Warranty Claims, Attorney’s Fees, and You

Most transactions have some sort of cost associated with them. The bank charges $2 to use its ATM. Your financial advisor charges his fee to execute your stock trade. Your lender charges interest for the immediate use of its capital to fund your project.

When it comes to breach of warranty claims, those transaction costs often appear in the form of attorney’s fees, and they can frequently be the tail that wags the dog. Texas has strict limitations on when attorney’s fees are recoverable. Generally speaking, they are only recoverable when specifically allowed by statute or if the claim falls into one of eight defined categories:

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
8) an oral or written contract

Noticeably missing from this list is breach of warranty. "Are you telling me," you ask, "that if I have to file a lawsuit because the widgets I bought and installed into the Taj Mahal II failed, and I WIN, I’m still going to be out my attorney’s fees???" Maybe, but you’re in a better position than you would have been a year ago.

Attorney’s fees have typically been non-recoverable in breach of warranty claims, so lawyers got creative to find other bases to receive them. One of the more common ways has been to bring claims based on consumer protection statutes (most notably, the Deceptive Trade Practices Act, or "DTPA"). The DTPA, which includes breaches of warranty within its scope, does allow for recovery of attorney’s fees.

Not every would-be plaintiff, however, qualifies for the protections created by the DTPA. For example, businesses with assets greater than $25 million are excluded. Does that mean that larger companies cannot recover their attorney’s fees while smaller companies can, even under the same facts? Until recently, that was probably the case.

Earlier this year, the Texas Supreme Court shook things up with the Medical City Dallas, Ltd. v. Carlisle Corporation case. 251 S.W.3d 55 (Tex. 2008). The court ruled that attorney’s fees are recoverable for claims of breach of an express warranty. The reasoning behind this decision was that breaches of express warranties sound in contract, and attorney’s fees are recoverable for a breach of contract. The court did not address whether attorney’s fees were recoverable for breach of implied warranties.

What does all this mean for you? First, it means that your transaction costs for bringing a claim for breach of warranty may have just gone down. But it also means that best practices dictate that you get that warranty written down. The law is still fuzzy on whether attorneys’ fees are recoverable for implied warranties, so make sure the warranty you get is express.