Attorney's fees are often the second most important issue in Texas business litigation — second only to the underlying damages. A successful plaintiff who recovers $500,000 in compensatory damages but spends $400,000 in legal fees has won the battle and nearly lost the war. A successful defendant who prevails at trial but cannot recover their fees from a plaintiff who brought a baseless claim has no real mechanism for redress.

In Texas business disputes, the availability of attorney's fees turns almost entirely on what claims were brought and how the court characterizes them. Texas follows the American Rule — each party pays their own attorney's fees absent a specific statutory or contractual authorization. The question is whether that authorization exists.

For breach of fiduciary duty claims in Texas closely held corporation and LLC disputes, the controlling statute is Texas Civil Practice and Remedies Code § 38.001. Whether that statute applies — and courts have disagreed about this for years — can determine the entire financial calculus of whether to pursue or defend a fiduciary duty claim. Understanding the current state of the law, how courts have divided on the issue, and what the Texas Supreme Court has said is essential for anyone involved in Texas business litigation involving fiduciary duties.

What § 38.001 Says

Section 38.001 of the Texas Civil Practice and Remedies Code provides that a person may recover reasonable attorney's fees from an individual or corporation, in addition to the amount of a valid claim, if the claim is for:

• Rendered services
• Performed labor
• Furnished material
• Freight or express overcharges
• Lost or damaged freight or express
• Killed or injured stock
• A sworn account
• An oral or written contract

The statute is straightforward on its face. What has made it the subject of extensive litigation is the question of whether a breach of fiduciary duty claim — which is not explicitly listed — can be characterized as a claim on an "oral or written contract" when the underlying dispute arises from a business arrangement that involved an agreement of some kind.

That question has divided Texas courts for more than a decade, produced a significant body of contradictory intermediate appellate authority, and been addressed — though not completely resolved — by the Texas Supreme Court.

The Core Dispute: Is Breach of Fiduciary Duty a "Contract" Claim Under § 38.001?

The battleground is the "oral or written contract" prong of § 38.001. Breach of fiduciary duty is a tort — it arises from a duty imposed by law based on the fiduciary relationship, not primarily from a contractual agreement. Under the traditional analysis, a tort claim is not a contract claim, and § 38.001's "contract" prong does not reach it.

The complication is that in Texas business disputes — particularly in closely held corporation, LLC, and limited partnership cases — the fiduciary relationship almost always exists alongside a contractual one. The parties entered a shareholders' agreement, an operating agreement, a partnership agreement, or some other document that defined their relationship. The general partner's or majority shareholder's conduct that breached their fiduciary duty may have simultaneously breached that agreement.

When both a contract claim and a fiduciary duty claim arise from the same facts, several questions arise:

• Can the plaintiff recover § 38.001 fees on the fiduciary duty claim alone, or only if there is also a separate, valid contract claim?
• If the plaintiff prevails only on fiduciary duty and loses on contract, can they still recover fees under § 38.001?
• Can a fiduciary duty claim ever independently constitute a "contract" claim for § 38.001 purposes?
• Must the fee award be segregated between the contract claims that allow fees and the fiduciary duty claims that may not?

Different Texas courts of appeals have answered these questions differently. The result has been genuine confusion in Texas business litigation — with fee awards being upheld in some circuits and reversed in others on facts that appear materially identical.

The Texas Supreme Court's Treatment

Intercontinental Group Partnership v. KB Home Lone Star L.P.

The Texas Supreme Court addressed the scope of § 38.001 in Intercontinental Group Partnership v. KB Home Lone Star L.P. (2009). The court held that § 38.001 requires: (1) the claimant must prevail on a cause of action for which attorney's fees are recoverable; and (2) the claimant must recover damages. A party who wins on a contract claim but recovers no damages cannot recover attorney's fees under § 38.001 even if they technically prevailed.

Intercontinental is important because it established the damages-recovery requirement — but it did not directly resolve whether fiduciary duty claims independently qualify under the statute. That question remained open in Texas Supreme Court jurisprudence.

