AUSTIN – Contracts that provide legal fees for prevailing parties don't necessarily apply when plaintiffs nonsuit without prejudice, six Supreme Court Justices decided on Aug. 26.
They denied $22,950 in fees to home sellers Christopher and Laura Epps, who successfully defended a claim from buyers Bruce and Stephanie Fowler.
Justice Debra Lehrmann wrote that "a defendant is not a prevailing party unless the court determines, on the defendant's motion, that the plaintiff took the nonsuit in order to avoid an unfavorable judgment."
She wrote that nonsuiting with prejudice changes relationships but nonsuiting without prejudice doesn't.
The majority remanded the case to Williamson County Court of Law Judge John Mcmaster, to determine whether the Fowlers nonsuited to avoid an unfavorable ruling.
They also left open a possibility that the Eppses could recover fees under Texas civil procedure code.
Still, their definition of "prevail" stunned three dissenters.
Justice Nathan Hecht wrote, "Common experience teaches that the challenger who forfeits, loses, and his opponent wins."
"What is the difference between a weak claim that should be abandoned, which can be nonsuited with impunity, and a claim that is likely to result in an unfavorable judgment, which cannot?" he wrote.
In sarcastic search of clearer terms than "prevailing party," he proposed just party, escaping party, fortunate party and oppressed party.
He wrote, "But if 'prevailing' is not clear enough, probably no one word is."
The Fowlers bought a home in Georgetown from the Eppses in 2004.
They sued two years later, alleging deceptive trade practices and negligent misrepresentation, claiming cracks in sheetrock and evidence of past repairs indicated the foundation would fail.
The Eppses moved for partial summary judgment, denying knowledge of any defect in the foundation.
They sought legal fees from the Fowlers as sanction for filing a groundless claim. Alternatively, they sought fees and costs under the sale contract, which entitled a prevailing party in a legal proceeding to recover reasonable fees and costs.
The Fowlers responded to the motion for judgment and moved to substitute counsel. The next day, they filed notice of nonsuit without prejudice.
The Eppses and the Fowlers proceeded to trial anyway, solely on the question of legal fees under the contract.
The Eppses reserved the right to seek fees under civil procedure code.
At trial, Mcmaster ordered the Fowlers to pay the Eppses $22,950.
The Fowlers appealed, and Third District judges in Austin reversed Mcmaster.
The Eppses appealed, sparking debate over what it means to prevail.
Lehrmann wrote that "the agreement does not expressly define the term prevailing party, and no other portion of the agreement sheds light on the term's meaning."
She cited Intercontinental Group Partnership v. KB Home, where the justices denied fees to a plaintiff who obtained a favorable jury finding but zero damages.
The Court held that, "Whether a party prevails turns on whether the party prevails upon the court to award it something, either monetary or equitable."
Lehrmann cited a U. S. Supreme Court decision that enforceable judgments on the merits and court ordered consent decrees confer prevailing party status on a plaintiff if they create a "material alteration of the legal relationship of the parties."
She also cited a U. S. Supreme Court decision that nonsuiting doesn't warrant a conclusion that a defendant prevailed because it might reflect legitimate litigation strategy.
She wrote that imposing fees on plaintiffs who nonsuit would penalize them for doing what should be done and encourage them to pursue claims they should abandon.
"The amount and reasonableness of the fees will likely be the subject of continuing litigation, no matter how prevailing party is defined," she wrote.
If Mcmaster denies fees under the contract, he must decide whether to award them under civil procedure code.
Chief Justice Wallace Jefferson joined Lehrmann, along with Justices Dale Wainwright, Paul Green, Don Willett and Eva Guzman.
Dissenter Hecht wrote, "The Court's primary concern is whether recovery of attorney fees from a plaintiff who nonsuits is good policy, and it presumes the Fowlers and the Eppses must have shared its view of the subject."
He wrote that Lehrmann cited cases dealing with legislative policy in public statutes, not with intent of private parties.
He wrote, "The place to look for the ordinary meaning of words is not federal case law but a dictionary."
His dictionary defined prevailing as gaining victory by strength or superiority.
He imagined a conversation with a lawyer telling the Eppses the Fowlers dropped the suit and the Eppses saying, "So we won."
His imaginary lawyer answered, "No, you didn't win. The Fowlers just gave up."
He quoted a Court precedent that, "A court must be careful not to substitute its own view of what should have been intended for what was intended."
Justices David Medina and Phil Johnson joined Hecht.
Noel Short and Travis Weitzel represented the Eppses.
Frank Lyon represented the Fowlers.