Litigation in Texas: An Overview

Introduction

This article discusses basic practices, rules, and procedures involved in Texas litigation. For our purposes, “litigation” refers to the filing and prosecuting of a real estate-related lawsuit, or defense against one, in the Texas county civil courts at law or the civil district courts. We will not discuss divorce cases, criminal defense, or litigation in federal court.

The cost and complexity of litigation has doubled in the last 10 years, in no small measure due to the impact of computers and technology. What is capable of being done with all our electronic gadgets is now expected to be done. Ironically, the result is more, not less, paper. A prime culprit is the “docket control order” or DCO, also called a “scheduling order,” generated by the clerk’s computer shortly after the lawsuit is filed. In times past these orders contained only a few dates, including the discovery completion date, the date by which experts were to be designated, and a trial date. DCOs have now expanded to include many more dates and deadlines. Meeting dates and deadlines not only costs money but is the attorney’s professional obligation, to the client and to the court. Attorneys must therefore be prudent when signing on as attorney of record. The attorney must not only be confident that the case has merit but that the client has the commitment and financial means to pursue litigation at today’s level of complexity and expense.

References to rules in this article are to the Texas Rules of Civil Procedure.

PART ONE: CONSIDERING LITIGATION

The Hard Realities of Litigation

In contemplating filing or defending against a lawsuit, one should keep in mind three cardinal rules which shock clients when they learn them: (1) There is no such thing as a perfect case and yes, that includes yours; (2) no one ever gets exactly what they want in court and yes, that includes you; and (3) litigation always costs more than you think it will. As to the last item, you might consider even modest litigation as roughly the equivalent of buying a new car, and an expensive one at that.

Real estate investors are typically accustomed to working with a transactional real estate lawyer who may be excellent at preparing sophisticated documentation but may have never tried a lawsuit—or even set foot in a courtroom except perhaps to pay a traffic ticket. The practice of law is now intensely specialized. Anyone involved as a plaintiff or a defendant should retain an experienced trial attorney. In Texas, there is even a separate board certification for civil trial law.

The realities of litigation are such that even experienced transactional lawyers are surprised when they see first-hand what judges and juries can do. Every trial lawyer has had a client say “The judge can’t do that!” The reply is usually always the same: Actually, she can and she just did.

It may be advisable for anyone involved in litigation to have a team of lawyers working for you: one who is an expert on real estate transactions, the other who is a specialist in convincing a judge or jury that your case has merit. In cases where one is a defendant with much to lose, it may also be prudent to retain an asset protection specialist, just in case.

Why worry about legal fees? Aren’t all lawsuits handled by contingency fee?

No. Contingency fee arrangements are usually unavailable in real estate and business cases (since there is generally no insurance pot of gold at the end of the rainbow) so the client will be required to post a substantial initial retainer and then pay hourly. Many real estate and business attorneys require an initial retainer of around $10,000 (plus costs such as filing fees) with supplementary retainer installments to follow. Larger or more specialized firms may require $25,000 up front. There is a reason for these retainers. For attorneys, there are few situations more frustrating than being in a lawsuit governed by a complicated DCO while stuck with a client who cannot or will not pay the bills for the work that order requires.

Evaluating the Litigation Case

A good case consists of (1) facts that clearly show liability and (2) monetary damages in an amount that makes the process worthwhile. Both factors must be present. Good liability facts are not helpful if there is no real monetary loss; and large damages will not help a plaintiff who cannot show a clear path to holding the defendant legally liable. One or more established causes of action (fraud or breach of contract, for example) must apply. Note that legal liability is not the same as moral liability. The justice system, like every human institution, is imperfect. It is not only unable but unwilling to right every wrong.

As a rule of thumb, there should be at least $25,000 to $50,000 in actual damages to make it worthwhile to file a suit in county or district court. Plaintiffs with $5,000 and $10,000 cases should consider filing a small claims action in justice court where an attorney is not required. Otherwise, such cases are not cost-effective. The days when it was reasonable to hire an attorney for a low-damage claim are gone. A breach-of-contract claim in a real estate transaction of, say, $2,500 is not the basis for a lawsuit. It is more appropriately considered a collection item or a business write-off.

If a real estate investor is contemplating litigation, the first step is to consult with a real estate litigator to go over the facts, review and analyze documents, and evaluate the potential for success. At the initial meeting, the client should be prepared with copies of all relevant documents and correspondence as well as a written summary and a timeline of events. The prospective litigant should also be ready to demonstrate that he or she can afford the litigation. If the client arrives prepared, most attorneys can evaluate a case in an hour. As is the case with major medical decisions, obtaining a second opinion may be a good idea.

