Rohrmoos Venture, Eric Langford, Dan Basso, and Tobin Grove v. Utsw DVA Healthcare, Llp
Rohrmoos Venture, Eric Langford, Dan Basso, and Tobin Grove v. Utsw DVA Healthcare, Llp
Opinion
In this case, we must decide whether a tenant can terminate a commercial lease contract for the landlord's prior material breach. We hold that under
Davidow v. Inwood North Professional Group-Phase I
,
I. Background
Landlord Rohrmoos Venture executed a commercial lease with tenant UT Southwestern DVA Healthcare, LLP (UTSW), for a commercial building in Dallas, Texas. 1 UTSW used the commercial building for a dialysis clinic. At some point UTSW began experiencing water penetration in the building's concrete foundation and installed ceramic floor tiles because of the moisture problems.
Around September 2007, state health inspectors evaluated UTSW's dialysis clinic and criticized the facility because some ceramic floor tiles had come loose from the concrete slab and moisture could be seen under the tiles. UTSW notified Rohrmoos of the inspection results and over the following months, the two exchanged extensive communication in an attempt to diagnose and fix the issue. Neither party accepted responsibility. Multiple engineers and contractors were called in, but the issue persisted into 2009 and then began *476 to worsen as the building apparently suffered significant water penetration.
Because UTSW viewed the commercial building as unsuitable for its intended commercial purpose, UTSW terminated its lease early, vacated the premises, and relocated to Irving, Texas, while still allegedly owing approximately $ 250,000 in unpaid rent. UTSW then sued Rohrmoos and the joint-venturers behind it for breach of contract and breach of the implied warranty of suitability. UTSW also sought declaratory judgment that: (1) a casualty occurred in accordance with the lease, (2) Rohrmoos failed to remedy the casualty, and (3) UTSW had the right to terminate the lease. Rohrmoos answered with several affirmative defenses, including waiver and prior material breach. Rohrmoos also counterclaimed for negligence and breach of contract. UTSW asserted its own affirmative defenses to Rohrmoos's counterclaims.
The case was submitted to a jury. The jury found that UTSW and Rohrmoos both failed to comply with the lease, that Rohrmoos failed to comply first, and that Rohrmoos breached the implied warranty of suitability. Although UTSW initially sought money damages, it did not submit that claim to the jury. Accordingly, no money damages were awarded to UTSW.
Regarding attorney's fees, the parties' lease agreement provided for a fee-shifting arrangement whereby "the prevailing party shall be entitled to an award for its reasonable attorneys' fees" from the non-prevailing party "[i]n any action to enforce the terms of [the] Lease." In an attempt to prove the reasonableness and necessity of the requested attorney's fees at trial, UTSW's attorney, Wade Howard, testified that he had twenty years of litigation experience, the standard rate he charges is $ 430 per hour, he has handled cases similar in nature to this one before, and a reasonable and necessary number of hours to spend on this case would be around 750 to 1,000. Those hours multiplied by his standard hourly rate equals between $ 322,500 and $ 400,000, so he testified that a reasonable and necessary fee would be between $ 300,000 and $ 400,000. But then Howard went on to state, "This case, for whatever reason, has not been worked up in a reasonable fashion.... But because of that, the fees in this case are much closer -- my fees are much closer to 800 -- over $ 800,000." He gave some examples of why the cost of this litigation was so high-searching through "millions" of emails and reviewing "hundreds of thousands" of documents during discovery, over forty depositions taken, and a forty-page motion for summary judgment. Howard did not explain how much time was spent on each of those tasks, however, and it was clear that not all the tasks he performed were included in his testimony. Rather, he stated that the factors relevant to his attorney's fees were (1) the amount in controversy, (2) the complexity of the case, and (3) his knowledge and experience-three of the eight factors set out in
Arthur Andersen & Co. v. Perry Equipment Corp.
,
The trial court entered final judgment against Rohrmoos, stating:
1. [Rohrmoos] materially breached the lease agreement first.
2. [Rohrmoos] breached the implied warranty of suitability.
3. Because [Rohrmoos] materially breached the lease agreement first and breached the implied warranty *477 of suitability, UTSW had the right to terminate the lease agreement.
4. Rohrmoos Venture takes nothing on all of its claims against UTSW and Counter-Defendants....
The trial court awarded UTSW attorney's fees in the amount determined by the jury-totaling $ 1,025,000 with the conditional appellate awards. Rohrmoos moved to reform the judgment or, alternatively, for a new trial. The trial court denied the motion.
Because the trial court's judgment authorized UTSW to
terminate
the commercial lease, Rohrmoos, on appeal, attacked the jury's finding that it breached the implied warranty of suitability established under
Davidow
.
See
Davidow
,
The court of appeals initially missed Rohrmoos's primary argument under Davidow , largely because Rohrmoos did not brief the Davidow issue fully. On this point, the court of appeals held:
All of [Rohrmoos's Davidow arguments] are irrelevant unless Rohrmoos also defeats the answers to questions one through three [of the jury charge], which support [UTSW]'s prior material breach of contract defense to Rohrmoos's counterclaim. But, as discussed later, Rohrmoos does not properly challenge the sufficiency of the evidence to support the jury's breach of contract findings. And unchallenged jury findings are binding on this court.
Rohrmoos filed a motion for reconsideration, asserting that the court of appeals overlooked Rohrmoos's primary argument under Davidow that a material breach of contract does not support the termination of a commercial lease. The court of appeals withdrew its opinion, vacated its judgment, and published a new opinion with the following language:
Rohrmoos's motion for reconsideration improperly now argues that we should ignore the answers to Questions One through Three [of the jury charge] because the right to terminate a commercial lease for failure to make repairs exists only with respect to a breach of the implied warranty of suitability that the Supreme Court established in Davidow v. Inwood North Professional Group-Phase I ,747 S.W.2d 373 , 376-77 (Tex. 1988) and does not exist for a prior material breach of an express duty [to] repair contained in the lease. But Rohrmoos did not assert that objection to Questions One through Three in the trial court, or otherwise preserve the point in the trial court. See TEX. R. CIV. P. 274 ("A party objecting to a charge must point out distinctly the matter to which he objects and the grounds of his objection.").
