Lefemine v. Wideman, 568 U.S. __ (Nov. 5, 2012). citing, Rhodes v. Stewart, 488 U.S. 1, 4 (1988). Because Lefemine had removed Greenwood County’s threat of sanctions and enjoined the County from engaging in similar conduct, the U.S. Supreme Court held he was a prevailing party and should recover attorneys’ fees unless special circumstances would make such an award unjust. Lefemine v. Wideman, 568 U.S. __ (Nov. 5, 2012), citing, Hensley v. Eckerhart, 461 U.S. 424, 429 (1983).

Like the U.S. Supreme Court, the Supreme Court of Texas has taken a very broad view of what constitutes a prevailing party and has held that in order to recover attorney fees, a party must gain something. Intercontinental Group P’ship v. KB Home Lone Star L.P., 295 S.W.3d 650, 652 (Tex. 2009). Texas adheres to the American Rule with respect to recovery of attorney’s fees. Under the American Rule, a party can only recover attorney fees if authorized by statute or the parties’ contract, such as with a well-written “prevailing party” clause.  In Epps v. Fowler, 351 S.W.3d 862 (Tex. 2011), the Supreme Court of Texas reversed and held that a defendant was a prevailing party with respect to a prevailing party contract clause and may be entitled to attorney’s fees when a plaintiff non-suited a case with prejudice to avoid an unfavorable ruling on the merits when Defendant had a pending motion for sanctions. Epps v. Fowler, 351 S.W.3d 862, 864 (Tex. 2011). The Supreme Court of Texas opinion stressed that the Court’s primary concern is to construe the parties’ written contract to ascertain the parties’ true intentions as expressed in the contract pointing out again, the importance of well drafted contract clauses. The Supreme Court of Texas also stated again that it finds “federal cases focusing on the meaning of prevailing party instructive,” and therefore, the U.S. Supreme Court’s recent opinion in Lefemine v. Wideman may be useful in Texas litigation on this issue. See  Epps v. Fowler, 351 S.W.3d 862, 866 (Tex. 2011), citing, Intercontinental Group P’ship v. KB Home Lone Star L.P., 295 S.W.3d 650 (Tex. 2009).

The views and opinions in this blog are the author’s and not those of Bickerstaff Heath Delgado Acosta LLP. Comments, replies and suggestions may be sent to John Jones at john@jrjoneslaw.com.

“As Is, Where Is” Clauses

“As Is, Where Is” clauses are in many commercial equipment lease agreements as well as agreements for the sale or lease of commercial real property. Clients, rightfully, want to know if their “as is”  clause is enforceable in Texas and the answer is that it depends. A valid “as is” clause prevents a party from seeking contract damages and negates the causation element of various claims and waives or disclaims certain implied warranties. See Gym-N-I Playgrounds v. Snider, 220 S.W.3d 905 (Tex. 2007). In Gym-N-I Playgrounds, a case involving a holdover tenant under a commercial lease, the Supreme Court of Texas held the “as is” clause negated the causation element of claims for negligence per se, gross negligence, violations of the Texas Deceptive Trade Practices-Consumer Protection Act and fraud. However, the Supreme Court of Texas in Gym-N-I Playgrounds let stand its previous holding that an “as is” clause does not negate the causation element in a fraudulent inducement claim.  See Gym-N-I Playgrounds v. Snider, 220 S.W.3d 905, FN14 (Tex. 2007), citing, Prudential Insurance Co. of Am. v. Jefferson Associates, Ltd., 896 S.W.2d 156, 161 (Tex. 1995).

Fortunately, Texas strongly favors a parties’ freedom of contract and parties are generally free to bargain for and decide the terms of their own contracts so long as they do not violate the law or public policy. See BMG Direct Marketing, Inc. v. Peake, 178 S.W.3d 763, 767 (Tex. 2005) and In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 129 (Tex. 2004). Factors to be considered in determining whether an “as is” clause is enforceable are set out by the Supreme Court of Texas in the Prudential Insurance Company of Am. opinion. In making a determination, courts will look at the nature of the transaction and the totality of the circumstances surrounding the agreement, such as whether the clause is an important basis of the bargain rather than incidental or boilerplate provision, the sophistication of the parties and also whether the bargaining position of the parties were relatively equal.  Please note that this discussion does not include consumer leases which may have a truth-in-lending requirements and does not discuss the requirements under  Articles 2 and 2A of the Texas U.C.C. which may impose additional considerations concerning conspicuousness and notice.

