Hoover Slovacek LLP v. Walton
206 S.W. 3d 557, 2006 Tex. LEXIS 1129, 50 Tex. Sup. Ct. J. 125 (2006)
Sections
Rule of Law:
An attorney retainer agreement provision requiring a client, upon discharging the attorney, to immediately pay a fee equal to the present value of the attorney's interest in the claim is unconscionable and unenforceable as a matter of public policy.
Facts:
- John B. Walton, Jr. hired the law firm Hoover Slovacek LLP (Hoover) to recover unpaid royalties from oil and gas companies.
- The engagement contract stipulated a 28.66% contingent fee and included a termination provision requiring Walton to 'immediately pay the Firm the then present value of the Contingent Fee' if he terminated the firm prior to completion.
- Hoover's attorney made a settlement demand of $58.5 million to the defendants, which Walton considered unauthorized and damaging to his credibility.
- The defendant, Bass Enterprises, offered $6 million to settle the claims, but Walton rejected the offer.
- Walton discharged Hoover, citing dissatisfaction with their prosecution of the claim and the 'absurd' settlement demand.
- Walton hired new counsel and eventually settled the suit against Bass for $900,000.
- Hoover billed Walton $1.7 million, calculating their fee based on the $6 million offer that was on the table at the time of discharge, rather than the actual recovery.
- Walton refused to pay the $1.7 million fee.
Procedural Posture:
- Hoover intervened in the underlying settlement proceedings between Walton and Bass to claim their fee.
- The trial court severed Hoover's claim from the main action.
- The case proceeded to a jury trial, where the jury failed to find that Walton had good cause to discharge Hoover or that the fee was unconscionable.
- The trial court entered judgment for Hoover in the amount of $900,000.
- Walton appealed to the Court of Appeals.
- The Court of Appeals reversed the trial court and rendered a take-nothing judgment against Hoover, finding the fee agreement unconscionable.
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Issue:
Is a provision in a contingent-fee contract unenforceable on grounds of unconscionability if it requires a client who discharges their attorney to immediately pay a fee calculated on the present value of the claim?
Opinions:
Majority - Chief Justice Jefferson
No, a termination fee provision that acts as a penalty for discharging counsel is unenforceable. Public policy mandates that a client has the power to discharge a lawyer at any time, with or without cause. While a discharged attorney is generally entitled to compensation (quantum meruit or the contingent fee upon ultimate recovery), this specific provision attempts to circumvent established law in three unconscionable ways. First, it demands immediate payment, forcing the client to liquidate a percentage of the claim before realizing any recovery. Second, it shifts all risk to the client; the lawyer gets paid even if the client ultimately loses the case. Third, it creates an impermissible proprietary interest in the litigation. Because this provision unduly burdens the client's right to change counsel, it is unconscionable as a matter of law. However, the unconscionable provision is severable; the firm may still recover its standard contingent fee based on the actual settlement amount, subject to findings on whether the discharge was for good cause.
Dissent - Justice Hecht
Yes, the agreement should be enforced because it was a contract freely entered into by competent parties. Unconscionability should be determined by the facts at the time of contracting and the actual results, not by hypothetical worst-case scenarios. In this specific instance, the client was not irrational for agreeing to a clause that defined the fee upon termination. The majority's concerns about 'what might happen' ignore that Walton and the firm were sophisticated actors attempting to allocate the risk of a mid-stream discharge. Voiding the contract interferes with freedom of contract without a statutory basis.
Analysis:
This decision reinforces the high fiduciary standard attorneys owe clients, specifically protecting the client's absolute right to discharge counsel without financial punishment. The court drew a hard line against 'golden handcuff' clauses that attempt to lock clients into representation by making it prohibitively expensive to switch lawyers. Legally, it clarifies that while attorneys are entitled to be paid for work done if fired without cause, they cannot use contract clauses to shift the inherent risks of contingent-fee litigation (i.e., the risk of losing) entirely onto the client upon discharge. The ruling effectively severs 'penalty' clauses while preserving the underlying right to a reasonable fee.
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