HB 1578 closes loophole of previous version of Chapter 38 of the Texas Civil Practice & Remedies Code so that parties will be able to recover attorneys’ fees from LLCs, LLPs, LPs, or other organizations in lawsuits for breach of contract.
Generally, Texas law provides that each party to a lawsuit is responsible for their attorneys’ fees. However, Texas law has long provided that a party in a breach of contract claim may recover their attorney’s fees in addition to the damages they suffer. This exception to the rule has certain procedures that must be followed and is outlined in Chapter 38 of the Texas Civil Practice & Remedies Code.
While parties to lawsuits have long utilized this exception to the rule, Chapter 38’s language did not explicitly allow for the recovery of attorney’s fees when the party who is held responsible for the breach of contract was not either an individual or a corporation. While in practice this seems unreasonable, the plain language of Chapter 38 excluded other business entities such as limited partnerships (LPs), limited liability partnerships (LLPs) and limited liability companies (LLCs). This led to decisions by the Texas courts that pointed out that if the legislature meant for Chapter 38 to include LLCs, LLPs and LPs, then it would have written the law to specifically include those entities. Ultimately, many Texas courts disallowed the recovery of attorney’s fees in cases involving entities other than corporations and individuals.
HB 1578, which was signed by the Governor and goes into effect for lawsuits filed on or after September 1, 2021, amends Chapter 38 to specifically include these business entities that are not traditional corporations.