The opinions expressed in this blog are mine and not the views of Bickerstaff Heath Delgado Acosta LLP. Comments, suggestions and replies are welcome and can be sent to John Jones at John@jrjoneslaw.com.

Registration in Texas and Standing to Sue

One of the en vogue defenses raised by debtors or lessees who refuse to pay is to object to and challenge a foreign company’s right to maintain a suit in a Texas Court based on a failure to register with the Texas Secretary of State. The challenge is almost always done with a motion to dismiss or alternatively, to abate the lawsuit.  Debtors often cite Section  9.051(b) of the Texas Business Organizations Code as grounds to dismiss the lawsuit filed by the out-of-state company. Section 9.051(b) states in part that a foreign filing entity may not maintain an action, suit or proceeding in a court of this state, directly by the entity or as a derivative action in the entity’s name, on a cause of action that arises out of the transaction of business in this state. When this pleading shows up on your desk, one of the first reactions is what do I have to do to get registered? How hard can that be?

Just getting registered is not the easy option that it appears to be. The Texas Secretary of State or Department of Banking may not accept registration because the name of the foreign entity, especially if you are a leasing company, is very similar to the name of a bank or financial institution currently doing business in Texas. In addition, there are penalties for registering late and back taxes may also due as a result.  Fortunately, there is a better way if you are collecting on a debt due or enforcing your rights in property that secures debt that is due.

In an amazing display of foresight, the Texas Legislature enacted Section 9.251 of the Texas Business Organizations Code and set out activities that do not constitute the transaction of business in the State of Texas. Section 9.251(8) allows a foreign entity to sue in Texas if they are suing to secure or collect a debt due or enforcing a right in property that secures the debt.  Section 9.251(9) also states that transacting business in interstate commerce does not constitute the transaction of business in Texas. A good opinion that discusses the statutory construction mechanics you will need to argue in response to a motion to dismiss is a 2006 Southern District of Texas case entitled Canatxx Gas Storage Limited v. Silverhawk Capital Partners, LLC.

Happy hunting! The opinions in this blog are those of the author and not Bickerstaff Heath Delgado Acosta, LLP.  Comments or replies are welcome by emailing me at John@jrjoneslaw.com.

Texas Equipment Leasing and Trial Blog

Welcome to my blog.  This blog is designed to provide tips and advice on equipment leasing litigation in Texas and to provide a place to discuss enforcment actions. It is also a place to share information on current developments in equipment leasing and trial practice in Texas courts. Current cases of interest and other developments will be discussed to try and give you a first look at what you may face in a Texas court as you enforce your equipment lease.  Texas law changes rapidly and the Texas legislature is about to go into session in January 2013.  Unlike many states, the Texas Legislature only meets every other year and the next session starts in about 6 weeks. 

Today, the Texas Supreme Court submitted for comment rules designed to expedite simpler cases seeking no more than $100,000 and to provide dismissal of lawsuits that have no basis in fact or law.  The Supreme Court also made appellate-rules changes to set per-page word limits instead of page limits on briefing. Final approval of the expedited lawsuits and dismissal rules are subject to public comment through February 1, 2013 after their publication in the Texas Bar Journal.

In summary,  the expedited lawsuit provision will apply to lawsuits seeking no more than $100,000, including damages, prejudgment interest, costs, expenses and fees, would require all pleadings to specify the monetary relief sought and will prohibit discovery if it is not included (revising Texas Rule of Civil Procedure 47). Texas Rule of Civil Procedure 169, the substance of the rule change, will allow excuse from the rule change for good cause or if any claimant, other than one filing a counterclaim, pleads for relief greater than $100,000.  Discovery will be limited to 180 days from the first-served discovery request and each side will be limited to five hours to open, present evidence, examine witnesses and close.

As always the comments in this blog are those of the author and not a reflection of the views (one way or another) of Bickerstaff Heath Delgado Acosta LLP. Comments, suggestions or questions can be sent to john@jrjoneslaw.com.