Texas Supreme Court upholds written hourly fee agreement

 

Mary Alice Robbins Texas Lawyer July 19, 2008

A written attorney fee agreement that specifies only hourly rates but is not ambiguous cannot be modified by evidence that the parties agreed orally to cap the fees, the Texas Supreme Court held in a Houston lawyer’s almost decade-old case against a former client.

“[T]he absence of a fixed total price for services does not indicate a failure of the parties to reach a meeting of the minds with regards to the essential terms of the contract,” the Supreme Court wrote in its July 11 per curiam opinion in Sacks v. Haden. In a second per curiam opinion in Sacks, the court addressed a turnover order issued by the trial court.

With no dissents, the Supreme Court reversed a decision by Houston’s 1st Court of Appeals and reinstated Harris County Court-at-Law No. 2′s judgment awarding the Sacks Firm in Houston and its president, David J. Sacks, $30,214 on the firm’s breach-of-contract claims against Charles McIntyre Haden Jr. and his business, Haden & Co. The high court’s decision also reinstated the court-at-law’s judgment awarding Sacks and his firm about $120,000 in attorney fees incurred in pursuing the contract claims against Haden and his company.

In a 2-1 decision, the

1st Court

held in 2007 that whether the parties’ minds met on the legal fees and Haden’s obligation to pay those fees were questions of fact that a jury should decide and remanded the case to Harris County Court-at-Law No. 2 for a trial.

“The Supreme Court brought order back to the law,” Sacks says of the high court’s decision.

If a lawyer has a contract with a client and spends thousands of dollars in time on the case, the client cannot say two or three years later that there is a $10,000 cap on the fee, Sacks says.

Houston solo Richard Countiss, Haden’s attorney, says Haden will file a motion for rehearing with the Supreme Court. “We’re extremely disappointed,” Countiss says.

Countiss says the Supreme Court decided the case on the parol evidence rule without addressing Haden’s challenge to the adequacy of the affidavit Sacks presented to the trial court to justify the thousands in dollars in fees Sacks claimed he was owed for trying to collect payment from Haden.

“If you’re going to allow the kind of windfall Mr. Sacks enjoyed, you should explain why,” Countiss says.

In 1997, Haden hired Sacks to prepare a brief to the 5th U.S. Circuit Court of Appeals in an appeal of an adverse judgment against Haden and his company in Haden v. Metropolitan Life Insurance Co., a commercial landlord-tenant dispute. Sacks set out his hourly rates and those of other lawyers and paralegals in his firm in an Aug. 4, 1997, engagement letter to Haden. Sacks signed the engagement letter in which he requested a $10,000 retainer.

The Supreme Court’s opinion provides the following background on what happened after Sacks sent the engagement letter: Haden sent a check for $5,000 to the Sacks Firm, along with a letter in which Haden wrote: “Also enclosed is an executed copy of your Aug. 4, 1997, letter indicating that I have acknowledged acceptance of your fee agreement on behalf of Haden & Co. and myself, except that the initial retainer amount has been reduced to $5,000 per our agreement.” Sacks filed a brief in Haden’s appeal to the 5th Circuit and sent Haden an invoice in the amount of $37,259 for legal services. Sacks also filed a reply brief that responded to the opponent in the landlord-tenant dispute and sent Haden an invoice showing $40,304 in total charges but giving Haden credit for the $5,000 retainer fee. While the invoice indicated an outstanding balance of $35,304, Haden paid only an additional $5,000. Over the next two years, Sacks requested payment of the balance on the attorney fees, but Haden contested the amount owed and contended that Sacks was only supposed to review the brief prepared by Haden’s trial counsel.

In September 1998, the 5th Circuit affirmed the adverse judgment of $66,363 that U.S. District Judge Nancy Atlas had awarded against Haden and his company in Metropolitan Life. However, the 5th Circuit ruled partially in favor of Haden and his company by vacating Atlas’ dismissal of a promissory-estoppel counterclaim that Haden and the company made.

Sacks and his firm sued Haden and his company in 1999 in Harris County Court-at-Law No. 2, asserting claims for, among other things, breach of contract, quantum meruit and Deceptive Trade Practices Act violations. In 2000, the court-at-law rendered a partial summary judgment in favor of Sacks and his firm, ruling that they were entitled to attorney fees of about $30,000 incurred in preparing the briefs for Haden’s appeal and for an unspecified amount of attorneys’ fees incurred in pursuing the contract claim. The court-at-law also held that Haden and his company take nothing on his counterclaims against Sacks and his firm for unconscionable acts, fraud, DTPA violations, breach of fiduciary duty and breach of contract.

