Recent Cases Involving Recovery of Attorneys’ Fees

by

Philip Durst & Tyler Somes [1]

Deats Durst & Owen, p.l.l.c.

707 West 34th Street

Austin, Texas 78705

512-474-6200

RECENT CASES INVOLVING CHAPTER 38 OF TEXAS CIVIL PRACTICES AND REMEDIES CODE

Smith v. Patrick W.Y. Tam Trust, 296 S.W.3d 545 (Tex. 2009)

This case is based on a dispute between Tam Trust, the owner of a shopping center, and the Smiths, guarantors of Plano Pets in a lease agreement between the Trust and Plano Pets. After Plano Pets stopped making payments for a leased space a jury awarded the Trust $65,000 of the requested $215,391.50 in damages, but no attorney’s fees. The trial court rendered judgment notwithstanding the verdict on attorney’s fees, awarding $7,500 for fees incurred and up to $15,000 for success in appeals. The court of appeals vacated the $7,500 attorney’s fee award and rendered judgment for $47,438.75, the full amount the Trust’s attorney testified at trial would be a reasonable fee. The appeals court reasoned that the trial judged abused his discretion in awarding the lesser amount because the Trust presented competent and uncontroverted evidence of the amount of, and its right to, attorney’s fees under chapter 38.

Before the Supreme Court landlord Tam Trust argued that the testimony they provided as to appropriate attorney’s fees was undisputed and that by failing to request a jury instruction on factors affecting attorney’s fees the Smiths waived their right to later contest the fee award. The Texas Supreme Court reversed the judgment as to attorney’s fees and remanded to determine reasonable fees under Chapter 38. The court found no evidence to support the jury’s refusal to award any attorney’s fees, but the fact that the amount was undisputed did not mean that the fee was reasonable. The Court found that the amount requested by the Trust in attorney’s fees “was unreasonable in light of the amount involved and the results obtained, and in the absence of evidence that such fees were warranted due circumstances unique to this case.” Smith, 296 S.W.3d at 548.

Midland Western Building v. First Service Air Conditioning Contractors, Inc., 300 S.W.3d 738 (Tex. 2009)

An air conditioning contractor brought an action on a sworn account against a building owner alleging failure to pay for air conditioning services. The jury awarded First Service $14,645.10, over two-thirds of the requested amount of money damages, yet awarded no attorney’s fees despite un-contradicted testimony by an expert witness attorney as to reasonable fees. On appeal, the Court of Appeals awarded First Service the entire amount of attorney’s fees requested at trial, $24,000.

The Supreme Court, relying on its recent holding in Smith v. Patrick W.Y. Tam Trust, 296 S.W.3d 545, held that the Court of Appeals could not hold as a matter of law that First Service was entitled to attorney’s fees when its award was not supported by un-contradicted testimony. This was especially so since the expert witness admitted on cross-examination that some of the fees sought involved claims against parties other than defendant.

However, neither was there sufficient evidence to support the jury’s finding of no attorney’s fees in the absence of evidence affirmatively showing that no attorney’s services were needed at all or that any services provided were of no value. Therefore the case was remanded for a new trial on attorney’s fees.

Allstate Ins. Co. v. Jordan, 503 S.W.3d 450 (Tex. App.—Texarkana 2016)

In a personal injury case, Allstate refused to pay its insured, Margaret Jordan, under her underinsured motorist (UIM) after a collision with an underinsured motorist. Jordan sued her insurer for breach of contract and for a declaratory judgment.

The trial court entered judgment declaring, among other things, that Jordan was entitled to $30,000 for her personal injuries and that Allstate owed Jordan $3,110.60 and reasonable attorneys’ fees. Allstate appealed, asserting that the Declaratory Judgment Act (DJA) was an improper vehicle for the claim and that the award of attorneys’ fees under the DJA should be overturned.

