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Category: Legislation / Politics

Texas Legislation Would Limit Contingency Fee Contracts with Local Governments

April 8, 2019

A recent Texas Lawyer story by Angela Morris, “Bill Would Limit Some Attorney Contingency Fee Contracts with Local Governments,” reports that local governmental entities would have to follow a new procedure to hire contingent-fee plaintiffs law firms for cases involving engineering and architects under a bill that a Texas legislative committee passed.  Current law already restricts state agencies and departments from entering contingent-fee representations, and now the House Judiciary and Civil Jurisprudence Committee has passed a version of House Bill 2826, by Rep. Greg Bonnen, R-League City, that would make the procedure apply to governmental entities at the county and city level as well.

When the committee was considering the bill during a March 25 public hearing, a representative of the tort reform lobbying group, Texans for Lawsuit Reform, testified in support of the proposal along with seven other witnesses.  Meanwhile, testifying against the bill were two representatives of the plaintiffs attorney trade group Texas Trial Lawyers Association and five other witnesses.

The county- and city-level governmental entities, under the bill, would only be able to pick a contingent-fee lawyer or law firm if it was well qualified with demonstrated competence, qualifications and experience in the type of legal services at issue.  The governmental entity would have to negotiate for a fair and reasonable price.  It would be able to require the lawyer or firm to indemnify it from claims of acts or omissions of the lawyer, firm or firm employees.

Before hiring the lawyer or firm, the city or county officials involved would have to provide a notice for a public meeting to explain the reasons they wanted to pursue the legal matter for which they were hiring the lawyer or firm.  They’d have to explain their desired outcome, and explain why it was in the public’s best interests.  The notice would have to explain the lawyer’s competence, qualifications and experience in that type of matter.  Officials would have to reveal in the notice what relationship they had with the lawyer or firm, and how the relationship began.  They’d have to tell why they could not use their governmental entity’s own resources rather than hiring the outside contingent-fee law firm.  The officials would also have to say why they couldn’t get the same legal services from a lawyer charging an hourly fee, rather than a contingency.

When holding the public meeting regarding the contingent-fee representation, public officials would have to approve the contract in an open meeting where they considered the need for the legal services, terms of the contract, the lawyer’s or firm’s competence and experience, and why the contract served the public’s interest.  Once they approved the contract, officials would have to state in writing why they needed the legal services, why they couldn’t use their own resources for it, why they couldn’t hire an hourly rate lawyer for the job, and more.

Before the contract could become effective, the city or state governmental entity would have to submit it for review and approval by the Texas attorney general, along with documentation that it held a public meeting and officials approved it.  It would have to describe the matter and say whether the state or any other governmental entity may have an interest in the matter.  If the governmental entity had not followed the right procedure, the attorney general could refuse to approve the legal contract, and he could also disapprove if he found the matter was similar to a matter that the state was also pursuing, and the other governmental entity’s similar matter wouldn’t help resolve the dispute.  The bill lays out a 90-day deadline for the attorney general to make a decision, or else the contract would be considered approved.

When state governmental agencies or departments enter legal contracts, those lawyers or firms already have to reveal their time and expense records on request, and after the matter is resolved, they must provide a written statement about the outcome, recovery, the contingent-fee amount, final time and expense records and more.  The bill creates the same requirement for lawyers or firms representing city- or county-level governmental entities, and makes it clear that some of that information on time and expenses would be public records under the state’s open-records law, with some exceptions.

The bill places limits on expenses the contingent-fee lawyer and firm could collect from the city- or county-level governmental entity, with a requirement to ensure they’re reasonable and necessary, similar to limits in current law for state agencies or departments that contract with outside lawyers.  If a governmental entity didn’t follow the right procedures as laid out in the bill, then any legal services contract it improperly entered would be void under the bill, and it would be prohibited from paying any fees for work under the voided contract.

