In the 1970s and 1980s, Texas had a reputation for jackpot justice because powerful personal injury trial lawyers had controlled the Legislature and courts for decades, stifling efforts to promote accountability and ethical standards within their ranks. Over several years, the Legislature has taken steps to right the course. However, more can be done to ensure attorneys represent their clients in an ethical and lawful manner.
1999, 2007, 2019, 2021:
Limits on Contingent-Fee Contracting with Governmental Entities
Before 1999, the Texas Attorney General could freely contract with private attorneys to pursue claims on the state’s behalf. Using this authority, Texas attorneys general would occasionally contract with private attorneys to represent the state on a contingent-fee basis, the most infamous example being Attorney General Dan Morales’ decision to contract with five private attorneys to pursue claims against tobacco companies. The result was that the five attorneys, who did very little actual work on the case, received $3.3 billion in fees when the cases resolved as part of a national settlement.
The ill-conceived fee award in the tobacco litigation prompted the Texas Legislature to act. In Senate Bill 178 of 1999, the Legislature passed a law prohibiting percentage-based contingent-fee contracts between the state of Texas and private attorneys. Only hourly rate fee contracts are permitted, which if made contingent on success, may include a 4x premium to account for results obtained and risk taken. The law also prohibits the Texas Attorney General from awarding an hourly–based contingency fee contract without concurrence of either the Legislature or a special committee that includes the lieutenant governor and speaker of the House when the Legislature is not in session.
In 2007, in an amendment to House Bill 3560, the Legislature provided that a Texas public agency could not enter into a percentage-based contingent-fee contract with a private attorney without review and approval by the Comptroller of Public Accounts. As a result, most city and county governments are somewhat restricted in their ability to enrich private attorneys through lucrative contingent-fee contracts, although the recruitment of public-sector clients by some attorneys continues to occur on a regular basis.
Leading up to the 2019 legislative session, it became clear that a new problem was occurring with contingency fee litigation. Certain plaintiff’s lawyers in Texas had been soliciting local governments—including counties, cities and, especially, school districts—for “no-cost” contingent-fee representation in regard to a variety of issues. This became a particular issue in construction defect lawsuits against general contractors. Using their own “experts” to evaluate the facilities, law firms would file multimillion-dollar lawsuits to recover the alleged cost of repairs. The lawyers would front the litigation costs and were paid on a contingent fee basis, creating a “no risk” opportunity for the local government. In these lawsuits, which could be filed up to 10 years after construction was completed, the contractors seldom had any pre-suit indication that there was an issue with the facility. The result of this lawyer-driven litigation was that many contractors would no longer bid on certain government construction work, and when they did, they built a lawsuit premium into the cost. Similar litigation models were used by plaintiff lawyers in opioid and environmental litigation.
To address this, the Legislature passed House Bill 2826 in 2019 to ensure that when a local government needs to hire a private attorney to handle litigation, the government entity keeps more of the money that is recovered. HB 2826 makes the longstanding rules governing state-level contingent-fee contracting applicable to all local governments in Texas. It also requires local governments to conduct the attorney-hiring process in open meetings (to prevent the all too common “brother-in-law” deals), and gives the Texas attorney general the right to review and approve contracts to make sure local governments are not duplicating or interfering with the state’s efforts.
After 2019, some local governments began circumventing HB 2826 by amending existing legal services contracts rather than entering into new contracts that must go through the process established by HB 2826. This defied the intent of the Legislature, which was to create a transparent process for entering into legal services contracts, to ensure taxpayers know where their dollars are going when the government hires a private attorney to do its work, and that the government will keep the lion’s share of any money recovered in the lawsuit.
In 2021, the Legislature passed Senate Bill 1821, a bipartisan “clean-up” bill that addresses this issue by specifying that: “A ‘contingent fee contract’ includes an amendment to a contingent fee contract if the amendment changes the scope of representation or may result in the filing of a lawsuit or the amending of a petition in an existing lawsuit.”