Representing Oneself as a Pro Se Litigant

Because of mushrooming complexity, representing oneself as a pro se litigant is no longer practical for non-attorneys except in small claims cases in justice courts, which hear controversies involving up to $20,000. These courts are also handy because they are located in various neighborhood precincts. For many, justice court may be the best option, but even there one sees more and more attorneys at the bench, and few things are more foolish than a pro se litigant attempting to match wits or knowledge of the rules with a trial lawyer. It goes without saying that representing oneself at higher court levels—county court or district court—is inviting trouble. The Rules of Civil Procedure, the Civil Practice & Remedies Code, and the Rules of Evidence govern trial work. These are complicated even for lawyers who appear in court frequently. They can appear illogical, incomprehensible, and Byzantine to others.

Note that corporations and limited liability companies are required to have an attorney in Texas. They are not permitted to represent themselves, either in filing or answering a lawsuit.

Obligations of the Client

A client cannot expect to meet with an attorney, pay a retainer, and then walk away and forget about the lawsuit. The client must be an active and essential participant since a case in litigation will involve considerable time, effort, and expense. Patience and persistence are also required since it can take nine months or more to move a case to trial, and there are invariably bumps in the road.

The attorney-client relationship is based on trust, candor, participation, and communication. A client should tell the attorney everything pertinent to the case and provide all relevant documents.

A plaintiff who does not know the location of the person or entity to be sued should be prepared to incur the expense of a private investigator.

Clients should resist the temptation to micro-manage a lawsuit. Reach an agreement with the attorney on general goals and strategy and then let him or her do the job. Even so, no attorney can ever make a guarantee concerning the outcome of a case. Attorneys are merely the agents of their clients within the system.

PART TWO: JURISDICTION AND VENUE

Jurisdiction

The term “jurisdiction” has three aspects: first, whether a particular court is enabled by law to handle certain subjects (“subject-matter jurisdiction”); second, whether damages fall within certain monetary limits (“monetary jurisdiction”); and third, whether the court has jurisdiction over the parties and property involved (“personal jurisdiction” and “in rem jurisdiction,” respectively). All of these requirements must be satisfied.

County courts and district courts have subject-matter jurisdiction over the full range of real estate and business matters. However, in certain counties other than Harris County, matters pertaining to title to real estate must be brought in district court. Justice courts have original jurisdiction over possession of real property so evictions must be brought there.

County courts have monetary jurisdiction up to $250,000. District courts can hear cases that exceed $500 in value, and there is no upper limit. Often, but not always, litigation in county court is cheaper and faster than in district courts.

The New Business Courts

In addition to district, county, and justice courts, there is now a new and specialized type of trial court established by Government Code Chapter 25A effective September 1, 2024. Business courts have jurisdiction in all counties (concurrent with district courts) in specifically-listed types of business disputes. The amount in controversy must exceed $5,000,000 for certain of these cases and $10,000,000 for others.

Certain types of cases are excluded altogether from business court jurisdiction. Cases arising from the Property Code (except for mechanic’s lien cases) and the Business Organizations Code are not excluded, but cases arising from the Deceptive Trade Practices Act, the Estates Code, the Family Code, and the Insurance Code are excluded.

A newly-created Fifteenth Court of Appeals has exclusive jurisdiction over cases that are appealed from the business courts.

All in all, the business courts are designed to deal primarily with sizeable lawsuits involving big business rather than individual consumers. They are intended to be Texas’ answer to the Delaware model where dedicated business courts are popular.

Venue

After determining jurisdiction, a potential litigant must consider venue. Venue refers to the county in which a lawsuit is brought. Pursuant to the general venue statute (Civ. Prac. & Rem. Code Sec. 15.002), one cannot file suit just anywhere. A lawsuit must be filed in a particular county if (1) all or a substantial part of the events or omissions giving rise to the claim occurred in that county; or (2) the defendant resides in that county or, if a corporation or other registered entity, does business there; or (3) the real property the subject of the suit lies in that county.

Civil Practice & Remedies Code Section 15.011 is even more specific when it comes to real estate cases: “Actions for recovery of real property or an estate or interest in real property, for partition of real property, to remove encumbrances from the title to real property, for recovery of damages to real, or to quiet title to real property shall be brought in the county in which all or a part of the property is located.”

If suit is filed in the wrong county the opposing party will likely make a special appearance in order to ask for a change of venue. Failing to pay attention to proper venue therefore results in wasted time and money.

PART THREE: CAUSES OF ACTION

In order to be an effective lawsuit, a case must meet all the required elements of one or more causes of action. Causes of action derive from common law (legal history and tradition) and from specific statutes. Examples:

breach of contract and specific performance
breach of express or implied warranty
common law fraud
statutory fraud
conversion
negligence
deceptive trade practices
conspiracy
wrongful foreclosure
slander of title
suit to quiet title
trespass to try title
suit for specific performance
suit for declaratory judgment
violation of real estate license act

These causes of action are common in real estate litigation. There are, of course, many more.

