A significant amendment to the Texas statute that allows for recovery of attorneys’ fees by a prevailing plaintiff in an action for breach of contract will take effect on September 1, 2021.  Previously, Texas courts have interpreted Texas Civil Practice and Remedies Code section 38.001 to award attorney fees against only individuals and corporations, not limited liability companies, partnerships or other types of entities.

In three prior legislative sessions, unsuccessful attempts have been made to amend the statute to broaden its reach to other entity forms.  In May 2021, the Texas Legislature adopted House Bill 1578 (Bill Text: TX HB1578 | 2021-2022 | 87th Legislature | Enrolled | LegiScan), which finally amends section 38.001 to address other entities besides a corporation.

More specifically, the amendment adds a new subsection to section 38.001 defining an “organization” to mean the same as defined in section 1.002(62) of the Texas Business Organizations Code, which includes:  “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.”

The amended statute does, however, specifically exclude quasi-governmental entities authorized to perform a function by state law, religious organizations, charitable organizations, and charitable trusts.

Because the amendments explicitly apply only to new cases filed on or after September 1, 2021, a plaintiff who is about to file a claim for breach of contract should consider holding off until September 1 to file (barring any statute of limitations or other considerations that make immediate suit warranted).

Notably, section 38.001 does not allow for an award of attorneys’ fees to a defendant who successfully defends against a breach of contract claim, and the recent amendments do not change this.  Contracting parties should keep the parameters of section 38.001 in mind (especially in view of these recent amendments) when drafting or amending their contracts.  Under Texas law, a contract may provide that the prevailing party, whether the plaintiff or defendant, will recover its attorneys’ fees against the other party, or that the statutory right for a prevailing plaintiff to recover its fees under section 38.001 is waived leaving no party able to recover its fees.

Thus, besides effecting litigation after September 1, the recent amendments to section 38.001 may also weigh into decisions made when drafting and amending contracts to potentially provide for either mutual or no fee entitlement at all.

For further information on this topic, please reach out to blog author, April Walter, at april.walter@keanmiller.com