Texas SC reverses big attorney fee from nominal damages

By The SE Texas Record | Sep 3, 2009

AUSTIN – Lawyers who won $1,000 for a client at trial and tried to stick the losers with a legal fee of about $150,000 watched the little judgment and the big fees vanish at the Supreme Court of Texas.

On Aug. 28, eight justices reversed Ninth District appeals judges in Beaumont, who affirmed the judgment last year and ordered a trial to determine the fee.

The justices threw the judgment out the window, and the fee flew away with it.

They relieved MBM Financial Corporation of responsibility for legal bills of The Woodlands Operating Co., which sued MBM in Montgomery County.

District Judge Frederick Edwards found that MBM committed fraud, and he granted declaratory judgment that MBM breached a lease for office copiers.

He ordered MBM to pay $1,000 to Woodlands and $149,091.59 to its lawyers.

He sowed seeds of confusion by finding that Woodlands "incurred actual damages in the form of nominal damages."

Ninth District judges ignored his oxymoron and defined the award as nominal damages, but instead of simplifying the matter they complicated it.

They held that Woodlands could recover legal fees on declaratory judgment but not on fraud.

They found that lawyers for Woodlands failed to segregate their declaratory judgment fee from their fraud fee, and they directed Edwards to conduct a trial to fix the fee.

The Supreme Court called off the trial, starting with a citation from "Bleak House," by Charles Dickens, about cases that benefit lawyers more than clients.

Justice Scott Brister wrote that "there was no evidence to support the $1,000 award, and it is too large to constitute nominal damages."

"The only damages mentioned at trial related to wasted time The Woodlands spent trying to get MBM's cooperation," he wrote.

"But there was no evidence about the value of that time – either the quantity or the cost of it," he wrote.

Woodlands blamed the gap on the difficulty of tracking lost time, he wrote, but never explained why they couldn't estimate it.

"If the difficulty of proof always discharged the burden of proof, many litigants would simply not bother," he wrote.

He wrote that nominal damages may be recovered for breach of contract and added, "But $1,000 is not nominal damages." he added.

The phrase usually refers to a dollar, he wrote, though a few cases have awarded $10 and even $100.

To recover fees for breach of contract, he wrote, a litigant must prevail and recover damages.

"While some damages are necessary to recover fees under this statute, this Court has never said whether nominal damages are enough," he wrote.

"But as Woodlands can recover neither actual nor nominal damages, that question is not before us," he wrote.

He rejected MBM's claim that declaratory judgment was improper, but he agreed with MBM that it couldn't support a fee award.

He approved the practice of repleading any kind of claim as declaratory judgment, but he shut the door on fee awards in those cases.

"Texas has long followed the 'American Rule' prohibiting fee awards unless specifically provided by contract or statute," he wrote.

"By contrast, the Declaratory Judgments Act allows fee awards to either party in all cases," he wrote.

"If repleading a claim as a declaratory judgment could justify a fee award, attorney's fees would be available for all parties in all cases," he wrote.

"Accordingly, the rule is that a party cannot use the Act as a vehicle to obtain otherwise impermissible attorney's fees," he wrote.

Nine attorneys fought the battle in Austin that ended in a draw.

Karen Smith, Kirby Hopkins, Don Wetzel and Rachael Rolon represented Woodlands.

Jennifer Hogan, Matthew Coveler, Phillip Livingston, Dianna Livingston and Richard Hogan Jr. represented MBM.

No. 08-0390

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