Commercial landlords and tenants routinely negotiate detailed lease agreements with provisions designed to protect their interests in case of disputes. These agreements are intended to help avoid litigation. But when litigation arises and business owners have to hire attorneys, they usually want to know who pays the attorney’s fees?
While Texas generally follows the “American Rule” where each party bears their own legal costs, commercial leases frequently include fee-shifting provisions that award attorney’s fees to the “prevailing party” in litigation. But what happens when a party “prevails” in a lawsuit but doesn’t recover any monetary damages? Are they a prevailing party?
The recent case of Woodbranch Investments, Woodbranch Management, Inc., and Woodbranch Cowtown Parking, LLC v. XTO Energy, Inc., 2025 WL 1085183 (Tex. App.—Fort Worth Apr. 10, 2025), provides an opportunity to examine this question.
Facts & Procedural History
The dispute in this case stemmed from a commercial lease between an energy company (tenant) and a property investment group (landlord) for commercial property in Fort Worth, Texas.
An employee of the tenant was injured on the leased premises and, after collecting workers’ compensation benefits, sued the landlord for negligence. In response, the landlord filed a third-party petition seeking indemnity and attorney’s fees from the tenant under both the parties’ lease and Section 38.001 of the Texas Civil Practice and Remedies Code.
The tenant responded by filing a counterclaim for its own attorney’s fees under the lease and moved for summary judgment. The trial court granted the tenant’s motion, rendering a take-nothing judgment in the tenant’s favor and awarding the tenant its attorney’s fees pursuant to the lease agreement.
The landlord appealed, raising a single issue: whether the trial court erred in awarding attorney’s fees to the tenant as the “prevailing party” when the tenant had not been awarded any damages.
Attorney’s Fees Under Texas Law: The American Rule and Its Exceptions
Texas follows what’s known as the “American Rule” regarding attorney’s fees, which provides that each party to litigation is responsible for its own legal expenses. This rule differs significantly from the “English Rule” followed in many other countries, where the losing party typically pays the winner’s legal costs.
The American Rule serves as the default position in Texas litigation and stems from the policy goal of ensuring that concerns about potential liability for an opponent’s attorney’s fees don’t discourage parties with legitimate claims from seeking judicial resolution.
However, Texas law recognizes two primary exceptions to the American Rule: statutory authorization and contractual agreement. When either of these exceptions applies, a court may award attorney’s fees to one party at the expense of another.
The first statutory exception relevant to this case is found in Section 38.001 of the Texas Civil Practice and Remedies Code, which allows recovery of attorney’s fees for certain types of claims, including breach of contract. Under Section 38.001(b)(8), 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.” Texas courts have consistently interpreted this language to require that a party must both prevail on a contract claim and recover damages to be entitled to attorney’s fees under this statute.
The second exception to the American Rule arises when parties contractually agree to shift attorney’s fees, as was the case in the lease between the landlord and tenant. When parties include attorney’s fee provisions in their contracts, Texas courts generally enforce these provisions according to their plain language, recognizing the fundamental principle of freedom of contract.
As the Texas Supreme Court has noted, parties are free to contract for fee-recovery standards that are either “looser or stricter” than those provided by statutory provisions like Chapter 38. This freedom allows businesses entering into commercial leases to define for themselves when and how attorney’s fees will be allocated in the event of litigation, which can be particularly important for business formation decisions and operational planning.
For businesses that operate in multiple states, understanding these distinctions is particularly important when pursuing foreign qualification in Texas or when considering entity domestication into Texas.
The Lease’s Attorney’s Fee Provision: What Did the Parties Agree To?
The dispute in this case centered on Paragraph 21.3 of the lease, titled “Attorneys’ Fees,” which stated:
“If a Proceeding is commenced with respect to any alleged default under this Lease, the prevailing Party in such Proceeding is entitled to receive, in addition to its damages incurred, such sum as the court determines as such Party’s reasonable attorneys’ fees, and all other actual, out-of-pocket costs and expenses incurred in connection therewith.”
The lease defined “Proceeding” to include “[a]ny judicial action, suit, or proceeding (whether civil or criminal).” However, the lease did not define two key terms at issue in this case: “prevailing” party and “in addition to.”
The landlord argued that the phrase “in addition to its damages incurred” in Paragraph 21.3 was analogous to Section 38.001’s language “in addition to the amount of a valid claim.” Under this interpretation, the landlord contended that the lease required a party to recover damages as a condition for being awarded attorney’s fees, and since the tenant had not been awarded any damages, it was not entitled to attorney’s fees.
The tenant countered that the phrase “in addition to its damages incurred” merely clarified that attorney’s fees were cumulative to any damages, not conditional upon them. The tenant argued that the general dictionary definition of “in addition to” meant “as well as,” supporting the view that this language simply established that fees were separate from damages, not dependent on them.
What Makes a “Prevailing Party” in Contract Litigation?
A central question in interpreting the lease provision was the meaning of “prevailing party” when that term is left undefined in a contract. Texas courts have consistently held that when interpreting contractual attorney’s fee provisions with undefined terms, courts should presume that the parties intended the ordinary meaning of those terms.
In the context of litigation, Texas courts have established that a party can qualify as a “prevailing party” either by obtaining affirmative relief through a favorable judgment or by successfully defending against a claim and securing a take-nothing judgment. This interpretation recognizes that success in litigation is not solely measured by monetary recovery but can also include the successful defeat of claims brought against a party.