*478 Id. at 163. The court of appeals decided Rohrmoos's remaining points of error against Rohrmoos and affirmed the trial court's judgment. See id. at 160-64, 169.
Regarding the $ 1,025,000 in attorney's fees, Rohrmoos challenged the award in the court of appeals on two grounds: (1) UTSW was not a "prevailing party" under the lease and therefore was not entitled to recover attorney's fees, and (2) the evidence was insufficient to support the fee award.
2
Id.
at 164-66. The court of appeals disagreed with Rohrmoos on both counts, holding that UTSW was a "prevailing party" under the lease, and that
El Apple I, Ltd. v. Olivas
,
II. Davidow 's Implied Warranty of Suitability
Rohrmoos raises many arguments in this Court involving the Davidow implied warranty of suitability. Rohrmoos argues primarily that the court of appeals incorrectly assumed that a material breach of a commercial lease can justify termination, resulting in a holding that is contrary to our decision in Davidow . However, there are preservation concerns surrounding this issue, which we address first before turning to the applicability of Davidow 's implied warranty of suitability.
A. Preservation
Rohrmoos maintains that the issue of whether a tenant can terminate a commercial lease based on the landlord's prior material breach is properly preserved for our review. Refuting the court of appeals' holding that Rohrmoos did not object to the jury charge based on its Davidow theory, or otherwise preserve the point in the trial court, Rohrmoos contends that the issue is legal and not factual-meaning it can be raised at any time, including on appeal. Rohrmoos also claims that it nevertheless did raise the issue repeatedly in the trial court and correctly preserved the issue for review in the court of appeals and this Court.
UTSW, on the other hand, argues that the Davidow issue is not properly before this Court. First, UTSW argues that Rohrmoos did not object to the jury charge regarding material breach and assert its Davidow theory in the trial court, thereby waiving the right to appeal the issue. Second, even if the Davidow argument had been preserved in the trial court, UTSW argues that Rohrmoos did not adequately brief the issue in the court of appeals, thus waiving the issue there. And finally, UTSW asserts that Rohrmoos waived the issue in this Court by not challenging the court of appeals' application of the law on preservation and waiver in its petition for review.
*479
After a careful review of the record, we agree with Rohrmoos that the
Davidow
issue is preserved for our review. Importantly, the availability of termination as a remedy did not become an issue until the trial court entered judgment authorizing termination. When that happened, Rohrmoos promptly filed a motion to reform the judgment or, alternatively, for a new trial. In that motion, Rohrmoos asserted that "under Texas law, a tenant claiming material breach of lease is
not
entitled to terminate the lease unless the lease expressly provides for that remedy." Rohrmoos cited
Davidow
, saying that "[t]his is still the law in Texas today." This gave the trial court notice of Rohrmoos's complaint that the verdict and judgment were at least partially based on a theory of recovery that Rohrmoos contends did not support termination as a matter of law.
Cf.
United Scaffolding, Inc. v. Levine
,
Furthermore, whether a tenant can terminate a commercial lease under
Davidow
for material breach is a question of law for the court to decide, and it is not one which must be resolved before the jury can properly perform its fact-finding role.
See
Holland v. Wal-Mart Stores, Inc.
,
Additionally, the record indicates that Rohrmoos raised its argument under Davidow in the trial court. In a trial brief, Rohrmoos stated specifically that a commercial tenant "may not terminate the lease" unless it proves a breach of the implied warranty of suitability. Likewise, during trial, Rohrmoos's counsel explained:
Their allegation on [breach of contract] is that the landlord failed in his duty to repair, that's their allegation. Under Texas law, that does not entitle a party to terminate the contract. It entitles them to repair it and then to collect back from the landlord, there's an offset for rent.... So, if we breached because we did not do repairs, if that's what the jury agrees to, it does -- they aren't entitled to terminate, that's a remedy they aren't entitled to. They're entitled to damages.
When the trial court pressed for case law supporting this position, Rohrmoos's counsel responded, "I'm hanging my hat on
Davidow
, ... [which says] as a matter of Texas law, a breach of the duty to repair is only remediable by damages." In no sense can we say that Rohrmoos failed to inform the trial court of its theory under
Davidow
. Indeed, our law on preservation is built almost entirely around putting the trial court on notice so that it can cure any error.
See
Burbage v. Burbage
,
Rohrmoos also raised the argument in the court of appeals. We have firmly mandated that courts broadly construe issues to encompass the core questions and to reach all issues subsidiary to and fairly included within them.
See
Ditta v. Conte
,
Rohrmoos likewise adequately presented the argument in its petition for review and briefing in this Court. We now turn to the merits of Rohrmoos's Davidow argument and the availability of termination for material breach of a commercial lease.
B. Remedy of Termination
Rohrmoos's position is that Davidow expressly prohibits termination as a remedy for material breach of a commercial lease. All this Court said in Davidow , however, is that there is an implied warranty of suitability in commercial leases, and what the implied warranty means:
Therefore, we hold there is an implied warranty of suitability by the landlord in a commercial lease that the premises are suitable for their intended commercial purpose. This warranty means that at the inception of the lease there are no latent defects in the facilities that are vital to the use of the premises for their intended commercial purpose and that these essential facilities will remain in a suitable condition. If, however, the parties to a lease expressly agree that the tenant will repair certain defects, then the provisions of the lease will control.
In
Davidow
, this Court addressed the implications of independent covenants in our property law, concluding that they were antiquated and unworkable in the modern lease setting.
See
This outdated common law concept,
Davidow
noted, "is no longer indicative of the contemporary relationship between the tenant and landlord."
