Patiently waiting to file a lawsuit against certain business entities in Texas could lead to greater recovery

Litigants in Texas are generally responsible for their own litigation costs unless an award for attorneys’ fees are made recoverable by statute or contract.  Section 38.001 of the Texas Civil Practice and Remedies Code is a statute that provides the recovery of attorneys’ fees for certain causes of action, including breach of contract, against an individual or corporation. For years, courts have strictly applied the language of the statute and prohibited the recovery of attorneys’ fees in suits against a limited liability partnership (LLP), limited partnership (LP), limited liability company (LLC), or similar entities.¹

On May 31, 2021, Texas legislature adopted a significant change to Section 38.001 to now allow the recovery of attorneys’ fees against any business organization. Specifically, Section 38.001 will now incorporate the term “organization” defined in Section 1.002 of the Texas Business Organizations Code. The definition includes, among others, a “…limited or general partnership, limited liability company,…or other organization, regardless of whether the organization is for-profit, nonprofit, domestic, or foreign.”²

The newly adopted language takes effect on September 1, 2021. What does this mean for those seeking to file a lawsuit? It may be an economically wise choice to wait until, or after, September 1, 2021 to file a lawsuit to significantly increase a recovery against an LLC, LLP, LP, and others alike. In contrast, certain entities may want file a lawsuit before September as a defense to eliminate potential liability for the opposing parties’ attorneys’ fees.

Jonathan Aldaco is an attorney at Cherry Petersen Albert LLP in Dallas, Texas. His practice includes business and real estate litigation.

¹ Fleming & Assoc., L.L.P. v. Barton, 425 S.W.3d 560, 562 (Tex. App.—Houston [14th Dist.] 2014, pet. denied) (holding that attorney’s fees are not available in a breach of contract cause of action against a partnership under Texas Civil Practice and Remedies Code section 38.001(8)); see also Alta Mesa Holdings, L.P. v. Ives, 488 S.W.3d 438 (Tex. App.—Houston [14th Dist.] 2016, pet. denied) (holding that attorney’s fees are not recoverable against an LLC under section 38.001 of the Texas Civil Practice and Remedies Code because that provision permits recovery of attorney’s fees from an individual or corporation and an LLC is not an individual or corporation).

² Tex. Bus. Orgs. Code §1.002(62).