Developing Law on Attorney's Fees Increases Risk of Legal Malpractice

The law surrounding attorney’s fees continues to change rapidly, posing a serious risk of legal malpractice for any attorney who fails to keep abreast of this developing area.

For example, in Texas, any portion of work performed on a case must be segregated in claims where attorney’s fees are recoverable from the work on claims where attorney’s fees are not recoverable.

The Texas Supreme Court first set forth the basic standard of care for segregation in 2006 in Tony Gullo Motors v. Chapa. A reviewing court can reverse the award and remand the case for new trial on attorney’s fees if fees are not segregated as required by Chapa.

Other state courts also have emphasized the importance of segregation of unrecoverable from recoverable fees. In Seeley v. Seymourand Johnson v. Grayson, two California courts reversed an attorney’s fee award and remanded a case, holding the plaintiff failed to submit billing statements to distinguish between prosecution of a slander of title claim and services performed to remove cloud on title because it was possible to separate the claims and the issues were not too closely related.

Attorneys also must be careful to timely disclose in discovery how fees are segregated to ensure evidence is admissible at trial. The Federal Rule of Civil Procedure 37(c) states a party cannot use information to supply evidence on motion, at a hearing, or at trial, if the party failed to provide that information.

Similarly, Texas Rule of Civil Procedure 193.6 provides that a party who fails to make, amend, or supplement a discovery response in a timely manner may not introduce such material

An attorney must segregate his time unless the legal services performed are so intertwined that they advance both a recoverable and unrecoverable claim. As recent at October 2017, the United States District Court for the Southern District of Texas in Cypress Engine Accessories v. HDMS affirmed the requirement to strictly comply with the standard set out in Chapa. The Court held that HDMS failed to segregate recoverable fees earned in defending a DTPA claim from unrecoverable fees earned in defending tort claims.

HDMS’s claim for attorneys’ fees was based on two theories: (1) Section 38.001(8) of the Tex.Civ.Prac. & Remedies Code provides for recovery of reasonable attorneys’ fees for a breach of contract claim; and (2) Cypress Engine brought its DTPA claim in bad faith, which entitles HDMS to fees and costs under Section 17.50(c) of the Tex. Bus. & Com. Code.

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