The Court then extended Kamarath 's reasoning to commercial leases in Davidow :
We recognized in Kamarath that the primary objective underlying a residential leasing arrangement is "to furnish [the tenant] with quarters suitable for living purposes." The same objective is present in a commercial setting. A commercial tenant desires to lease premises suitable for their intended commercial use. A commercial landlord impliedly represents that the premises are in fact suitable for that use and will remain in a suitable condition. The tenant's obligation to pay rent and the landlord's implied warranty of suitability are therefore mutually dependent.
Indeed, the courts of appeals that have addressed a landlord's material breach in
residential
lease settings have held that termination is an available remedy.
See, e.g.
,
Pala v. Maxim
, No. 01-01-00618-CV,
To be clear,
Davidow
stands for the proposition that in a commercial lease, a landlord warrants that the property is suitable for the tenant's intended commercial purpose.
Because we agree with the court of appeals that Rohrmoos did not properly preserve its challenge as to UTSW's breach of contract claim, as discussed below, 5 the jury's finding that Rohrmoos materially breached the lease stands, and we cannot disturb that part of the trial court's judgment. We need not and do not address Rohrmoos's remaining arguments regarding the implied warranty of suitability under Davidow . 6
III. Breach of Commercial Lease
After the court of appeals issued its opinion holding that Rohrmoos did not properly challenge the sufficiency of the evidence supporting the jury's breach of contract finding, Rohrmoos argued in its motion for reconsideration in the court of appeals that it did, in fact, challenge the jury's finding that Rohrmoos materially breached the lease. That is, notwithstanding Rohrmoos's clear headings in its opening briefing to the court of appeals and ensuing arguments-all challenging the implied warranty of suitability-Rohrmoos claims that the evidence UTSW used to prove that Rohrmoos breached the implied warranty of suitability is the same evidence UTSW used to prove that Rohrmoos materially breached the lease. A challenge to one is a challenge to all, argues Rohrmoos.
We disagree. At no point in its briefing to the court of appeals did Rohrmoos challenge the sufficiency of the evidence with respect to the jury's finding that Rohrmoos materially breached the lease. Nothing in Rohrmoos's briefing put the court of appeals on notice of such a challenge, even when read liberally. Moreover, we are not prepared to do away with our preservation requirements altogether by holding that Rohrmoos's challenge to the evidence supporting a breach of the implied warranty of suitability fairly subsumes a challenge to the evidence supporting a breach of contract. The two causes of action are different, each with entirely different elements that must be specifically pled, argued, and proved with supporting evidence. A challenge as to whether the plaintiff satisfied its burden of proof for one cause of action does not, by implication, challenge the evidence as to a separate cause of action. Had Rohrmoos not intended to base its challenge solely on Davidow , it should have argued alternative theories in the court of appeals to include a sufficiency challenge regarding material breach. Rohrmoos did not do so. This issue is not preserved for our review.
IV. Attorney's Fees
In Texas, as in the federal courts, each party generally must pay its own way in attorney's fees.
See
Perdue v. Kenny A. ex rel. Winn
,
With that in mind, we consider the two arguments Rohrmoos raises against the $ 1,025,000 award of attorney's fees. First, Rohrmoos argues that UTSW is not a "prevailing party" under this Court's precedent and is therefore not entitled to attorney's fees. Second, even if UTSW could be considered a prevailing party, Rohrmoos contends there was legally insufficient evidence to support UTSW's award of attorney's fees. We address each in turn.
A. Prevailing Party
The parties' contract provided that "[i]n any action to enforce the terms of this Lease, the prevailing party shall be entitled to an award for its reasonable attorneys' fees." The lease did not further define the term "prevailing party." Rohrmoos cites our decision in
Intercontinental Group Partnership v. KB Home Lone Star LP
,
Although instructive, Chapter 38 and Green International are not controlling in this case. "Parties are free to contract for a fee-recovery standard either looser or stricter than Chapter 38's."
*485
KB Home
,
In
KB Home
, we considered whether the plaintiff prevailed for purposes of attorney's fees when the jury found that the defendant violated the contract but awarded no money damages to the plaintiff.
At first blush,
KB Home
's holding appears damning to UTSW, but in that case we examined only what a
plaintiff
must prove to be a "prevailing party."
See
id.
at 652 (holding that "a plaintiff must prove compensable injury and secure an enforceable judgment in the form of damages or equitable relief"). Here, although UTSW was the original plaintiff, it argues that it successfully defended-
as a defendant
-against Rohrmoos's breach of contract counterclaim. This is true. In an attempt to relieve itself of its future obligations to perform under the contract, UTSW sought a jury finding that Rohrmoos breached the lease first. The jury found that both Rohrmoos and UTSW breached the lease but that Rohrmoos breached first. The trial court entered judgment accordingly and ordered that Rohrmoos take nothing on its counterclaim for approximately $ 250,000 in back rent. The court of appeals employed this logic to hold that UTSW, as counter-defendant, was the prevailing party because it was vindicated by the court's judgment.
Interestingly, this specific question regarding prevailing defendants presented itself in
KB Home
, but we did not address it because it was not preserved for our review.
See
We agree. A defendant can obtain actual and meaningful relief, materially altering the parties' legal relationship, by successfully defending against a claim and securing a take-nothing judgment on the main issue or issues in the case. Our holding is consistent with the United States Supreme Court's interpretation of what it means to prevail as a defendant.