See also Courts and Judges
2019: Attorney Advertising
Every day, Texans are inundated with a relentless stream of advertising for legal services. Many ads use dramatic language and frightening images to catch people’s attention and compel them to sign-up for legal services. Ads about prescription drugs often imply the drug has been recalled when it hasn’t, or is under investigation by the FDA when it isn’t. FDA data shows that drug ads can frighten people into discontinuing use of critical medications without consulting their doctors, leading to serious injuries and death.
Many of these ads are sponsored by client harvesters—both attorneys and non-attorneys from inside and outside of Texas. Their ads generate clients, who they sell in bulk to other attorneys for a share of the fees generated by the cases. Often, the clients have no idea the advertiser will not actually represent them, which is information any consumer is entitled to.
Senate Bill 1189 requires that TV ads for prescription drug claims state: “Do not stop taking a prescribed medication without first consulting a physician.” No matter the content, ads for legal services must identify the sponsor of the ad and state: “This is a paid advertisement for legal services.” Additionally, the ad must state the identity of the attorney or law firm primarily responsible for providing the legal services or the manner the client’s case is referred to an attorney if the advertiser is not a lawyer.
SB 1189 provides that ads for legal services cannot use “medical alert,” “health alert,” “drug alert,” or “public service announcement,” which suggest the advertiser is offering professional, medical, or government agency advice about medications or medical devices. The ads also cannot display the logo of a federal or state government agency to suggest government sponsorship or use “recall” when referring to a product that has not been recalled by a government agency or by voluntary act.
2011, 2013: Reducing Ambulance Chasing (Barratry)
Soliciting clients, which is more commonly known as “ambulance chasing,” is called barratry in the law—and it is both illegal and unethical. In fact, barratry has been illegal and unethical for decades. A lawyer who unlawfully and unethically solicits clients can be fined, imprisoned and disbarred. But in reality, prosecution for barratry is relatively rare. In two recent sessions, however, the Legislature created a new mechanism for addressing unlawful client solicitation by lawyers.
2011’s Senate Bill 1716 allows a person who was solicited by a lawyer to sue the lawyer to have an unlawfully procured attorney-fee contract declared void and force the lawyer, or any other person who participated in the unlawful conduct, to disgorge all fees earned from the case. The plaintiff can also recover the attorney fees incurred in pursuing the barratry case.
When the 2011 statute was enacted, lawyers who had committed barratry began to voluntarily void their fee contracts when faced with lawsuits in order to avoid the statutory penalties. In House Bill 1711 of 2013, the Legislature amended the 2011 statute to allow the civil barratry action to proceed even if the lawyer’s fee contract was voluntarily voided, and the Legislature added a $10,000 civil penalty that the plaintiff could recover from the lawyer.
See also Hail/Windstorm/TWIA
2003: Reining in Class Action Attorney Fees
Before 2003, defendants often resolved class action lawsuits by giving coupons to the class members and paying a substantial sum of money to the lawyer representing the class based on the value assigned to the coupons. The coupons were to be used to obtain a discount when buying more of the defendant’s products, but of course, many were never used. These “coupon settlements” benefitted the plaintiff lawyers and the defendants, but did little to make the class members whole or address any alleged wrongdoing by the defendant.
In 2003, as part of the game-changing House Bill 4, the Texas Legislature addressed class action litigation abuse. The Legislature abolished contingent fees based on a percentage of the recovery in class action litigation (e.g., 33% of the class’ recovery paid to the lawyer if the case was successful) in favor of hourly rate-based attorney fees that require a showing of hours actually worked by the attorneys. The new law also allowed a court to award up to four times the fee calculated using the hourly rate method if the work done and risk taken by the lawyer deserved an enhanced fee. But a lawyer was no longer automatically entitled to a percentage fee based on a value assigned to the settlement.
The new law also provided that when a class action lawsuit filed in a Texas state court is settled using coupons as the compensation to the class, the class lawyers must be paid in coupons in the same proportion as the class. (To our knowledge, no lawyer has found coupons to be a meaningful form of compensation for himself.)
See also Lawsuit Procedures
