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Click here for the full text of this decision FACTS:In June 1995, John B. Walton Jr. hired attorney Steve Parrott of Hoover Slovacek (Hoover) to recover unpaid royalties from several oil and gas companies operating on his 32,500 acre ranch in Winkler County. The engagement letter granted Hoover a 30 percent contingent fee for all claims on which collection was achieved through one trial. Most significantly, the letter included the following provision: “You may terminate the Firm’s legal representation at any time. . . . Upon termination by You, You agree to immediately pay the Firm the then present value of the Contingent Fee described [herein], plus all Costs then owed to the Firm, plus subsequent legal fees [incurred to transfer the representation to another firm and withdraw from litigation].” Shortly after signing the contract, Walton and Parrott agreed to hire Kevin Jackson as local counsel and reduced Hoover’s contingent fee to 28.66 percent. Parrott negotiated settlements exceeding $200,000 with Texaco and El Paso Natural Gas, and Walton paid Hoover its contingent fee. Parrott then turned to Walton’s claims against Bass Enterprises Production Co. (Bass), and hired accountant Everett Holseth to perform an audit and compile evidence establishing the claims’ value. Meanwhile, Walton authorized Parrott to settle his claims against Bass for $8.5 million. In January 1997, Parrott made an initial settlement demand of $58.5 million. Bass’ attorney testified that Parrott was unable to support this number with any legal theories, expert reports or calculations, and that the demand was so enormous that he basically quit listening. The following month, however, Bass offered $6 million not only to settle Walton’s claims but also to purchase the surface estates of eight sections of the Winkler County ranch, acquire numerous easements and secure Walton’s royalty interests under the leases. Walton refused to sell but authorized Parrott to accept $6 million to settle only Walton’s claims for unpaid royalties. Walton also wrote Parrott and expressed discontent that Parrott did not consult him before making the $58.5 million demand. According to Walton, Parrott responded by pressuring him to sell part of the ranch and his royalties for $6 million. In March 1997, Walton discharged Parrott, complaining that Parrott was doing little to prosecute his claims against Bass and had damaged his credibility by making an unauthorized $58.5 million demand. Walton then retained Andrews & Kurth, which in November 1998 settled Walton’s claims against Bass for $900,000. By that time, Hoover had sent Walton a bill for $1.7 million (28.66 percent of $6 million), contending that Bass’ $6 million offer, and Walton’s subsequent authorization to settle for that amount, established the present value of Walton’s claims at the time of discharge. Walton paid Andrews & Kurth approximately $283,000 in hourly fees and costs, but he refused to pay Hoover. When Hoover sought to intervene in the settlement proceedings between Walton and Bass, the trial court severed Hoover’s claim, and the parties tried the case before a jury. The jury failed to find that Walton discharged Hoover for good cause or that Hoover’s fee was unconscionable. The trial court entered judgment on the verdict, which awarded Hoover $900,000. The court of appeals reversed and rendered a take-nothing judgment for Walton, concluding that Hoover’s fee agreement was unconscionable as a matter of law. The Texas Supreme Court granted Hoover’s petition for review. HOLDING:The court affirmed the court of appeals’ judgment in part, reversed in part and remanded to the court of appeals for further proceedings. In Texas, the court stated, if an attorney hired on a contingent-fee basis is discharged without cause before the representation is completed, the attorney may seek compensation in quantum meruit or in a suit to enforce the contract by collecting the fee from any damages the client subsequently recovers. Hoover’s termination fee, however, sought immediate payment of the firm’s contingent interest without regard for when and whether Walton eventually prevailed, the court stated. Because this feature imposed an undue burden on the client’s ability to change counsel, the court stated that Hoover’s termination fee provision violated public policy and was unconscionable as a matter of law. The court stated several additional reasons why the fee arrangement was improper, including its belief that the arrangement was unreasonably susceptible to overreaching, exploiting the attorney’s superior information and damaging the trust that is vital to the attorney-client relationship. The court stated that its conclusion that Hoover’s termination fee provision was unconscionable did not render the parties’ entire fee agreement unenforceable. Thus, the court stated, if Hoover were discharged without cause, it would be entitled to either its contingent fee or compensation in quantum meruit. The court disagreed with the 8th Court of Appeals’ take-nothing judgment. The court found that Hoover was entitled to its contingent fee: 28.66 percent of $900,000 ($257,940). In the 8th Court, Walton had challenged the factual and legal sufficiency of the evidence supporting the jury’s finding on the issue of good cause, the court noted. Because the court of appeals reversed and rendered judgment, the court stated that it did not reach Walton’s sufficiency points. Accordingly, the court remanded the case to the court of appeals for consideration of those issues. In sum, the court found that Hoover’s termination fee provision penalized Walton for changing counsel, granted Hoover an impermissible proprietary interest in Walton’s claims, shifted the risks of the representation almost entirely to Walton’s detriment and subverted several policies underlying the use of contingent fees. OPINION:Jefferson, C.J., delivered the opinion of the court, in which O’Neill, Wainwright, Brister, Green and Johnson, J.J. joined. DISSENT:Hecht, J., filed a dissenting opinion, in which Willett, J.J. joined. “Although I think the Court’s arguments are strained at best, even if they had more substance, a fee agreement should not be voided as unconscionable and against public policy based merely on what could happen but was not intended and has not in fact occurred.”

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