Specific Performance of Contracts

Specific performance of real estate contracts is a cause of action that arises frequently in Texas real estate litigation. What do you do when an opposite party fails to perform a valid contract? The answer may be a suit alleging breach of contract and seeking an order compelling the other party to do what that party agreed to do. “Specific performance is an equitable remedy that may be awarded, at the trial court’s discretion, for a breach of contract. . . and is an alternative remedy to damages. When the recovery of monetary damages is inadequate to compensate the complainant, the transgressor is compelled to perform the promise of its contract. . . . Specific performance is not a separate cause of action, but rather it is an equitable remedy used as a substitute for monetary damages when such damages would not be adequate.” Marx v. FDP, LP, 474 S.W.3d 368 (Tex.App—San Antonio 2015, no pet.).

Paragraph 15 of the TREC 1-4 contract provides that an aggrieved party may “enforce specific performance, seek such other relief [against the defaulting party] as may be provided by law, or both.”

The remedy of specific performance, as a practical matter, is more effective against a breaching seller than a breaching buyer. In the case of a seller breach, one is demanding the acknowledged signature of the seller on a deed and other documents, which is not a major burden in practical terms. It is a different situation in the case of a buyer. In the real world, it is difficult to force a buyer to apply for a loan, sign a note and deed of trust, and so forth. Disappointed sellers are most often in the position of keeping the buyer’s earnest money and moving on.

Trespass to Try Title

What cause of action is appropriate if someone occupies land that belongs to you and cannot be peaceably ousted? The answer is a “trespass to try title” action, which for many Texas lawyers is the classic real estate litigation case.

Why not, one might ask, just pursue a forcible detainer (eviction) action in justice court? Because the sole issue in a forcible-detainer case is who has the superior right to possession. The forcible detainer process does not settle title claims. Marshall v. Hous. Auth. of San Antonio, 198 S.W.3d 782 (Tex. 2006). In fact, a justice court has no jurisdiction to adjudicate title to land. Tex. Gov’t Code Sec. 27.031(b). Accordingly, jurisdiction for trespass to try title cases lies in the district court.

“A trespass to try title action is the method of determining title to lands, tenements, or other real property.” Tex. Prop. Code Sec. 22.001. It is appropriate when someone claiming ownership seeks to dispossess someone who has (by whatever means) taken possession of the land. “A trespass to try title action requires the petition to allege: (1) the parties’ real names and residences; (2) a legally sufficient description of the premises; (3) the plaintiff’s claimed interest; (4) that plaintiff possesses the premises or is entitled to possession; (5) that the defendant unlawfully entered and dispossessed the plaintiff of the premises and withholds possession; and (6) a prayer for relief.” Stelly v. DeLoach, 644 S.W. 3d 657 (Tex. 2022) citing Tex. R. Civ. P. 783.

“A trespass-to-try-title action is the exclusive remedy for resolving overarching claims to legal title. It embraces all character of litigation that affects the title to real estate. In a trespass-to-try-title action, a plaintiff may prove legal title by establishing: (1) a regular chain of title of conveyances from the sovereign to the plaintiff; (2) a superior title to that of the defendant out of a common source; (3) title by limitations (i.e., adverse possession); or (4) possession that has not been abandoned.” Brumley v. McDuff, 616 S.W.3d 826 (Tex. 2021).

Deceptive Trade Practices Act

The DTPA (Chapter 17 of the Texas Business & Commerce Code) contains multiple causes of action that protect consumers in the purchase of goods and services (including buying and selling residential real estate) in cases of false, misleading, and deceptive acts or practices such as fraud, misrepresentation, false advertising, and failure to disclose material information and defects (Sec. 17.46(a) and (b)); breach of an express or implied warranty (Sec. 17.50(a)(2)); and—most broadly of all—commission of any unconscionable act or course of action (17.50(a)(3)).

A consumer who has suffered economic damages or mental anguish may seek treble damages plus attorney’s fees and costs if the defendant was a producing cause of the harm, even if the consumer never actually bought anything from the defendant. Note that this is a far more liberal causation standard than proximate cause which is the rule in most other areas of the law.

Sec.17.505 of the DTPA requires 60 days notice to the defendant who then has the opportunity to avoid exemplary damages by making a good-faith offer of settlement which must encompass both the plaintiff’s damages and attorney’s fees.

