“Zombie litigation” broadly refers to cases that generate unending piecemeal litigation. Attorneys’ fees disputes often spawn zombie litigation—after the merits of the case have been decided but the lawyers continue to litigate and appeal whether and how they will get paid. Over the last 20 years, Texas appellate courts have crafted new tools to help them conduct an exacting review of large attorneys’ fee awards. One of the newest and sharpest tools for carving fee awards was crafted in a 2014 appellate decision, Fleming & Associates, L.L.P. v. Barton, which applied a new spin to the 1986 enactment of section 38.001 of the Civil Practice & Remedies Code. The Fleming decision also lays a new pleading trap when fees are sought against a partnership or LLC.
The new effect of section 38.001 was largely overlooked for years.
When enacted in 1986, section 38.001 was considered to be a non-substantive codification of article 2226, its predecessor. Before 1986, article 2226 allowed a successful contract claimant to obtain attorneys’ fees from “a person or corporation.” Section 38.001 changed “person” to “individual.” The Fleming court noted that a “person” is defined by the Civil Practice & Remedies Code to include business entities, but “individual” is not. Therefore, “a person may not recover attorney’s fees against a partnership.” In Alta Mesa Holdings, L.P. v. Ives, this reasoning was further applied to limited liability companies, or LLCs. As a result, contract claimants who seek attorneys’ fees exclusively under section 38.001 now find themselves barred from recovering them.
Fees are still recoverable against partnerships and LLCs.
These cases do not completely eliminate the recovery of fees from partnerships and LLCs. Parties are free to contract for a fee-recovery standard either looser or stricter than section 38.001, and many contracts contain express provisions for the recovery of attorneys’ fees that are independent of the statute. For example, the standard form contracts prepared by the Texas Real Estate Commission grant fees to the “prevailing party” in a lawsuit arising from the transaction—even when the prevailing party is the defendant. If you happen to be asked to draft a contract for a client who is dealing with a partnership or LLC, give serious thought to including a fee clause in your work product.
A new pleading trap.
This new landscape, in which section 38.001 allows fees against some entities but not others, creates a new pleading trap for litigators. Under the old regime, parties could allege a brief claim for attorneys’ fees and cite section 38.001, which would usually suffice for a contract claimant—even when there was also a separate fee clause in the contract itself. In those cases, Texas appellate courts had held a mere mention of attorneys’ fees—even in the prayer of the complaint—is sufficient to put a party on notice that fees are sought.
Those days are gone, and Texas appellate courts are now likely to be more particular. A specific allegation for fees under section 38.001 may not support an award against a partnership or LLC, under the rule that a specific allegation excludes other theories that are not pleaded. Thus, even when the parties’ contract states their agreement that attorneys’ fees are recoverable in a suit under the contract, a pleading that alleges section 38.001 as the sole basis for fees will not support a fee award against a partnership or LLC.
If your client’s contract with a partnership or LLC includes an attorneys’ fee provision, make sure you allege the contract—not section 38.001—as the basis for a fee award. Otherwise, your client may become bogged down in years of appeals over whether and how its attorneys’ fees should be paid. Careful pleading may scare off the next zombie appeal before it can eat more brains.
Image courtesy of Flickr by thierry ehrmann.