New Legal Malpractice Issues At The Texas Supreme Court

Earlier this month, the Texas Supreme Court heard arguments in a legal malpractice case that could have far-reaching implications on damage claims.

The case stems from Akin, Gump’s representation of National Development & Research Corp. in underlying litigation.  NDR hired Akin, Gump to represent it in a lawsuit against some of NDR’s business partners.  At trial, the jury returned a verdict that was favorable to both NDR and its partner, but the judge granted a judgment notwithstanding the verdict against NDR because Akin, Gump didn’t submit all the jury questions necessary to support the verdict.  NDR, with Akin, Gump as counsel, appealed that decision to the court of appeals and lost.

Following that loss, NDR successfully sued Akin, Gump.  Part of the damages that NDR received included over $200,000 to compensate NDR for the fees that it paid Akin, Gump as a result of the appeal because the appeal would not have been necessary had Akin, Gump correctly submitted the jury questions.  (As an aside, it’s almost incomprehensible to me how a firm could bill $200,000 for an appeal to a court of appeals.  My friend Todd Smith would have been a much better option, I’m sure.)

At the Supreme Court, Akin, Gump made two arguments that could have far reaching implications.  First, it argued that the trial judge improperly awarded damages for the appellate fees.  The argument is based on the general rule that a party cannot recover attorneys’ fees unless authorized by statute or contract.

It is my opinion that this argument should fail.  The Texas courts of appeal have long held that while attorneys’ fees incurred in prosecuting the suit against the defendant are not recoverable unless authorized by statute or contract, a plaintiff can recover attorneys’ fees as damages if the fees are incurred in another context as a result of the defendant’s negligence.

For example, if Smith sues Jones, Smith generally can’t recover the attorneys’ fees incurred in the lawsuit between the two.  However, if Jones’ underlying negligence caused Smith to incur attorneys’ fees in a separate lawsuit or other similar context, then the amount of attorneys’ fees incurred in that lawsuit or context are recoverable as damages.

If the Supreme Court follows the current law, the appellate fees should be recoverable.

The second, and potentially more interesting, issue is whether damages in a legal malpractice suit should be offset by the contingent amount that was due the defendant lawyer.  In this case, Akin, Gump was hired on a hybrid hourly/contingent agreement where it received a reduced hourly rate and then was to get 10% of any recovery.  At the Supreme Court, Akin, Gump argues that any award against it should be reduced by 10% because it would have received that much as a fee for its services.

This argument is interesting.  Akin, Gump says that if you look at the “but, for” analysis, if NDR had prevailed then they would have had to pay 10% to Akin, Gump so the damages are reduced by that.  NDR argued that a contingent-fee credit would unjustifiably benefit a legal malpractice defendant for its negligence.  The Restatement, which is not binding on the Supreme Court, supports the plaintiffs.

I am optimistic that the results will be favorable to the plaintiffs.  While the Supreme Court generally finds in favor of big businesses or insurance companies, legal malpractice plaintiffs are the one set of plaintiffs that do well before the Supreme Court, with very important decisions granting plaintiff’s rights handed down in 2005 and 1998.