As noted in the Supreme Court’s opinion, Sacks and the firm sought summary judgment on the reasonableness of the attorney fees incurred in their collection effort. The court-at-law awarded Sacks and the firm an additional $75,887 in attorney fees at the trial level and another $45,000 for fees if there was an appeal.

Haden and his company appealed to the

1st Court

, which in 2006 issued a unanimous decision affirming the court-at-law’s judgment in an opinion written by Justice Elsa Acala. After Haden filed a motion for rehearing, however, the

1st Court

reversed its original holding in a 2-1 decision. Chief Justice Sherry Radack wrote the March 8, 2007, majority opinion on rehearing, in which Justice Evelyn Keyes joined.

The 1st Court majority concluded that Haden’s evidence that he had an oral agreement with Sacks to cap the attorney fees at $10,000 was admissible as a defense to Sacks’ claim, because the engagement-letter contract that Sacks sent to Haden did not expressly state whether the parties had agreed to an open account or a flat maximum fee.

Haden argued to the

1st Court

and to the Supreme Court that he offered evidence of “consistent collateral conditions” when he testified in the court-at-law that he and Sacks had an oral agreement to cap the fee amount.

Because the engagement-letter contract did not spell out whether the parties had agreed to an open account or a flat maximum fee, the

1st Court

concluded that Haden’s evidence of an oral agreement capping the attorney fees at $10,000 was admissible in defense to Sack’s claim under the collateral-and-consistent exception to the parol evidence rule. According to the Supreme Court’s opinion, the

1st Court

raised the “meeting of the minds” issue sua sponte and concluded that, because there was not a clear statement that identified the fee agreement as an open account, there was a question where the parties had a meeting of the minds on Haden’s obligation.

The Supreme Court held that the

1st Court

erred in holding that there was no meeting of the minds necessary to form a binding contract. The high court further held that the

1st Court

erred in holding that the parol evidence rule did not bar Haden’s evidence that he and Sacks had an oral agreement capping the fees.

Haden argued to the

1st Court

and the Supreme Court that a fee agreement must state specifically that the hourly fees would accrue without limit for the agreement to be unambiguous and enforceable.

“But the lack of such explicit language is irrelevant if the agreement can be reasonably interpreted only one way. … We have never held that an open-ended hourly fee agreement will be enforced only if it expressly states there is no cap on fees, and we decline to do so now,” the Supreme Court said in Sacks.

Claude Ducloux, an Austin lawyer who represents attorneys in the State Bar of Texas grievance process and is knowledgeable about legal ethics but who is not involved in the case, says the Supreme Court’s ruling assures lawyers that when they have an unambiguous agreement with a client, that agreement is going to be valid and the client cannot inject testimony into the case that the agreement says something else.

“All I can say for the tens of thousands of us who very regularly enter into hourly fee agreements with hundreds of clients is a collective ‘whew!’ ” says Ducloux, a principal in Hill, Ducloux, Carnes & de la Garza.

SECOND PER CURIAM

In a separate per curiam opinion in Sacks, the Supreme Court reversed the

1st Court

‘s decision regarding the trial court’s turnover order. The Supreme Court remanded that part of the case to the

1st Court

. The trial court had awarded Sacks and his firm $90,000 in a turnover order. According to that Supreme Court opinion, when Haden failed to supersede the judgment against him and his business on Sacks’ breach-of-contract claim, Sacks and the firm incurred considerable expense to secure a turnover order under Texas Civil Practice & Remedies Code §31.002(e), have a receiver appointed to prevent prejudgment transfer of Haden’s assets and seek dismissal of Haden’s bankruptcy filings.

Haden had sought Chapter 13 relief in the U.S. Bankruptcy Court for the Southern District of Texas, but that court dismissed his bankruptcy claim in December 2001. The

1st Court

had reversed the turnover order when it reversed the underlying judgment on Sacks’ breach-of-contract claim, the Supreme Court noted in its opinion.

Sacks estimates that, with interest compounding at a rate of 10 percent annually, Haden and his company owe Sacks more than $400,000. But Sacks says he has spent “a lot more than I’ll ever see” in trying to collect his fees.

It’s been a legal victory, Sacks says of the Supreme Court’s rulings. “It hasn’t been a financial win.”

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