Opinion: Keep to the American Rule: No Attorney Fees as Actual Damages in Defamation Cases

February 26, 2019

A recent New Jersey Law Journal editorial, “Keep to the American Rule: No Attorney Fees as Actual Damages in Defamation Cases,” reports on the fee-shifting in defamation actions.  The editorial reads:

In an article which appeared in the Jan. 14, 2019, edition of this Law Journal, New Jersey attorney Andrew B. Bolson discussed the subject of damage awards in defamation actions.  It was pointed out that under New Jersey law, a jury can award either specific damages or general damages.  The former are intended to compensate the successful plaintiff for a specific pecuniary loss.  General damages, however, are those which are not susceptible to precise calculation.  Mr. Bolson points out that under the Supreme Court’s decision in Nuwave Investment Corp. v. Hyman Beck & Co., 221 N.J. 495, 499 (2015), “all compensatory damages, whether considered special or general, depend on showing of actual harm, demonstrated through competent evidence, and may not include a damage award presumed by the jury.”

It is also noted that where a plaintiff is unable to show actual damages, a jury does have the authority to award presumed damages (generally limited to $1.00) in order to offer some solace to the plaintiff whose reputation has been damaged.  Mr. Bolson says that New Jersey is in a minority of states that limit presumed damages to nominal damages.  He urges that, “To eliminate any confusion as to whether attorney fees can be awarded in defamation cases, the New Jersey legislature should pass legislation to definitively establish that attorney fees are compensable to successful plaintiffs as actual damages.”  Mr. Bolson contends that protecting one’s reputation should not be worth just a dollar.  He urges that successful plaintiffs should be able to receive legal fees and costs even where only nominal damages are awarded.

Although the internet has revolutionized publishing and made it far easier to broadcast malicious lies about anyone, the fact is that to adopt Mr. Bolson’s suggestion would be to drastically change our American system whereby, except for specified statutory or contractual exceptions, litigants bear their own legal costs.  Whether that established system is ever to be changed remains to be seen.  However, to provide in defamation actions that, even in the absence of actual harm, a prevailing plaintiff may receive attorney fees as “actual damages” would be to distort the meaning of such damages and, in effect, adopt the British system where the loser pays.  While we respect Mr. Bolson’s contention that one’s reputation should be compensable, irrespective of demonstrated harm, we are not yet prepared to endorse such change in our American system.

Florida Legislation Would Limit Attorney Fees in ‘AOB’ Cases

February 12, 2019

A recent Daily Business Review story by Jim Saunders, “Plan to Limit Attorney Fees in’AOB’ Cases Stalls in Committee,” reports that, in what could be a glimpse of the battles to come over the heavily lobbied issue, a Senate committee bottled up a proposal that would limit attorney fees in cases involving the insurance practice known as “assignment of benefits.”  The Senate Banking and Insurance Committee tabled a bill (SB 122) sponsored by Chairman Doug Broxson, R-Gulf Breeze, after it became apparent the measure would fail if brought up for a vote.  Though the 2019 legislative session does not start until March 5, it was at least an initial blow to the insurance industry and other business groups pushing to limit attorney fees in so-called AOB cases.

Sen. Tom Lee, R-Thonotosassa, joined three Democrats in opposing the bill, making it impossible for Broxson to patch together a majority on the eight-member committee.  Insurers and their allies argue that fee limits are needed because of an increase in AOB litigation that is driving up consumers’ property-insurance premiums.  But Lee said there are “some bad actors on both sides of the equation” and indicated he thought Broxson’s bill could end up hurting consumers who need homes repaired for such things as water damage.

“We are going to kill the patient while we try to cure the problem,” Lee said.  Sen. Keith Perry, however, said the bill “is a step in the right direction” and argued consumers will face higher insurance rates if lawmakers don’t solve the problem.  “We owe it to the working-class people of the state of Florida to do something,” Perry, R-Gainesville, said.

Assignment of benefits is a decades-old practice that has become highly controversial in recent years.  Lawmakers have repeatedly considered proposals to address the issue but have not been able to reach agreement.  In assignment of benefits, homeowners in need of repairs sign over benefits to contractors, who ultimately pursue payments from insurance companies.  Insurers contend that the practice has become riddled with fraud and litigation, while plaintiffs attorneys and other groups say it helps make sure claims are properly paid.

Under state law, insurance policyholders are entitled to have their attorney fees paid if they prevail in cases against insurers.  In 1972, a Florida Supreme Court ruling also extended the right to recover attorney fees to people, such as contractors, who have been assigned insurance benefits, according to a Senate staff analysis.

