Walton v. Hoover, Bax & Slovacek, L.L.P., 08-03-00366-CV.

• Decision Date: 14 October 2004
• Docket Number: No. 08-03-00366-CV.,08-03-00366-CV.
• Citation: 149 S.W.3d 834
• Parties: John B. WALTON, Jr., Appellant/Cross-Appellee, v. HOOVER, BAX & SLOVACEK, L.L.P., Appellee/Cross-Appellant.
• Court: Texas Court of Appeals

149 S.W.3d 834

John B. WALTON, Jr., Appellant/Cross-Appellee, v. HOOVER, BAX & SLOVACEK, L.L.P., Appellee/Cross-Appellant.

No. 08-03-00366-CV.

Court of Appeals of Texas, El Paso.

October 14, 2004.

John McGrath Phalen Jr., Daniel J. Sheehan & Associates, L.L.P., Dallas, for appellant/cross-appellee.

Steven L. Hughes, Mounce, Green, Myers, Safi & Galatzan, El Paso, for appellee/cross-appellant.

Before Panel No. 1 LARSEN, McCLURE, and CHEW, JJ.

OPINION

SUSAN LARSEN, Justice.

This case involves a dispute between discharged attorneys and their former client over a contingent fee contract. John B. Walton, Jr. hired Hoover, Bax & Slovacek, L.L.P. to represent him regarding certain legal claims.¹ Walton later fired HBS, hired new counsel, and settled his claims for $900,000. HBS sued Walton, claiming entitlement to a fee of over $1.7 million. HBS asserted that under the termination clause of its agreement with Walton, Walton owed HBS 28.66 percent of the value of his claims at the time of termination, regardless of the amount for which he eventually settled the claims.

Based on the jury's verdict, the trial court awarded HBS $900,000 in damages, $140,000 in attorneys' fees incurred in the preparation and trial of this case, and $8,000 and $10,000, respectively, in attorneys' fees for appeals to the appellate court and the supreme court. The court also ordered Walton to pay $247,224.45 in pre-judgment interest, based on a rate of 6 percent, and set post-judgment interest at the rate of 10 percent.

Walton appeals, raising six issues. In a cross-appeal, HBS argues that the trial court should have set both the pre- and post-judgment interest rates at 18 percent. We conclude that the fee charged by HBS is unconscionable as a matter of law. Therefore, we reverse and render a take-nothing judgment in favor of Walton.

Factual Summary

Walton's Hiring of HBS

Walton owns a ranch in Kermit, Texas that has been in his family since 1910. He became concerned that the oil and gas companies that have leases on the ranch were damaging the land and underpaying royalties. Jince Hanson introduced him to Steven Parrott, an HBS attorney based in Houston. Parrott was an experienced oil-and-gas lawyer, but was not a trial lawyer. He had previously worked with Hanson.

Walton testified that he did not interview any other lawyers to pursue his claims, but Parrott testified that Walton told him that he did interview other lawyers. Parrott also testified that he initially offered to represent Walton on an hourly fee basis or alternatively on a hybrid hourly/contingent basis. Walton, however, preferred to pay a straight contingent fee. Parrott then asked for a 40 percent contingent fee. But when Walton explained that he had already agreed to give Hanson 10 percent of his recovery, Parrott agreed to accept 30 percent, since Hanson had introduced him to Walton.

In June 1995, Parrott and Walton signed an engagement letter, which provided that HBS would represent Walton on all his claims against the oil and gas companies and that Walton would compensate HBS as follows:

(A)You assign and convey to the Firm the following present undivided interest in Your Claims, which interests are hereinafter referred to as "Contingent Fee":

30% — if settlement or collection is made after the date hereof and through any first trial, but before the commencement of a second trial or subsequent trial or the filing of an appeal by any party to the lawsuit;

33% — if settlement or collection is made after the commencement of a second trial or subsequent trial or the filing of an appeal by any party to the lawsuit;

...

(C)In the event any party against whom You have a Claim for surface damages, conducts ... surface clean-up ... or other similar operations ... for which You are not compensated by the payment of cash money, You shall pay the Firm a sum of money equal to 10% of the estimated fair market value of the expense of such Clean-Up....

(D)You shall, contemporaneously with the execution hereof, pay the Firm a non-refundable retainer fee of $10,000.00 ("Retainer"). The Retainer shall be credited against the first sums of money recovered by You ..., or, at Your election, may be applied by You to the first non-cash fee obligation You may have to the firm pursuant to subsection (C) above....

