Unless your client has a contractual basis that would allow a party to recover its attorney’s fees from a local governmental entity, it may not be able to collect them. Although some contracts will provide the substantive basis for the collection of fees, many do not. Parties have, in the past, believed they could cite Section 271.153(a)(3) of the Local Government Code to recover its attorney’s fees in litigation from local governmental entities, such as cities, in Texas. That may no longer be true.

The 1st Court of Appeals in Houston issued an opinion on May 26, 2016, that while obscure as it relates to local governmental entities, its ruling is very clear as to what it means for local governmental entities’ attorney fee exposure. The 1st Court of Appeal in County of Galveston v. Triple B Services, 498 S.W.3d 176 (Tex. App.—Houston [1st Dist.] 2016) issued an opinion on a matter that regarded a claim by Triple B Services against the County of Galveston, arising from a contract for road expansion for the county. Triple B Services asserted a breach of contract claim along with a claim under the Prompt Payment Act. It sought attorney’s fees, pursuant to Section 38.001 of the Texas Civil Practices and Remedies Code and Section 262.007(b)(3) of the Local Government Code, against the county, which reads in pertinent part:

“(b) The total amount of money recoverable from a county on a claim for breach of the contract is limited to the following: (3) reasonable and necessary attorney’s fees that are equitable and just; and”

Of course, Section 38.001 only applies to individuals or corporations, not counties or cities. In analyzing Triple B Services’ claim under Section 262.007(b)(3), the court noted that this section waives immunity for “reasonable and necessary attorney’s fees that are equitable and just. However, the court also held that this section, while waiving immunity, it does not provide a basis for a substantive claim for attorney’s fees. It stated “ . . . this section does not state that a party suing a county ‘may recover’ reasonable attorney’s fees, instead, under the subsection . . . it states that the total amount of money recoverable from a county on a claim of breach of contract ‘is limited to’ the following . . . reasonable and necessary attorney’s fees that are equitable and just.”

While the Triple B Services case regarded a statute pertaining to a county, it has significant implications for local governmental entities for which there is a separate similar statute. That statute is Local Government Code Section 271.153(a)(3), which reads identically to Section 262.007(b)(3). Section 271.153(a)(3) reads, in pertinent part:

“(a) . . . the total amount of money awarded in an adjudication brought against a local governmental entity for breach of a contract subject to this subchapter is limited to the following: (3) reasonable and necessary attorney’s fees that are equitable and just; and”

As the wording of Section 271.153(a)(3) is identical to that of Section 262.007(b)(3), it is likely that if the issue is before the 1st Court of Appeals, the court would hold that this section does not provide the substantive basis for a claim for attorney’s fees against local governmental entities, which includes cities in the State of Texas. At this point in time, no other court of appeals in Texas has considered this issue, but considering that the 1st and 14th Courts of Appeal tend to carry sway in the State of Texas, and that the Texas Supreme Court has many justices on the Court that make their way there from the 1st and 14th Court of Appeals, this decision may lead the way on this issue.

The lesson to learn from this holding is to ensure that a party includes some other acceptable legal basis for the recovery of fees, or it may be out in the cold, particularly on larger more expensive litigation.