Texas Supreme Court Clarified the Applicable Standard for Proving Attorney Fees

Under the doctrine known as the “American Rule,” each party involved in a lawsuit is customarily responsible for their own respective attorney's fees incurred in litigation, unless provided for by statute or prior agreement.[1]  One the most common statutes permitting recovery of attorney's fees is Chapter 38 of the Texas Civil Practice and Remedies Code.

Pursuant to Chapter 38, a person is authorized to recover reasonable attorney's fees from an individual or corporation, in addition to the amount of a valid claim and costs, if the claim is for: (1) rendered services; (2) performed labor; (3) furnished material; (4) freight or express overcharges; (5) lost or damaged freight or express; (6) killed or injured stock; (7) a sworn account; or (8) an oral or written contract.[2]

After prevailing on one of the claims enumerated above, a claimant must then recover actual damages before attorney's fees can be awarded.[3]  Nominal damages do not meet this requirement.[4]  Once actual damages are awarded, the claimant is then eligible to recover their calculated attorney's fees.  However, prior to the Texas Supreme Court 2019 opinion in Rohrmoos Venture v. UTSW DVA Healthcare, LLP, confusion was common as to which of the two calculation methods were preferred: (i) the Arthur Andersen Test or (ii) the Lodestar Method.[5]

Methods of Calculation

(i) Arthur Andersen Test

In Arthur Anderson & Co. v. Perry Equipment, the 1997 Texas Supreme Court listed eight factors of which a trier of fact must consider in determining the reasonableness and necessity of attorney's fees.[6]  These factors include:

1. the time and labor required, the novelty and difficulty of the questions involved, and the skill required to perform the legal service properly;

2. the likelihood that the acceptance of the particular employment will preclude other employment by the lawyer;

3. the fee customarily charged in the locality for similar legal services;

4. the amount involved and the results obtained;

5. the time limitations imposed by the client or by the circumstances;

6. the nature and length of the professional relationship with the client;

7. the experience, reputation and ability of the lawyer or lawyers performing the services; and

8. whether the fee is fixed or contingent on results obtained, or uncertainty of collection before the legal services have been rendered.[7]

The Arthur Andersen test rapidly became one of the main standards for determining the reasonableness of attorney's fees, but it was never declared the official test.

(ii) Lodestar Method

Certain specialized fee-shifting statutes require courts to use the Lodestar Method to set the amount of recoverable attorney's fees.[8]  Under the Lodestar Method, the number of hours worked is multiplied by a reasonable hourly rate to generate an initial fee.[9]  “When fee-shifting is authorized, whether by statute or contract, the party seeking a fee award must prove the reasonableness and necessity of the requested attorney's fees.”[10]  After calculation, the court then may use the Arthur Anderson factors to adjust the base Lodestar up or down, assuming the relevant factors indicate a necessary adjustment.[11]

2019 Texas Supreme Court Weighs In on the Preferred Method of Calculation

In April of 2019, the Texas Supreme Court settled the confusion by issuing a seminal opinion in Rohrmoos.  In their ruling, the Court reaffirmed the Lodestar Method as the preferred starting point in calculating attorney's fees and clarified what evidence is recommended to support the reasonableness and necessity of a claimed fee.[12]

In Rohrmoos, the Court analyzed a lease dispute between commercial tenant, UTSW DVA Healthcare, LP (“UTSW”), and landlord Rohrmoos Venture.  The subject lease in dispute provided for a fee-shifting arrangement for reasonable attorney's fees.

After prevailing at trail, UTSW’s attorney attempted to prove the reasonableness and necessity of his requested attorney's fees by testifying he had twenty years of litigation experience and he had handled cases similar in nature to this one before.[13]  He further testified that the standard rate he charges was $430 per hour and that a reasonable and necessary time spent on the case was around 750 to 1,000 hours.[14]  Those hours multiplied by his standard hourly rate total between $322,500 and $430,000, so Howard testified that a reasonable and necessary fee would be between $300,000 and $430,000.