Tony Gullo Motors I, L.P. v. Chapa

In Tony Gullo Motors I, L.P. v. Chapa (2006), the Texas Supreme Court addressed fee segregation in cases involving both compensable and non-compensable claims. The court held that when a case involves multiple claims — some of which permit fee recovery and some of which do not — the plaintiff must segregate their fees between the compensable and non-compensable claims. Fees incurred solely in pursuing non-compensable claims are not recoverable under § 38.001, even if the plaintiff ultimately recovers on claims that do permit fees.

Chapa has enormous practical significance in breach of fiduciary duty cases. Even where the plaintiff has a strong argument that § 38.001 applies to some of their claims, the failure to segregate — to separately track and present the fees attributable to the § 38.001-qualifying claims versus the non-qualifying claims — can result in a complete denial of fees or a dramatic reduction. This is an expert-level billing and case-management obligation that many attorneys handle inadequately.

The exception to the segregation requirement is the "inextricable intertwining" doctrine: when the claims are so interrelated that the fees cannot reasonably be segregated, the entire fee may be submitted without segregation. Texas courts apply this exception narrowly, and the burden of demonstrating inextricable intertwining rests on the party seeking fees.

Epps v. Fowler and the Direct vs. Derivative Distinction

The Texas Supreme Court's decision in Epps v. Fowler (2012) addressed the threshold question of whether a prevailing party that recovers on a standalone basis — without prevailing on a separate qualifying claim — can recover fees under § 38.001. The court's analysis reinforced the principle that the statute requires a valid, independent qualifying claim on which the plaintiff actually prevailed and recovered damages.

Applied to breach of fiduciary duty cases, the lesson from Epps is that a plaintiff who recovers only on a fiduciary duty theory — without a separately pleaded, separately proven, separately recovered-upon contract or other qualifying claim — faces a significant argument that § 38.001 fees are unavailable. Courts that have denied § 38.001 fees in pure fiduciary duty cases have relied on this line of reasoning.

How Texas Courts of Appeals Have Split

Below the Texas Supreme Court, the intermediate appellate courts have divided into two recognizable camps on whether § 38.001 fees are available in breach of fiduciary duty cases.

The Restrictive View: Fiduciary Duty Is a Tort, Not a Contract Claim

Several Texas courts of appeals have held — or strongly implied — that breach of fiduciary duty is a tort claim that does not independently qualify under § 38.001's "oral or written contract" prong. Under this view, a plaintiff who prevails only on a fiduciary duty theory cannot recover § 38.001 fees even if the underlying dispute arose from a business arrangement that involved a contract.

The rationale is formalistic but legally coherent: § 38.001 is a fee-shifting exception to the American Rule and must be construed strictly. Breach of fiduciary duty is not listed in the statute. It is a tort. A tort is not a contract. Therefore it does not fall within § 38.001's scope regardless of the factual context in which it arises.

Courts following this view typically require either a separately pleaded and proven contract claim or a contractual fee-shifting provision in the underlying agreement in order to award fees in fiduciary duty cases.

The Expansive View: Fiduciary Duty Arising From Contract Can Support Fee Recovery

Other Texas courts of appeals have permitted § 38.001 fee recovery in breach of fiduciary duty cases when the fiduciary relationship itself arose from a contract — on the theory that when a fiduciary duty exists because the parties entered a contractual arrangement, a breach of that duty is, in substance, a breach of the contractual relationship. Under this view, § 38.001's "oral or written contract" prong reaches breach of fiduciary duty claims that are grounded in a contractual relationship.

Courts following this view point to the practical reality that in closely held business disputes, the fiduciary duty and the contractual obligation are inextricably bound together — the duty of loyalty of a general partner arises because of the partnership agreement; the duty of the majority shareholder arises because of the shareholder arrangement. Artificially separating them for purposes of fee recovery produces anomalous results.

The tension between these two views has never been fully resolved by the Texas Supreme Court, and as of the date of this post, Texas practitioners in closely held business litigation routinely grapple with genuine uncertainty about whether § 38.001 fees will be available in any given case.