The court first concluded that “a declaratory judgment is an appropriate method of establishing prerequisites to recovery in a UIM benefits case.” However, it held that the Jordan’s attorneys’ fees depended upon Tex. Civ. Prac. & Rem. Code Ann. § 38.001(8) (West 2015) because her underlying claim sounded in breach of contract. Chapter 38 requires an insured to present their claim to the insurance company, which then had thirty days to pay it. As a result, the trial court’s entry of judgment on the attorneys’ fees was pre-mature. The appellate court modified the judgment to delete the award of attorneys’ fees.

Fleming & Assocs., LLP v. Barton, 425 S.W.3d 560 (Tex. App.—Houston [14th Dist.] 2014, pet. denied).

Facts. Two law firms formed a partnership as part of a referral agreement. Issues on appeal included breach of contract, personal liability to a contract, offset damages, and prejudgment interest. Additionally, the firms disputed the trial court’s award of attorney’s fees under section 38.001 of the Texas Civil Practices and Remedies Code (TCPRC).

Analysis. Section 38.001 provides that a “person” may recover attorney’s fees from “an individual or corporation” for a claim under an oral or written contract. The Fourteenth Court noted that, under TCPRC Section 1.002, the Code Construction Act applies to the TCPRC. Because the Code Construction Act defines “person” to include “corporation, organization, government or governmental subdivision or agency, business trust, estate, trust, partnership, association, and any other legal entity,” the court found that the prevailing law firm is entitled to seek attorney’s fees.

However, the court construed “an individual or corporation” as not including a partnership. Neither term is defined in the Code Construction Act. And the terms’ plain meanings do not include any type of partnership. The court further looked to legislative history, noting that the predecessor statute allowed fees to be recovered from a “person or corporation.” However, the statute was amended to “individual or corporation” primarily to avoid the broad definition of the word “person” in the Code Construction Act.

The Court concluded "Thus, under the plain language of section 38.001(8), a person may not recover attorney's fees against a partnership. Cf. Ganz v. Lyons P'ship, L.P., 173 F.R.D. 173, 176 (N.D.Tex.1997) (holding that TCPRC section 38.001(8) authorizing recovery of attorney's fees against “individual or corporation” does not provide for award of attorney's fees against limited partnership). Without any other authority for the award of attorney's fees to the Barton Group in this case,we conclude that the trial court erred in making such an award"

The court removed attorney’s fees from the judgment, but otherwise affirmed.

Hoffman v. L & M Arts, No. 3:10–CV–0953–D, 2015 WL 1000838 (N.D. Tex. Mar. 6, 2015).

Facts. Under Texas Civil Practices and Remedies Code (TCPRC) Section 38.001, an individual sought to recover attorney’s fees from a limited liability company (LLC).

Analysis. The court first looked to the language of Section 38.001, which allows a “person” to recover attorney’s fees from “an individual or corporation.” Given the broad definition of “person” in the Code Construction Act (incorporated into the TCPRC by Section 1.002), the court decided that the plaintiff, as an individual, was entitled to seek attorney’s fees.

The court turned to the question of whether an LLC was an “individual” under the terms of Chapter 38. Citing dictionaries, Texas case law, and the legislative history of Section 38.001, the court concluded that an LLC is not an “individual” under Section 38.001. The plaintiff in this case argued that the Business Organizations Code defines a “domestic entity” to include an LLC, and that under the Code, a domestic entity “has the same powers as an individual.” The court rejected the contention that the word “individual” should always be defined “according to an entity’s powers.” Moreover, the court pointed to the actual definition of “individual” in the Business Organizations Code: “‘Individual’ means a natural person.” Finally, the court stated that if the term “individual” included any “domestic entity,” then the phrase “individual or corporation” would be impermissibly redundant.

When addressing whether an LLC was a “corporation,” the court noted that an LLC is a kind of hybrid between a corporation and a partnership while retaining its own distinct legal identity. It looked to Article 2226, again—which allowed “any person, corporation, partnership, or other legal entity” to recover against a “person or corporation”—to determine legislative intent. The court construed the predecessor statute to mean that a “corporation” was necessarily distinct from a “person” or “partnership” or “other legal entity.” Since the codification into Section 38.001 retained the word “corporation,” the court concluded that the word retained its original meaning. And among the three categories of corporation, partnership, and “other legal entity,” the court said, “an LLC is best understood as falling within the third category.”