Importantly, the engagement letter included the following termination clause:

You may terminate the Firm's legal representation at any time upon written request to the Firm addressed to my attention. If permission for withdrawal from employment is required by the rules of a Court, the Firm shall withdraw upon permission of the Court. Upon termination by You, You agree to immediately pay the Firm the then present value of the Contingent Fee described in subsections (A) and (C) above, plus all Costs then owed to the Firm, plus subsequent legal fees at the rate of $200.00 per hour of billed time, and Costs, if any, necessarily incurred by the Firm to facilitate the transfer of representation to any subsequent law firm and/or for the Firm to withdraw from any litigation. Likewise, the Firm may withdraw from legal representation of You at any time, and for any reason, by giving You thirty (30) days advance written notice. In such event You shall be obligated for Costs which the Firm has incurred on Your behalf; provided, however, the Firm shall be entitled to retain all legal fees and Costs previously paid by You to the Firm. (Emphasis added.)

Parrott testified that he and Walton "talked about" and "agreed on" the termination clause. But he also testified that he wrote the engagement letter and chose its words.

Walton testified that he thought he understood the engagement letter when he signed it. He had graduated from high school, but had no post-high-school education. He was collecting $30,000 to $50,000 per month from the Bass leases. In addition to owning the ranch, Walton also owned some broadcast stations. He had previously hired attorneys on a contingent-fee basis.

After the engagement letter was signed, Walton and Parrott decided that it would be advisable for Walton to have a local attorney. Parrott testified that he orally agreed to reduce HBS's contingent fee to 28.66 percent to facilitate the hiring of Kevin Jackson as local counsel.

HBS's Representation of Walton

Walton had potential claims against several companies. Parrott settled Walton's claim against El Paso Natural Gas for approximately $35,000, and HBS received its 28.66 percent of this settlement. Parrott also settled a claim against Texaco, under which settlement Texaco paid $175,000 in cash and performed some remediation measures. Although HBS received its 28.66 percent of the $175,000, it waived its right to 10 percent of the estimated fair market value of the cost of the remediation measures. Before Walton fired HBS, Parrott filed suit against two other companies. Those cases settled after the termination of representation for a total of $200,000, and Walton paid HBS its contingent fee.

In addition to these cases, Walton also had claims against companies controlled by the Bass Family of Fort Worth. To stop the statute of limitations from running, Parrott filed suit against the Bass companies soon after the engagement letter was signed. Parrott also filed a request for production of documents. He and Walton decided that before doing a complete audit — which would be expensive — they would hire someone to do a "spot check" on the documents produced by Bass to determine whether Walton had viable claims for the underpayment of royalties. Parrott and Walton interviewed several accounting firms, and on Parrott's recommendation, Walton hired a C.P.A. named Edward Holseth to do the spot check. In addition to Holseth's efforts, Parrott and other HBS representatives went to Walton's ranch, and Parrott went to Fort Worth to review documents. Parrott testified that Walton authorized him to accept $8.5 million to release his claims against Bass and his royalty interests under the Bass leases. In January 1997, Parrott made an initial demand on Bass for $58.5 million. Bass's counsel asked Parrott how he came up with this amount, and Parrott did not give him an answer.

In February 1997, Bass made a written response to the $58.5 million demand. Bass offered to settle the case for $6 million, with the following conditions: (1) Walton would dismiss his suit and execute a general release of all his claims; (2) Walton would convey to Bass his royalty interests under the leases; (3) Walton would grant Bass easements covering all lands on which its facilities were located and (4) Walton would convey to Bass the surface estate of approximately eight sections of the ranch and Bass would grant Walton a surface lease to use these sections for ranching, subject to any use Bass wanted to make of them. The sections that Bass wanted to buy constituted several thousand acres of the ranch.

Parrott was pleasantly surprised that Bass had offered so much money. Walton, however, was upset that the offer would require him to sell part of the ranch. Parrott testified that he told Walton that he believed they could reach a mutually acceptable agreement with Bass through a series of surface-waiver agreements, surface-damage agreements, and rights-of-way. According to Parrott, these agreements would accomplish what Bass wanted to accomplish by buying the land.

Shortly after Bass made its initial settlement offer, Walton sent a letter to Parrott, stating that he was "very unhappy with the way this case has been handled." Walton further stated that he was unsure as to whether he wanted to sell his royalty interests and that he wanted to reach a settlement of his claims against Bass before deciding whether to sell the royalty interests. Walton authorized Parrott to accept $6 million to settle his claim for underpayment of royalties. He refused to give up "any surface or mineral interest" as part of a $6 million settlement....