The 2021 Amendment: Adding "Limited Liability Companies" to § 38.001

In 2021, the Texas Legislature amended § 38.001 to add "limited liability companies" as an entity from which attorney's fees can be recovered under the statute. Before the amendment, § 38.001 permitted fee recovery only from "individuals" and "corporations." This created a significant gap: in many Texas business disputes, the defendant is an LLC — and courts had held that § 38.001's reference to "corporation" did not encompass LLCs.

The 2021 amendment closed that gap for LLC defendants. It did not resolve the underlying doctrinal question of which claims qualify under § 38.001 — that debate continues. But it removed a categorical bar to fee recovery in LLC disputes that had operated as a complete defense for LLC defendants regardless of how meritorious the underlying claim was.

The amendment applies to claims filed on or after September 1, 2021. For Texas closely held LLC disputes involving fiduciary duty breaches — which are the most common type of shareholder-equivalent dispute in Texas today — this amendment meaningfully improved the fee-recovery landscape for plaintiffs.

Practical Implications for Texas Business Litigation

Pleading Strategy: Always Plead the Contract Claim Alongside Fiduciary Duty

The single most important tactical implication of the § 38.001 landscape is this: in any Texas business dispute where breach of fiduciary duty is a viable theory, the complaint should also plead breach of contract if the facts support it. This is not duplicative — in most closely held business disputes, both claims legitimately arise from the same conduct. A majority shareholder who breaches their fiduciary duty to a minority by diverting corporate opportunities typically also breaches whatever agreement governed the parties' relationship.

Pleading both claims preserves the § 38.001 fee argument on the contract theory regardless of how the court resolves the fiduciary duty/contract debate. It also creates the possibility that the jury or court finds liability on both, which strengthens the fee recovery position under virtually any interpretive framework.

Conversely, a plaintiff who pleads only breach of fiduciary duty — without a separately articulated contract claim — is gambling on the expansive view prevailing in the jurisdiction where the case is filed. In appellate districts that follow the restrictive view, that gamble can result in a verdict with no fee recovery.

Fee Segregation: The Critical Practice Obligation

Even where § 38.001 fees are available on some claims, the Chapa segregation requirement imposes a serious practice obligation. From the first day of litigation, fees must be tracked and allocated to specific claims:

• Time spent on breach of contract claims that independently qualify under § 38.001
• Time spent on breach of fiduciary duty claims whose § 38.001 eligibility is contested
• Time spent on claims that clearly do not qualify under § 38.001 — tort claims, statutory claims, equitable claims
• Time that is genuinely inextricably intertwined across multiple claims

In practice, perfect segregation is impossible in complex business litigation where claims overlap substantially. The goal is to maximize the proportion of time that can plausibly be characterized as attributable to qualifying claims and to be prepared to defend that characterization at the fee hearing. Attorneys who do not build segregation into their billing practices from the outset — who simply submit total fees at the conclusion of litigation without a credible allocation — risk having their fee request dramatically reduced or entirely denied.

The "Prevailing Party" Requirement

Section 38.001 requires prevailing on a claim for which fees are recoverable. A party who recovers on a fiduciary duty claim but loses on the separately pleaded contract claim is in a contested position: they prevailed on a claim, but not necessarily on a § 38.001-qualifying one, depending on the court's view of whether fiduciary duty independently qualifies.

This creates a scenario that requires careful attention at the jury charge stage. In jury trials, the court's instructions on breach of contract versus breach of fiduciary duty — and the jury's findings on each — will determine the post-verdict fee recovery argument. Counsel who are not thinking about § 38.001 at the jury charge stage, and who do not structure the verdict form to preserve the best possible fee recovery position, are making a consequential error.

Contractual Fee Provisions as the More Reliable Path

Given the genuine uncertainty around § 38.001's application to fiduciary duty claims, contractual fee provisions — when available — offer a more reliable path to fee recovery. Shareholders' agreements, operating agreements, and partnership agreements that contain fee-shifting provisions applicable to breach of fiduciary duty disputes provide a direct contractual basis for fees that does not depend on the § 38.001 debate.

