Texas Subtleties in Using the “Lodestar” Method  

Michael Sean Quinn**

           Texas Disciplinary Rule of
Professional Conduct 1.04 is recognized as providing some of the criteria for
judging the reasonableness of fees. It corresponds to Rule 1.5 of the Model Rules
of  Professional Conduct of the American Bar
Association as of 2015. There is a fascinating, if subtle, different between the
two of them—certainly as to their fundamental substantive parts. I shall say a bit
about this difference later.  Since the two
similar rules have different numbers I will not keep writing “Texas” and/or “ABA,”
so, reader, keep the numbers straight.

 Section 1.04(a) prohibits charging or
collecting unconscionable legal fees and such fees are those which are
unreasonable.  I suspect that the “move” (entailment) from being unreasonable to being unconscionable–a conceptual necessity that is not so close in other areas of the law–derives from the fiduciary relationship between lawyers and their clients. Here is the actual wording of section 1.04(a): “A lawyer shall not enter into an arrangement for, charge, or collect an illegal fee or unconscionable fee. A fee is unconscionable if a competent lawyer could not form a reasonable belief that a fee is reasonable.” This formulation is unusual, thought provoking, unusual reasoning. 

Of course this is a “Disciplinary Rule” and not a statute or rule of court. Nevertheless, it is widely used by courts to and lawyers alike to constitute part of the criteria of what counts as a legally permissible fee. In addition, it is commonly used to determine what counts as an acceptable fee in an attorney-client contract for services or in evaluating reasonable fees in attorney fee collection cases. See Arthur Anderson and Co. v. Perry Equipment Corp., #95-0444 (Tex, May 16, 1997), also to be found at 945 S.W.2d 812 (Tex. 1997).*
Here’s another unusual feature of the Texas law governing lawyer fees. Basically section 1.04(a) states–although not in so many words–that any legal fee, including any components of an aggregate fee, is
unreasonable if an informed, objective, knowledgeable, and rational lawyer—the “Hypothetical
Fee Judge [Judge]”–after appropriate (careful) consideration, cannot conclude that the
fee was reasonable. All unreasonable fees are unconscionable. (Presumably
because this is because lawyers are fiduciaries of their clients.)  Of course the Judge, as characterized may actually
be a judge or an arbiter.

The Judge, as defined here, must be hypothetical, since, if it were not, then if any one competent lawyer found the fees to be unreasonable and therefore unconscionable, the fees would be unconscionable. To be sure, the burden of proof of showing the reasonableness of his/her fees in on the lawyer whose fees are being charged, an “any one lawyer” rule would set the burden of proof way too high. (This problem along with others built into the wording of 1.04(a) will be discussed later.)

          Rule l.04(b)
lists some sufficient conditions for the unreasonableness of legal fees.  For example Rule 1.04(b)(1) requires that the fees match
up the”time and labor required” for competent performance, the “novelty
and difficulty of the questions involved,” and “the skill required
to perform the legal services properly.”

          Obviously, the
hypothetical and appropriately capable (“competent”)  lawyer requires knowledge regarding the
activities of the lawyer seeking to charge fees being adjudged, and this
requires that the hypothetical lawyer receive sufficient information. That
information must be truthful and thorough. Since both time involved and
activities performed must be accurately reported in order for the hypothetical
judge to reach a reasonable judgment as to the reasonableness of the fees, it
will have to be detailed and, since so much money is involved in fees, the time
components of the records must themselves be 
          (Obviously, this especially true if
a lawyer charged is measured–as is common–in quite short episodes, e.g., in “tenths of hours,” that is 6 minute intervals. It used to be be that service time was measured in quarter hours. This is uncommon now, as it should be. Nevertheless, many  lawyers do not seem to realize that tenths of hours can never come out to be quarters of hours. Hence, if an attorney-firm/client contract says “We measure our time in tenths of hours,” and then the bill contains quarter hour intervals, the contract contains a misrepresentation. Technically, if the two acts were intentional, there would be not merely misrepresentation but also fraud.”)
          With regard to
time, clarity, and thoroughness the Texas Supreme Court established a “Thoroughness, Accuracy, and Audibility Doctrine” (Olivas Doctrine) as a
firm and universal rule for hourly billing in El Apple I Ltd. v. Olivas, 10-0490 (2012).  Basically the court did this by applying the Doctrine and its rules to fee-shifting cases, which a contract case may resemble in a crucial and determinative way, based upon
the justification that those fees must as reasonable and reasonably reported as
the fee requirements as between private lawyer and their clients.  Thus, that became required for judging  fee-shifting cases is inherent the
requirements for determining the reasonableness of  lawyers to their clients. (Contract fee disputes are like fee-shifting cases because a judge is required to determine whether the fee  for which payment is sought  is reasonable, and this cannot be done without information.)