PART FOUR: PHASES OF THE CASE

Once jurisdiction, venue, and causes of action are decided upon, and the case is filed, the litigation process can be broken down into predictable phases:

Initial Pleadings and Discovery

original petition or original answer
application for temporary restraining order (TRO)
hearing to convert TRO to a temporary injunction (TI)
ongoing attorney-client conferences
settlement negotiations with the opposition
written discovery
required disclosures (formerly requests for disclosure)
interrogatories
requests for admission
requests for production

Continuing Discovery/Motions/Mediation Phase

responding to written discovery
amending pleadings, including filing a counter-claim or cross action
hearings on various motions
half-day mediation
continuing settlement negotiations
oral depositions
motion for summary judgment
locate experts and obtain expert reports
ongoing attorney-client conferences

Pre-Trial Phase

ascertain compliance with docket control order
final amendment of pleadings
additional motions, if appropriate
supplementation of discovery responses
designation of experts by the deadline
business records affidavit
pre-trial order preparation
conferences with client to prepare testimony
conferences with witnesses to prepare testimony
pre-trial research and preparation
correspondence and conversations with the opposition

Trial Phase

trial of the case by judge or jury
entry of judgment

Post-Trial Phase

motion for new trial or defense of motion for new trial
request for findings of fact and conclusions of law
post-judgment discovery
abstraction, execution, and attempt to collect the judgment

TROs and Temporary Injunctions

Injunctive relief (a temporary restraining order or temporary injunction) may be requested after suit is filed. Injunctions are useful in preventing another party from taking certain action, such as foreclosure, that will cause irreparable harm to the applicant (Rule 680) for which there is no adequate remedy at law (i.e., an award of damages will not cure the prospective harm). A temporary restraining order (TRO) is a form of emergency, equitable relief that is good up to 14 days. A TRO is granted, if at all, after notice to both sides and a hearing. A temporary injunction (TI)—which is the next step in the process after the TRO expires—requires a more thorough hearing, usually a mini-trial, at which the applicant must show a likelihood of prevailing upon the merits at trial of the case. A TI usually remains in effect for the duration of the litigation. Finally, a permanent injunction may be granted as part of a judgment and is usually for an indefinite period. Civ. Prac. & Rem. Code Chap. 65.

Note that a bond is always required if a TRO or TI is granted. The amount can be nominal (say, $100) or it can be more significant. Bonds in the amount of $5,000, $10,000, or $20,000 are common, although the amount can be set much higher depending on the circumstances of the case and the inclinations of the judge. The amount of the bond is discretionary with the judge and is designed to protect the interests of the party against whom injunctive relief is awarded—in case, for instance, the plaintiff’s case is ultimately shown to have no merit.

An applicant for a TRO or TI needs to be prepared to post the cash (which is refundable if the applicant prevails in the case) within 24 hours of the hearing or utilize the services of a bondsman to do so. Bondsmen will require 10-20% of the bond amount as a non-refundable premium as well as collateral (e.g., a lien on real estate). Do not ask your attorney to seek a TRO or TI unless you have sufficient resources with which to post a bond.

No one has a right to a TRO or TI. Whether either can be obtained depends on several factors including the attitude and charitable disposition of the judge. Generally, the plaintiff must be prepared to show that her or she has a legitimate cause of action against the defendant; there is a probability that the relief requested will be granted upon trial of the case; and, if injunctive relief is not granted immediately, there will be imminent and irreparable harm to the plaintiff that will not be adequately addressed by a subsequent damages remedy. Kennedy v. Gulf Coast Cancer & Diagnostic Ctr. At Se., Inc., 326 S.W.3d 352, 359 (Tex.App.—Houston [1st Dist.] 2010, no pet.). The outcome of an application for a TRO or TI is never automatic or guaranteed. For the attorney, an application for injunctive relief adds a significant layer of complexity and expense to a lawsuit and can therefore be expected to substantially increase the client’s legal fees.

The Discovery Process

“Discovery” refers to mechanisms for obtaining information, documents, and tangible things about an opponent’s case. Tex. R. Civ. P. 190 et seq. Discovery can be divided generally into written discovery (required disclosures, interrogatories, requests for admission, and requests for production) and depositions of parties, witnesses, and experts. Discovery is necessary and it is expensive. No modern case can be effectively litigated without doing thorough discovery, which is at least partially responsible for soaring costs. The period for discovery can go on for quite a while (months), although the docket control order usually contains a date by which discovery must be completed.

Generally, lawyers prefer to do written discovery first and then, as needed, take oral depositions. It should be noted that this system is broken. Many lawyers who bill by the hour can be intentionally obstructionist by objecting to a broad swath of even routine interrogatories and production requests. This is at best contrary to the spirit of the rules, at worst unethical. The net effect of objecting to everything is to make oral depositions inevitable, since the inquiring party needs the information, one way or another, in order to prepare for trial. Depositions are time-consuming and expensive for the client, but for those lawyers who bill by the hour that is just fine. Chances are you will be doing at least two depositions in your case—yours and your opponent’s. Average cost? Between the court reporter and legal fees, around $3,000 each.