But Broxson’s bill would have prevented continuing to extend the right to attorney fees to contractors.  The staff analysis said that such a change would “make the assignment of post-loss benefits less valuable.  The assignee [the person assigned the benefits] would have to pay his or her own attorney fees to enforce the insurance contract.”

Fee Agreement Issues in Opioid Litigation in Some Texas Counties

August 23, 2018

A recent Forbes story by Daniel Fisher, “Lawyers for Texas Counties in Opioid Cases May Not Have Valid Contracts, reports that a number of Texas counties including Montgomery County, a sprawling suburb north of Houston, may have invalid contracts with their outside lawyers because they haven’t been approved by the Texas Comptroller as required under state law.  More than a dozen counties represented by the law firms Haley & Olson and Harrison Davis Steakley Morrison Jones filed suit without first obtaining the Comptroller’s approval for their contingency fee contracts.  Months later, those contracts still haven’t been approved, possibly putting the suits in peril.

In a 2012 decision involving similar litigation by counties over the mortgage crisis, a federal court stated the requirements under Texas law “must be satisfied before a Texas county can retain outside counsel on a contingency fee basis.”  In another decision that year, a Texas state court judge declared the contract between Harris County and its contingency fee lawyers void because it hadn’t been approved.

Texas passed extensive reforms to its rules on hiring outside lawyers starting in 1999, after private attorneys caused a political uproar by collecting $3.3 billion in fees for representing the state in its lawsuit against the tobacco industry.  Former Texas Attorney General Dan Morales ultimately went to prison for illegally attempting to divert $500 million of those fees to a friend.

The new rules in Texas included a maximum contingency fee of 35%, strict requirements for keeping time and expense records, and a hybrid method of calculating fees that includes a “base fee” determined by actual hours worked times a multiplier of up to four to reflect the risk of taking on the case.  The final fee charged to the government must be the lower of the percentage of the award or the base fee and multiplier, and the fee can only reflect work done by partners and employees of the contracting firms.

Texas legislators were concerned about the possibility of excessive fees and political payoffs in the wake of the scandals surrounding the tobacco litigation and Morales’ criminal trial, said Charles Silver, a professor at the University of Texas Law School and prominent legal affairs expert.  Most trial lawyers in Texas are Democrats and the governor at the time was George W. Bush, a Republican.  “The legislature was dominated by Bush and the Republicans, and they just didn’t want to be supporting plaintiff attorneys who were supporting the Democratic party,” Silver said.

Regardless of the motivating factors, comptroller approval and billing records are the law in Texas, and even considered public records.  Montgomery County’s lawyers seem to agree: The contract says they will comply with Section 2254.104(a) of the Texas Government Code, including maintaining “current and complete written time and expense records” that will be available to county or state officials “at any time upon request.”

Despite this requirement, Montgomery County Assistant District Attorney John J. McKinney, in an Aug. 14 letter, said “no documents exist that are responsive” to a request for billing records.  It’s not surprising counties might balk at complying with the recordkeeping requirements of Section 2254, Silver said.  “Lawyers don’t like others knowing how much time and effort they’re expending, whether on the plaintiff or defense side,” he said.

The hours compiled to calculate the base fee could be an issue in opioid litigation, however.  Unlike many lawsuits in which a law firm represents a single government entity suing over a single claim, opioids law firms have bundled large numbers of municipal clients and are working closely with national law firms that control the federal multidistrict litigation in the court of U.S. District Judge Dan Aaron Polster in Ohio.

One sign of the cooperation among law firms is Montgomery County’s lawsuit, filed Dec. 13 in federal court in Houston.  It is an almost word-for-word copy of the lawsuit filed by three different law firms, including Dallas-based Simon Greenstone, on behalf of Bowie County more than two months before.

A close examination of the billing records might reveal how much time Montgomery County’s lawyers spent in the early stages of the litigation, and whether that is justified given evidence they used a borrowed complaint.  The other 12 counties might also want to compare their base fee calculations with each other to make sure their lawyers aren’t double-billing hours across the entire group.

