A number of Texas counties including Montgomery County, a sprawling suburb north of Houston, may have invalid contracts with their outside lawyers because they haven’t been approved by the Texas Comptroller as required under state law.
More than a dozen counties represented by the law firms Haley & Olson and Harrison Davis Steakley Morrison Jones filed suit without first obtaining the Comptroller’s approval for their contingency fee contracts. Months later, those contracts still haven’t been approved, possibly putting the suits in peril.
In a 2012 decision involving similar litigation by counties over the mortgage crisis, a federal court stated the requirements under Texas law “must be satisfied before a Texas county can retain outside counsel on a contingency fee basis.”
In another decision that year, a Texas state court judge declared the contract between Harris County and its contingency fee lawyers void because it hadn’t been approved.
Neither Montgomery County nor its lawyers responded to requests for comment from Legal Newsline. Texas passed extensive reforms to its rules on hiring outside lawyers starting in 1999, after private attorneys caused a political uproar by collecting $3.3 billion in fees for representing the state in its lawsuit against the tobacco industry. Former Texas Attorney General Dan Morales ultimately went to prison for illegally attempting to divert $500 million of those fees to a friend.
The new rules in Texas included a maximum contingency fee of 35%, strict requirements for keeping time and expense records, and a hybrid method of calculating fees that includes a “base fee” determined by actual hours worked times a multiplier of up to four to reflect the risk of taking on the case.
The final fee charged to the government must be the lower of the percentage of the award or the base fee and multiplier, and the fee can only reflect work done by partners and employees of the contracting firms.
Another section of the Government Code requires all public agencies as defined under the Texas Water Code to submit contingency fee contracts to the Comptroller for “review and approval.” Counties fall under the definition because they have the authority to establish wastewater treatment facilities.
Electronic court records show the team of Haley Olson and Harrison Davis represent at least 12 Texas counties in addition to Montgomery County, ranging from tiny Kinney County, population 3,549, to Montgomery with more than half-a-million residents. A spokesman for the Comptroller’s office confirmed that none of those counties have had their legal contracts approved.
The spokesman dismissed the Comptroller’s role as “ministerial,” or essentially a rubber stamp, although the Comptroller's office has ordered contracts to be revised.
Texas legislators were concerned about the possibility of excessive fees and political payoffs in the wake of the scandals surrounding the tobacco litigation and Morales’ criminal trial, said Charles Silver, a professor at the University of Texas Law School and prominent legal affairs expert. Most trial lawyers in Texas are Democrats and the governor at the time was George W. Bush, a Republican.
“The legislature was dominated by Bush and the Republicans, and they just didn’t want to be supporting plaintiff attorneys who were supporting the Democratic party,” Silver said.
Regardless of the motivating factors, comptroller approval and billing records are the law in Texas, and even considered public records. Montgomery County’s lawyers seem to agree: The contract says they will comply with Section 2254.104(a) of the Texas Government Code, including maintaining “current and complete written time and expense records” that will be available to county or state officials “at any time upon request.”
Despite this requirement, Montgomery County Assistant District Attorney John J. McKinney, in an Aug. 14 letter, said “no documents exist that are responsive” to a request for billing records.
It’s not surprising counties might balk at complying with the recordkeeping requirements of Section 2254, Silver said.
“Lawyers don’t like others knowing how much time and effort they’re expending, whether on the plaintiff or defense side,” he said.
The hours compiled to calculate the base fee could be an issue in opioid litigation, however.
Unlike many lawsuits in which a law firm represents a single government entity suing over a single claim, opioids law firms have bundled large numbers of municipal clients and are working closely with national law firms that control the federal multidistrict litigation in the court of U.S. District Judge Dan Aaron Polster in Ohio.
One sign of the cooperation among law firms is Montgomery County’s lawsuit, filed Dec. 13 in federal court in Houston. It is an almost word-for-word copy of the lawsuit filed by three different law firms, including Dallas-based Simon Greenstone, on behalf of Bowie County more than two months before.
A close examination of the billing records might reveal how much time Montgomery County’s lawyers spent in the early stages of the litigation, and whether that is justified given evidence they used a borrowed complaint.
The other 12 counties might also want to compare their base fee calculations with each other to make sure their lawyers aren’t double-billing hours across the entire group.
Other Texas counties including Dallas and Harris have obtained Comptroller approval of their contracts. And an attorney retained by Clay County (another client of Haley & Olson and Harrison Davis Steakley Morrison Jones) said they would submit the contract to the state during a January meeting when Clay County Commissioners Court approved hiring the firms. Clay County’s contract has not yet been approved.
The stakes for the counties could be high if defendant companies challenge the status of their representation.
When private lawyers representing several Texas counties attempted to assemble a statewide class action in litigation against Merscorp, a mortgage registry, the federal judge who examined Texas law said it wasn’t possible because each county needed the Comptroller’s approval before joining the class. Under the law of the Fifth Circuit, which includes Texas, so-called “opt-in” class actions aren’t allowed under Rule 23 of the Federal Rules of Civil Procedure.
The Texas judge who declared Harris County’s contract with private lawyers void nevertheless allowed the case to proceed because the complaint was also signed by the county attorney’s office. Montgomery County’s complaint is signed only by the private lawyers.