Recovery of Attorney Fees under “Chapter 38” in Texas
Under the “American rule,” litigants on each side generally pay their separate legal fees associated with a lawsuit. This is generally so even if one party prevails on the merits of his or her claim or claims. Texas follows this rule.
But, there are exceptions. One of the more routinely utilized exceptions (particularly for breach of contract claims where there is no governing language in the agreement) in the State of Texas is Chapter 38 of the Texas Civil Practice & Remedies Code (“Chapter 38”).
Under Chapter 38, a plaintiff may recover attorney fees if the plaintiff successfully shows: (1) the plaintiff properly plead for a recovery of attorney fees; (2) the plaintiff’s claims fall within a specified category of claims; (3) the plaintiff was represented by an attorney; (4) the defendant was an individual or a corporation (although this is about to change);[i] (5) the plaintiff timely presented the claim to the defendant; (6) the defendant failed to tender timely payment within 30 days after the claim was presented; (7) the plaintiff prevailed on his or her claim; and (8) the plaintiff incurred attorney fees that were reasonable. Tex. Civ. Prac. & Rem. Code §§38.001, .002
Generally, a demand letter is sent to the opposing party in a Chapter 38 breach of contract claim. The presentment of a properly-worded demand letter can serve several functions, including: (1) providing presentment of the claim as required under Chapter 38; and (2) notifying the opposing party of the claim and attempting to seek resolution without court intervention and additional legal fees.[ii] Although Texas courts have generally recognized that there is no requirement to provide a demand letter or other demand prior to filing suit, litigants should be aware that courts have suggested that the demand should be presented either 30 days before a judgment or a trial.
The laundry list of potential claims under Chapter 38 includes other claims outside breach of oral or written contracts. These claims include claims for: (1) rendered services; (2) performed labor; (3) furnished materials; (4) freight or express overcharges; (5) lost or damaged freight or express; (6) killed or injured stock; and (7) a sworn account. Tex. Civ. Prac. & Rem. Code § 38.001.
If a party intends to seek attorney fees under Chapter 38, that party should properly plead the claim for attorney fees as part of its petition. Additional pleading requirements may also be applicable.
One of the last requirements I will briefly mention is the “prevailing party” requirement. Generally, to meet this requirement, the plaintiff must show that he or she prevailed on the applicable cause of action and recovered damages. See Crenshaw v. State Farm Lloyds, 425 F. Supp. 3d 729 (N.D. Tex. 2019) (interpreting Texas law). Significantly, if a prevailing party succeeds and meets the other requirements of Chapter 38, an award of reasonable attorney fees is mandatory. Id. And more so, if the prevailing party succeeds not only at the trial court but also in the appellate court, the prevailing party is also entitled to his or her reasonable appellate attorney fees.
[i] Recently, the Texas legislature amended Chapter 38 to include parties other than individuals and corporations. See H.B. No. 1578 (effective 9/1/21). Under a recently enacted law, a defendant includes an individual or an “organization,” with the term organization defined under Section 1.002 of the Business Organizations Code. See id. (defining “organization” to mean corporations, LPs and GPs, LLCs, business trusts, REITs, and other organizations. See https://legiscan.com/TX/text/HB1578/2021.
[ii] Indeed, Texas courts have recognized that “[t]he purpose of presentment is to allow the person against whom the claim is asserted an opportunity to pay a claim within thirty days after notice of the claim without incurring an obligation for attorneys’ fees.” McDowell v. Bier, No. 2-09-231-CV, 2010 WL 1427244 (Tex. App.—Fort Worth Apr. 8, 2019, no pet.) (mem. op.).