See
CRST Van Expedited, Inc. v. Equal Emp't Opportunity Comm'n
, --- U.S. ----,
B. Legal Sufficiency
The jury awarded $ 800,000 in attorney's fees for trial work and conditional fee awards of $ 150,000 for appeal to the intermediate appellate court and $ 75,000 for appeal to this Court. The trial court's judgment awarded UTSW fees according to the verdict and ordered that Rohrmoos take nothing. In this Court, Rohrmoos challenges the evidence offered by UTSW's attorney, Wade Howard, as legally insufficient to support the fee awards, claiming that the lodestar method applies and Howard should have submitted detailed proof, likely in the form of billing records, so the jury could have conducted a meaningful review to determine the reasonableness of the fees. Howard did not attempt to introduce billing records into evidence, nor did he testify to the details of his work, which Rohrmoos claims prevented the jury from determining whether the hundreds of hours spent were reasonable or necessary. Rohrmoos asserts that this award of more than $ 1,000,000 in attorney's fees cannot be based on the ipse dixit of the testifying expert. UTSW, on the other hand, argues that Howard's testimony is sufficient to support the fee award under Arthur Andersen because Howard testified to the total amount of fees, the reasonableness of the fees, and his experience. 7
*487 Before addressing the parties' arguments and the evidence presented in this case, we first examine the law governing attorney's fees in a fee-shifting situation. In short, to secure an award of attorney's fees from an opponent, the prevailing party must prove that: (1) recovery of attorney's fees is legally authorized, and (2) the requested attorney's fees are reasonable and necessary for the legal representation, so that such an award will compensate the prevailing party generally for its losses resulting from the litigation process.
1. Legally Authorized
Legal authorization begins, as we have mentioned, with the American Rule, which provides that a prevailing party has no inherent right to recover attorney's fees from the non-prevailing party unless there is specific statutory or contractual authority allowing it.
E.g.
,
Nat'l Lloyds
,
First, the idea behind awarding attorney's fees in fee-shifting situations is to compensate the prevailing party generally for its reasonable losses resulting from the litigation process.
See generally
In re Nalle Plastics Family Ltd. P'ship
,
Second, because such fee awards are compensatory in nature, fee-shifting is not a mechanism for greatly improving an attorney's economic situation.
Cf.
Pennsylvania v. Del. Valley Citizens' Council for Clean Air
,
Third, a party must be represented by an attorney to secure an award of attorney's fees. For example, courts have held that a corporate client can be awarded fees for representation by its in-house counsel.
See, e.g.
,
Tesoro Petrol. Corp. v. Coastal Ref. & Mktg., Inc.
,
Here, the parties' contract provides for a fee-shifting arrangement by stating, "In any action to enforce the terms of this Lease, the prevailing party shall be entitled to an award for its reasonable attorneys' fees." The contract does not define "reasonable" attorney's fees, so we turn to our attorney's fee jurisprudence in considering reasonableness.
2. Reasonable and Necessary
As an initial matter, we note that parties in their contracts and the Legislature in its enabling statutes will often
*489
loosely employ a reasonable and necessary standard, sometimes using both terms "reasonable and necessary" and other times just "reasonable."
Compare
TEX. BUS. & COM. CODE § 17.50(d) ("Each consumer who prevails [under the Deceptive Trade Practices Act] shall be awarded court costs and reasonable and necessary attorneys' fees."),
with
TEX. CIV. PRAC. & REM. CODE § 38.001 (providing that "[a] person may recover reasonable attorney's fees from an individual or corporation, in addition to the amount of a valid claim and costs" for, among other things, breach of contract). The distinction between such provisions is immaterial. When a claimant wishes to obtain attorney's fees from the opposing party, the claimant must prove that the requested fees are both reasonable and necessary.
See
Nat'l Lloyds
,
Furthermore, some enabling statutes have an explicit reference to attorney's fees that are "incurred."
See, e.g.
, TEX. CIV. PRAC. & REM. CODE § 74.351(b)(1) (allowing the recovery of "reasonable attorney's fees and costs of court incurred by the physician or health care provider" for certain situations under the Texas Medical Liability Act);
Historically, claimants have proven reasonableness and necessity of attorney's fees through an expert's testimony-often the very attorney seeking the award-who provided a basic opinion as to the requested attorney's fees.
See generally
Penn Mut. Life Ins. v. Maner
,
These two seemingly different methods for evaluating claims for attorney's fees have created confusion for practitioners and courts alike. As explained below, however, the lodestar method developed as a "short hand version" of the Arthur Andersen factors and was never intended to be a separate test or method. With that in mind, we clarify the law governing recovery of attorney's fees in Texas courts. We begin by reviewing fee-shifting and attorney's fee jurisprudence in the federal courts.
a. Johnson Factors and Lodestar in Federal Courts
To assist district courts in awarding attorney's fees, the Fifth Circuit in
Johnson v. Georgia Highway Express, Inc.
,
(1) the time and labor required;
(2) the novelty and difficulty of the questions;
(3) the skill requisite to perform the legal service properly;
(4) the preclusion of other employment by the attorney due to acceptance of the case;
(5) the customary fee;
(6) whether the fee is fixed or contingent;
(7) time limitations imposed by the client or the circumstances;
(8) the amount involved and the results obtained;
(9) the experience, reputation, and ability of the attorneys;
(10) the "undesirability" of the case;
(11) the nature and length of the professional relationship with the client; and
(12) awards in similar cases.
For this reason, the Third Circuit developed the lodestar method for calculating reasonable attorney's fees.
See
Lindy Bros. Builders, Inc. of Phila. v. Am. Radiator & Standard Sanitary Corp. (Lindy I
),
The United States Supreme Court refined the lodestar method in
*492
Hensley v. Eckerhart
,
The Court further refined its views on the appropriate method for determining a reasonable fee award in
Blum v. Stenson
,
We note at the outset that an enhancement for contingency would likely duplicate in substantial part factors already subsumed in the [base] lodestar. The risk of loss in a particular case (and, therefore, the attorney's contingent risk) is the product of two factors: (1) the legal and factual merits of the claim, and (2) the difficulty of establishing those merits. The second factor, however, is ordinarily reflected in the lodestar-either in the higher number of hours expended to overcome the difficulty, or in the higher hourly rate of the attorney skilled and experienced enough to do so. Taking account of it again through lodestar *493 enhancement amounts to double counting.
