782 F.3d 240
5th Cir.2015Background
- Albert and Erin Hill retained two law firms (CHD and CNBW) under a hybrid fee agreement combining high hourly rates ($250–$545/hr) and a 15% contingency interest in “gross recovery” from trust litigation.
- The agreement allowed hourly fees to be paid “as soon as is financially practicable” and allocated 30% of distributions to hourly fees; it also stated the Hills could terminate but absent good cause the firms would still be entitled to the contingency percentage.
- The Hills terminated the firms, later settled the underlying matters for ~$188 million, and refused to pay under the fee agreement.
- A three‑member arbitration panel found the agreement valid, not unconscionable, and awarded the firms roughly $3.3M in hourly fees plus ~15% of the settlement (~$25M), plus arbitration fees and interest.
- The district court confirmed the hourly‑fee award but vacated the contingency‑fee portion and related awards as unconscionable and contrary to public policy, and adjusted interest awards.
- The firms appealed, arguing the district court misapplied the very deferential standard of review for arbitration awards under the Texas General Arbitration Act (TGAA).
Issues
| Issue | Plaintiff's Argument (Hills) | Defendant's Argument (Firms) | Held |
|---|---|---|---|
| Whether the contingency portion of the hybrid fee agreement is unconscionable/public‑policy violative | The combined high hourly rates plus 15% contingency produced an unreasonable, unearned windfall and violated public policy | Arbitrators reasonably found recovery was uncertain and the hybrid agreement was knowingly negotiated and enforceable; district court must defer | Court reversed vacatur: arbitrators’ findings were entitled to deference; contingency award reinstated |
| Whether district court properly vacated related arbitration awards (arbitration attorneys’ fees, expenses, arbitrators’ compensation) | Related awards should be vacated if contingency portion is void | Those awards flowed from the arbitrators’ grant and must be reinstated if contingency award stands | Reversed vacatur of related awards and rendered judgment for firms |
| Whether the district court properly applied the TGAA’s standard of review | Court acted within its power to police public‑policy violations | Court erred by substituting its judgment for arbitrators; TGAA review is narrowly deferential | Court held district court misapplied the deferential standard and substituted its judgment |
| Proper post‑judgment interest rate | Hills challenge higher post‑judgment rate set by arbitrators | Firms accepted that federal rate under 28 U.S.C. §1961 should apply on remand | Affirmed vacatur of the 5% post‑judgment rate; remanded to set post‑judgment interest under §1961; pre‑judgment interest at 5% remains to be determined |
Key Cases Cited
- Forest Oil Corp. v. El Rucio Land & Cattle Co., Inc., 446 S.W.3d 58 (Tex. App. 2014) (discussing highly deferential review of arbitration awards under Texas law)
- Perlman (Humitech Dev. Corp. v. Perlman), 424 S.W.3d 782 (Tex. App. 2014) (courts may not substitute their judgment for arbitrators')
- Universal Comp. Sys., Inc. v. Dealer Solutions, L.L.C., 183 S.W.3d 741 (Tex. App. 2005) (arbitration awards are not to be vacated for mere mistakes of law or fact)
- CVN Grp., Inc. v. Delgado, 95 S.W.3d 234 (Tex. 2002) (vacatur on public‑policy grounds requires an extraordinary case violating a clearly articulated fundamental policy)
- Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008) (limits on federal arbitration vacatur grounds; discussed for comparison)