          Two of the
important rules articulated in Olivas
are these. (1) The information provided on behalf of the fee must be
“sufficient to make meaningful evaluation of the application for attorney
fees.”  (2) “[C]harges for duplicative,
excessive or inadequately document work should be excluded.”  Obviously, these same rules apply to
evaluating amounts lawyers charge their own clients. Obviously, these propositions are true for all attorney fees.

Very significantly, in addition in
both the fee-shifting and the client-attorney contexts, the lawyer bears the
burden of proving the reasonable of his fees. A failure to provide such proof
entails the conclusion that the fees are to be adjudged unreasonable, therefore unconscionable, and therefore legally uncollectable. 

The Olivas case states and dramatically entails that block-billing is
prohibited because it cannot meet the . It will not provide the kind of accuracy and information needed to
evaluate the accuracy of the fees. The hypothetical lawyer of 1.04(a) cannot
arrive at a reasonable conclusion about the reasonableness fees she is
reviewing without full as well as accurate information. This is a prohibition
on block-billing; it cannot meet the Olivas Doctrine. There is an especially interesting question regarding block-billing. What is to be done if with–for example–a lengthy block if it there are no individualized time entries?  It seems obvious to me that the whole block must be rejected as unreasonable. There simply isn’t enough date to determine otherwise. 

This is true even if the intuitions of the Judge suggest to him/her that the block as a whole is reasonable. For one thing, the contract calls for time to be measured in certain intervals, e.g., tenths of hours, so that blocks as a whole are contrary to the contract. For another, many intuitions, if not all of them, when standing alone are not reasonable bases for decisions as to the reasonableness of something else.  
Rule 1.04 and the Olivas Doctrine also demands that activities
billed must be described in an actually informative way. Vague, overly-general,
uninformative entries cannot not contribute in rational and satisfactory ways to the evaluation that must be performed by the Judge, i.e.,  by the hypothetical lawyer. Of course, legal fees can be both block-billed of which one, some, or all component are otherwise flawed, e.g., by being vague. Naturally, this would give the Judge two reasons to brand unreasonable one part of a bill. 

The ABA rule 1.05 is a much simpler rule in one way. Its 1.5(a) includes the  list of some of the relevant considerations to be used in evaluating the reasonableness of legal fees is the at least virtually the same as those to be found in Texas Rule 1.04(b) rule. Its opening sentence, however, is quite different in wording and ideas than Texas Rule 1.04(a). Here is how the analogous part of ABA Rule 1.5(a) is worded: “A lawyer shall not make an agreement for, charge, or collect an unreasonable fee[.] The factors to be considered in determining the reasonableness of a fee include. . . .” 
Obviously there are what are probably trivial differences. One uses the word “arrange” the other uses the word “agreement,” for example. However, there are two huge differences. The Texas rule involves the postulate of the Judge, and the ABA Rules does not. The Texas rule links unreasonableness directly and immediately to unconscionability, while the ABA rules does not. And the Texas rule implies the the burden of proof fall upon the lawyer in the reasoning of the Judge, as well as the presentation of evidence, but the ABA rules does not. 

The truth is that Texas, by implication, necessitates the use of the concept of a Judge in judging the reasonableness and hence unconscionability of legal fees. The ABA Mode Rules do not do this. The “Texas Tactic” makes the method of evaluating legal fees for reasonable amount both more objective and more difficult, and–on balance–perhaps more difficult.  Some might believe that the “Texas Complication” is pointless sophistry and to be avoided. This would be a mistake; I shall argue this point in a later blog with the same name as this one.  
*I have cited this case in two ways. The most common way to cite cases is to use the WestLaw format. Here that would be to the SOUTHWEST REPORTER (SECOND), the standardly used abbreviation of which is “S.W.2d”). (The terms “SECOND” and “2d” merely refer to an interval of time. The reporter go from Volume One to Volume Nine Ninety Nine and then start over.” Non lawyer readers of the digital age may not be able to reach it with out being “members” of its closed system. Thus I have also used the information which can be used to “get into” the easily available cyber catalog and copies of Texas Supreme Court decisions. Just go to “Texas Supreme Court Orders and Decisions,” then go to the correct month for 1997. There will out-pop the decision as formatted in the original decision of the court. Of course, it can also be found elsewhere on the Net, but the version are sometimes hard to read and for many, it doesn’t feel authentic to read the decisions that way.

**Michael Sean Quinn, Ph.D., J.D. Etc.

The Law Firm of Michael Sean Quinn and

Quinn and Quinn

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                                             Austin, Texas 78703

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                                E-mail:  mquinn@msquinnlaw.com

If this topic interested you, see my blawg/blog “Legal Fees Billed by the Hour.” published October 31, 2015.


Originally posted on 11/16/2015 @ 6:09 pm

Michael Sean Quinn, PhD, JD, CPCU, Etc

Michael Sean Quinn, PhD, JD, CPCU, Etc. (530)

One of Texas's leading insurance scholars, Michael Sean Quinn is a past chair of the Insurance Section of the State Bar of Texas and has a broad legal practice.

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