The first factor (relative merits of the claim) is not reflected in the [base] lodestar, but there are good reasons why it should play no part in the calculation of the award. It is, of course, a factor that always exists (no claim has a 100% chance of success), so that computation of the lodestar would never end the court's inquiry in contingent-fee cases.
Burlington v. Dague
,
In its most current form, the lodestar method as described in
Blum
has achieved dominance in the federal courts and has "become the guiding light" for fee-shifting jurisprudence.
See
Gisbrecht v. Barnhart
,
Although the lodestar method is not perfect, it has several important virtues. First, in accordance with our understanding of the aim of fee-shifting statutes, the lodestar looks to "the prevailing market rates in the relevant community." Developed after the practice of hourly billing had become widespread, the lodestar method produces an award that roughly approximates the fee that the prevailing attorney would have received if he or she had been representing a paying client who was billed by the hour in a comparable case. Second, the lodestar method is readily administrable; and unlike the Johnson approach, the lodestar calculation is "objective" and thus cabins the discretion of trial judges, permits meaningful judicial review, and produces reasonably predictable results.
[W]e have noted that "the lodestar figure includes most, if not all, of the relevant factors constituting a 'reasonable' attorney's fee" and have held that an enhancement may not be awarded based on a factor that is subsumed in the lodestar calculation. We have thus held that the novelty and complexity of a case generally may not be used as a ground for an enhancement because these factors "presumably [are] fully reflected in the number of billable hours recorded by counsel." We have also held that the quality of an attorney's performance generally should not be used to adjust the lodestar "[b]ecause considerations concerning the quality of a prevailing party's counsel's representation normally are reflected in the reasonable hourly rate."
b. Arthur Andersen Factors and Lodestar in Texas Courts
Similar to the federal system, Texas jurisprudence first developed a factor-based method for the fact finder to assess what fees are reasonable and necessary, the cornerstone for shifting attorney's fees away from the prevailing party.
See
Arthur Andersen
,
*494 (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill required to perform the legal service properly;
(2) the likelihood ... 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.
In 2012, we provided additional guidelines for determining reasonableness and necessity by introducing the lodestar calculation to Texas jurisprudence.
See
El Apple
,
Under the lodestar method, the determination of what constitutes a reasonable attorney's fee involves two steps. First, the court must determine the reasonable hours spent by counsel in the case and a reasonable hourly rate for such work. The court then multiplies the number of such hours by the applicable rate, the product of which is the base fee or lodestar. The court may then adjust the base lodestar up or down (apply a multiplier), if relevant factors indicate an adjustment is necessary to reach a reasonable fee in the case.
El Apple
,
We ultimately overturned the fee award in
El Apple
even though the trial court employed the lodestar method, concluding that the evidence was legally insufficient to support the reasonableness and necessity of the fee award.
[N]either attorney indicated how the 890 hours they spent in the aggregate were devoted to any particular task or category of tasks. Neither attorney presented time records or other documentary evidence. Nor did they testify based on their recollection of such records. The attorneys instead based their time estimates on generalities such as the amount of discovery in the case, the number of pleadings filed, the number of witnesses questioned, and the length of the trial. While all this is relevant, it provides none of the specificity needed for the trial court to make a meaningful lodestar determination. The court could not discern from the evidence how many hours each of the tasks required and whether that time was reasonable. Without at least some indication of the time spent on various parts of the case, a court has little basis upon which to conduct a meaningful review of the fee award.
After
El Apple
, questions surfaced regarding whether the lodestar method applies in cases where the request for attorney's fees is not based on the TCHRA or other state statutes that require application of the lodestar method. But any doubt as to the lodestar method's applicability should have been resolved when we applied
El Apple
's holding to a $ 339,000 award under a different fee-shifting statute that did not "require that attorney's fees be determined under a lodestar method."
City of Laredo v. Montano
,
Gonzalez offered nothing to document his time in the case other than the "thousands and thousands and thousands of pages" generated during his representation of the Montanos and his belief that he had reasonably spent 1,356 hours preparing and trying the case. We rejected similar proof in El Apple .
Gonzalez's testimony that he spent "a lot of time getting ready for the lawsuit," conducted "a lot of legal research," visited the premises "many, many, many, many times," and spent "countless" hours on motions and depositions is not evidence of a reasonable attorney's fee under lodestar.... In El Apple , we said that a lodestar calculation requires certain basic proof, including itemizing specific tasks, the time required for those tasks, and the rate charged by the person performing the work.
A year after that, we again confirmed our position that the lodestar method applies when the fee claimant puts on evidence of reasonable fees by relating the hours worked multiplied by hourly rates
*496
for a total fee.
Long
,
Here, as in El Apple and Montano , the affidavit supporting the request for attorney's fees only offers generalities. It indicates that one attorney spent 300 hours on the case, another expended 344.50 hours, and the attorneys' respective hourly rates. The affidavit posits that the case involved extensive discovery, several pretrial hearings, multiple summary judgment motions, and a four and one-half day trial, and that litigating the matter required understanding a related suit that settled after ten years of litigation. But no evidence accompanied the affidavit to inform the trial court [of] the time spent on specific tasks.... [W]ithout any evidence of the time spent on specific tasks, the trial court had insufficient information to meaningfully review the fee request.
Based on our recent precedent, it should have been clear that the lodestar method developed as a "short hand version" of the
Arthur Andersen
factors and was never intended to be a separate test or method.
See
Stewart Title
,
Incidentally, as the court of appeals did in this case, some courts have decided that testimony about an attorney's experience, the total amount of fees, and the reasonableness of the fees complies sufficiently with
Arthur Andersen
to support an attorney's fee award.
See, e.g.
,
Additionally, some courts of appeals have relied on our decision in
Garcia
, in which we stated that an attorney's testimony about his experience and his estimate of a reasonable and necessary fee in a case was "some evidence of a reasonable fee."