The court acknowledged that Texas courts, including the Supreme Court, have awarded attorney’s fees against LLCs under both Article 2226 and Section 38.001. However, the court was not convinced that these cases were binding, since in none of those cases was the “individual or corporation” language directly addressed.

The court made an Erie prediction that the Supreme Court of Texas would hold that an LLC is neither an “individual” nor a “corporation” under Section 38.001. The court therefore denied the plaintiff’s motion for attorney’s fees.

Medical City Dallas, Ltd. v. Carlisle Corp., 251 S.W.3d 55 (Tex. 2008)

The Texas Supreme Court held that the prevailing building-owner in this breach of warranty case was entitled to attorney’s fees under Chapter 38. When Medical City experienced repeated leaks in its roof, which was under a 20-year warranty, it sued for damages, attorney’s fees and costs. After a jury verdict, the court awarded Medical City damages and $121,277.04 in attorney’s fees.

On appeal, the Dallas court rendered a take nothing judgment on the attorney’s fees issue, asserting that a breach of warranty claim does not entitle a party to attorney’s fees under Chapter 38. SeeCarlisle Corp. v. Medical City Dallas, Ltd., 196 S.W.3d 855 (Tex. App. – Dallas 2006).

The Supreme Court reinstated the trial court’s award of attorney’s fees, concluding that breach of an express warranty is a “claim based on an oral or written contract” under §38.001(8). Tracing the history and purpose of attorney’s fees awards in Texas, the court noted that the Uniform Commercial Code (UCC), which governs express warranty claims, is silent on the issue of attorney’s fees. The court found it appropriate to look to the statute in a sale of goods case in the absence of a provision in the UCC addressing recovery of fees. The court ruled that Chapter 38, allowing recovery of attorney’s fees for a claim based on an oral or written contract, applied to this breach of warranty case, particularly because the damages were economic.

Wallace Roofing, Inc. v. Benson, No. 03-11-00055-CV, 2013 Tex. App. LEXIS 14453, *41 (Tex. App.—Austin Nov. 27, 2013) (mem. op.)

A roofing repair company brought suit for nonpayment on a contract. The trial court denied attorney’s fees on the grounds that the company never presented a demand for payment, as required under Tex. Civ. Prac. & Rem. Code §38.002, which requires that the opponent “failed to pay the just amount owed” after presentment of its contract claim.

The court of appeals affirmed, but on slightly different grounds. The court concluded that the roofing company had consistently demanded $5,220.10, satisfying the presentment requirement. Yet, at trial, the roofing company admitted that it had accidentally overcharged the opponent by $2,349.33. Since the roofing company never showed that it presented the correct amount to its opponent, the opponent never had an opportunity to accede to the correct demand. Accordingly, the Austin court of appeals affirmed, holding that the trial court still had discretion to deny attorneys' fees.

Ramirez v. Coca-Cola Refreshments USA, Inc., No. 01-13-00278-CV, 2013 Tex. App. LEXIS 13110, 8-9 (Tex. App.—Houston [1st Dist.] Oct. 22, 2013) (mem. op.)

The Houston court of appeals reversed a summary judgment award of attorney's fees to the successful party in an $8,051.37 breach of contract claim under Tex. Civ. Prac. & Rem. Code §38.001. The proponent's affidavit, upon which the trial court granted $3,320 in fees, asserted that the contingency fee arrangement was customary and reasonable. In response, the opponent filed an affidavit controverting the fees' reasonableness. Noting that the proponent's affidavit did not itemize hours, identify a billable rate, or assert that the case prevented the attorney from taking other cases, the court concluded that the affidavit could not foreclose a dispute of material fact. Rather, the controverting affidavit was enough to raise an issue of material fact with respect to the reasonableness of fees.

