The Texas legislature has sent to Governor Abbott a bill closing a huge loophole in the Texas statute requiring the award of attorneys’ fees to a successful plaintiff in most breach of contract actions.[1] Texas courts interpreted Texas Civil Practice & Remedies Code Section 38.001 only to award attorneys’ fees against individuals and corporations, not limited liability companies, partnerships, and similar entities.[2] In three legislative sessions, bills were introduced to rectify this quirk in the law, but only in 2021 did legislation finally pass both the Texas House and Senate.

Therefore, a claimant previously seeking to bring a contract claim against an LLC (or other above listed entity other than corporation), without a contract provision or other supporting statute providing for the recovery of fees, had to consider and balance the risks associated with incurring litigation costs versus potential recovery under such claim. The legislature’s adoption of the changes to Texas Civil Practice and Remedies Code § 38.001, adding multiple entities to the class of parties for which attorney’s fees can be awarded against, will relieve claimants of such burden.Texas HB No. 1578 was sent to Governor Abbott for signature on May 31, 2021 and ten days have now passed.

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); (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, .002Generally, 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.