Clients occasionally question the need to do discovery, hoping to avoid the expense, but attorneys know that it is always better to go to trial with thorough foreknowledge of the facts and the opponent’s case. Their own clients will be the first to blame them if they do not. A lawyer will usually prefer to fire a client who insists on cutting discovery costs rather than risk harm to his or her reputation by going to trial unprepared.

Note that the most basic discovery about the case and the parties—certain required disclosures—are no longer optional under Rule 194.

Motions for Summary Judgment

A motion for summary judgment is an attempt to dispose of all or part of the case without proceeding to a full trial on the merits. Tex. R. Civ. P. 166a. Such a motion may be partial (limited in scope to certain issues or certain parties) or it may affect the entire case. Disposition by summary judgment is proper only when the movant establishes there are no genuine issues of material fact such that the movant is entitled to judgment as a matter of law. That’s a high standard. In evaluating a motion for summary judgment, the reviewing court must “indulge every reasonable inference in favor of the non-movant and resolve any in its favor.” Nixon v. Mr. Property Mgmt., 690 S.W.2d 546, 548 (Tex. 1985). Therefore, all evidence favorable to the non-movant will be taken as true and all doubts must be resolved in the non-movant’s favor—meaning the non-movant gets the benefit of the doubt across the board as to the merits of its case. The practical result is that summary judgments are difficult to obtain. Judges are reluctant to deprive a party of his or her day in court.

MSJs are useful, however, when one wants to address just part of the dispute—possession of real property, for instance, leaving issues of title for trial. Or an MSJ may be a way to remove a party from a suit if that party was sued improperly in an individual capacity. In any case, MSJ hearings are limited to lawyer argument supported by documentary evidence and affidavits. Live witness testimony is not allowed.

One of the most basic criterion by which an attorney evaluates a case is whether or not it will survive an MSJ by the other side.

Mediation

Parties should expect to mediate, like it or not, since most judge’s order it automatically (It is usually one of the deadlines in the DCO). All judges will order mediation if either side requests it. It may be for a half day or a full day. It is voluntary in the sense that neither side is obligated to accept any particular outcome. All aspects of mediation are confidential and (like settlement discussions) cannot later be brought up in court.

The cost of the mediator’s services is usually $500 to $750 per side for a half-day. Clients must come to mediation prepared with a cashier’s check or money order payable to the mediator. This is collected before mediation begins. Attorney fees are in addition to this amount. While some may consider this expensive, mediation is nonetheless far cheaper than going forward with trial of the case.

Clients should also come to mediation prepared to be reasonable, since it is seldom that anyone in the legal system gets exactly what he or she wants. No attorney wants a client who will not mediate or will not mediate in good faith. Incentives for settlement at mediation include (1) the cost and aggravation of continued litigation and (2) having certainty and control over the outcome rather than leaving it to a judge or jury who can return unpredictable and even whimsical results. Any experienced lawyer has stories about times when he or she was shocked and dumbfounded by an unexpected verdict.

Time to Trial

The total time to trial is approximately nine to twelve months, although this varies according to the court, county, and availability of expedited trial under Rules 47 and 169 (see below). Cases are usually heard in the order of oldest first. They are set for a certain term of court (often one week in county courts and two weeks in district court). During this time, the attorney, the client, and the witnesses are all on call which can be inconvenient and expensive (if, for instance, one must pay hourly experts to sit around and wait). There is a lot of sitting around and waiting involved in trial work.

Expedited trial rules found in Rules 47 and 169 can move matters along more quickly so long as the case qualifies. According to Rule 169(a), expedited trials may include only actions that fall below a certain monetary threshold: “The expedited actions process in this rule applies to a suit in which all claimants, other than counter-claimants, affirmatively plead that they seek only monetary relief aggregating $250,000 or less, excluding interest, statutory or punitive damages and penalties, and attorney’s fees and costs.”

Expedited trial rules limit the discovery period to 180 days after the first request for discovery is served on any party; impose a limit of 15 interrogatories, 25 requests for production, and 15 requests for admission; and change the former “requests for disclosure” to required disclosures. Mediation for a half day will be ordered unless the parties agree otherwise.

Rule 169(d)(2) et seq. sets out the expedited trial process: “On any party’s request, the court must set the case for a trial date that is within 90 days after the discovery period in Rule 190.2(b)(1) ends. The court may continue the case twice, not to exceed a total of 60 days . . . Each side is allowed no more than eight hours to complete jury selection, opening statements, presentation of evidence, examination and cross-examination of witnesses, and closing arguments. On motion and a showing of good cause by any party, the court may extend the time limit to no more than twelve hours per side.”

