United States District Court, S.D. Texas, Galveston Division
MEMORANDUM AND ORDER
Costa, United States Circuit Judge [††]
motion originates from a lawsuit filed by New York Pizzeria
(NYPI) against Adrian Hembree, Gina's Licensing Company
(GLC), and a number of other defendants. NYPI asserted a
number of business torts based principally on the allegation
that the defendants had stolen their recipes for pizza and
other Italian dishes. This court granted Hembree's motion
for summary judgment dismissing NYPI's claims against him
because of a broad release in a settlement agreement the
parties entered into to end a previous lawsuit. Docket Entry
No. 36. Based on the same violation of that settlement
agreement, the Court later granted summary judgment in favor
of Hembree on his breach of contract counterclaim against
NYPI. Docket Entry No. 95. This court also granted summary
judgment on res judicata grounds in GLC's favor
on all of NYPI's claims, including a claim under the
Texas Theft Liability Act (TTLA). See Docket Entry
GLC and Hembree, represented by the same counsel, now move
for attorney's fees. Hembree cites both statutory and
contractual grounds for recovering costs incurred in
defending against NYPI's claims and pursuing his breach
of contract counterclaim. GLC invokes the fee-shifting
provision of the TTLA. They seek $218, 114 in attorney's
fees and $15, 132 in costs and expenses.
seeks multiple avenues to recover attorney's fees: the
Texas Uniform Declaratory Judgments Act (TUDJA), Chapter 38
of the Texas Civil Practice and Remedies Code, the
attorney's fee provision of the TTLA, and the First
Settlement Agreement he signed with NYPI. Even if one of
these sources authorizes fees, we must address the
applicability of each because that will determine whether
Hembree is entitled to fees for work that helped Hembree
defeat NYPI's claims, succeed on his counterclaim, or
both. As will be discussed later, those various forms of
relief were obtained at different times in the lawsuit.
Likewise, even though Hembree and GLC had the same lawyers,
it is also necessary to determine whether the TTLA provides a
source for recovering fees for work done on GLC's behalf.
This parsing is necessary because “if any
attorney's fees relate solely to a claim for which such
fees are unrecoverable, a claimant must segregate recoverable
from unrecoverable fees.” Tony Gullo Motors I, L.P.
v. Chapa, 212 S.W.3d 299, 313 (Tex. 2006).
Texas Uniform Declaratory Judgment Act
TUDJA allows courts to award attorney's fees “as
are equitable and just.” Tex. Civ. Prac. & Rem.
Code Ann. § 37.009. But the Fifth Circuit has previously
held that district courts may not award attorney's fees
under the TUDJA in diversity cases, because the statute sets
forth procedural, rather than substantive, law. Utica
Lloyd's of Tex. v. Mitchell, 138 F.3d 208, 210 (5th
Cir. 1998) (citing Housing Authority v. Valdez, 841
S.W.2d 860, 865 (Tex. App.-Corpus Christi 1992, writ denied)
(holding that the TUDJA is “a procedural mechanism for
resolving substantive controversies” and does not
create substantive rights)). Because this Court applies
federal, not state, procedural law to a diversity suit, the
TUDJA is not a source for recovering fees. Utica,
138 F.3d at 210; see also Camacho v. Texas Workforce
Comm'n, 445 F.3d 407 (5th Cir. 2006).
fee request also relies on Chapter 38 of the Texas Civil
Practice & Remedies Code, which allows for attorney's
fees in a successful breach of contract action. Tex. Civ.
Prac. & Rem. Code Ann. § 38.001(8). Because the
availability of attorney's fees is a substantive issue of
state law, this Court applies Texas law in determining the
availability of fees under Chapter 38. To recover
attorney's fees under Chapter 38, a party must “(1)
prevail on a cause of action for which attorney's fees
are recoverable, and (2) recover damages.” Green
Intern., Inc. v. Solis, 951 S.W.2d 384, 390
(Tex. 1997). Though Hembree succeeded in showing NYPI's
breach of contract, he has not been awarded any damages (he
chose to forego a bench trial that was scheduled to determine
damages, see Docket Entry No. 112). Texas law,
therefore, does not allow this Court to award attorney's
fees under Chapter 38. Hembree's assertion that he is
“entitled to nominal damages” does not change the
analysis, as Hembree has neither sought nor obtained nominal
damages. See Docket Entry No. 17 at 8-10.
First Settlement Agreement
presses on and asserts that the First Settlement Agreement
that he entered into with NYPI gives him an alternative path
to fees. Parties can contract for a fee- ecovery standard
that goes beyond recovery under a state statute. See
Intercontinental Grp. P'ship v. KB Home Lone Star,
295 S.W.3d 650, 653 (Tex. 2009). Section 11 of that
settlement agreement states that:
In the event of any breach of this Agreement, and in addition
to the terms of this agreement and any other legal or
equitable remedies, the prevailing party shall be entitled to
recover the reasonable costs and attorney's fees incurred
in seeking relief for any such alleged breach.
Docket Entry No. 39 Ex. A at 9. This Court has already ruled
that NYPI breached the terms of this agreement when it filed
this suit. Docket Entry No. 36 at 5-7.
is not a given that Hembree is a prevailing party under the
agreement. The agreement does not define “prevailing
party, ” so Texas law provides the default definition.
KB Home, 295 S.W.3d 650. KB Home held that
a plaintiff must obtain an actual remedy that
“materially alter[s] the legal relationship”
between the parties to be considered a prevailing party.
KB Home, 295 S.W.3d at 655-57. The court held that a
legal victory on liability, with no actual relief granted,
would not suffice. Id. at 655. That leaves Hembree
with the same problem he faced in seeking attorney's fees
under Chapter 38: Hembree has not actually obtained any
remedy for his counterclaim; he has shown that NYPI breached
the contract but he has not recovered damages. Under Texas
law, Hembree is not a prevailing party as to his counterclaim
for breach of contract.
for Hembree, though, he is also a defendant in this action.
Not only did the First Settlement Agreement serve as the
basis for Hembree's counterclaim for breach of contract,
it also served as his defense against the claims NYPI
levelled against him. See Docket Entry No. 36 at
5-7. KB Home addressed Texas's definition of
“prevailing party” for plaintiffs, but it did not
speak to when a defendant is a “prevailing
party.” That came later, in Epps v. Fowler,
351 S.W.3d 862 (Tex. 2011). Epps held that a
defendant is a prevailing party when it obtains a dismissal
with prejudice, because the res judicata effect of that
dismissal “works a permanent, inalterable change in the
parties' legal relationship to the defendant's
benefit.” Id. at 868-69. Hembree achieved
exactly that when this court granted its summary judgment
motion dismissing NYPI's claims against him. Docket Entry
36 at 5-7. Because dismissal of the charges against him was
the relief he sought in ...