The Hidden Issue in Akin Gump v NDR
The Texas Supreme Court’s new opinion (October 30, 2009) in Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. National Development and Research Corporation holds that
- “collectibility” must be determined no earlier than the time of the underlying judgment, and
- “a malpractice plaintiff may recover damages for attorney’s fees paid in the underlying case to the extent the fees were proximately caused by the defendant attorney’s negligence.”
The first holding seems non-controversial, whereas the second may or may not open Pandora’s box (more on that in a separate comment posted immediately below this one). Yet there is another consequence of the Akin Gump decision – hidden and significant – that reporters and commentators may have missed.
Because the holding on the first two issues required reversal, the Texas Supreme Court declined to review the lower court’s ruling regarding contingent fee offsets. The contingent fee offset issue is simple: If a lawyer’s malpractice results in the loss of a collectible judgment of $1,000, but the client had a 40% contingent fee agreement with the lawyer, is the client entitled to recover $1,000 or $600? If one applies a pure “but for” causation analysis the answer should be $600, because even if the case had been handled perfectly, the client would only have netted $600. Yet, the Dallas Court of Appeals held that the client’s damages are not to be offset by the amount of the lawyer’s contingent fee. Because the Supreme Court declined to review this issue, the Dallas Court’s ruling remains the law.
The Dallas Court observed:
Akin Gump was entitled to its contingency fee only if NDR prevailed in the [underlying] Panda lawsuit. Due to Akin Gump's negligence, NDR did not prevail and thus Akin Gump did not earn its contingency fee. To give the firm a credit for a contingency fee it failed to earn would be to reward its wrongdoing.
Is this logical? Does it conform the Texas Supreme Court’s reaffirmation of the “but for” standard for causation in Akin Gump? Are there any other reasons to disregard a lawyer’s contingent fee interest in determining the amount of damages?
The Dallas Court also held:
To secure the damages it would have been awarded in the Panda lawsuit, NDR was required to pay two sets of lawyers and endure the aggravation of a second lawsuit and a second appeal. The attorney's fees and expenses incurred to prosecute a legal malpractice suit are not recoverable as damages, absent some statute or agreement not applicable here. Simply put, NDR must pay attorneys twice to be in the same position it would have been in absent Akin Gump's malpractice. It should not be forced to “pay” a contingency fee that Akin Gump never earned. (citation omitted).
Does the Texas Supreme Court’s new ruling that attorneys’ fees may be recovered as damages remove the logical underpinning for the Dallas Court’s ruling on the contingent fee offset?
I do not agree with the Texas Court's Holding. I think it opens the door for damages to be awarded in the form of attorney's fees when the actual damage caused by malpractice in minimal at best. People will be more willing to sue because even if the damage is minimal, they will still recover the fees, so the cost benefit works out in their favor.
The flaw with the Dallas Courts contingency reasoning, to use Mr. Koning's hypothetical is that the client has only agreed to pay $600. To then award the client an additional $400 feels more like punitive damages than an "unearned" fee. This is yet another example of a reviewing courts reluctance to address issues that, while not dispositive, have serious consequences.
I also believe that by permitting attorneys fee to be recoverable as damages the Supreme Court did little if anything to disturb the Dallas Courts reasoning. The Texas Supreme Court will be required to address this issue again.
Mr. Henn makes a good point. This opens the courts up to a flood of litigation from clients who may be seeking more damages than they are entitled to in the form of attorney's fees. This issue is bound to be litigated again.
Akin seems to be more of a logical extension of the "but for" test rather than creating a new set of damages.
If the plaintiff intends to file a malpractice suit in an effort to reduce the attorney's fees by looking for slight errors that may have increased the total judgment, he would still have to prove all the elements of a legal malpractice claim. If the attorney exercised reasonable care and did not breach his duties to the client, then the client will most likely not be able to succeed in the malpractice claim. More than likely there will be some cost - benefit analysis done by the plaintiff before filing such a suit, but absent a dramatic increase in the amount of damages awarded the cost of filing a malpractice suit will outweigh the potential benefit. To file a malpractice suit over an award that was not handled negligently, simply to reduce attorney's fees does not seem likely.