Arthur Andersen and the Recovery of Attorney Fees in Texas

There are a number of ways to recover attorney fees in Texas. In addition to many specific statutes that allow recovery of attorney fees, Chapter 38 of the Texas Civil Practice and Remedies Code provides the general basis to recover attorney fees in Texas.

To recover fees under Chapter 38, a party must show that (1) it has plead facts sufficient to support a claim for attorney fees; (2) the underlying claim must be one of eight types of claims authorized by Chapter 38; (3) the party must have been represented by an attorney; (4) the party who is being assessed the attorney’s fees must be an individual or a corporation (see my earlier blog on statutory interpretation of the fee statute); (5) the claim must have been presented to the opposing party or its agent and they refused to tender payment or did not timely tender payment; (6) the party awarded attorney fees prevailed on a claim that allows recovery of attorney fees; and (7) proof is provided as to reasonableness.

For claims brought under Chapter 38, there is a rebuttable presumption that the usual and customary attorney fees are reasonable. See Tex. Civ. Prac. & Rem. Code 38.003. However, despite the provisions of Chapter 38, if a written contract provides for the recovery of attorney fees, the contractual provisions will defeat the provisions and requirements of Chapter 38. See Intercontinental Group v. KB Home Lone Star L.P., 295 S.W.3d 650, 653 (Tex. 2009). Further, when a contract has a written hourly rate that is agreed upon, attorney fees can be recovered based on that rate if the rate was reasonable. See Cain v. Pruett, 938 S.W.2d 152, 158 (Tex. App. – Dallas 1996, no writ). What happens when you do not have an hourly fee arrangement, but instead you seek to recover a contingent award of attorney fees?

When you have a contingent fee agreement, attorney fees cannot be recovered from the defendant solely on evidence of the fee agreement. Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818-819 (Tex. 1997). Before a contingent fee can be awarded the court must consider the eight factors set out by the Supreme Court of Texas in Arthur Andersen. You do not have to present evidence on all eight factors, but all factors should be considered. Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d at 818.

The eight Arthur Andersen factors are: (1) the time and labor required, the novelty and difficulty of the questions involved and the the skill required to perform the legal service properly; (2) the likelihood, if apparent to the client, that acceptance of the particular case will prevent other employment by the attorney; (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and results obtained; (5) the time limitations imposed by the client or the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation and ability of the attorney performing the services; and (8) whether the fee is fixed or contingent on results obtained (i.e. uncertainty of collection). Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d at 818.

While the Arthur Andersen case has universally been applied to contingent fee awards, at least one court of appeals has also held that the Arthur Andersen factors should also apply to an hourly fee contract. See e.g., Ashton Grove, L.C. v. Jackson Walker L.L.P., 366 S.W.3d 790, 799 (Tex. App.- Dallas 2012, no pet.). There is no reason not to apply the Arthur Andersen factors to any award of attorney fees and its framework is a good starting point for any award of attorney fees by a court.

Award of attorney fees is and should not be an automatic function by the courts. Courts are the gatekeeper for what is admitted into court and should use their gatekeeper role to ensure that any award of attorney fees is reasonable and supported by appropriate evidence. Also, any award of attorney fees should be segregated so that fees are only recovered and awarded for claims in which fees are recoverable by statute, contract or in equity. See Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 310-311 (Tex. 2006). The opinions in this blog are solely the author’s and any comments, replies, or suggestions can be sent to john@jrjoneslaw.com.

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