On April 26, 2019, the Texas Supreme Court issued its opinion in Rohrmoos Venture, et. al. v. UTSW DVA Healthcare, LLP, which clarifies the proper standard for proving up attorneys’ fees in court is the lodestar method using the eight factors from Arthur Andersen v. Perry Equipment Corporation, 945 S.W. 2d 812 (Tex. 1997) to calculate the base lodestar.
This case involved a commercial lease dispute where Rohrmoos was the landlord and UTSW was the tenant. After experiencing water penetration in the building, UTSW terminated the lease early, vacated the premises and moved to other space while allegedly owing $250,000 in unpaid rent. The lease between the parties provided for a fee-shifting arrangement whereby the “prevailing party shall be entitled to an award of reasonable attorneys’ fees” from the non-prevailing party. The jury found that Rohrmoos breached the lease first, and therefor UTSW was the prevailing party.
UTSW’s attorney, Wade Howard, testified at trial on the issue of reasonable attorneys’ fees. He testified that he had twenty years of litigation experience, the standard rate he charges is $430 per hour, he handled similar cases before, and a reasonable and necessary number of hours to spend on the case was 750 to 1,000. That number of hours times his hourly rate is between $322,500 to $400,000, so a reasonable and necessary attorneys’ fee would be between $300,000 and $400,000.
Mr. Howard went on to testify that this case was not worked up in a reasonable fashion, and as a result his fees were more than $800,000. He gave as examples the need to search “millions of emails,” and reviewing “hundreds of thousands” of documents, over forty depositions were taken, and a forty page motion for summary judgment was filed. Mr. Howard did not testify as to the amount of time that was spent on each of these tasks nor did he introduce his billing records. From the Arthur Andersen case, he relied on (1) the amount in controversy, (2) the complexity of the case, and (3) his knowledge and experience. The jury awarded UTSW $800,000 in attorneys’ fees for trial in the trial court and conditional awards of $150,000 for an appeal to the court of appeals and $75,000 for an appeal to the supreme court. The court of appeals affirmed the award.
The Supreme Court reversed the holding of the court of appeals and remanded the case to the trial court to determine an award of reasonable fees under its holding. In its opinion, the Supreme Court first performed a detailed historical analysis of the standard for proving up attorneys’ fees in federal courts. The court discussed Johnson v. Georgia Highway Express, Inc., 488 F. 2d 714 (5th Cir. 1974), and the twelve factors that it stated that a court should consider in determining a reasonable fee. Following the Johnson decision, the US Supreme Court adopted the lodestar method of calculating reasonable attorneys’ fees in Hensley v. Eckerhart, 461 U.S. 424 (1983), where the starting point is the number of hours reasonably expended multiplied by a reasonable hourly rate. After that number is calculated, the Court held that the fee could be adjusted upward or downward based on other considerations, including but not limited to the Johnson factors. The Court made it clear though that many of the Johnson factors would be subsumed in the initial calculation of the hours reasonably expended at a reasonable hourly rate.
In Blum v. Stenson, 465 U.S. 886 (1984), the Supreme Court refined the lodestar approach by holding that the base calculation is presumed reasonable if the applicant has carried the burden of showing that the claimed rate and number of hours are reasonable. The Supreme Court also held that Johnson factors such as the “novelty and complexity of the issues,” “the special skill and experience of counsel,” the “quality of the representation,” and the “results obtained” from the litigation cannot serve as independent bases for increasing the fee, because those considerations are fully reflected in the lodestar amount. Upward adjustments of the lodestar figure are permissible but are only proper in certain rare and exceptional cases supported by both detailed findings by the lower courts and specific evidence in the record.
In Burlington v. Dague, 505 U.S. 557 (1992), the Supreme Court held that contingent fee arrangements do not enhance the base lodestar.
