Monday, April 28, 2008

Awarding attorney’s fees (at least in Texas)

Normally, I tell students that it would be unusual to collect attorney’s fees in an Article 2 sales case (and maybe in contracts cases generally). Well, perhaps I might need to rethink my pitch on this. In the recent case of Medical City Dallas, Ltd. v. Carlisle Corp., the Texas Supreme Court upheld an award of $121,277 in attorney’s fees and $110,449 in damages in a breach of warranty case based on a written contract. The case involved a simple roofing job gone-bad where the roof was warranted for twenty years, but leaked within five years and thereafter with some regularity. The Court concluded (I think correctly) that 2-715 consequential damages generally would not include a buyer’s claim of attorney fees. But, thanks to Texas Civil Practice and Remedies Code section 38.001(8), which allows attorney’s fees in cases based on an oral or written contract, this is not the end of this matter.

The Court acknowledged that breach of warranty and breach of contract are separate causes of action with separate remedies, but that observed that breach of warranty is in essence founded on contract. Therefore, the Court settled the issue in Texas by allowing an award of attorney’s fees to the buyer for the defective roof. Having practiced in Texas, the state’s law is filled with many curiosities. I agree with the Court’s conclusion that breach of warranty is founded on contract. As such, it would be in the letter of the Texas statute allowing attorney’s fees in such cases. Yet, access to attorney’s fees in sales cases is a powerful consumer right. I often tell students that many cases involving defective goods are not litigated because the cost of litigation far exceeds the cost of the defective goods. Even in the Medical City Dallas case, the attorney’s fees exceeded the actual damages. If this bothers you, you are not alone. The risk of misuse here would seem to be high.

5 comments:

Keith A. Rowley said...

No need to "rethink your pitch," as long as the students realize that it is a generalization and subject to variation by jurisdiction and by the parties' agreement. Tex. Civ. Prac. & Rem. Code § 38.001(8) allows the prevailing party in a breach of contract action to recover attorneys' fees. When I looked at this issue a couple of years ago, I did not find a comparable provision in any other state. UCC § 1-302(a) also allows the parties to vary by agreement, inter alia, Article 2's remedial provisions. SUrely, this includes adding the remedy of attorneys' fees.

Richard Alderman said...

jennifer,
take a look at my article on this subject, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1095863
Richard

Jennifer Martin said...

Nice to see that you saw this issue coming (correctly under Texas law) even before the Texas Supreme Court decision was published! Of course, the fundamental issue remains that allowing the award of attorney's fees in Article 2 cases surely is a powerful consumer right.

Nicole said...
This comment has been removed by the author.
Jaded Consumer said...

It might be nice to use a case link to a source that doesn't require a paid subscription. My experience with Westlaw has been poor (ie, not delivering in various databases what they explained would be in the databases, laughing at me when I said I wasn't paying for access to apparently worthless databases, etc.), so I'll likely not be a Westlaw subscriber.

I'm surprised that Texas' award of attorney's fees in connection with a contract for the sale of goods is surprising to anyone familiar with Tex.Civ.Prac.&Rem. Code §38.001(8), whether based on the contract or a warranty arising from it. The issue is that many courts, though they see they are instructed by the legislature to award fees, award something so slight as to be useless. A friend once told me about a jury trial in which he "won" and was awarded $1,000.00 in attorney's fees. This was a case that went all the way through a jury trial.

The fact that this is otherwise a powerful provision is true. The problem is that you still need to get a judge to award fees, and this can be rough even when the law seems clear about entitlement.

The fact that fees might be recoverable still leaves plaintiffs in the unhappy position of potentially forwarding substantial attorney's fees, with only the hope the judge will do justice when the dust settles. Defendant-oriented judges can easily say, when fees dwarf rewards, that the fees weren't reasonable because they were out of proportion to the results achieved, or some tripe.