Other Texas counties including Dallas and Harris have obtained Comptroller approval of their contracts.  And an attorney retained by Clay County (another client of Haley & Olson and Harrison Davis Steakley Morrison Jones) said they would submit the contract to the state during a January meeting when Clay County Commissioners Court approved hiring the firms. Clay County’s contract has not yet been approved.

The stakes for the counties could be high if defendant companies challenge the status of their representation.  When private lawyers representing several Texas counties attempted to assemble a statewide class action in litigation against Merscorp, a mortgage registry, the federal judge who examined Texas law said it wasn’t possible because each county needed the Comptroller’s approval before joining the class.  Under the law of the Fifth Circuit, which includes Texas, so-called “opt-in” class actions aren’t allowed under Rule 23 of the Federal Rules of Civil Procedure.

The Texas judge who declared Harris County’s contract with private lawyers void nevertheless allowed the case to proceed because the complaint was also signed by the county attorney’s office. Montgomery County’s complaint is signed only by the private lawyers.

Kentucky Legislation Would Limit Attorney Fees to Outside Counsel

March 27, 2018

A recent AP story by Bruce Schreiner, “Bill Advances to Limit Fees to Outside Attorneys,” reports that over objections from Kentucky’s Democratic attorney general, GOP lawmakers took another step Thursday toward limiting how much outside attorneys can earn when hired by the state.

Supporters said the bill aims to maximize the amount from a settlement or judgment that benefits those hurt by a transgressor's actions. Attorney General Andy Beshear's office said the limits could hamper recruiting outside attorneys whose expertise can help win large awards for the state. In those cases, the contingency fees would be a good tradeoff, a top Beshear aide said.

"If we're going big, 75 percent, 80 percent of big is way better than 100 percent of nothing," said Deputy Attorney General J. Michael Brown. "And we need the ability to win these cases."

The measure was advanced by Republicans on the Senate Judiciary Committee. Its chairman, Sen. Whitney Westerfield, lost to Beshear in a close election in 2015. Westerfield, who plans to run again for attorney general next year, said he's comfortable with the measure.

The bill would set limits on contingency fees paid to outside lawyers. Those attorneys don't get paid unless they win the lawsuit. They sign a contract with the Attorney General's office that guarantees them a certain percentage from a settlement or judgment.

The proposal would apply to future contracts. If it becomes law, those fees would be capped at 20 percent of a settlement or judgment up to $10 million. Fee percentages would shrink for amounts above $10 million.

Those cases can yield potentially lucrative judgments, but often pit the state against corporations with vast resources and high-powered legal teams. So attorneys general sometimes hire outside lawyers to help with big cases, as Beshear has done in suing pharmaceutical distributors he accuses of inundating Kentucky with dangerously addictive opioid painkillers.

Beshear's office says the bill would restrict its ability to recruit outside lawyers, pointing to its legal fight with opioid distributors. Nemes dismissed the criticism as "pure demagoguery," noting Beshear's office has received bids from outside lawyers that complied with the bill's terms.

The bill, which already passed the House, would require the attorney general, the governor's office or any another constitutional office to show that hiring outside counsel is needed.

But the focus has been on the attorney general's office, and has been a politically charged issue as Beshear has feuded with Gov. Matt Bevin over the Republican's use of executive authority.

Rep. Jason Nemes said his bill aims to make sure hiring outside counsel is necessary, that the contracts are transparent and injured Kentuckians are the biggest beneficiaries of awards.

"That's what we're trying to do with this bill, get as much money as possible to go to injured citizens," the Louisville Republican said.

In complex cases, Brown said, some wrongdoers aren't exposed until attorneys dig deep into a case. He said fee limits could deter outside lawyers from pursuing all potential defendants.

The Senate panel amended the bill to give the legislature or state Finance Cabinet oversight of contingency fee agreements. Beshear said in a statement that the amendment was "another power grab" and could "hamstring" his efforts to pursuit lawsuits against drug companies.

If the bill passes the Senate with the change, it would go back to the GOP-led House.

The bill also would require all records — including expenses — associated with the hiring of outside lawyers be made public.

The legislation is House Bill 198.