Advancement of Attorneys’ Fees Through Trial–Upheld by the Fort Worth Court of Appeals

In L Series, et al. v. Holt, Number 02-17-00415-CV (Tex. App.—Fort Worth 2019), the trial court ordered that the Plaintiff entities advance the Defendant’s attorney’s fees during the pendency of the lawsuit under an “advancement of expenses” provision in the company agreements.  The Plaintiffs contested the trial court’s ruling by both mandamus and an interlocutory appeal.  In a matter of first impression for the Fort Worth COA regarding advancement of expenses under a company agreement and the Texas Business Organizations Code, the court rejected the interlocutory appeal on jurisdictional grounds and determined there was no abuse of discretion under the mandamus challenge. 

In December 2016, Plaintiffs sued Defendant (who was an officer and manager of Plaintiffs) for various alleged fraudulent acts.  Defendant answered and counterclaimed for advancement of fees and expenses under the operative documents.  The trial court granted Defendant’s motion for summary judgment, awarding both past and future expenses, including reasonable attorney’s fees and expenses through trial.

The advancement provision at issue states:

“The right to indemnification conferred in this Article VIII shall include the right to be paid or reimbursed by the Company the reasonable expenses incurred by a Person of the type entitled to be indemnified under Section 8.01who was, is or is threatened to be made a named defendant or respondent in a Proceeding [1] in advance of the final disposition of the Proceeding and [2] without any determination as to the Person’s ultimate entitlement to indemnification;  . . . “

Rejecting Plaintiffs’ challenges, the Fort Worth COA concluded that the advancement order is immediately enforceable by specific performance and that Plaintiffs contracted away their traditional right to supersedeas.

The take away for practioners from this case is to identify whether the right to advancement is contemplated in the operative company agreements and address its scope (before filing suit) with your client to determine the provision’s impact on the prosecution or defense of a lawsuit. Notice:  Wick Phillips Gould & Martin, LP represents the Defendant in this matter.

By: Schyler Parker