Campbell Harrison & Dagley, et al v. Albert Hill, III, et al

Filing

PUBLISHED OPINION FILED. [14-10631 Affirmed in Part] Judge: RHB , Judge: LHS , Judge: SAH Mandate pull date is 04/23/2015 [14-10631]

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IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT
Fifth Circuit

FILED
No. 14-10631

April 2, 2015
Lyle W. Cayce
Clerk

CAMPBELL HARRISON & DAGLEY, L.L.P.; CALLOWAY, NORRIS,
BURDETTE & WEBER, P.L.L.C.,
Plaintiffs - Appellants Cross-Appellees
v.
ALBERT G. HILL, III, individually and on behalf of N. Hill; C. Hill; the
unborn and unascertained beneficiaries of the Margaret Hunt Trust Estate
and/or the Haroldson Lafayette Hunt, Jr Trust Estate who descend from
Albert G. Hill, III and/or Erin Hill...; ERIN HILL, individually and on behalf
of N. Hill; C. Hill; the unborn and unascertained beneficiaries of the
Margaret Hunt Trust Estate and/or the Haroldson Lafayette Hunt, Jr Trust
Estate who descend from Albert G. Hill, III and/or Erin Hill...,
Defendants - Appellees Cross-Appellants

Appeals from the United States District Court
for the Northern District of Texas

Before BARKSDALE, SOUTHWICK, and HIGGINSON, Circuit Judges.
RHESA HAWKINS BARKSDALE, Circuit Judge:
Primarily at issue in this challenge to the district court’s vacating most of
an arbitration award, made pursuant to Texas law, is whether the court
misapplied the required, very deferential standard of review. Law firms Campbell
Harrison & Dagley, L.L.P. (CHD), and Calloway, Norris, Burdette & Weber,

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P.L.L.C. (CNBW) (collectively, the firms), challenge the court’s partial vacatur of
the award, rendered pursuant to a fee agreement (combining a high hourly-rate
fee and a low-percentage contingency fee), which governed the firms’
representation of Albert G. Hill, III, and his wife, Erin Hill (the Hills). After
arbitrating a dispute over the requested payment to the firms under the fee
agreement, the arbitrators awarded them approximately $28 million. Although
the district court, inter alia, enforced the hourly-rate fee award, it vacated the
contingency-fee award as unconscionable. AFFIRMED IN PART; REVERSED
AND RENDERED IN PART; REMANDED.
I.
Underlying this action is the Hills’ claimed interest in several trusts
established by Hill’s father, H.L. Hunt. The Hills retained CHD and CNBW, in
October 2008 and March 2009, respectively, to represent them in 16 litigation
matters relating to the trusts and other disputes.
The Hills entered into separate (the second fee agreement incorporates the
first by reference) hybrid-fee agreements with the firms (the fee agreement). The
fee agreement provided for: hourly-rate attorney’s fees, with rates between $250
and $545 an hour; and an undivided 15 percent interest in the Hills’ “gross
recovery” resulting from any final judgment or settlement. “Gross recovery” was
defined as, inter alia, “the value on the date of Resolution of any and all assets,
cash or non-cash consideration distributed or to be distributed” to the Hills, from
two trusts, and from any other source “in connection” with the resolution of any
matters in which the firms represented the Hills. The hourly-rate fees were to be
paid “in good faith as soon as is financially practicable and, in no event, later than
the date upon which [the Hills] (or any one or more of them) begin to receive
distributions of income and/or principal pursuant to any Resolution”. (Emphasis
added.) The agreement further specified that 30 percent of any distributions
would be allocated toward payment of the hourly-rate fees.