The Court then discussed the historical methods of proving attorneys’ fees in state courts by analyzing the eight Arthur Andersen factors and the application of the lodestar method to a fee award under the Texas Commission on Human Rights Act in El Apple I, Ltd. v. Olivas, 370 S.W. 3d 757 (Tex. 2012). Following El Apple, many practitioners believed that one could opt to prove up attorneys’ fees either by using the Arthur Andersen factors or by using a Lodestar calculation from El Apple. The Court held that any doubt about the applicability of the lodestar method to all attorneys’ fees awards should have been resolved by its decision in City of Laredo v. Montano, 414 S.W. 3d 731 (Tex. 2013) where the lodestar calculation from El Apple was applied to a claim that did not otherwise require application of the lodestar method.
The Court also discussed the holdings of some courts that testimony about an attorneys’ experience, the total amount of the fees, and the reasonableness of the fees complies sufficiently with Arthur Andersen to support an attorneys’ award. The Court made it clear that generalities such as these are not sufficient to support a fee-shifting award under the lodestar method.
The Court held that the base lodestar calculation of a reasonable number of hours multiplied by a reasonable hourly rate is presumptively reasonable. Sufficient evidence includes at a minimum (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 the services. The lodestar calculation should produce an objective figure that approximates the fee that the attorney would have received had he or she properly billed a paying client by the hour in a similar case.
Reasonableness and necessity are not dependent solely on the contractual fee arrangement between the prevailing party and its attorney. In a footnote, the Court noted that for non-hourly fee arrangements, the expert has the burden of showing that the rate claimed for purposes of the base lodestar calculation reflects a reasonable market rate given the considerations in Arthur Anderson , including the attorney’s experience and expertise, the novelty and complexity of the questions involved, any special skill required for the representation, the attorney’s risk in accepting the representation (which may be reflected in a contingent fee agreement), and any other considerations that would factor into an attorney’s fee negotiation if the attorney were to bill hourly.
The Court also made it clear that the second part of the lodestar analysis remains intact, and that the fee may be adjusted up or down. However, the adjustment may not consider any Arthur Anderson factor that is subsumed in calculation of the base lodestar including (1) the time and labor required, (2) the novelty and difficulty of the questions involved, (3) the fee customarily charged in the locality for similar legal services, (4) the amount involved, (5) the experience, reputation, and ability of the lawyer or lawyers performing the services, (6) whether the fee is fixed or contingent on the results obtained, (7) the uncertainty of collection before the legal services have been rendered, and (8) the results obtained. If a claimant seeks an enhancement, it must produce specific evidence showing that a higher amount is necessary to achieve a reasonable fee award. If a fee opponent seeks a lower amount, it bears the burden of providing specific evidence to overcome the presumptive reasonableness of the base lodestar figure. It is not clear from the opinion what type of evidence would be needed to support an upward adjustment of the base lodestar calculation.
The Court also held that contemporaneous billing records are not required to prove that the requested fees are reasonable and necessary. Nevertheless, billing records are strongly encouraged to prove the reasonableness and necessity of requested fees when those elements are contested. The Court quoted from El Apple in stating that contemporaneous billing records are going to be necessary from a practical standpoint in all but the simplest cases.
The Court concluded that a client may well owe its attorney more fees that the amount of the award shifting fees to the non-prevailing party. Fact finders are not to be concerned about the agreement between a client and its attorney.
Here are some practice pointers:
- Keep contemporaneous billing records in all cases, including hybrid and contingent fee arrangements.
- Avoid block billing even though it can sometimes result in lower billing to the client. Block billing is much easier to attack in a fee prove up.
- See if you can stipulate to a fee award with the other side. The Supreme Court in its opinion encouraged litigants to attempt to reach agreement, so that fights over fee awards do not become satellite lawsuits. If you can’t get agreement on a reasonable fee, see if you can stipulate to at least some issues to simplify the prove up.
- Enter your fee agreement and billing records into evidence at trial. If the case is appealed, you at least have facial proof of what is required.
- Be prepared to discuss all eight Arthur Andersen factors in your prove up. If some of the factors are not relevant, state why that is the case.
- Don’t forget to introduce evidence to explain why all expenses incurred were reasonable and necessary.
- Consider using an outside expert to support a fee award in larger cases. Using someone who at least to some degree is disinterested can bolster the legitimacy of the fee request.
Good luck with all future fee prove ups!