Jury Trial Versus Trial to the Judge

Jury trials are more suitable in cases where one desires to inflame the passions of jurors in order to get a bigger verdict. This is more likely in personal injury (tort) cases than in real estate or business cases, where issues of blood and malice are usually (but not always) absent. In the latter, technical questions of contract law and the like are often best left for a judge to decide (rather than sending these issues to a jury) since the judge has the training and expertise and hears similar cases often.

PART FIVE: DAMAGES

Damages in Business and Real Estate Cases

Generally, the ability of a plaintiff to recover damages arises from common law or statutory law or, in some cases, both. For example, a plaintiff may plead for damages for fraud both pursuant to common law and under the Statutory Fraud Act. Occasionally, statutes may expressly preempt and replace common law, both with regards to permissible causes of action and allowable damages. There may additional factors (such as the required statutory notice of a DTPA claim) that may apply and affect the final calculation.

Individual contracts may also stipulate liquidated damages that will be invoked if either party breaches, at least so long such damages do not amount to a penalty. Atrium Medical Center LP v. Houston Red C LLC, — S.W.3d —, 2020 WL 596873 (Tex. 2020).

Calculation of damages in any given case can be relatively easy, as in the case of a promissory note where simple math usually applies; or the calculation can be more complex, being grounded in specific circumstances and a specific contract that are subject to specific applicable law. So as to avoid speculation (speculative damages are not recoverable) courts require that damage claims be supported by “objective facts, figures, or data.” See the Phillips case, cited below.

Benefit-of-the-Bargain Damages

The primary rule for measuring damages in a real estate or business case is to calculate the loss to the plaintiff by measuring the monetary impact of losing the transaction. These are called “benefit-of-the-bargain” damages and are discussed at length in MSW Corpus Christi Landfill, Ltd. v. Gulley-Hurst, LLC, 664 S.W.3d 102 (Tex. 2023).

Benefit-of-the bargain damages are calculated based on “the difference between what was promised and what was received. . . . The purpose of benefit of the bargain damages is to place the seller in the same economic position he would have been in had the contract been performed. . . . Benefit-of-the-bargain damages, which derive from an expectancy theory, evaluate the difference between the value that was represented and the value actually received. . . .

“The benefit-of-the-bargain measure computes the difference between the value as represented and the value received. . . . Although courts have noted that when the breached contract is for real estate, the measure of the seller’s damages is the difference between the contract price and the property’s market value at the time of the breach . . . this formula applies only when the value of the property has remained the same or decreased after the purchaser’s breach, leaving the seller unable to receive the expected value of the contract. . . .

“When the property’s market value at the time of breach exceeds the contract price, the correct measure of benefit of the bargain damages is the difference between the promised contract price and what the seller received. . . .”

One must solely replicate the actual benefit of the bargain that has been lost. (Unpredictable windfalls to the plaintiff as a result of increases in property value are not permitted). In so doing, one must distinguish between the economic position of the plaintiff without the contract versus the plaintiff’s economic position without the breach. According to the MSW case, it is the latter that applies.

Direct Versus Consequential Damages

There is a distinction between direct damages that arise imminently from a breach of contract event and consequential damages which tend to follow later and less directly. An example of direct damages is a request for restoration of the benefit of a plaintiff’s bargain (benefit-of-the-bargain damages, no more and no less.

Consequential damages, on the other hand, compensate the plaintiff for more far-ranging but still foreseeable losses that were caused by the breach (and flow naturally from it) but were not necessarily a direct and immediate result of it. Stuart v. Bayless, 964 S.W.2d 920 (Tex. 1998).

As an example, in order to find liability for consequential damages on the part of a lender who breached a loan commitment, “the lender must have known, at the time the commitment was made, the nature of the borrower’s intended use of the loan proceeds.” Basic Cap. Mgmt., Inc. v. Dynex Com., Inc., 348 S.W.3d 894 (Tex. 2011).

Texas law requires that consequential damages be foreseeable at the time of contracting and ascertainable with reasonable certainty. “Consequential damages include those damages that were reasonably foreseeable or contemplated by the parties at the time the contract was entered into as the probable result of a breach. . . A loss that is not the probable consequence of the breach, from the breaching party’s perspective at the time of contracting, is not foreseeable.” Signature Industrial Services, LLC and Jeffrey Ogden v. International Paper Company, — S.W.3d —, No. 20-0396 (Tex. 2022).

