By: Fraser, Ratliff S.B. No. 113
A BILL TO BE ENTITLED
AN ACT
1-1 relating to contingent fee contracts for legal services entered
1-2 into by a state governmental entity and to the deposit of certain
1-3 delinquent or disputed funds recovered by a state governmental
1-4 entity.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. (a) The legislature finds that:
1-7 (1) a payment to a private attorney or law firm under
1-8 a contingent fee contract for legal services entered into by a
1-9 state governmental entity constitutes compensation paid to a public
1-10 contractor for which the legislature must provide by law under
1-11 Section 44, Article III, Texas Constitution; and
1-12 (2) funds recovered by a state governmental entity in
1-13 litigation or in settlement of a matter that could have resulted in
1-14 litigation are state funds that must be deposited in the state
1-15 treasury and made subject to the appropriations process.
1-16 (b) It is the policy of this state that all funds recovered
1-17 by a state governmental entity from an opposing party in litigation
1-18 or in settlement of a matter that could have resulted in
1-19 litigation, including funds designated as damages, amounts adjudged
1-20 or awarded, attorney's fees, costs, interest, settlement proceeds,
1-21 or expenses, are the property of the state governmental entity that
1-22 must be deposited in the manner that public funds of the entity
1-23 must be deposited. Legal fees and expenses may be paid from the
1-24 recovered funds under a contingent fee contract for legal services
2-1 only after the funds have been appropriately deposited and only in
2-2 accordance with applicable law.
2-3 SECTION 2. Subchapter F, Chapter 404, Government Code, is
2-4 amended by adding Section 404.097 to read as follows:
2-5 Sec. 404.097. DEPOSIT OF FUNDS RECOVERED BY LITIGATION OR
2-6 SETTLEMENT. (a) Notwithstanding Section 404.093, this section
2-7 applies by its terms to each state governmental entity.
2-8 (b) In this section, "contingent fee contract" and "state
2-9 governmental entity" have the meanings assigned by Section
2-10 2254.101.
2-11 (c) All funds recovered by a state governmental entity in
2-12 litigation or in settlement of a matter that could have resulted in
2-13 litigation, including funds designated as damages, amounts adjudged
2-14 or awarded, attorney's fees, costs, interest, settlement proceeds,
2-15 or expenses, are public funds of the state or the state
2-16 governmental entity and shall be deposited in the state treasury to
2-17 the credit of the appropriate fund or account.
2-18 (d) Legal fees and expenses may be paid from the recovered
2-19 funds under a contingent fee contract for legal services only:
2-20 (1) after the funds are deposited in accordance with
2-21 this section; and
2-22 (2) in accordance with Subchapter C, Chapter 2254.
2-23 SECTION 3. Chapter 2254, Government Code, is amended by
2-24 adding Subchapter C to read as follows:
2-25 SUBCHAPTER C. CONTINGENT FEE CONTRACT FOR LEGAL SERVICES
2-26 Sec. 2254.101. DEFINITIONS. In this subchapter:
3-1 (1) "Contingent fee" means that part of a fee for
3-2 legal services, under a contingent fee contract, the amount or
3-3 payment of which is contingent on the outcome of the matter for
3-4 which the services were obtained.
3-5 (2) "Contingent fee contract" means a contract for
3-6 legal services under which the amount or the payment of the fee for
3-7 the services is contingent in whole or in part on the outcome of
3-8 the matter for which the services were obtained.
3-9 (3) "State governmental entity":
3-10 (A) means the state or a board, commission,
3-11 department, office, or other agency in the executive branch of
3-12 state government created under the constitution or a statute of the
3-13 state, including an institution of higher education as defined by
3-14 Section 61.003, Education Code;
3-15 (B) includes the state when a state officer is
3-16 bringing a parens patriae proceeding in the name of the state; and
3-17 (C) does not include a state agency or state
3-18 officer acting as a receiver, special deputy receiver, liquidator,
3-19 or liquidating agent in connection with the administration of the
3-20 assets of an insolvent entity under Article 21.28, Insurance Code,
3-21 or Chapter 36, 66, 96, or 126, Finance Code.