Related to Garcia is our decision in Kinsel v. Lindsey , which likewise deals with the evidence to defeat a no-evidence challenge. We held:
To support its claim for attorney's fees, counsel for the Kinsels testified regarding legal services rendered and various work performed through trial, each attorney's related experience, and what factors each considered to determine a reasonable fee. Although the court of appeals found this testimony "lacking in specifics," it was "at the very least, the quantum of evidence found sufficient" by this Court in Garcia v. Gomez ,319 S.W.3d 638 (Tex. 2010). We agree.
c. Applicable Standard for Proving Reasonable Attorney's Fees
(1) Base Calculation: Time x Rate = Presumptively Reasonable
It should have been clear from our opinions in
El Apple
,
Montano
, and
*498
Long
that we intended the lodestar analysis to apply to any situation in which an objective calculation of reasonable hours worked times a reasonable rate can be employed. We reaffirm today that the fact finder's starting point for calculating an attorney's fee award is determining the reasonable hours worked multiplied by a reasonable hourly rate, and the fee claimant bears the burden of providing sufficient evidence on both counts.
See
El Apple
,
It is worth repeating that because fee-shifting awards are to be reasonable and necessary for successfully prosecuting or defending against a claim, reasonableness and necessity are not dependent solely on the contractual fee arrangement between the prevailing party and its attorney.
Cf.
Blanchard
,
(2) Enhancing or Reducing Base Calculation
Some commentators have opined that our willingness to apply the lodestar method to any situation in which an attorney testifies to reasonable hours multiplied by reasonable rates-as we did in
Long
and
Montano
-renders
El Apple
's two-step process invalid.
See, e.g.
, Mark E. Steiner,
*500
Will
El Apple
Today Keep Attorneys' Fees Away?
, 19 J. CONSUMER & COM. L. 114, 117 (2016) (expressing that both
Long
and
Montano
"appear to apply the term 'lodestar' to any situation that involves recovering attorneys' fees on the basis of 'reasonable hours times reasonable rate.' There is no sense that lodestar is a two-step process, which is how the Court had described it in
El Apple
"). To the contrary, both
Long
and
Montano
analyzed the issue of whether the evidence was sufficient under our precedent dealing with the lodestar method-based on
El Apple
.
See
Long
,
d. Standard Summary
To summarize, the lodestar method as we presented it in El Apple applies for determining the reasonableness and necessity of attorney's fees in a fee-shifting situation:
Under the lodestar method, the determination of what constitutes a reasonable attorney's fee involves two steps. First, the [fact finder] must determine the reasonable hours spent by counsel in the case and a reasonable hourly rate for such work. The [fact finder] then multiplies the number of such hours by the applicable rate, the product of which is the base fee or lodestar. The [fact finder] may then adjust the base lodestar up or down (apply a multiplier), if relevant factors indicate an adjustment is necessary to reach a reasonable fee in the case.
As the United States Supreme Court has observed, "[t]he lodestar method was never intended to be conclusive in all circumstances"; rather, "there is a 'strong presumption' that the [base] lodestar figure is reasonable, but that presumption may be overcome in those rare circumstances in which the lodestar does not adequately take into account a factor that may properly be considered in determining a reasonable fee."
Perdue
,
e. Billing Records
Contemporaneous billing records are not required to prove that the requested fees are reasonable and necessary.
See
El Apple
,
An attorney could, of course, testify to these details, but in all but the simplest cases, the attorney would probably have to refer to some type of record or documentation to provide this information. Thus, when there is an expectation that the lodestar method will be used to calculate fees, attorneys should document their time much as they would for their own clients, that is, contemporaneous billing records or other documentation recorded reasonably close to the time when the work is performed.
*503
Importantly, however, we are not endorsing satellite litigation as to attorney's fees. The fact finder will generally not benefit from attorneys cross-examining each other point-by-point on every billable matter.
See
Hensley
,
3. Howard's Testimony
Finally, we consider the evidence presented at trial supporting the award of attorney's fees. As mentioned, the trial court awarded $ 1,025,000 in attorney's fees, including the conditional awards. Because UTSW secured the attorney's fees in the final judgment over Rohrmoos, we focus on the testimony of UTSW's attorney, Wade Howard. On direct examination, Howard testified that "all I've done for my 20 years" of legal experience is litigation. "The standard rate[ ] that I charge is generally around $ 430 an hour. I know that sounds ridiculously high. I often think myself it is ridiculously high. But it is -- it pays for a lot of things," namely, the logistics of running a law firm. Howard then stated:
I have handled cases similar in nature to this.... [A] reasonable and necessary amount of hours in this case, I would think would be at around 750 to 1,000 hours. So that would put the attorney's fees at my rate somewhere in the 3 to $ 400,000 range. Again, I know that sounds very high, but I do believe based on my experience, 20 years of experience in the legal profession, and handling these types of cases at this magnitude that [this] is really what would be a reasonable and necessary fee if this case were worked up by both sides in a reasonable and necessary fashion.
Howard went on:
This case, for whatever reason, has not been worked up in a reasonable fashion. Now, of course, I'm going to say that I've put most of that on the other side. And I'll talk about that in a little more detail. But because of that, the fees in this case are much closer -- my fees are much closer to 800 -- over $ 800,000. Now, I will be the first to admit, that is a ridiculous number. Okay. They should never have gotten [that] high.
Howard explained how Rohrmoos's actions, in his view, caused the fees to reach such a high amount. He talked about the volume of document production, saying his firm had to "search literally millions of emails to find the documents that you see here in the courtroom. And we [had] to review all of those emails when we [ran] our searches to make sure that they're relevant to this case and also that they don't contain any patient information." 14
Next, Howard described having to produce large numbers of hard-copy documents. "It was about 60 bankers boxes of documents," Howard said, and "[t]hose *504 bankers boxes will hold -- the small ones will hold around 3,000 pages, the larger ones around 7,000 pages of documents." Tasked with reviewing all those documents were the paralegals, who bill the client for their time. They "had to go through every single one of those documents, page by page, and remove all of the old patient files that we had in [those] boxes of documents.... That's one of the reasons why the costs in this case have gotten so ridiculously high."