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Regarding possible termination of the firms’ representation, the fee
agreement provided:
[The Hills] may terminate the legal representation
provided for in this Agreement by written notice via
certified mail; provided however, that the attorneys’ fees
incurred and payable under this Agreement on an hourly
rate basis or as awarded by a Court as provided herein
shall remain payable and, in the absence of good cause
for termination, [the firms] shall be entitled to the percent
of Gross Recovery provided by paragraph 2 of this
Agreement.
(Emphasis added.) Further, the agreement provided: it was governed by Texas
law; and disputes arising under, or in connection with, the agreement would be
subject to resolution by binding arbitration before a panel of three arbitrators
pursuant to, inter alia, the Texas General Arbitration Act (TGAA), Tex. Civ. Prac.
& Rem. Code § 171.001 et seq.
The Hills terminated the firms in November 2009. (Good cause vel non for
their termination is not at issue.) After having retained new counsel, the Hills, in
May 2010, settled globally for approximately $188 million the matters for which
they had been represented by the firms. After the firms asserted their rights
under the agreement, the Hills refused to make payment.
After the parties were unable to resolve their dispute, the district court, in
February 2011, granted the firms’ motion to compel arbitration. In September
2012, pursuant to the TGAA, the Hills arbitrated with the firms their rights to
payment under the fee agreement. The firms sought enforcement of it pursuant
to its terms; the Hills claimed, inter alia, the agreement was unconscionable and
void as a matter of public policy.
The arbitration hearing covered nine days. That November, the arbitrators
determined, inter alia:
knowingly,

without

the Hills entered into the fee agreement “freely and
duress

or

mistake”;

the

agreement

was

neither

unconscionable nor ambiguous; and it was fair and enforceable. In support of
their concluding the agreement was not unconscionable, the arbitrators found:
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the Hills were sophisticated parties, because they were “already familiar with
such [fee] agreements”; Albert Hill “was a well-educated, sophisticated, frequent
and experienced consumer of legal services”; and the agreement was entered into
after “a period of fairly intensive negotiations”. Additionally, the arbitrators
found that, during and after those negotiations, the Hills had been “strongly
encouraged to consult with independent counsel”, and that “some evidence”
showed they had done so. Regarding unconscionability vel non, the arbitrators
concluded:

“There is nothing about a relatively high hourly rate schedule,

uncertain as to time of payment, and/or a relatively low contingent percentage,
when the prospect of recovery is plenty uncertain, that should be offensive to a
competent lawyer, a reasonable client, or an overall traditional public policy of
fairness.”
The arbitrators awarded CHD and CNBW approximately $3.15 million and
$152,000, respectively, in hourly-rate fees; and, as provided in the contingencyfee portion, awarded the firms, jointly, 15 percent of the total settlement,
approximately $25 million.

The arbitrators also awarded the firms:

approximately $6.6 million for their reasonable attorney’s fees incurred in
arbitration; roughly $117,000 in reimbursements for other fees, administrative
expenses, and arbitrators’ compensation; and pre- and post-judgment interest of
five percent per annum until the award was satisfied.
In district court in November 2012 (the month in which the award was
made), the firms moved to confirm, and the Hills moved to vacate, the award. The
Hills advanced their unconscionability and public-policy claims presented in
arbitration. They also claimed, inter alia, the arbitrators were not impartial and
exceeded the scope of their authority.
The court rejected, inter alia, the claims of evident partiality. Campbell
Harrison & Dagley, L.L.P. v. Hill, No. 3:12-CV-4599-L, slip op. at 6–13, 25–27
(N.D. Tex. 28 May 2014) (memorandum opinion and order) [hereinafter Hill]. On
the other hand, the court vacated the contingency-fee portion of the award on

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public-policy grounds, holding that portion unconscionable. Although recognizing
that hybrid-fee-agreement contracts are not per se violative of Texas law
regarding the reasonableness of attorney’s fees, the court noted the total award
must comport with the factors listed in Texas Disciplinary Rules of Professional
Conduct 1.04. Those factors include:
(1) the time and labor required, the novelty and
difficulty of the questions involved, and the skill
requisite to perform the legal service properly;
(2) the likelihood, if apparent to the client, that the
acceptance of the particular employment will preclude
other employment by the lawyer;
(3) the fee customarily charged in the locality for similar
legal services;
(4) the amount involved and the results obtained;
(5) the time limitations imposed by the client or by the
circumstances;
(6) the nature and length of the professional relationship
with the client;
(7) the experience, reputation, and ability of the lawyer
or lawyers performing the services; and
(8) whether the fee is fixed or contingent on results
obtained or uncertainty of collection before the legal
services have been rendered.
Tex. Disc. Rules of Prof. Conduct R. 1.04(b)(1)–(8).
The court concluded the combination of a high hourly rate and a
contingency fee was unconscionable because it “does not compensate [the firms]
for the value of their legal work or the risk of nonpayment”. Id. at 21. It ruled:
the resulting award is “far in excess of what is reasonable and customary”; and
“[p]ermitting a fifteen percent contingency fee [in this instance] flies in the face of
the well established legal principles that authorize contingency fees, as the
attorneys’ fees do not compensate [the firms] for any risk that they [would] receive
no payment whatsoever”. Id. at 22.
Finally, the court discounted the arbitrators’ finding the fee agreement was
entered into knowingly, stating:

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That the Hills understood the nature of the agreements
they entered into does not establish that the agreements
were themselves fair and reasonable. . . . A client can
agree to a contract provision with full understanding of
its meaning and the contract can still be unconscionable
and violate public policy. . . . [The firms] have failed to
prove that a competent lawyer could form a reasonable
belief that the fee arrangements, at the time they were
entered into, with respect to the fifteen percent
contingency fee, were reasonable.
Id. at 25.
In addition to its vacating the award under the contingency-fee portion of
the agreement, the court also: vacated and remanded to the arbitrators the award
of attorney’s fees incurred by the firms in conjunction with the arbitration;
vacated and remanded the award of the firms’ prevailing-party fees, expenses,
and arbitrators’ compensation; vacated the pre-judgment interest as to the
vacated portion of the award; and vacated the award’s providing a five-percent
rate for post-judgment interest. Id. at 35–36. The court enforced the portion of
the award for the hourly-rate-fee amount and pre-judgment interest, at a rate of
five percent, for that amount. Id.

II.
As stated, Texas law controls. The firms claim the court erred, inter alia,
in: holding the fee agreement unconscionable under Texas law; vacating the
award based on an asserted incomplete record provided by the Hills; and
rendering judgment on the contingency-fee award, as opposed to remanding the
matter to the arbitrators. On the other hand, the Hills claim the court erred in
enforcing the hourly-rate fee award. (Because, as discussed infra, the district
court erred by applying improperly the standard governing review of an
arbitration award under the TGAA, it is unnecessary to address the parties’ other
claims.)
A court’s decision to confirm or vacate an arbitration award is reviewed de
novo, but, such review “is extraordinarily narrow” and “[e]very reasonable

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presumption must be indulged to uphold the arbitrator’s decision”. Forest Oil
Corp. v. El Rucio Land & Cattle Co., Inc., 446 S.W.3d 58, 75 (Tex. App. 2014)
(citations omitted). Because the parties contracted for the TGAA to govern the fee
agreement, the agreement is analyzed pursuant to that statute. See, e.g., Gateway
Techs., Inc. v. MCI Telecomms. Corp., 64 F.3d 993, 997 (5th Cir. 1995), abrogated
in part by Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 589–90 (2008).
Under Texas law, review of an arbitration award is so limited that an award may
not be vacated even if there is a mistake of fact or law. E.g., Universal Comp. Sys.,
Inc. v. Dealer Solutions, L.L.C., 183 S.W.3d 741, 752 (Tex. App. 2005). Along that
line, a court “may not substitute [its] judgment for that of the arbitrators merely
because [it] would have reached a different decision”. Humitech Dev. Corp. v.
Perlman, 424 S.W.3d 782, 790 (Tex. App. 2014).
A.
The TGAA provides that a court shall confirm an arbitrator’s award
“[u]nless grounds are offered for vacating, modifying, or correcting” it. Tex. Civ.
Prac. & Rem. Code § 171.087. Such grounds are provided both by statute, and
include, inter alia, corruption, fraud, evident partiality, and the arbitrators’
exceeding their powers, id. § 171.088, and by common law, such as “manifest
disregard of the law, gross mistake, and an award that violates public policy”,
Perlman, 424 S.W.3d at 794. (In Hall Street Associates, the Supreme Court
eliminated all non-statutory grounds for vacating arbitration awards under the
Federal Arbitration Act. 552 U.S. at 589–90. The firms claim Hall Street likewise
eliminated common-law grounds for vacatur under the TGAA.

