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?