From there, Howard went to depositions. "Okay. When somebody -- when a witness gets deposed, both sides have to prepare for the deposition. Then you have to go to the deposition. Then you have time reviewing the deposition afterwards, getting it summarized and making it ready for if it's actually called to trial." Those get expensive, "[s]o that's another thing that's contributed." Howard testified summarily that more than forty depositions occurred in this case. He then ended with an analogy aimed at shedding light on Rohrmoos's actions:
[I]t's kind of like when you go to the doctor and the doctor says, I think I need to run the following tests. You, as the patient, just kind of go, okay.... And when a lawyer has that kind of control, they can just run up the fees. They can just say, oh, I need to investigate this. I need to do research on that. I want to file a motion on that.
This all led to a lengthy discussion of motion practice. "I think [there were] four or five motions to compel" and a forty-page motion for summary judgment. Howard explained:
I can tell you from my experience, to draft a motion of that length is expensive. Probably was 30, $ 40,000 to draft that type of detailed motion on the law.
I then have to respond to it. I file my response. He then filed a 30 or 35-page what they call reply to my response. Then we have to have a hearing on it. Lasted for several hours. That one motion alone, probably cost the parties $ 80,000. And in my opinion, it just wasn't necessary. It wasn't reasonable. It wasn't necessary. And it just caused both parties to spend a lot of money that wasn't necessary.
And so, you know, again, I'm sure when [opposing counsel] takes the stand, he's going to say, I've done things that have run on up the cost. The simple reality is, both parties probably have to take some blame. The costs got way out of control here and the fees were not reasonable or necessary. I think the 3 to $ 400,000 range is where fees are reasonable and necessary. I do think, however, that if you find that we prevail in this case, that our fees should be something higher than that. I won't even wager a guess as to what it should be higher than that. Whatever you think is necessary. But I think our fees were higher than what were reasonable and necessary because we had to respond to all of the experts that [opposing counsel] designated. We had to appear at all the depositions that he noticed. I can't just ignore those things.
So, if we prevail, I think our fees should be somewhat higher [than] the 3 to $ 400,000 range, but I'll leave that to your discretion. But I will tell you that if both sides had just approached this case in a reasonable fashion, the fees in this case should not have exceeded 3 or $ 400,000.
That concluded Howard's direct testimony. Rohrmoos's counsel immediately moved to strike it, asserting that Howard did not comply with the
Arthur Andersen
factors to prove the reasonableness of the fees. The trial court denied the motion after Howard responded, "The amount in controversy,
*505
Your Honor, the complexity of the case, my knowledge and experience. I think that's really the factors that were relevant in this case." The court of appeals then affirmed the award, holding that "Howard's testimony concerning his experience, the total amount of fees, and the reasonableness of the fees charged was sufficient to support the award" under
Arthur Andersen
.
We understand Howard's testimony that $ 800,000 in attorney's fees for trial work may seem unreasonable for a breach of lease case that implicated roughly $ 300,000 in damages.
15
We also understand Howard's position that opposing counsel's actions drove the cost of litigation, in most instances, and that made UTSW's $ 800,000 in requested attorney's fees necessary, even reasonable.
16
However true this may be, Howard's justification for why his fees should be $ 800,000-searching through "millions" of emails and reviewing "hundreds of thousands" of papers in discovery, more than forty depositions taken, and a forty-page motion for summary judgment-is too general to establish that the requested fees were reasonable and necessary. Without detail about the work done, how much time was spent on the tasks, and how he arrived at the $ 800,000 sum, Howard's testimony lacks the substance required to uphold a fee award.
See
Long
,
*506 V. Conclusion
In summary, we hold that a commercial tenant can terminate a commercial lease based on the landlord's prior material breach. Our holding is not inconsistent with
Davidow v. Inwood North Professional Group-Phase I
,
Rohrmoos's and UTSW's predecessors executed the original lease in 1996. Rohrmoos and UTSW modified and ratified that original lease agreement in March 2003.
Rohrmoos also argued that UTSW was not entitled to recover attorney's fees under the Declaratory Judgment Act because UTSW allegedly abandoned its declaratory judgment claim prior to trial.
See
Tex. Civ. Prac. & Rem. Code § 37.009 (stating that "[i]n any proceeding under this chapter, the court may award costs and reasonable and necessary attorney's fees as are equitable and just"). The court of appeals declined to address this issue because it affirmed the award of attorney's fees on other grounds.
See
We note that Rohrmoos relied heavily on Davidow in its briefing to the court of appeals. Although unclear at times, there are multiple instances in which Rohrmoos presented its theory that Davidow does not allow the remedy of termination upon a showing that the landlord materially breached the commercial lease. Rohrmoos asserted:
UTSW's claims of breach of lease from failing to make repairs should have been dealt with on their proper foundation in fact and law, the remedy being money damages. "Thus, a tenant is still under a duty to pay rent even though his landlord has breached his covenant to make repairs." Davidow v. Inwood North Prof. Group-Phase I ,747 S.W.2d 373 , 375 (Tex. 1988) (confirming that failure to make repairs does not justify rescission).
....
A lease property can obviously experience repair issues without causing the landlord to be in breach of the lease. Were this not so, the implied warranty of suitability created in Davidow would have been completely unnecessary since the concept of "breach" (or "material breach" in Mr. Howard's world) would have already provided the identical remedy of rescission.
....
Even if Rohrmoos had failed to repair property defects (which it did not), the remedy under Texas law for a tenant in that situation is money damages.... For recompense, the tenant can sue for damages or it can make the repairs itself and deduct the cost from rent owed. What a tenant cannot do is claim "breach of lease" from repairs not being performed on its preferred timetable and then vacate the premises years later. If that were the law, the slightest unrepaired defect in the property: a burned-out light bulb, would afford the tenant with the harshest remedy known to the law: rescission. And, as shown above, if that were the law, there would have been no need for the warranty of unsuitability.