Damages for Lost Profits

Damages for lost profits (also called damages for lost opportunity) are a form of consequential damages that are common in real-estate related litigation, particularly construction cases. Can these be recovered in a business or real estate contract case? Yes, but the rules on this type of damages are strict. “Lost profits are damages for the loss of net income to a business measured by reasonable certainty. . . . With respect to the recovery of lost profits as consequential damages, the law is well-settled: lost profits can be recovered only when the amount is proved with reasonable certainty. Proof need not be exact, but neither can it be speculative. . . . [However,] anticipated profits cannot be recovered where they are dependent upon uncertain and changing conditions, such as market fluctuations, or the chances of business, or where there is no evidence from which they may be intelligently estimated. . . .

“The law is wisely skeptical of claims of lost profits from untested ventures or in unpredictable circumstances, which in reality are little more than wishful thinking. . . . [Notwithstanding the foregoing, a] party who breaks his contract cannot escape liability [merely] because it is impossible to state or [difficult to] prove a perfect measure of damages. Phillips v. Carlton Energy Group, LLC, 58 Tex. Sup. Ct. J. 803 (Tex. 2015).

Damages for lost profits do not automatically accrue when a contract is breached. The plaintiff must do more than show in general terms that it “suffered some lost profits. The amount of the loss must be shown by competent evidence with reasonable certainty. . . . A party’s bare assertion that a contract was lost does not establish lost profits with reasonable certainty. . . .” In other words, personal opinion, speculation, and hope are not grounds for reasonable certainty and will not justify recovery of lost profits. More specific and exact proof must be offered. “Horizon Healthcare Corp. v. Acadia Healthcare Co., 520 S.W.3d 848 (Tex. 2017).

As is the case with consequential damages, exemplary (or punitive) damages may be recoverable either based on common law principles or an applicable statute that governs the general subject matter. These are less common in business and real estate cases, with the notable exception of the Deceptive Trade Practices Act.

Recovery of Attorney’s Fees and Costs

Although usually considered to be a separate claim from consequential damages, legal fees and costs of court are generally recoverable in contract cases in Texas pursuant to Civil Practice & Remedies Code Section 38.001:

A person may recover reasonable attorney’s fees from an individual or organization other than a quasi-governmental entity authorized to perform a function by state law, a religious organization, a charitable organization, or a charitable trust, in addition to the amount of a valid claim and costs, if the claim is for: (1) rendered services; (2) performed labor; (3) furnished material; (4) freight or express overcharges; (5) lost or damaged freight or express; (6) killed or injured stock; (7) a sworn account; or (8) an oral or written contract.

Sec. 38.002. adds the following caveat:

To recover attorney’s fees under this chapter: (1)the claimant must be represented by an attorney; (2) the claimant must present the claim to the opposing party or to a duly authorized agent of the opposing party; and (3) payment for the just amount owed must not have been tendered before the expiration of the 30th day after the claim is presented.

Under the Deceptive Trade Practices Act, a consumer who prevails shall be awarded court costs and reasonable and necessary attorneys’ fees. Tex. Bus. & Com. Code Sec. 17.50(d). Under Sec. 17.50(b)(1):

If the trier of fact finds that the conduct of the defendant was committed knowingly, the consumer may also recover damages for mental anguish, as found by the trier of fact, and the trier of fact may award not more than three times the amount of economic damages; or if the trier of fact finds the conduct was committed intentionally, the consumer may recover damages for mental anguish, as found by the trier of fact, and the trier of fact may award not more than three times the amount of damages for mental anguish and economic damages. . . .”

Conversely, if the court finds that a DTPA claim was groundless or brought in bad faith or for the purpose of harassment, “the court shall award the defendant reasonable and necessary attorneys’ fees and court costs.” Tex. Bus. & Com. Code Sec. 17.50(c).

Attorney’s fees are also recoverable under the Statutory Fraud Act: “A person who makes false representations to another person for the purpose of inducing that person to enter into a contract involving real estate or stock transactions, shall be liable to the defrauded person for reasonable and necessary attorney’s fees.” Tex. Bus. & Com. Code Sec. 27.01.

Property Code Section 53.156 is also relevant: “In any proceeding to foreclose a lien or to enforce a claim against a bond issued under Subchapter H, I, or J or in any proceeding to declare that any lien or claim is invalid or unenforceable in whole or in part, the court shall award costs and reasonable attorney’s fees as are equitable and just.”

What protections exist against frivolous lawsuits?

DTPA Sec. 17.50(c), mentioned above, is an attempt to discourage frivolous claims by allowing a defendant the possibility of recovering attorney’s fees and costs.

