Can I Recover Attorney's Fees If I Win a Contract Case in Texas?

The Texas rule: fees follow a winning contract claim

The default in American courts is that each side pays its own lawyer. Texas carves out contract claims. Civil Practice and Remedies Code section 38.001 provides that a person may recover reasonable attorney's fees, in addition to the amount of a valid claim and costs, if the claim is for an oral or written contract. The same section covers claims for rendered services, performed labor, furnished material, freight, lost or damaged shipments, killed or injured stock, and sworn accounts.

The statute is one-directional. It gives fees to a claimant who recovers on the contract. It does not give fees to a defendant who defeats the claim, unless the contract itself has a prevailing-party fee clause. A business that wins by proving it did not breach has no Chapter 38 fee claim.

Who can be made to pay: the 2021 change

Until 2021, section 38.001 allowed fees only against "an individual or corporation." Texas courts of appeals read that literally, and a limited liability company, limited partnership or other non-corporate entity could not be ordered to pay fees under the statute even after losing a contract case. The Legislature closed the gap in House Bill 1578, effective September 1, 2021. The statute now allows fees against an individual or "organization," as that term is defined in Business Organizations Code section 1.002, which covers corporations, LLCs, general and limited partnerships, business trusts, joint ventures and associations.

The change applies to lawsuits filed on or after September 1, 2021. The statute still excludes certain defendants: a quasi-governmental entity authorized to perform a function by state law, a religious organization, a charitable organization, and a charitable trust.

Presentment: the step people miss

Section 38.002 sets the procedure. To recover fees, the claimant must (1) be represented by an attorney, (2) present the claim to the opposing party or its agent, and (3) show that payment of the just amount owed was not tendered before the 30th day after the claim was presented.

Presentment is not a lawsuit and not a formal pleading. Texas courts have held that no particular form is required; a letter, an email or even an oral demand can suffice, provided it tells the other side what is owed and asks for payment. The point of the requirement is to give the debtor a chance to pay without incurring fees. What the demand must do is state the claim; it does not have to threaten suit or cite the statute.

You must win, and you must recover damages

Chapter 38 fees are available only to a party who prevails on the contract claim and recovers damages on it. A claimant who proves the breach but is awarded zero damages, or who wins on a different theory, does not get Chapter 38 fees. A claimant who recovers only part of what it claimed still prevails, but the amount recovered is part of the reasonableness analysis.

Fees must also be tied to the contract claim. When a case includes contract and non-contract claims (fraud, for example, which does not carry Chapter 38 fees), Texas law requires the claimant to segregate fees attributable to the contract claim from fees that relate only to the others, unless the legal work was so intertwined that it advanced both. The segregation is done by the attorney's testimony and billing records, and a failure to segregate can reduce or send back the fee award.

Proving the amount

The fee award must be reasonable and necessary, and the claimant has the burden to prove it. The Texas Supreme Court has made the standard concrete: the starting point is the lodestar, the reasonable hours worked multiplied by a reasonable hourly rate, supported by evidence of the particular services performed, who performed them, when, how long they took and the rate charged. Billing records are not strictly required but are the usual proof. Generalized testimony that the fees were reasonable, without the underlying detail, is insufficient.

Section 38.003 creates a rebuttable presumption that the usual and customary fees for a Chapter 38 claim are reasonable, and section 38.004 allows a court to take judicial notice of usual and customary fees and of the case file in a bench trial or on a motion. In practice, a contested fee claim is proved through the attorney's affidavit or testimony and the records behind it.

Example

Suppose a Dallas staffing company places employees with a client LLC under a written services agreement and goes unpaid on four months of invoices. In March the company's attorney sends the LLC a letter stating the amount owed and demanding payment. The LLC does not respond. In May the company files suit for breach of contract and pleads for fees under Chapter 38. At trial the company proves the agreement, the invoices and the nonpayment, and recovers the unpaid balance. Because the claim was presented in March, more than 30 days passed without tender, the company was represented, and the suit was filed after September 1, 2021, the LLC can be ordered to pay the company's reasonable fees. The attorney's billing records, showing the hours by task and the rates, support the amount.

Fee clauses in the contract

Many commercial contracts have their own fee provision, and it often matters more than the statute. A prevailing-party clause gives fees to whichever side wins, which means a defendant who defeats the claim can recover its fees too. A one-sided clause gives fees only to one party. A contractual fee clause is enforced according to its terms, does not require Chapter 38 presentment, and can reach a defendant the statute excludes. Reading the fee clause is one of the first steps in valuing any contract dispute, because it changes the risk on both sides. The broader rules on who pays are in who pays attorney's fees in Texas business cases.

Federal court and arbitration

A federal court hearing a Texas contract claim under diversity jurisdiction applies Texas substantive law on fees, including Chapter 38 and its presentment requirement. In arbitration, the arbitrator's authority to award fees comes from the arbitration agreement, the applicable rules and the governing law; a contract claim under Texas law can support a Chapter 38 fee award in arbitration if the arbitration clause does not exclude it.

What this means when deciding whether to sue

Chapter 38 changes the economics of a contract claim in Texas. A claimant with a clean breach and a solvent defendant can expect to recover a reasonable fee on top of the damages, which makes mid-sized claims viable that would otherwise cost more to pursue than they return. The conditions have to be met in order: present the claim, wait 30 days, sue on the contract, prove the damages, then prove the fees with records. A litigator will set up the fee claim at the demand-letter stage, which is why the sequence of steps described in whether you can sue for breaking a contract in Texas begins with the letter. Tina Wysk represents Dallas businesses pursuing and defending contract claims, including the fee claims that go with them, in state and federal court.