The Texas

Supreme Court has not spoken on this issue; and, relying on Perlman, the district
court ruled common-law grounds for vacatur survived Hall Street. Because our
decision turns on misapplication of the standard of review, we need not decide this
issue.)
Vacating an award on public-policy grounds requires “an extraordinary case
in which the award clearly violates carefully articulated, fundamental policy”.

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CVN Grp., Inc. v. Delgado, 95 S.W.3d 234, 239 (Tex. 2002). For satisfying that
standard, the policy must be “well defined and dominant” and not derived “from
general considerations of supposed public interests”. Id. at 238–39 (citation and
quotation marks omitted).
The firms challenge the court’s vacatur of the contingency-fee portion of the
award based on its concluding the fee agreement was unconscionable.

They

contend primarily that the court’s doing so required it to reject the arbitrators’
determinations and substitute its judgment. According to the firms, the court
failed to apply properly the highly deferential standard of review for arbitration
awards under the TGAA.
The district court misapplied that standard. In particular, it rejected the
arbitrators’ determination that “the prospect of recovery [was] plenty uncertain”,
finding instead that “[t]here was nothing contingent about [the firms’] recovery of
their attorneys’ fees”. Hill, slip op. at 24. The court specifically rejected the totalfee amount based on its inclusion of the contingency-fee portion. As the court
interpreted the fee agreement, the contingency fee constituted an “unearned
payment” in the light of the non-contingent nature of the hourly-rate fees, and, as
a result, made the fee agreement unconscionable. Id. at 22, 24 (emphasis in
original) (“The Hills would owe high hourly rates regardless of whether they
ultimately prevailed in any litigation”.); see also id. at 22 (“Permitting a fifteen
percent contingency fee [in this instance] flies in the face of the well established
legal principles that authorize contingency fees, as the attorneys’ fees do not
compensate [the firms] for any risk that they [would] receive no payment
whatsoever.”).
The arbitrators, on the other hand, specifically determined: recovery of any
fees was uncertain; a reasonable attorney could find the fee arrangement
reasonable; and the total fee was not unconscionable. (“There is nothing about a
relatively high hourly rate schedule, uncertain to time of payment, and/or a
relatively low contingent percentage, when the prospect of recovery is plenty

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uncertain, that should be offensive to a competent lawyer, a reasonable client, or
an overall traditional public policy of fairness.”). This determination likewise
comports with the plain language of the fee agreement, which allows for payment
of the hourly-rate fees “as soon as is financially practicable”. (Emphasis added.)
In rejecting the arbitrators’ determinations regarding the uncertainty of
recovery, the reasonableness of the total fee, and unconscionability, the court
“substitute[d] [its] judgment for that of the arbitrators merely because [it] would
have reached a different decision”. Perlman, 424 S.W.3d at 790 (citation omitted).
As a result, it erred in vacating the contingency-fee-portion of the award and
related awards (for the arbitration, the firms’ attorney’s fees, other fees, expenses,
and arbitrators’ compensation; and pre-judgment interest on the contingency-fee
portion).
B.
Generally, post-judgment interest “on any money judgment in a civil case
recovered in a district court” is determined pursuant to 28 U.S.C. § 1961. As
noted, the court vacated the arbitration-awarded rate of five percent for postjudgment interest; that rate exceeded the federal rate pursuant to 28 U.S.C. §
1961.
On appeal, the parties did not brief, however, the post-judgment-interestrate issue. But, at oral argument, the firms agreed that, should the award be
reinstated in full, the district court on remand would determine anew the amount
of pre-judgment interest and impose post-judgment interest under the federal
rate. Along that line, the Hills do not challenge the awarded rate of five percent
for pre-judgment interest.
III.

For the foregoing reasons, those parts of the judgment upholding the
hourly-rate-fee award and vacating the five-percent, post-judgment-interest
rate are AFFIRMED; the vacatur of the contingency-fee award and the abovedescribed related awards is REVERSED and judgment is RENDERED for

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Campbell Harrison & Dagley, L.L.P., and Calloway, Norris, Burdette & Weber,
P.L.L.C., resulting in those awards being reinstated; and this matter is
REMANDED for further proceedings consistent with this opinion, including
determining the amount due for pre-judgment interest, at a rate of five percent,
and setting, pursuant to 28 U.S.C. § 1961, the rate for post-judgment interest.

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