Vela v. Vela, No. 14-12-00822-CV, 2013 Tex. App. LEXIS 11955, *27-28 (Tex. App.—Houston [14th Dist.] Sept. 24, 2013)

The Houston court of appeals affirmed an award of attorney's fees to the prevailing party in a $110,000 breach of contract case under Tex. Civ. Prac. & Rem. Code §38.001. The trial court awarded $15,000 in trial fees and $15,000 in conditional fees on appeal, although the party had requested $49,500. The evidence in support of the fee award was an affidavit by the attorney, attesting to the difficulty of the issue, the skill and expertise required, and the time and labor involved. The affidavit included a list of services and the attorney's customary fee. Reasoning that such an affidavit amounted to expert testimony and that it need not report an exact number of hours or precise details about his qualifications, the court upheld the award of fees.

Pegasus Transp. Group, Inc. v. CSX Transp., Inc., No. 05-12-00465-CV, 2013 Tex. App. LEXIS 10186, *11 (Tex. App.—Dallas Aug. 14, 2013) (mem. op.)

The Dallas court of appeals affirmed a summary judgment award of attorney's fees for a $30,262.05 in a suit for unpaid freight fees See Busch v. Hudson & Keyse, LLC, 312 S.W.3d 294, 300 (Tex. App.—Houston [14th Dist.], no pet.). The trial court awarded $15,957.26 in attorney's fees in summary judgment. The court of appeals summarily affirmed because the controverting affidavit, filed by the opposing attorney, was merely conclusory. Instead of suggesting what fees are customarily charged, why time expended was excessive, or why the work was unnecessary, the controverting affidavit only asserted that “based upon the quality of work,” fees should be “a good deal less than $15,957.26.” Since this was inadequate to controvert the prevailing party's evidence and did not raise a fact issue, the court affirmed the fee award.

Barnes v. Univ. Fed. Credit Union, NO. 03-10-00147-CV, 2013 Tex. App. LEXIS 4871, *38 (Tex. App.—Austin April 18, 2013, no pet.) reformed by 2013 Tex. LEXIS 8020 (Tex. App.—Austin July 2, 2013)

The Austin court of appeals affirmed an award of $35,000 in trial attorney's fees for the prevailing defendant, who made counter-claims for breach of contract and won $11,022.33 in damages, in an action involving several breach of contract and deceptive trade practices claims. The court summarily approved of the trial attorney's fees, noting that the opposing party had sought over $85,000 in fees and refused a settlement agreement for less than the award.

The court modified the judgment, however, with respect to conditional appellate fees. The prevailing defendant asked for $15,000, and the jury awarded $25,000. The court of appeals made its ruling affirming the judgment conditioned on a remittitur, reducing the appellate attorney's fees to $15,000.

Johnson v. Ventling, No. 13-12-00398-CV, 2013 Tex. App. LEXIS 7848, *15 (Tex. App.—Corpus Christi June 27, 2013, no pet.) (mem. op.)

The Corpus Christi court of appeals affirmed an award of $70,275 in trial attorney's fees for the prevailing party in a $142,500 breach of contract claim under Tex. Civ. Prac. & Rem. Code §38.001. The court of appeals looked to Tex. Disciplinary R. Prf'l Conduct 1.04(b) for a list of factors to consider in evaluating the reasonableness of fees: (1) time and labor, novelty and difficulty, and required skill for the project; (2) likelihood of precluding other employment for the lawyer; (3) customarily charged fees in the location for similar services; (4) amount at stake and the result; (5) time limitations; (6) professional relationship with the client; (7) experience, reputation, and ability of the lawyer; and (8) uncertainty of collection before services are rendered. The court emphasized that the prevailing party need not present evidence of every factor.

The prevailing party's attorney testified that he had worked on the case over the course of 15 years—the client was his stepmother-in-law, and he had funded most of the litigation himself. He asked for $265,967.09 in attorney's fees, blaming the opponent's frivolous defenses for much of the time spent. The attorney calculated the amount based on his $350/hour rate, which had increased from $150/hour over the course of litigation, asserting that the case was complicated and that he had 9 years of experience when it began. The opposing party put on a witness to testify that, instead, only $10,000 in fees should be awarded; that the case was not legally complex; and that the difficulties of the situation were created by the parties. The court of appeals concluded that the evidence supported the award of fees.