What do you mean I cannot recover statutory attorney’s fees on a contract claim?

There have been a number of surprised litigants and attorneys in Texas whose claim for statutory attorney’s fees was denied because the opposing party was not an “individual or corporation.” This raises the question as to who is an individual or a corporation and from whom attorney’s fees may be recovered in a breach of contract action under the Texas attorney fee statute.

Section 38.001 of Texas Civil Practice and Remedies Code allows a “person to recover reasonable attorney’s fees from an individual or corporation, in addition to the amount of a valid claim and costs, if the claim is for: (1) rendered services; (2) performed labor; (3) furnished material; (4) freight or express overcharges; (5) lost or damaged freight or express; (6) killed or injured stock; (7) a sworn account; or (8) an oral or written contract.” This seemingly short statute is getting a lot of attention as parties attack the award of attorney’s fees and the use of the term “individual or corporation” versus the prior use of the term “person”  in the predecessor statute, article 2226 of the Texas Revised Civil Statutes. When the Texas legislature recodified article 2226 by section 38.001, it appears that the Texas legislature only intended to recodify the pre-existing law and not introduce any substantive changes. See Crespi, ARTICLE: Who is Liable for Attorney’s Fees Under Texas Civil Practice and Remedies Code Section 38.001 in Breach of Contract Litigation, 65 SMU L. Rev. 71 (Winter 2012); see also Lake LBJ Mun. Util. Dist. v. Coulson, 839 S.W.2d 880, 890-91 (Tex. App.- Austin, no writ) (citing 1985 Tex. Gen. Laws, at 3322). Texas courts are on both sides of this issue, but for the purpose of this blog entry, a case from Dallas limiting the scope of section 38.001 will be pointed out because of the detailed and thorough analysis it provides to address this issue.

In Hoffman v. L & M Arts, 2015 U.S. Dist. LEXIS 27784 (N.D. Tex. 2015), Judge Fitzwater was faced with Plaintiff Hoffman’s motion for attorney’s fees and related nontaxable expenses after judgment had been entered on her contract claim. Defendant opposed the motion because New York law did not allow recovery and the fact that even if Texas law controlled, Section 38.001 did not allow recovery against a limited liability corporation. Ignoring the choice of law analysis, Judge Fitzwater, looked to the language of Section 38.001(8) and determined that it does apply to a valid claim for a breach of an oral or written contract, but was faced with the issue of whether an LLC is “an individual or corporation” within the meaning of Section 38.001. Acknowledging that the Supreme Court of Texas has not ruled on the issue, the Court stated that it had to determine, to the best of its ability, what the highest court of the state would decide.

Judge Fitzwater then went on to set out how the statute should be construed by looking first to the plain and common meaning of the statute’s words because the legislature tries to say what it means, and therefore the words it chooses are the surest guide to legislative intent. Hoffman v. L & M Arts, 2015 U.S. Dist. LEXIS 27784, * 14, citing, Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864, 865 (Tex. 1999). The Court also noted that “ordinary citizens” should be able to rely on the plain language of a statute to mean what it says. Id. Noting that Section 38.001 differentiates between who may recover attorney’s fees and from whom such fees may be recovered, the court noted that a person could recover fees, but only against an individual or corporation. As a result the “universe of those” who may recover is broader than those from whom such fees may be recovered.

Judge Fitzwater noted that an LLC is clearly not an individual and those courts who have considered this have uniformly held that an individual refers to humans and does not include partnerships, limited partnerships, limited liability partnerships, governmental subdivisions or other legal entities. Hoffman v. L & M Arts, 2015 U.S. Dist. LEXIS 27784, * 14, citing, Baylor Health Care Sys. v. Nat’l Elevator Indus. Health Benefit Plan, 2008 U.S. Dist LEXIS 43044 (N.D. Texas. June 2, 2008) (denying recovery because an ERISA plan is not an individual or corporation under Section 38.001); Ganz v. Lyons P’Ship, L.P., 173 F.R.D., 173, 176 (N.D. Tex. 1997) (holding that attorney’s fees are not recoverable against a partnership or limited partnership because the word person was eliminated from Section 38.001); Fleming Assocs., L.L.P. v. Barton, 425 S.W.3d 560, 575 (Tex. App.- Houston [14th Dist.] 2014, pet. denied) (holding LLP is not an individual or corporation); Base-Seal, Inc. v. Jefferson Cnty., 901 S.W.2d 783, 786 (Tex. App.- 1995, writ denied) (holding a county is a political subdivision of the state and not an individual or corporation). As a result, and based on the plain meaning of the terms “individual” and “corporation,” and an exhaustive review of the history of Section 38.001 and and its predecessor, Article 2226, and rulings by both state and federal courts, Judge Fitzwater held that an LLC is neither an “individual” or “corporation” within the meaning of Section 38.001 and a party with a valid claim cannot recover attorney’s fees from an LLC under Section 38.001.

I highly recommend reading the law review written by Gregory Scott Crespi and the opinion by Judge Fitzwater for how to approach this issue. Crespi raises numerous other issues not addressed here and the framework set out by Judge Fitzwater for addressing this issue (from both sides of the docket) is excellent. While this issue rarely comes up, it is being raised more and more as it works its way through the courts. The opinions in this blog are the author’s and any comments or suggestions can be sent to john@jrjoneslaw.com. Happy Independence Day!

 

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