Tuesday, December 29, 2020

Recovery of Attorney's Fees Against Limited Liability Companies (LLCs), Limited Partnerships (LPs), or Limited Liability Partnerships (LLPs) in Texas

By Tony Mallers


If you’re ever in the position of having to file a lawsuit against someone for breach of contract or to collect money for labor or materials you furnished, it’s important to know whether you can recover   attorney’s fees from the Defendant, in addition to the amount of your claim. In today’s litigation environment, people who are regularly in court know that reimbursement of attorney’s fees is often a major consideration in the settlement of a case. Of course, you will need to have an attorney represent you in order to recover attorney’s fees, but not all legal entities are liable for attorney’s fees, even if you win your case.

 

Recovery Under Sec. 38.001

Generally speaking, attorney’s fees are not recoverable in Texas State Court lawsuits unless there is a specific statute which authorizes the award of fees, or a contract between the parties providing for recovery of attorney’s fees to the prevailing party.  In Texas, Section 38.001, et. seq. of the Texas Civil Practice & Remedies Code is the principal statutory authorization for recovery of legal fees in an action

  • on a written or verbal contract, or
  • for sworn account, or
  • recovery for the value of labor and materials furnished.

Compliance with this statute allows a claimant to recover attorney’s fees in a lawsuit against an individual or corporation even if there is no written contract between the parties that expressly allows recovery of attorney’s fees. 

 

Avenues Available Regarding an LLC, LP, or LLP

However, it is critical to realize that Section 38.001 only allows recovery of attorney’s fees against a debtor who is an individual or a corporation. By its terms, Section 38.001 does not allow recovery of attorney’s fees against an entity organized as a limited liability company (LLC), a limited partnership (LP), or a limited liability partnership (LLP) in the absence of a written contract expressly providing for such attorney’s fees.  In recent years, legislation has been introduced in the Texas Legislature to broaden Section 38.001’s application to include other entities, but so far, those legislative efforts have fallen short.   Therefore, in order to recover attorney’s fees under Section 38.001 against an entity other than a corporation, you must look to other legal avenues to collect attorney’s fees—some of which may not exist in  every given situation.

Depending on the exact claim you have against the LLC, LP, or LLP, there may be other Texas statutes that allow for the recovery of attorney’s fees.  For example, the right to attorney’s fees is not automatic, but rather must be preserved through planning and foresight at the start of litigation.  Diligent records must be kept in order to prove the claim for fees.  Meanwhile, a statute such as the Deceptive Trade Practices Act may impact the award, if and when requirements under such an act have been met first.  To  avoid uncertainties and protect your right to ask for legal fees from a debtor who owes you money, you should consult with a licensed attorney before entering into a business transaction or signing any agreements with an LLC, LP, or LLP to discuss the type of transaction and what type of documentation may be necessary to cover your bases with regard to recovery of attorney’s fees if legal action becomes necessary.  

 

 

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