3-22 Sec. 2254.102. APPLICABILITY. (a) This subchapter applies
3-23 only to a contingent fee contract for legal services entered into
3-24 by a state governmental entity.
3-25 (b) The legislature by this subchapter is providing, in
3-26 accordance with Section 44, Article III, Texas Constitution, for
4-1 the manner in which and the situations under which a state
4-2 governmental entity may compensate a public contractor under a
4-3 contingent fee contract for legal services.
4-4 Sec. 2254.103. CONTRACT APPROVAL; SIGNATURE. (a) A state
4-5 governmental entity that has authority to enter into a contract for
4-6 legal services in its own name may enter into a contingent fee
4-7 contract for legal services only if:
4-8 (1) the governing body of the state governmental
4-9 entity approves the contract and the approved contract is signed by
4-10 the presiding officer of the governing body; or
4-11 (2) for an entity that is not governed by a
4-12 multimember governing body, the elected or appointed officer who
4-13 governs the entity approves and signs the contract.
4-14 (b) The attorney general may enter into a contingent fee
4-15 contract for legal services in the name of the state in relation to
4-16 a matter that has been referred to the attorney general under law
4-17 by another state governmental entity only if the other state
4-18 governmental entity approves and signs the contract in accordance
4-19 with Subsection (a).
4-20 (c) A state governmental entity, including the state, may
4-21 enter into a contingent fee contract for legal services that is not
4-22 described by Subsection (a) or (b) only if the governor approves
4-23 and signs the contract.
4-24 (d) Before approving the contract, the governing body,
4-25 elected or appointed officer, or governor, as appropriate, must
4-26 find that:
5-1 (1) there is a substantial need for the legal
5-2 services;
5-3 (2) the legal services cannot be adequately performed
5-4 by the attorneys and supporting personnel of the state governmental
5-5 entity or by the attorneys and supporting personnel of another
5-6 state governmental entity; and
5-7 (3) the legal services cannot reasonably be obtained
5-8 from attorneys in private practice under a contract providing only
5-9 for the payment of hourly fees, without regard to the outcome of
5-10 the matter, because of the nature of the matter for which the
5-11 services will be obtained or because the state governmental entity
5-12 does not have appropriated funds available to pay the estimated
5-13 amounts required under a contract providing only for the payment of
5-14 hourly fees.
5-15 (e) Before entering into a contingent fee contract for legal
5-16 services in which the estimated amount that may be recovered
5-17 exceeds $100,000, a state governmental entity that proposes to
5-18 enter into the contract in its own name or in the name of the state
5-19 must also notify the Legislative Budget Board that the entity
5-20 proposes to enter into the contract, send the board copies of the
5-21 proposed contract, and send the board information demonstrating
5-22 that the conditions required by Subsection (d)(3) exist. If the
5-23 state governmental entity finds under Subsection (d)(3) that the
5-24 state governmental entity does not have appropriated funds
5-25 available to pay the estimated amounts required under a contract
5-26 for the legal services providing only for the payment of hourly
6-1 fees, the state governmental entity may not enter into the proposed
6-2 contract in its own name or in the name of the state unless the
6-3 Legislative Budget Board finds that the state governmental entity's
6-4 finding with regard to available appropriated funds is correct.
6-5 (f) A contingent fee contract for legal services that is
6-6 subject to Subsection (e) and requires a finding by the Legislative
6-7 Budget Board is void unless the board has made the finding required
6-8 by Subsection (e).
6-9 Sec. 2254.104. TIME AND EXPENSE RECORDS REQUIRED; FINAL
6-10 STATEMENT. (a) The contract must require that the contracting
6-11 attorney or law firm keep current and complete written time and
6-12 expense records that describe in detail the time and money spent
6-13 each day in performing the contract.
