Texas Courts Move Closer to Federal Standard in Proving Up Attorneys...

11/04/21

Federal court practitioners, particularly those appearing in bankruptcy court, are familiar with the requirements of the lodestar method for proving up attorneys' fees. Under Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974) and subsequent cases, attorneys were used to producing contemporaneous time sheets in sufficient detail to describe the work performed and the rate charged. For many years, practice in Texas state courts seemed much looser in that an attorney could simply state that he was an expert and opine that an amount of attorneys' fees was reasonable. In 2012, the Texas Supreme Court expressly endorsed the lodestar method for calculating attorneys' fees in El Apple I, Ltd. v. Olivas, 370 S.W.3d 757 (Tex. 2012). A new opinion from the Austin Court of Appeals reinforces that lodestar review cannot be evaded by redacting time entries to the point that they are meaningless. Person v. MC-Simpsonville, SC-1-UT, LLC, 2021 Tex. App. LEXIS 7155 (Tex. App.--Austin, 8/27/21).  

The Court's Opinion

The case involved suit on a guaranty. The landlord requested attorneys' fees of $266,000, which the trial court reduced to $248,074. The guarantors appealed arguing that the attorneys' fee invoices were so heavily redacted as to preclude review of the reasonableness and necessity of the fees awarded. 

In order to recover fees under Tex. Civ. Prac. & Rem. Code  Sec. 38.001, the applicant must prove both the reasonableness and necessity of the fees. Under El Apple I, the lodestar method is the way to prove reasonableness and necessity. The lodestar requires proof of "the reasonable hours spent by counsel in the case and a reasonable hourly rate for such work." To determine the reasonable number of hours worked, the court should look at "(1) the nature of the work, (2) who performed the services and their rate, (3) approximately when the services were performed and (4) the number of hours worked." The court also pointed out that the Texas Supreme Court has expressly found that "generalities . . . are not sufficient to support a fee-shifting award under the lodestar method."   

The plaintiff argued that under Tex. Civ. Prac. & Rem. Code Sec. 38.003 and 38.004 that it "is presumed that the usual and customary attorneys' fees for a claim of the type described in Section 38.001 are reasonable" and that the "court may take judicial notice of the usual and customary attorneys fees and of the contents of the case file without receiving further evidence." 

The court rejected this argument, stating:

Section 38.004 allows the trial court to take judicial notice of the usual and customary fees but says nothing about reasonableness and necessity. Section 38.003, on the other hand, creates a rebuttable presumption that the usual and customary fees are reasonable. But it is well settled in Texas that “[a] presumption is simply a rule of law requiring the trier of fact to reach a particular conclusion in the absence of evidence to the contrary. . . . The presumption disappears when evidence to the contrary is introduced.” (citations omitted). As this Court has recognized, when contrary evidence is introduced “the case proceeds as if no presumption ever existed.” 

Opinion at *18-19. In this case, opposing counsel testified extensively that the plaintiff's fees were neither reasonable nor necessary. This was sufficient to rebut the presumption.

The court then explained that the billing entries submitted were so heavily redacted that they could not meet the plaintiff's burden of proof. 

In the present case, while some of the billing entries in the record showed with reasonable clarity the types of tasks that were performed, the redactions eliminated virtually all specificity about those tasks and therefore largely prevented a meaningful evaluation of their reasonableness and necessity. For example, the majority of entries on the redacted billing records show only that an attorney or other legal professional had a telephone conference with somebody about something, emailed somebody about something, discussed something with somebody, reviewed something, researched something, drafted something, coordinated something, or worked on something. As a whole, the redacted billing records admitted in evidence were not sufficient, in light of the supreme court’s admonitions in Rohrmoos concerning the need to identify specific tasks performed, to allow the trial court to evaluate the reasonableness and necessity of hours worked that gave rise to nearly a quarter million dollars of attorney’s fees.

* * *

As discussed above, the lodestar method requires a showing of both reasonable and necessary hours worked and a reasonable hourly rate. (citation omitted). Without detailing it, we believe the evidence here is sufficient to show that the rates charged by MC-Simpsonville’s attorneys were reasonable. In light of the supreme court’s requirement of specificity regarding the services performed, however, we conclude that the evidence of reasonableness and necessity of the hours worked does not meet the supreme court’s standards. The billing records were too obscured by redactions, and the testimony of the two primary attorneys for MC-Simpsonville was too general, to allow the trial court to determine whether the hours worked were reasonable and necessary. Therefore, the evidence presented by MC-Simpsonville was not sufficient for a meaningful review of the fee application. Accordingly, we hold that the proof in this case did not provide the trial court legally sufficient evidence to calculate a reasonable fee award using the lodestar method.

Opinion, at *20-23.

As a result, the court reversed the award of attorneys' fees and remanded for a redetermination.

Practice Points

This opinion does an outstanding job of summarizing the leading supreme court cases on attorneys' fees, including Arthur Anderson & Co. v. Perry Equipment Corp., 945 S.W.2d 812 (Tex. 1997), El Apple I, Ltd. v. Olivas, supra, and Rohrmoos Venture v. UTSW DVA Healthcare, LLP, 578 S.W.3d 469 (Tex. 2019).  Taken together, these cases show that for a period of over twenty years, the Texas Supreme Court has been requiring a level of proof to establish attorneys' fees.

However, because of the presumptions in sections 38.003 and 38.004, it is possible for sloppy, imprecise testimony to support an award of attorneys' fees. It is not unprofessional for one attorney to question another attorney's poorly supported demand for fees. Attorney fees are simply an amount of damages which must be proven through competent evidence. When an opposing counsel fails to offer countervailing testimony, the presumption applies and unjustified fees may slide through unchallenged.

Finally, state court attorneys must learn what bankruptcy attorneys have long been required to do. Time entries must be worded so that they will convey the nature of the work performed without revealing privileged communications. Three examples illustrate this point.

11/3/21    0.5     Spoke to ________ about ______. 

As pointed out by the court, this type of redacted time entry fails to convey enough specific information to be useful.

11/3/21    0.5    Spoke to Mr. Jones about not mentioning the product safety studies showing client's product is extremely dangerous.

This time entry discloses confidential information and professional misconduct as well.

11/3/21       0.5    Spoke to Mr. Jones about his upcoming testimony on the issue of product safety.

This is the time entry which is "just right." It shows that the attorney spoke to the witness to prepare him for an aspect of his testimony without concealing the subject matter or revealing too much.   

Drafting time entries which disclose enough detail to justify a fee award requires both attention and practice. Bankruptcy attorneys who are required to submit fee applications have been practicing this discipline for many years. It appears that the Texas courts are going to require that their attorneys meet the same standard as well if they wish to recover attorney fees. 

Hat tip to Matt Garcia for sending me the opinion.

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