Tarrant County insurance lawyers need to know how to recover attorney’s fees in an insurance and DTPA lawsuit. The 1997, Texas Supreme Court case styled, Arthur Andersen & Co. v. Perry Equipment Corp. provides some guidance in that regard. Here is some of the relevant information from that case.
Perry sued Arthur Andersen for a faulty audit which Perry relied on to purchase another company called Maloney Pipeline Systems. The audit incorrectly reported favorably Maloney’s financial condition when the company was suffering substantial losses. Within fourteen months after purchase, the company went bankrupt. Perry sued Arthur Andersen for violations of the DTPA, fraud, negligence, negligent misrepresentation, gross negligence, and breach of implied warranty. Based on the verdict returned by the jury, the trial Judge rendered judgment for Perry for the DTPA cause of action. This judgment included amounts for attorney’s fees based on a contingency fee agreement.
The judgment in favor of Perry was reversed and remanded to the trial court.
In the ruling, the Texas Supreme Court said that although Perry did not retain or pay Arthur Andersen, Perry was still a consumer under the DTPA as that term is defined in the DTPA. As a condition of the purchase, Perry required Maloney to provide audited financial statements. Maloney hired Arthur Andersen to provide the financial statements. Perry then relied upon those financial statements. The court pointed out that the DTPA does not require the consumer to be an actual purchaser or lessor as long as the consumer is the beneficiary of goods or services. In this case, Perry was a beneficiary. Plus, Arther Andersen was aware that Perry had required the audit and would rely on the accuracy of the financial statements.
As to the attorney’s fees in the case, Arthur Andersen complained on appeal that the award of contingency fees under the DTPA statute forces defendants to pay fees unrelated to the amount of work performed. A contingency fee tends to be higher than an hourly fee because an attorney operating on a contingency fee basis pools the risks presented by various cases. Some of the cases are successful and some are not. If contingent fees are recoverable, the defendant may be compelled to pay not only for services rendered in that case for which they are responsible but also to subsidize litigation for unsuccessful plaintiffs in other cases.
This court said that a plaintiff must now prove that the amount of fees were reasonable and necessary in the prosecution of the case at hand and must ask the jury to award fees in a specific dollar amount not as a percentage of the judgment. Evidence of a contingency fee agreement alone cannot support an award of attorney’s fees. The plaintiff must present evidence of the reasonableness and necessity of fees in light of the eight factors required by the Texas Disciplinary Rules. These are (1) time and labor involved, (2) preclusion of other employment, (3) customary fees, (4) amount involved, (5) time limitations, (6) the nature and length of professional relationship, (7) experience and reputation of the lawyer, (8) and whether the fee is fixed or contingent. Trial courts can no longer submit questions asking the jury to award a percentage of the DTPA recovery as a fee.
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