Rohrmoos argued:
Indeed, if UTSW was correct, and if a "material" breach allowed for lease termination, then the Supreme Court's decision in Davidow was totally unnecessary. After all, what is the purpose of adopting the Davidow warranty if every lease can already be "materially" breached and that alone would allow for termination/rescission? The fact is, before Davidow , a landlord's breach of a commercial lease afforded the tenant with only limited recourse-which did not include termination or refusal to pay rent. For UTSW to continue to argue that "material breach" allows for termination is contrary to over 100 years of Texas law and renders the Davidow factors irrelevant.
See discussion infra Part III.
Rohrmoos asserts many arguments in an attempt to negate the jury's finding that Rohrmoos breached the Davidow implied warranty of suitability, including: (1) no competent evidence supports the finding that the Davidow implied warranty was breached; (2) UTSW waived its Davidow warranty claims because it remained on the property and continued to use the facility; (3) the parties agreed to an express warranty in the lease under Article 13 that superseded Davidow and therefore made Davidow 's implied warranty inapplicable as a matter of law; and (4) there is an "as is" clause in the lease that renders Davidow 's implied warranty inapplicable as a matter of law. None of these arguments are helpful to Rohrmoos, however, unless it also defeats the jury's finding that it materially breached the commercial lease.
To support its position, UTSW relies heavily on case law from courts of appeals that developed after our decision in
El Apple I, Ltd. v. Olivas
,
The United States Supreme Court takes a different view regarding attorney pro se representation, at least under the Civil Rights Attorney's Fees Award Act of 1976.
See generally
Kay v. Ehrler
,
We note that section 38.004 of the Civil Practice and Remedies Code authorizes a court, in certain proceedings involving fee-shifting under section 38.001, to take judicial notice of usual and customary attorney's fees. Tex. Civ. Prac. & Rem. Code § 38.004 ("The court may take judicial notice of the usual and customary attorney's fees and of the contents of the case file without receiving further evidence in: (1) a proceeding before the court; or (2) a jury case in which the amount of attorney's fees is submitted to the court by agreement."). In such instances, there is a rebuttable presumption that the usual and customary fees are reasonable.
We recognize that when fee agreements provide for arrangements other than hourly billing, the attorney will not be able to present evidence of a particular hourly rate billed or paid for the services performed. In those instances, the fee claimant, through its expert, has the burden of showing that the rate claimed for purposes of the base lodestar calculation reflects a reasonable market rate given considerations in
Arthur Andersen
, including the attorney's experience and expertise, the novelty and complexity of the questions involved, any special skill required for the representation, the attorney's risk in accepting such representation, which may be reflected in a contingent fee agreement, and any other considerations that would factor into an attorney's fee negotiations if the attorney were to bill hourly.
See
Burlington
,
Although Arthur Andersen speaks in terms of factors, we employ the term "considerations" because there are multiple considerations within some of the factors.
Because attorney's fee determinations in federal court are within the district court's discretion, the "results obtained" factor is generally considered in calculating the base lodestar, and thus "it normally should not provide an independent basis for increasing the fee award."
Blum
,
We emphasize that, pursuant to an attorney-client fee agreement, a client could ultimately owe its attorney more fees than the amount of the award shifting fees to the non-prevailing party. However, fact finders should be concerned with awarding reasonable and necessary fees, not with any contractual obligations that may remain between the attorney and client.
On cross-examination, Howard explained that it was probably "tens of millions" of documents, rather than just "millions," but they did not have to physically review each document. Computer software designed for discovery in litigation narrowed down the final number to around "hundreds of thousands of pages of documents that we put eyes on."
Indeed, Rohrmoos requested $ 1,300,000 in attorney's fees. Even the trial court was baffled by the high amount of attorney's fees for a breach of lease case.
THE COURT: Okay. So, now, let's go [back] to the amount [of attorney's fees].
MR. HOWARD: Yes, Your Honor.
THE COURT: We all had those discussions both on the record and off the record of what this court's impression was of the attorney's fees and how this case was driven. I believe that defense counsel testified to how much in attorney's fees?
MR. HOWARD: $ 1.3 million, Your Honor, for the landlord. And there were --
THE COURT: And how much was -- how much rent did you owe if you had lost?
MR. HOWARD: The less than 300.
THE COURT: $ 300,000. And the attorney's fees for defendant, once again, were how much?
MR. HOWARD: The landlord's were $ 1.3 million.
THE COURT: And how much did -- were you yours?
MR. HOWARD: Ours were over $ 800,000.
THE COURT: On a breach of lease case?
MR. HOWARD: Yes, Your Honor.
THE COURT: And if you moved out and you move out too early, before the term of the lease was up, how much would you have owed had you lost, one more time?
MR. HOWARD: Less than $ 300,000.
THE COURT: Think about it. Thank you. All right. You can continue.
Howard explained himself to the court:
Which is exactly why, Your Honor, that what I testified to was that the reasonable necessary fees in this case should have been in the 3 to $ 400,000. But primarily because of the Defendant's conduct, hiring twelve experts -
....
[The Defendants] spent $ 1.3 million [in attorney's fees]. Of course, I'm -- you know, he notices up 37 depositions including, you know, 15 third-party depositions, I have to attend. He hires twelve experts. You know, I have to depose them and know what they're going to say. And all of that evidence came in about all the things that the landlord did that caused the Plaintiff to incur significantly more fees than what should have been reasonable and necessary. But if you recall, I did say that we did have to do those. They were reasonable. They were necessary. The amount charged was reasonable. The time spent doing those tasks was reasonable. It just -- the actions they took.
Reference
- Full Case Name
- ROHRMOOS VENTURE, Eric Langford, Dan Basso, and Tobin Grove, Petitioners, v. UTSW DVA HEALTHCARE, LLP, Respondent
- Cited By
- 455 cases
- Status
- Published