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A trial judge has discretion to award a group of plaintiffs’ lawyers $25,000 in attorney fees instead of the nearly $6 million they sought under a contingent-fee contract because the smaller award is neither inequitable nor unjust, an appeals court ruled on Feb. 13. The opinion from a three-member panel of the 8th Court of Appeals in El Paso, Texas, found that because the $25,000 fee award falls within the range of trial testimony from fee experts, it is neither arbitrary nor unreasonable. The appeals court found 109th District Judge James L. Rex of Winkler County was within his discretion to award the group of attorneys, led by brothers Stephen F. Malouf and E. Wayne Malouf, much less than the $5.965 million in fees group sought for a declaratory judgment claim in some long-running complex litigation. “While we may have awarded a larger sum, we may not interfere with the trial court’s exercise of its discretionary authority,” Justice Ann Crawford McClure wrote in Heritage Resources Inc. v. Margaret Hunt Hill, et al. “The finding that $25,000 is a reasonable and necessary fee is not against the great weight and preponderance of the evidence,” she wrote. Besides McClure, the panel included Chief Justice Richard Barajas and Justice Susan Larsen. Wayne Malouf, a solo practitioner in Dallas, says he disagrees with the court’s decision, but says it doesn’t mean he and his brother and other lawyers on their side in the litigation didn’t make money. He says they already have shared in 25 percent of the nearly $9 million ultimately awarded to Heritage Resources. The $25,000 would be on top of that, he says. Stephen Malouf was in trial last week and could not be reached for comment. The 8th Court of Appeals’ ruling is the latest chapter in the battle between Heritage Resources and a group of members of Dallas’ wealthy Hunt family — known as the Hunt Group and the Hill Group in the appeal — that has been raging since 1987 in state courts in Dallas and Winkler counties, and the appeals court in El Paso. The litigation began in 1987, when Tribal Drilling Co., a partnership of brothers Sherman Hunt and Stuart Hunt, filed a suit against Heritage Resources in Dallas, alleging Heritage had no ownership interest to be the operator of several Winkler County oil and gas properties that Heritage had operated under joint operating agreements (JOAs) with investors. Within hours of the Dallas suit, Heritage responded by filing the Winkler County suit, Heritage Resources v. Hill. When that suit went to trial in 1992, a jury in Rex’s court found that the Hunt/Hill group of investors were liable for fraud, slander and tortiously interfering with agreements between Heritage and prospective oil and gas investors. The jury found the investment group had violated a joint operating agreement by refusing to pay its share for the drilling of a well in Winkler County. The jury also found the group had, by way of the Dallas suit, tortiously interfered with Heritage’s ability to sell interests in the JOA to outsiders. The Dallas suit never went to trial because the claims were tried in the Winkler County suit, says Marcellene Malouf, another lawyer who represented Heritage in the litigation, the Malouf brothers’ sister and a partner in the Law Offices of Stephen F. Malouf. In February 1993, Rex signed a judgment awarding Heritage Resources about $111.5 million in damages. After Margaret Hunt Hill and other defendants appealed to the 8th Court of Appeals, in 1997, Heritage’s $83 million share of the $111.4 million was reduced to slightly more than $8 million. The 8th Court of Appeals, in that 1997 opinion, also reversed and remanded a fee award of nearly $21 million, finding that only fees attributable to the declaratory judgment action would support the fee award and the fees had not been properly segregated. On remand before Rex, Heritage sought fees totaling $5.965 million, which represents 29.5 percent of the original fee award of about $21 million. But Rex awarded only $25,000, according to the Feb. 13 opinion. Wayne Malouf says he told Rex that they could not separate the time they spent on the declaratory judgment action from the work on the rest of the litigation. According to the opinion, Malouf testified that the bare minimum fee for the declaratory judgment should be $4.7 million, based on his estimate that 80 percent of their work related directly to the declaratory judgment claim. According to the opinion, Wayne Malouf offered in 1991 to take the suit for a $10,000 retainer and agreed to work at a reduced billing rate of $50 per hour for the first 200 hours. He also testified that he and his brother, Stephen Malouf, of the Law Offices of Stephen F. Malouf, spent about 4,150 hours on the litigation through trial and another 5,000 hours on post-trial matters and appeal. They also received 250 boxes of documents from Heritage’s previous attorneys and received about 540 requests for production from lawyers on the other side, according to the opinion. But Jack Tidwell of Tidwell & Tidwell in Odessa, Texas, who testified as an expert for the defendants, had a different view about the fees. He told Rex during the fee remand trial that lawyers in West Texas reasonably would spend between 30 and 50 hours on a declaratory judgment action, that a reasonable hourly billing rate in Winkler County is $150 to $200 and anything in excess of 100 hours would be unreasonable, according to the opinion. That’s a range of $4,500 to $10,000 in fees. The appeals court panel found that Heritage did not prove that Rex acted “without regard to guiding rules and principles.” The court also found that Heritage’s lawyers made no attempt to segregate the time expended on the breach of contract, fraud and tort claims from the declaratory judgment claims, made no attempt to allocate the time spent on behalf of Heritage Resources and time spent on behalf of four other co-plaintiffs, or any attempt to divide the fees among three separate suits. “While Wayne [Malouf]‘s testimony would support a much larger award, Tidwell’s testimony on the other end of the spectrum supports the lesser fee. We thus conclude that the trial court had sufficient information upon which to exercise its discretion,” McClure wrote. Wayne Malouf says they are likely to seek a writ of mandamus with the Texas Supreme Court. “We couldn’t segregate because everything was intertwined,” he says. “The question should be, ‘Did I spend any more time … with additional parties?’ Because of the ruling, Malouf says he will keep time records in the future, even though he takes litigation on a contingent-fee basis. But he says that the decision concerns him because the existence of time records could lead clients or judges to force lawyers to take less in fees than the contingent fees they earn. “Although I will keep time, I do think there is a danger here. You will penalize the attorney for taking the risk,” he says. Steven Smoot, a solo practitioner in Houston who handles attorney fee and legal malpractice litigation, says lawyers with contingent-fee contracts who handle certain kinds of cases should keep time records. Those times are when lawyers have a statutory right to seek fees, such as with the declaratory judgment cause of action in this suit, and with Texas Deceptive Trade Practices Act claims, he says. Smoot says the 8th Court of Appeals’ ruling in Heritage Resources v. Hill isn’t groundbreaking. “The Malouf boys testified that 80 percent of the work was on the declaratory judgment action, but they had nothing to prove it,” he says. Alan Wright, a partner in Haynes and Boone in Dallas who argued the appeal before the 8th Court of Appeals in December 2002 for the Hunt/Hill parties, also suggests the opinion simply applies existing laws — under the Texas Uniform Declaratory Judgment Act — of fee recovery. Thomas Kurth, a partner in Haynes and Boone in Dallas who helped try the Winkler County suit in 1992, says the court’s opinion simply confirms Supreme Court precedent from the past decade that lawyers must segregate their fee claims when seeking to recover fees for one of several claims in a suit. Kurth says, “The court shouldn’t have awarded them anything. The $25,000 was basically a gift, basically because they couldn’t prove it up.”

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