6-14 (b) The contracting attorney or law firm shall permit the
6-15 governing body or governing officer of the state governmental
6-16 entity, the attorney general, and the state auditor each to inspect
6-17 or obtain copies of the time and expense records at any time on
6-18 request.
6-19 (c) On conclusion of the matter for which legal services
6-20 were obtained, the contracting attorney or law firm shall provide
6-21 the contracting state governmental entity with a complete written
6-22 statement that describes the outcome of the matter, states the
6-23 amount of any recovery, shows the contracting attorney's or law
6-24 firm's computation of the amount of the contingent fee, and
6-25 contains the final complete time and expense records required by
6-26 Subsection (a). The complete written statement required by this
7-1 subsection is public information under Chapter 552 and may not be
7-2 withheld from a requestor under that chapter under Section 552.103
7-3 or any other exception from required disclosure.
7-4 (d) This subsection does not apply to the complete written
7-5 statement required by Subsection (c). All time and expense records
7-6 required under this section are public information subject to
7-7 required public disclosure under Chapter 552. Information in the
7-8 records may be withheld from a member of the public under Section
7-9 552.103 only if, in addition to meeting the requirements of Section
7-10 552.103, the chief legal officer or employee of the state
7-11 governmental entity determines that withholding the information is
7-12 necessary to protect the entity's strategy or position in pending
7-13 or reasonably anticipated litigation. Information withheld from
7-14 public disclosure under this subsection shall be segregated from
7-15 information that is subject to required public disclosure.
7-16 Sec. 2254.105. CERTAIN GENERAL CONTRACT REQUIREMENTS. The
7-17 contract must:
7-18 (1) provide for the method by which the contingent fee
7-19 is computed;
7-20 (2) state the differences, if any, in the method by
7-21 which the contingent fee is computed if the matter is settled,
7-22 tried, or tried and appealed;
7-23 (3) state how litigation and other expenses will be
7-24 paid and, if reimbursement of any expense is contingent on the
7-25 outcome of the matter or reimbursable from the amount recovered in
7-26 the matter, state whether the amount recovered for purposes of the
8-1 contingent fee computation is considered to be the amount obtained
8-2 before or after expenses are deducted;
8-3 (4) state that any subcontracted legal or support
8-4 services performed by a person who is not a contracting attorney or
8-5 a partner, shareholder, or employee of a contracting attorney or
8-6 law firm is an expense subject to reimbursement only in accordance
8-7 with this subchapter; and
8-8 (5) state that the amount of the contingent fee and
8-9 reimbursement of expenses under the contract will be paid and
8-10 limited in accordance with this subchapter.
8-11 Sec. 2254.106. CONTRACT REQUIREMENTS: COMPUTATION OF
8-12 CONTINGENT FEE; REIMBURSEMENT OF EXPENSES. (a) The contract must
8-13 establish the reasonable hourly rate for work performed by an
8-14 attorney, law clerk, or paralegal who will perform legal or support
8-15 services under the contract based on the reasonable and customary
8-16 rate in the relevant locality for the type of work performed and on
8-17 the relevant experience, demonstrated ability, and standard hourly
8-18 billing rate, if any, of the person performing the work. The
8-19 contract may establish the reasonable hourly rate for one or more
8-20 persons by name and may establish a rate schedule for work
8-21 performed by unnamed persons. The highest hourly rate for a named
8-22 person or under a rate schedule may not exceed $1,000 an hour.
8-23 This subsection applies to subcontracted work performed by an
8-24 attorney, law clerk, or paralegal who is not a contracting attorney
8-25 or a partner, shareholder, or employee of a contracting attorney or
8-26 law firm as well as to work performed by a contracting attorney or
9-1 by a partner, shareholder, or employee of a contracting attorney or
9-2 law firm.