For counsel advising closely held business clients at the formation stage, this is one of the strongest arguments for including a well-drafted fee-shifting provision in the governing documents. For counsel handling a dispute, the first document to review for fee recovery potential is the governing agreement, before analyzing § 38.001 at all.

Fee Recovery in the Shareholder Oppression Context

Texas minority shareholder oppression cases present the § 38.001 issue in its most acute form. The claims that arise in these cases — breach of fiduciary duty, breach of the implied duty of good faith and fair dealing, unjust enrichment, conversion, and sometimes breach of a shareholders' agreement or operating agreement — sit squarely at the intersection of the contract/tort debate.

Post-Ritchie v. Rupe, the available causes of action in Texas shareholder oppression cases shifted substantially toward tort-based theories: breach of fiduciary duty between majority and minority shareholders, conversion of corporate assets, and fraud. Contract theories — breach of a shareholders' agreement, breach of an employment agreement, breach of an LLC operating agreement — remain viable but are not always present.

The result is that fee recovery in Texas shareholder oppression cases requires thoughtful advance planning:

• Identify every contractual basis for the fiduciary relationship and plead breach of contract alongside breach of fiduciary duty when the facts support it
• Review the governing agreement (shareholders' agreement, operating agreement, partnership agreement) for fee-shifting provisions before deciding on the primary claims strategy
• Implement fee segregation from day one, with billing codes that track time to specific claims and separate out time spent on § 38.001-eligible versus non-eligible theories
• Consider the appellate circuit's position on whether fiduciary duty independently supports § 38.001 fees when evaluating the litigation in a specific venue
• Preserve the fee recovery argument at every stage — in the pleadings, in discovery, at the charge conference, and in the post-verdict fee hearing

The attorneys who handle these details correctly recover fees in cases where opposing counsel assumed fees were unavailable. The attorneys who handle them incorrectly lose fee awards on claims they won on the merits — which is both a financial loss for the client and a professional failure that can be avoided with proper planning.

A Note on the 2023 Legislative Session

The Texas Legislature has periodically considered broader amendments to § 38.001 that would more explicitly address the fiduciary duty question. As of the date of this post, no amendment has expressly resolved whether breach of fiduciary duty qualifies as a "contract" claim under the statute. The debate in the courts continues.

Practitioners handling Texas business disputes should monitor developments in this area. The Texas Supreme Court may yet address the fiduciary duty/contract question directly in a future case, and the Legislature may act. In the meantime, the safest approach remains the one described above: plead the contract claim alongside the fiduciary duty claim, segregate fees from the outset, and review the governing documents for contractual fee provisions before developing the overall claims strategy.

Hopkins Centrich and Texas Business Litigation Fee Strategy

Hopkins Centrich PLLC is AV Preeminent® rated by Martindale-Hubbell in both 2025 and 2026. Our attorneys have handled complex Texas business disputes — including closely held corporation, LLC, and limited partnership cases involving breach of fiduciary duty — for a combined 40+ years. We understand the § 38.001 landscape, the fee segregation requirements, and the pleading strategy necessary to maximize fee recovery in Texas business litigation.

Fee recovery is not an afterthought in how we handle cases. It is built into the case strategy from the initial client meeting through the post-verdict hearing. When our clients win, we work to make sure they recover as much of the cost of winning as the law allows.

We have litigated Texas business disputes through verdict, including a $32 million verdict in Montgomery County that was among the top 20 Texas business verdicts of 2021. We know what it takes to try these cases and to recover for our clients on every available theory — including fees.

If you are involved in a Texas business dispute involving breach of fiduciary duty — whether as a minority shareholder, a limited partner, an LLC member, or a party to a closely held business conflict — and you want to understand your options for fee recovery, call Hopkins Centrich. We will evaluate your situation and give you an honest assessment of where the law stands and what strategy makes sense for your case.