United States District Court, N.D. Texas, Lubbock Division
SIWELL, INC. d/b/a CAPITAL MORTGAGE SERVICES, Plaintiff,
LEVERAGE FINANCIAL, LLC, Defendant.
MEMORANDUM OPINION AND ORDER
A. FITZWATER UNITED STATES DISTRICT JUDGE.
a jury trial and verdict in its favor, plaintiff Siwell, Inc.
d/b/a Capital Mortgage Services (“Siwell”) moves
for attorney's fees and costs under Tex. Civ. Prac. &
Rem. Code Ann. § 38.001 (West 2017). Defendant Leverage
Financial, LLC (“Leverage”) moves under
Fed.R.Civ.P. 50(b) for judgment as a matter of law, or,
alternatively, for a new trial, contending that Siwell
submitted insufficient evidence of damages. For the reasons
that follow, the court denies both motions.
purchased a home mortgage loan (“Bozeman Loan”)
from Leverage, which it later sold to the Federal National
Mortgage Association (“Fannie Mae”). Fannie Mae
determined that the Bozeman Loan had been materially
misrepresented because Bozeman did not live in the property
as her primary residence. Fannie Mae first demanded that
Siwell repurchase the loan, but later required that Siwell
make Fannie Mae whole by compensating Fannie Mae for the
difference between the purchase price and the ultimate sale
sued Leverage for breach of contract. At trial, the jury found
that the purchase agreement between Siwell and Leverage
required that Leverage repurchase the loan if the loan did
not meet the requirements for Fannie Mae delivery. Leverage
did not repurchase the Bozeman Loan, and the jury found that
Siwell suffered damages as a result. Following the verdict,
Leverage moved for judgment as a matter of law, which the
court denied. Leverage now renews its motion, contending that
Siwell failed to submit sufficient evidence to prove that it
incurred damages of $87, 025.14. Siwell moves for an award of
attorney's fees. Both motions are opposed.
breach of contract action under Texas law, “[a] person
may recover reasonable attorney's fees from an individual
or corporation, in addition to the amount of a valid claim
and costs[.]” Tex. Civ. Prac. & Rem. Code Ann.
§ 38.001. “Generally, the party seeking to
recover attorney's fees carries the burden of
proof.” Smith v. Patrick W.Y. Tam Trust, 296
S.W.3d 545, 547 (Tex. 2009). Section 38.001(8) applies to a
valid claim for “an oral or written contract.”
Siwell has recovered from Leverage on a valid claim for a
written contract. The question presented is whether Leverage,
a limited liability company (“LLC”), is “an
individual or corporation” within the meaning of §
threshold matter, Siwell contends that the court should not
consider whether Texas law allows recovery of fees against an
LLC because Leverage failed to raise this argument until its
response to Siwell's motion for attorney's fees. In
Siwell's amended reply, it contends that Leverage is
raising an affirmative defense because it is asserting
“an independent reason (unrelated to the merits) why
the plaintiff should not recover.” P. Am. Reply ¶
15 (citing MAN Engines & Components, Inc. v.
Shows, 434 S.W.3d 132, 137 (Tex. 2014)). And Siwell
concludes that, because affirmative defenses are waived if
not pleaded, see Rule 8(c), the court cannot
consider Leverage's argument. The court disagrees.
Siwell bears the burden of proving that it is entitled to
attorney's fees, it must establish each element of the
statute under which it seeks fees. See Smith, 296
S.W.3d at 547. If Siwell does not prove that Leverage is an
entity that, by statute, can be liable for such fees, Siwell
is not entitled to such fees as a matter of law. This is not
an affirmative defense. See Seminole Pipeline Co. v.
Broad Leaf Partners, Inc., 979 S.W.2d 730, 759 (Tex.
App. 1998, no pet.) (holding as to statutory cap on damages:
“If an intentional tort and/or malice is not pled and
proven by the plaintiff, the cap automatically applies. Thus,
we do not view the statutory cap as an affirmative
defense.”). Leverage therefore is not asserting an
affirmative defense that is waived if not pleaded or
otherwise asserted. Rather, Leverage is relying on
Siwell's failure to establish an essential element of its
attorney's fees claim: that Siwell is seeking to recover
from an individual or corporation. “Because [Leverage]
has nothing to prove, [it] had nothing to plead” or
raise before Siwell's motion for attorney's fees, and
its argument is properly before the court. Id.
as here, the court is exercising diversity jurisdiction, it
is Erie-bound to apply the law as would a Texas court.
See, e.g., Allstate Ins. Co. v. Shelby, 672 F.Supp.
956, 958 (N.D. Tex. 1987) (Fitzwater, J.). The Supreme Court
of Texas has not yet addressed whether § 38.001 permits
the recovery of attorney's fees from an LLC. When there
is no binding decision of the Supreme Court of Texas on the
question, this court must make an “Erie-guess,
” i.e., a prediction of how that court would resolve
the issue if presented with the same case. See, e.g.,
Chaney v. Dreyfus Serv. Corp., 595 F.3d 219, 229 (5th
Cir. 2010) (citing Six Flags, Inc. v. Westchester Surplus
Lines Ins. Co., 565 F.3d 948, 954 (5th Cir. 2009)).
“While decisions of intermediate state appellate courts
provide guidance, they are not controlling. If a state's
highest court has not ruled on the issue in question, a
federal court must determine, to the best of its ability,
what the highest court of the state would decide.”
United Teacher Assocs. Ins. Co. v. Union Labor Life Ins.
Co., 414 F.3d 558, 565-66 (5th Cir. 2005) (citations
court recently considered this question in Hoffman v. L
&M Arts, 2015 WL 1000838 (N.D. Tex. Mar. 6, 2015)
(Fitzwater, J.), aff'd in part, rev'd in part on
other grounds, 838 F.3d 568 (5th Cir.
2016). It concluded that,
based on the plain meaning of the terms
“individual” and “corporation, ” the
history of § 38.001 and its predecessor, Article 2226,
and the construction given to § 38.001 by Texas courts
of appeals and federal courts (including judges of this
court), the court makes an Erie prediction that the
Supreme Court of Texas would hold that an LLC is neither an
“individual” nor a “corporation”
within the meaning of § 38.001, and that a party with a
valid claim cannot recover attorney's fees from an LLC
under § 38.001.
Id. at *10. On appeal, the Fifth Circuit declined to
consider this court's interpretation of § 38.001
because the panel had held that there was no compensable
breach of contract. But the panel “note[d] that an
intervening decision by the Court of Appeals of Texas
support[ed] [this] court's Erie guess that an
LLC like [the defendant] is not ‘an individual or
corporation' under section 38.001(8).” Hoffman
v. L &M Arts, 838 F.3d 568, 583 n. 14 (5th Cir.
2016) (citing Choice! Power, L.P. v. Feeley, 501
S.W.3d 199, 214 (Tex. App. 2016, no pet.)). And at least one
Texas court of appeals has cited Hoffman
approvingly, see Alta Mesa Holdings, L.P. v. Ives,
488 S.W.3d 438, 455 (Tex. App. 2016, pet. ...