However, the attorney went on to testify that the case had not been “worked up in a reasonable fashion” and therefore the fees were much closer to $800,000.[15]  The attorney reasoned this increase was necessary because he: (i) searched through “millions” of emails, (ii) reviewed “hundreds of thousands” of documents during discovery, (iii) over forty depositions were taken, and (iv) a forty-page motion for summary judgment was drafted.[16]  He did not explain, however, how much time he spent on each of those listed tasks.  The jury later awarded $1,025,000 in attorney's fees.

On appeal, the Texas Supreme Court found the attorney's fee award of $1,025,000 to be “too general,” as the evidence provided did not support the attorney's calculation.[17]

In their opinion, the Court addressed the confusion regarding the preferred method of calculation and the evidence required to enhance or reduce the base calculation.  The Court clarified that under the Lodestar Method, the initial fee calculated is presumed to reflect the reasonable and necessary attorney's fee that can be shifted to the non-prevailing party, so long as the fee is supported by sufficient evidence.[18]  Because of this presumption, the Court opined that fact finders should start with the Lodestar method to calculate a base fee and to determine what fees are reasonable and necessary.[19]

As for sufficient evidence, the Court concluded “sufficient evidence includes, at a minimum, evidence of (1) particular services performed, (2) who performed those services, (3) approximately when the services were performed, (4) the reasonable amount of time required to perform the services, and (5) the reasonable hourly rate for each person performing such services.”[20]  Since the record in Rohrmoos did not contain this evidence, the Court reversed the award of attorney's fees.

Conclusion

In Rohrmoos, the Court reaffirmed the starting point for a fact finder to calculate an attorney's fee award is the Lodestar Method: Base Calculation: Time x Rate = Presumptively Reasonable.[21]

This calculation aims to produce an objective figure that approximates the fee an attorney would have received had they properly billed a client by the hour in a similar case.  Since this ruling, the Texas Supreme Court has remanded a second fee dispute case, Barnett v. Schiro, for reconsideration.  Detailed billing records were also strongly encouraged in Rohrmoos.  Although billing records are nothing new for defense firms, they will likely become the norm for all parties involved in litigation now.[22]

This standard will have a much greater impact on Plaintiff’s attorneys as well as those who work on a contingency basis since a fee claimant must now show specific evidence as to why a fee enhancement is necessary.  This opinion firmly confirmed that Lodestar Calculation and thorough evidence are to be expected going forward.

[1] In re Nat'l Lloyds Ins. Co., 532 S.W.3d 794, 809 (Tex. 2017).

[2] Tex. Civ. Prac. & Rem. Code § 38.001 (West 2017).

[3] Green Int’l., Inc. v. Solis, 951 S.W.2d 384, 390 (Tex. 1997).

[4] ITT Commercial Fin. Corp. v. Riehn, 796 S.W.2d 248, 257 (Tex. App.—Dallas 1990, no writ).

[5] Rohrmoos Venture v. UTSW DVA Healthcare, LLP, No. 16-0006, 62 Tex. Sup. Ct. J. 808, 2019 Tex. WL 1873428 (Apr. 26, 2019).

[6] Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818–819 (Tex. 1997).

[7] Id.

[8] El Apple I, Ltd. v. Olivas, 370 S.W.3d 757, 764 (Tex. 2012).

[9] El Apple I, Ltd., 370 S.W.3d at 758.

[10] Kinsel v. Lindsey, 526 S.W.3d 411, 427 (Tex. 2017).

[11] Rohrmoos Venture, 2019 WL 1873428, at *17.

[12] Id. at 1.

[13] Id. at 2.

[14] Id.

[15] Id.

[16] Id. at 24.

[17] Id. at 1.

[18] Id. at 21.

[19] Id. at 11.

[20] Id. at 20.

[21] Id.

[22] Id. at 23.