9-3 (b) The contract must establish a base fee to be computed as
9-4 follows. For each attorney, law clerk, or paralegal who is a
9-5 contracting attorney or a partner, shareholder, or employee of a
9-6 contracting attorney or law firm, multiply the number of hours the
9-7 attorney, law clerk, or paralegal works in providing legal or
9-8 support services under the contract times the reasonable hourly
9-9 rate for the work performed by that attorney, law clerk, or
9-10 paralegal. Add the resulting amounts to obtain the base fee. The
9-11 computation of the base fee may not include hours or costs
9-12 attributable to work performed by a person who is not a contracting
9-13 attorney or a partner, shareholder, or employee of a contracting
9-14 attorney or law firm.
9-15 (c) Subject to Subsection (d), the contingent fee is
9-16 computed by multiplying the base fee by a multiplier. The contract
9-17 must establish a reasonable multiplier based on any expected
9-18 difficulties in performing the contract, the amount of expenses
9-19 expected to be risked by the contractor, the expected risk of no
9-20 recovery, and any expected long delay in recovery. The multiplier
9-21 may not exceed four without prior approval by the legislature.
9-22 (d) In addition to establishing the method of computing the
9-23 fee under Subsections (a), (b), and (c), the contract must limit
9-24 the amount of the contingent fee to a stated percentage of the
9-25 amount recovered. The contract may state different percentage
9-26 limitations for different ranges of possible recoveries and
10-1 different percentage limitations in the event the matter is
10-2 settled, tried, or tried and appealed. The percentage limitation
10-3 may not exceed 35 percent without prior approval by the
10-4 legislature. The contract must state that the amount of the
10-5 contingent fee will not exceed the lesser of the stated percentage
10-6 of the amount recovered or the amount computed under Subsections
10-7 (a), (b), and (c).
10-8 (e) The contract also may:
10-9 (1) limit the amount of expenses that may be
10-10 reimbursed; and
10-11 (2) provide that the amount or payment of only part of
10-12 the fee is contingent on the outcome of the matter for which the
10-13 services were obtained, with the amount and payment of the
10-14 remainder of the fee payable on a regular hourly rate basis without
10-15 regard to the outcome of the matter.
10-16 (f) Except as provided by Section 2254.107, this section
10-17 does not apply to a contingent fee contract for legal services:
10-18 (1) in which the expected amount to be recovered and
10-19 the actual amount recovered do not exceed $100,000; or
10-20 (2) under which a series of recoveries is contemplated
10-21 and the amount of each individual recovery is not expected to and
10-22 does not exceed $100,000.
10-23 (g) This section applies to a contract described by
10-24 Subsection (f) for each individual recovery under the contract that
10-25 actually exceeds $100,000, and the contract must provide for
10-26 computing the fee in accordance with this section for each
11-1 individual recovery that actually exceeds $100,000.
11-2 Sec. 2254.107. MIXED HOURLY AND CONTINGENT FEE CONTRACTS;
11-3 REIMBURSEMENT FOR SUBCONTRACTED WORK. (a) This section applies
11-4 only to a contingent fee contract:
11-5 (1) under which the amount or payment of only part of
11-6 the fee is contingent on the outcome of the matter for which the
11-7 services were obtained, with the amount and payment of the
11-8 remainder of the fee payable on a regular hourly rate basis without
11-9 regard to the outcome of the matter; or
11-10 (2) under which reimbursable expenses are incurred for
11-11 subcontracted legal or support services performed by a person who
11-12 is not a contracting attorney or a partner, shareholder, or
11-13 employee of a contracting attorney or law firm.
11-14 (b) Sections 2254.106(a) and (e) apply to the contract
11-15 without regard to the expected or actual amount of recovery under
11-16 the contract.
11-17 (c) The limitations prescribed by Section 2254.106 on the
11-18 amount of the contingent fee apply to the entire amount of the fee
11-19 under the contingent fee contract, including the part of the fee
11-20 the amount and payment of which is not contingent on the outcome of
11-21 the matter.