Rule 91a of the Rules of Civil Procedure provides some additional protection to defendants. The rule provides that causes of action with no basis in law or fact may be dismissed within 45 days of the filing of an appropriate motion. It provides a dismissal remedy early in the process rather than having to wait for discovery to be completed in order to file a motion for summary judgment. This motion is separate from the original answer and should be filed with a request for hearing promptly after filing the answer.

Rule 13 of the Rules of Civil Procedure applies sanctions, including sanctions against attorneys, for lawsuits that are groundless or brought in bad faith. Although “Courts shall presume that pleadings, motions, and other papers are filed in good faith . . . If a pleading, motion or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, after notice and hearing, shall impose an appropriate sanction available under Rule 215-2b, upon the person who signed it, a represented party, or both.”

PART SIX: JUDGMENT AND COLLECTION

Judgment may occur as a result of motion for full or partial summary judgment, a jury or bench trial, or by default if the defendant does not file a written answer. All parties must be notified. “When the final judgment or other appealable order is signed, the clerk of the court shall immediately give notice to the parties or their attorneys of record by first-class mail advising that the judgment or order was signed” (Rule 306(a)(3)). The judgment becomes final thirty days after the judge’s signature unless there is a motion for new trial or other action by the defendant to vacate or modify the judgment.

A surprising number of judgments occur by default but these are relatively easy to set aside if timely action is taken. Typical grounds include allegations of no service or defective service along with other technical defects. “A default judgment should be set aside and a new trial ordered in any case in which the failure of the defendant to answer was not intentional, or the result of conscious indifference . . . but was due to a mistake or accident; provided the motion for new trial sets up a meritorious defense and is filed at a time when the granting thereof will occasion no delay or otherwise work an injury to the plaintiff.” Craddock v. Sunshine Bus Lines, Inc., 133 S.W.2d 124 (Tex. 1939). The court goes on to state that this rule “prevents an injustice to the defendant without working an injustice on the plaintiff.” Plaintiffs might of course disagree since swift recourse has now been delayed, but courts nonetheless take a forgiving attitude in this regard consistent with Texas’ historical partiality in favor of debtors.

Once a judgment is final, the only means of attack is a bill of review. These are generally unsuccessful unless fraud was involved in obtaining the judgment. The complainant must assume “the burden of proving that the judgment was rendered as the result of the fraud, accident or wrongful act of the opposite party or official mistake unmisted with any negligence of his own. . . .” Baker v. Goldsmith, 582 S.W.2d 409 (Tex. 1979). Although the word accident is mentioned here, subsequent cases make it clear that some sort of fraud (concealment or misrepresentation), not just accident, will be required for a successful bill of review.

Collection on a Judgment

Collecting a judgment against an individual is frequently difficult in Texas because of homestead laws and the constitutional prohibition against garnishing wages. If the loser has no insurance coverage, collection can be a real problem. Similarly, satisfying a judgment against a corporation or LLC may be challenging if assets have been moved out of the company name or are located in other jurisdictions. Attorneys are fond of saying that they could paper the walls of their offices with judgments obtained but never collected. That is the reality in Texas, especially when it comes to judgment debtors who are individuals.

Execution on a judgment is most likely to be successful when the defendant has cash in the bank, investment real estate, or a business with substantial inventory or receivables. If none of these is present, the plaintiff’s best option may be to file an abstract of judgment in the real property records and hope that the defendant will sell property through a title company during the 10 years that the AJ remains on file.

Post-Judgment Discovery

Post-judgment discovery enables a creditor to determine whether or not he is dealing with a judgment-proof debtor or perhaps a debtor who negligently failed to make an asset protection plan and whose assets are widely exposed. Written discovery requires responses within 30 days unless an extension is granted. An oral deposition is also possible. The format and procedure is the same as for any trial deposition, except the focus is now on assets, their location, and their value.
Post-judgment discovery can be lengthy and brutal. Attempting to represent oneself in this process is the equivalent of swimming through piranha-infested waters.

Conclusion

A lawsuit is a business enterprise and a tough and demanding one at that. It should never be taken personally. One function of the attorney is to help the client keep a cool head and evaluate the case rationally.

Legal fees and costs expended to pursue a suit represent a form of business investment. Alternatively, for instance, one could put that same money into stocks, real estate, or a gambling trip to Las Vegas. The client needs to estimate the rate of return on the investment in exchange for time, effort, and money expended. Putting dollars to work in a lawsuit represents an opportunity cost in economic terms, meaning those funds are not available for other uses. Clients who say these sorts of businesslike calculations are beside the point, that their suit is all about principle, are the first to tire of the process and quit, leaving their attorneys with unpaid bills and egg on their faces. Attorneys do not like to quit and they do not like to lose. Clients must have both the fortitude and the finances to support their attorney’s efforts to thoroughly litigate and win the case.