Must Former Client Arbitrate Fee Dispute With Law Firm When Arbitration Clause Was Embedded in a Noncompliant Contingent Fee Contract? – Texas Judges Not of One Mind

Posted: 30 May 2019

Date Written: May 7, 2019

Abstract

Quasi-Experimental Approach to the Analysis of Appellate Adjudication: Study #1: Judicial Treatment of an Attorney-Client Arbitration Agreement Embedded in a Contingent Fee Agreement That Does Not Comply With the Applicable Statute of Frauds.

The Texas Government Code requires that "a contingent fee contract for legal services must be in writing and signed by the attorney and client." TEX. GOV'T CODE ANN. § 82.065(a). What if such an attorney-client contract does not comply with the statute, but provides for arbitration of any subsequent disputes? Will the arbitration clause be enforceable when embedded in a contract that may itself be void or voidable?

Four attorney-client disputes under such a legal services agreement have made it to the appellate level, but have not yielded the same results, nor consistent legal reasoning supporting the disposition. These cases provide an intriguing opportunity to examine the judicial process under somewhat controlled conditions: Same attorney as party, same contract, same legal issues, but different courts, different judges, different procedural routes to the court of appeals, and different outcomes. The underlying facts and the key legal questions in these cases are identical or nearly so (i.e. they are constants), while the judicial process variables are not.

What explains the difference in outcomes?

While not offering definitive conclusions, this paper endeavors to exemplify a mode of inquiry and analysis that promises greater analytical leverage and is stronger than a one-shot case-study (N=1) and also goes beyond a purely doctrinal analysis of the legal issues. The fact that judicial decision-makers—all sworn to apply the law faithfully and correctly--ruled inconsistently, even on appeal, raises the question as to what the correct decision is, or should be, and whether the Texas Supreme Court should resolve it to provide certainty and uniformity in the law governing attorney-client contracts in contingent-fee cases throughout the state. For political scientists, it also raises the question what extrinsic nonlegal factors have a bearing on the observed variation in the decisional behavior of judges when faced with the same factual and legal scenario.

Summary Description of the Data Constellation for Quasi-Experimental Analysis and Findings

Constant factual basis for legal dispute in all cases: Same law firm’s contingent fee agreement for personal injury cases that says it is subject to arbitration under the Texas Arbitration Act (TAA) but also contains a paragraph that subjects the contract to the Federal Arbitration Act (FAA) and to the rules of the American Arbitration Association (AAA).

Constant legal issue in all cases: Validity and enforceability of attorney-client arbitration clause when the contingent fee agreement of which it is a part does not comply with applicable state law.

Heterogeneity in adjudicators: Three different courts of appeals (4th, 5th, and 13th) and different trial courts/judges in each case.

Heterogeneity in appellate vehicles: 3 interlocutory appeals, 2 mandamus petitions, one of which was consolidated with an interlocutory appeal from the same trial court order.

Variations in appellate outcomes: Law firm won three interlocutory appeals, but one win drew a dissent. One former client succeeded with a challenge to an order compelling arbitration issued by the trial court through a mandamus proceeding against the trial judge.

Variations in trial court orders and resultant case posture for appeal: 1 trial court judge granted summary judgment to former client on arbitrability issue, 1 denied law firm’s motion to compel arbitration, and 2 entered orders imposing a stay on arbitration that law firm had already initiated.

Win/loss ratio on arbitration issue in trial court prior to appeal: Law firm lost to former client 3 times out of 4 at the trial court level.

Overall win/loss tally on arbitration issue after appeal(s): Law firm prevailed 3 times in its efforts to compel arbitration and lost 1 time when an ex-client persuaded the court of appeals to lift a trial court order compelling her to arbitrate.

Variation in judicial behavior: Out of a total of 15 judges/justices, 8 ruled in favor (or voted in favor) of arbitration and 7 against. Even considering that the courts of appeals have the power to correct or otherwise overrule the trial courts, the ultimate outcome was inconsistent.

Appellate opinion cites for the four cases:

(1) Henry v. Gonzalez, 18 S.W.3d 684 (Tex.App.-San Antonio 2000, pet. dism'd by agr.) (order denying arbitration reversed under the TAA; FAA held inapplicable)
(2) In re Godt, 28 S.W.3d 732 (Tex. App.-Corpus Christi 2000, original proceeding) (order compelling arbitration reversed by mandamus on former client’s petition; FAA held inapplicable)
(3) Law Office of Thomas J. Henry v. Jonathan Cavanaugh, No. 05-17-00849-CV (Tex.App.- Dallas, May 7, 2018, pet. denied) (trial court’s order staying arbitration entered under the TAA reversed; FAA preemption mentioned in dicta).
(4) Law Office of Thomas J. Henry v. Priscilla Garcia, No. 13-18-00275-CV (Tex.App. – Corpus Christi, Feb. 25, 2019, no pet.) (trial court’s order staying arbitration under TAA reversed; same court’s prior opinion in Godt distinguished on the facts.)

Keywords: K12, K23, K41

JEL Classification: arbitrability, judicial decisonmaking, empirical legal research, legal services, judicial behavior

Suggested Citation

Hirczy de Mino, Wolfgang, Must Former Client Arbitrate Fee Dispute With Law Firm When Arbitration Clause Was Embedded in a Noncompliant Contingent Fee Contract? – Texas Judges Not of One Mind (May 7, 2019). Available at SSRN: https://ssrn.com/abstract=3152325

Wolfgang Hirczy de Mino (Contact Author)

Independent ( email )

No Address Available
United States

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