11-22 (d) The limitations prescribed by Section 2254.108 on
11-23 payment of the fee apply only to payment of the contingent portion
11-24 of the fee.
11-25 Sec. 2254.108. FEE PAYMENT AND EXPENSE REIMBURSEMENT.
11-26 (a) Except as provided by Subsection (b), a contingent fee and a
12-1 reimbursement of an expense under a contract with a state
12-2 governmental entity is payable only from funds the legislature
12-3 specifically appropriates to pay the fee or reimburse the expense.
12-4 An appropriation to pay the fee or reimburse the expense must
12-5 specifically describe the individual contract, or the class of
12-6 contracts classified by subject matter, on account of which the fee
12-7 is payable or expense is reimbursable. A general reference to
12-8 contingent fee contracts for legal services or to contracts subject
12-9 to this subchapter or a similar general description is not a
12-10 sufficient description for purposes of this subsection.
12-11 (b) If the legislature has not specifically appropriated
12-12 funds for paying the fee or reimbursing the expense, a state
12-13 governmental entity may pay the fee or reimburse the expense from
12-14 other available funds only if:
12-15 (1) the legislature is not in session; and
12-16 (2) the Legislative Budget Board gives its prior
12-17 approval for that payment or reimbursement under Section 69,
12-18 Article XVI, Texas Constitution, after examining the statement
12-19 required under Section 2254.104(c) and determining that the
12-20 requested payment and the contract under which payment is requested
12-21 meet all the requirements of this subchapter.
12-22 (c) A payment or reimbursement under the contract may not be
12-23 made until:
12-24 (1) final and unappealable arrangements have been made
12-25 for depositing all recovered funds to the credit of the appropriate
12-26 fund or account in the state treasury; and
13-1 (2) the state governmental entity and the state
13-2 auditor have received from the contracting attorney or law firm the
13-3 statement required under Section 2254.104(c).
13-4 (d) Litigation and other expenses payable under the
13-5 contract, including expenses attributable to attorney, paralegal,
13-6 accountant, expert, or other professional work performed by a
13-7 person who is not a contracting attorney or a partner, shareholder,
13-8 or employee of a contracting attorney or law firm, may be
13-9 reimbursed only if the state governmental entity and the state
13-10 auditor determine that the expenses were reasonable, proper,
13-11 necessary, actually incurred on behalf of the state governmental
13-12 entity, and paid for by the contracting attorney or law firm. The
13-13 contingent fee may not be paid until the state auditor has reviewed
13-14 the relevant time and expense records and verified that the hours
13-15 of work on which the fee computation is based were actually worked
13-16 in performing reasonable and necessary services for the state
13-17 governmental entity under the contract.
13-18 Sec. 2254.109. EFFECT ON OTHER LAW. (a) This subchapter
13-19 does not limit the right of a state governmental entity to recover
13-20 fees and expenses from opposing parties under other law.
13-21 (b) Compliance with this subchapter does not relieve a
13-22 contracting attorney or law firm of an obligation or responsibility
13-23 under other law, including under the Texas Disciplinary Rules of
13-24 Professional Conduct.
13-25 (c) A state officer, employee, or governing body, including
13-26 the attorney general, may not waive the requirements of this
14-1 subchapter or prejudice the interests of the state under this
14-2 subchapter. This subchapter does not waive the state's sovereign
14-3 immunity from suit or its immunity from suit in federal court under
14-4 the Eleventh Amendment to the federal constitution.
14-5 SECTION 4. This Act takes effect September 1, 1999, and the
14-6 changes in law made by this Act apply only to a contract entered
14-7 into on or after that date.
14-8 SECTION 5. The importance of this legislation and the
14-9 crowded condition of the calendars in both houses create an
14-10 emergency and an imperative public necessity that the
14-11 constitutional rule requiring bills to be read on three several
14-12 days in each house be suspended, and this rule is hereby suspended.