Texas Legislature Expands Scope of Statute Permitting Recovery of Attorney’s Fees

The Texas Legislature passed House Bill 1578, relating to recovery of attorney’s fees in certain civil cases, and Governor Abbott signed it on June 15, 2021. Taking effect on September 1, 2021 and applying to actions commenced on or after September 1, 2021, the bill broadens those from whom a person can recover attorney’s fees in connection with certain enumerated classes of claims like breach of contract.

Previously, Civil Practice and Remedies Code section 38.001 stated that “A person may recover reasonable attorney’s fees from an individual or corporation, in addition to the amount of a valid claim and costs…” However, Texas courts of appeals have held that section 38.001’s plain language did not permit trial courts to order limited liability partnerships, limited liability companies, or limited partnerships to pay attorney’s fees.

The Legislature amended section 38.001 to replace “corporation” with “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.” Under the new section 38.001, “organization” will share the same meaning as that assigned by section 1.002 of the Texas Business Organizations Code:

“Organization” means a corporation, limited or general partnership, limited liability company, business trust, real estate investment trust, joint venture, joint stock company, cooperative, association, bank, insurance company, credit union, savings and loan association, or other organization, regardless of whether the organization is for-profit, nonprofit, domestic, or foreign.

Thus, parties can now seek to recover attorney’s fees from a variety of entities in litigation. Business entities and their attorneys will want to keep this change in mind as they assess their cases and defenses where section 38.001 is involved in order to minimize their exposure and recover their fees when possible.