By: Patrick T. Sharkey

A recent Texas Supreme Court decision highlights the importance of thoughtful drafting.  In Intercontinental Group Partnership v. KB Home Lonestar L.P., 295 SW3rd 650 (Tex. 2009), the Texas Supreme Court addressed the simple question: What does “prevailing party” mean? 

In the Intercontinental case, the contract contained the following attorney’s fees provision: 

“If either party named herein brings an action to enforce the terms of this Contract or to declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney’s fees to be paid by losing party as fixed by the Court.”

The term “prevailing party” was not defined in the contract.

KB Home sued Intercontinental for breach of contract and lost profits.  The jury found that Intercontinental breached the contract, but the jury awarded zero dollars in damages.  However, the jury did award KB Home $66,000.00 in attorney’s fees.  In view of this trial result, both parties claimed to be the “prevailing party.” 

The singular issue addressed by the Texas Supreme Court was summarized succinctly by the Court as follows:

“When a contract mandates attorney’s fees to a “prevailing party,” the term undefined in the contract, has a party “prevailed” if the jury finds the other side violated the contract but awards no monetary damages?”

After an illuminating discourse on litigants’ entitlement to attorney’s fees and the ordinary meaning of the term “prevailing party,” the Texas Supreme Court ruled that, absent a contractual definition of “prevailing party,” a party must receive affirmative judicial relief to be considered a prevailing party.  Inasmuch as KB Home recovered no monetary damages, the Court concluded that KB Home did not qualify as a “prevailing party.”  Consequently, the award of $66,000.00 attorney’s fees to KB Home was reversed, and the Court rendered a judgment that KB Home take nothing.

The absence of a definition of “prevailing party” in the contract negated KB Home’s award of $66,000.00 attorney’s fees.  This expensive lesson could (and should) have been avoided by including a definition of “prevailing party” in the contract.  We strongly recommend you review all of your contracts, existing and future, to insure a definition of “prevailing party” is included in the contracts. 

For a suggested definition of “prevailing party” to be used in your contracts, please contact any of the following attorneys:

AUSTIN/SAN ANTONIO
Steve Martens – 512.236.2322 – smartens@jw.com
Richard Moore – 210.978.2407 – rmoore@jw.com

DALLAS/FORT WORTH
Bryan Birkeland – 214.953.5934 – bbirkeland@jw.com
Susan Halsey – 817.334.7203 – shalsey@jw.com

HOUSTON
Patrick Sharkey – 713.752.4266 – psharkey@jw.com