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Texas Justices Weigh Attorney Pay After Oral Contingency Deals

October 13, 2017 | Posted in : Contingency Fees / POF, Fee Agreement, Fee Award, Fee Award Factors, Fee Issues on Appeal, Hourly Rates, Quantum Meruit

A recent Law 360 story by Jess Krochtengel, “Texas Justices Weigh Atty Pay After Oral Contingency Deals,” reports that the Texas Supreme Court justices on questioned whether attorneys can collect a “reasonable value” for their work on behalf of clients if that value is tied to any type of contingency, as they weigh whether to throw out a $7.25 million award for
Shamoun & Norman LLP’s work in a dispute over a Hunt Petroleum Corp. heir’s family estate.  In oral argument, the justices probed lawyers for the firm and Hunt heir Al Hill Jr. about how lawyers can be paid for the work they’ve done when they don’t have an enforceable fee agreement.

Shamoun & Norman argues it earned a fee for the reasonable value of the services it provided to Hill when it negotiated a global settlement of 20 lawsuits over the family fortune.  But Hill contends there’s no evidence supporting that fee other than an unenforceable and disputed oral contingency agreement, and says the award should be reversed.

Questioning the firm, Justice Jeff Boyd asked whether the “reasonable value” a jury might award under a theory of quantum meruit recovery — an amount paid for services rendered when there is no legally enforceable contract between the parties — can be based even in part on the fact the client eventually prevailed.

Wallace B. Jefferson of Alexander Dubose Jefferson & Townsend LLP told the judge yes, it can, because Shamoun & Norman provided “tremendous value” to Hill by reaching an agreement with all parties to settle the cases for far less than Hill was willing to pay.  Jefferson said the jury didn’t base its award on the disputed contingency agreement, under which the firm claims it was to be paid half the savings it achieved for Hill.  Jurors came up with a reasonable fee based on what they determined was the value Hill ended up with as a result of the settlement.

Pushing back, Justice Boyd said if the reasonable value of the services provided is tied to the outcome of the case, that’s a contingency.  If the case hadn’t ended in a settlement in line with what Hill wanted, Shamoun wouldn’t be in court arguing the jury award was a reasonable amount, the judge said.  “You’re conceding your argument allows for the ‘contingency of prevailing’ to be a key factor in determining the reasonable value,” Justice Boyd said.  “I wouldn’t say it that way,” Jefferson said.  “Everything else you say says it that way,” Justice Boyd said.

Jefferson said the value of the services Shamoun provided doesn’t go away because of the contingency, nor does the value of the results achieved.  The jury was asked to determine the value of Shamoun’s services, and the fee the jury came up with should stand up in court, he said.

Justice Debra Lehrmann asked whether it matters if the underlying oral agreement had a contingency or not.  And she said to Hill’s counsel that it seems to her the whole point of quantum meruit recovery is that it applies when there is an unenforceable contract like the alleged oral contingency agreement.

Arguing for Hill, Jim Ho of Gibson Dunn said “of course” quantum meruit applies to the case, and Shamoun & Norman could have sought fees for its work on the settlement, so long as those fees were based on an hourly rate for the time it spent working on the case, or some other theory of recovery that doesn’t have a contingency component.  Ho said the fee the firm is seeking here is “obviously contingent on the outcome of the case,” as evidenced by its “bragging” about the value of the case’s outcome to try to justify the fee award.

And he argued the firm simply can’t rely on evidence of the alleged oral contingency agreement to support its claim for fees because state lawmakers made the judgment call that they want contingency agreements to be written.  Failing to get a fee agreement in writing means lawyers proceed at their own peril, Ho said.  “What Shamoun is asking you to do today is to eviscerate the Legislature’s judgment,” he said.

The state of Texas argued as an amicus in the case, siding with Hill’s position.  Texas Solicitor General Scott Keller told the court the lower appellate decision “effectively nullifies the state statute of frauds.”  Keller said the fee Shamoun & Norman seeks is clearly contingent on achieving a certain result and that the evidence presented to the jury was based entirely on the unenforceable contingency agreement — but that an unenforceable contract cannot be given any weight or effect or legally be considered as evidence.

Justice Paul Green said the point of quantum meruit recovery is to avoid unjust enrichment.  He asked if a lawyer who has done a lot of work that helps resolve the case, yet gets fired before the case winds up, would be entitled to any recovery at all.  Keller said recovery could be available in that kind of a scenario, but only if the award isn’t contingent on achieving a certain result.

Justice Boyd posed a question about an agreement in which the parties agree to a fixed hourly rate, but with payment of that hourly rate only required if the lawyer wins.  Keller said even though the amount is fixed, that payment is still contingent and would be barred unless the parties had reduced it to writing.

The case is Hill v. Shamoun & Norman LLP, case number 16-0107, in the Supreme Court of Texas.