If it seems to you that there are many more appeals of attorneys’ fees these days, you’re right. Appeals involving attorneys’ fees have risen steeply over the last seven years. There is something happening in this area of the law, and we need to be keeping up with it, because it is directly relevant to our clients and our practices.
Between 2011 and 2017, there were at least 922 Texas appellate decisions involving challenges to awards or denials of attorneys’ fees—more than double the annual average between 2001 and 2010:
What’s more, the ratio of attorneys’ fee appeals, compared to damages appeals, rose from about 50% in 2001 to more than 80% after 2011:
Over this period, there were almost as many attorneys’ fees appeals as damages appeals in Texas.
Why so many new appeals? Part of the answer is the stickiness of attorneys’ fees. Stickiness is an economics term describing a financial variable that is resistant to change. “Sticky” prices for goods and services stay high even when you might expect they would be falling. For many reasons, attorneys’ fees are sticky, like the prices for many services. Most of these reasons are unrelated to judicial decisions. Attorneys’ fees generally arise from private transactions between lawyers and their clients, without judicial oversight. Nevertheless, it would be naïve to believe that judicial decisions have no impact.
The appellate response to sticky fees
In recent years, Texas courts have adopted and followed new standards for measuring the reasonableness of attorneys’ fees that have had the overall effect of reducing fee awards in litigation. In 1997, the Texas Supreme Court adopted the Arthur Andersen standards for gauging the reasonableness and necessity of fees. Since its 2006 Chapa decision, it has required fee segregation in most cases to reduce the possibility of lawyers receiving fees for services that are not eligible for fee-shifting. In 2012, with El Apple I, the Court followed the “lodestar” analysis of attorneys’ fee applications, which assures that fee awards are more closely linked to the amount of time actually devoted to the case at standard rates. Further, Texas courts of appeals have ruled that the Texas statute allowing the recovery of fees in contract cases does not apply to partnerships, LLC’s, or any entities that are neither individuals and corporations. As Professor Mark Steiner observes, “It’s not a coincidence that all these decisions are designed to limit the recovery of attorneys’ fees.”
Reasonableness as a policy issue
These trends suggest Texas courts are following a policy of weakening the stickiness of attorneys’ fees, at least in litigation. Following the supreme court’s lead, a record number of cases concerning attorneys’ fees have filled Texas appellate dockets in the last seven years, illustrated in the graph above. Unlike twenty or thirty years ago, the reasonableness of attorneys’ fees is no longer a pure question of fact; instead, the issue also involves questions of substantive law, precedent, and policy.
These developments follow the same path that led Texas appellate courts, in the late nineties, to adopt more particularized standards for reviewing jury findings in other areas. As explained twenty years ago by Dean Bill Powers,
“There’s something happening here. What it is ain’t exactly clear.” There is a perception—an accurate perception—that the Texas Supreme Court is increasingly willing to overturn jury verdicts in tort cases. There is also a perception—an inaccurate perception—that the court is doing this by changing the no evidence standard of review. In fact, something quite different, and quite appropriate, is going on. The court is paying more attention to the distinction between questions of policy and questions of fact. It is assigning more questions of policy to the court rather than to the jury.
In the new millennium, these words are just as apt in any discussion of appellate review involving attorneys’ fees.
Mind your fees and q’s
Many Texas advocates have been slow to appreciate how rapidly the review of attorneys’ fees has evolved. In many cases, attorneys’ fee awards have been reversed because lawyers did not understand how to segregate attorneys’ fees or to prove up fees under the lodestar method. In many others, awards have been affirmed because the appellant had not preserved objections based on these grounds.
Before Arthur Andersen, Chapa, and El Apple I, litigants could recover from a failure to pay serious attention to proving attorneys’ fees. Fees were infrequently challenged at trial or reviewed on appeal. The statistics, however, illustrate that times have changed. Today, reasonableness is still the standard for awarding attorneys’ fees, but the standards for establishing and reviewing reasonableness are far more exacting. Don’t go to trial or file an appellate brief without understanding these new rules, unless you have help from someone who does.