The Fort Worth Court of Appeals had previously addressed this issue in Severs v. Mira Vista Homeowners Ass’n, where it held that a defendant homeowners’ association that obtained a take-nothing summary judgment was a “prevailing party” entitled to attorney’s fees under the relevant contractual provision, even though it had not recovered any damages.
Similarly, the Texas Supreme Court in Rohrmoos Venture v. UTSW DVA Healthcare, LLP determined that a defendant who successfully defended against a counterclaim and received a take-nothing judgment qualified as a “prevailing party” under the parties’ lease, despite not recovering any damages.
Does “In Addition To” Create a Condition or Simply List Cumulative Remedies?
The appeal turned on the interpretation of the phrase “in addition to its damages incurred” in the lease’s attorney’s fee provision. The court had to determine whether this language created a condition requiring the recovery of damages before attorney’s fees could be awarded, or whether it simply listed attorney’s fees as a remedy available alongside any damages that might be recovered.
The court found the reasoning in One Call Systems, Inc. v. Houston Lighting & Power persuasive. In that case, the Fourteenth Court of Appeals analyzed a contract provision entitling either party to recover attorney’s fees “in addition to any other relief which it may be entitled.” The court interpreted this to mean that a party could recover attorney’s fees “in addition to any other relief to which it may be entitled, i.e., if any,” not that attorney’s fees were conditional on receiving other relief.
Applying similar reasoning, the Fort Worth Court of Appeals determined that Paragraph 21.3 of the lease between the landlord and tenant should be interpreted to mean that the prevailing party was entitled to attorney’s fees in addition to any damages that were actually incurred, not that damages had to be awarded as a condition for receiving attorney’s fees.
Contract Interpretation Principles Applied
The court’s analysis emphasized the importance of applying standard contract interpretation principles to the lease’s attorney’s fee provision. These principles include:
- Construing the contract as a whole rather than focusing on isolated phrases
- Giving effect to the plain language of the contract
- Harmonizing all provisions to ensure none are rendered meaningless
- Interpreting undefined terms according to their common, ordinary meaning
- Respecting the parties’ freedom of contract
The court noted that Paragraph 21.3 was situated within the lease’s “Default” section and referred specifically to proceedings “with respect to any alleged default,” suggesting that the provision contemplated disputes where alleged defaults might not be proven. This contextual placement supported the interpretation that a party could be a “prevailing party” by successfully defending against allegations of default, even without recovering damages.
Additionally, the court considered the lease’s own instructions for contract interpretation. The lease required that its terms be construed “as a whole according to their common meaning to achieve the objectives and purposes of this Lease,” while specifying that Texas law would govern “the validity, construction, enforcement, and interpretation of this Lease.”
Why Didn’t the Court Apply Section 38.001’s Interpretation?
A key aspect of the court’s decision was its determination that Section 38.001’s requirement of damages recovery should not be imported into the lease’s attorney’s fee provision. The court identified several reasons for this conclusion:
First, the language used in Section 38.001 differs significantly from the language in the lease. The statute specifically ties attorney’s fees to “the amount of a valid claim,” while the lease refers to “damages incurred,” which could include damages that were incurred but not necessarily awarded by the court.
Second, the court recognized that Section 38.001 represents a statutory exception to the American Rule, with limitations that reflect legislative policy choices. These policy considerations do not necessarily apply to contractual fee-shifting provisions, where parties are free to set their own standards.
Third, the court observed that if the parties had intended to adopt Section 38.001’s interpretation, they could have easily included explicit references to the statute in the lease. The absence of such references, coupled with the lease’s detailed and sophisticated drafting, suggested that the parties did not intend to incorporate statutory limitations on attorney’s fee awards.
For businesses engaged in LLC formation or establishing a corporation in Texas, understanding these distinctions is essential when drafting or negotiating contracts that will be governed by Texas law.
Implications for Landlords and Tenants
The court’s decision has significant implications for both landlords and tenants in commercial lease relationships. By clarifying that contractual fee-shifting provisions can be broader than statutory provisions, the decision expands the potential exposure to attorney’s fees for parties who initiate unsuccessful litigation.
For landlords, this decision underscores the importance of carefully evaluating the strength of claims before initiating litigation against tenants. Even if a landlord believes it has a valid claim for damages, it now faces the risk of paying the tenant’s attorney’s fees if it does not prevail, regardless of whether the tenant recovers its own damages.
For tenants, the decision provides additional protection against potentially unmeritorious claims. By confirming that a tenant who successfully defends against a landlord’s claim can recover attorney’s fees even without recovering damages, the court’s interpretation gives teeth to contractual fee-shifting provisions that might otherwise be rendered ineffective if damages were required.
The Takeaway
The court’s decision reinforces that Texas courts will honor the freedom of contract in commercial relationships, interpreting attorney’s fee provisions according to their plain language rather than automatically importing statutory limitations. When drafting or negotiating commercial leases, parties must pay careful attention to attorney’s fee provisions, considering both the definition of “prevailing party” and any language that might be interpreted as conditioning fee awards on damages recovery. For both landlords and tenants, this case serves as a reminder that unsuccessful litigation can result in liability for the opponent’s attorney’s fees, even when the opposing party recovers no damages. This decision gives businesses greater certainty in interpreting common contractual provisions while highlighting the importance of precision in contract drafting.
