Untitled Texas Attorney General Opinion, KP-0099

Background

A school district board contracted with a law firm under a reported flat fee arrangement (allegedly $300,000) to defend litigation challenging district closure and appointment of a board of managers.
The contract purportedly covered up to a given number of hours (750 at $400/hr); extra hours would be billed separately.
After execution and payment, a board of managers was appointed and the elected trustees lost governance control.
The Commissioner asked whether such a flat-fee agreement could constitute an unconstitutional gift of public funds under Texas Constitution art. III, § 52(a).
The opinion provides guidance but does not construe or approve a specific contract or resolve factual disputes; courts and the political subdivision make fact determinations subject to review.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the flat-fee legal contract violates art. III, § 52(a) (unlawful grant of public funds)	Fee may be a gratuitous gift benefiting trustees and not the public; possible windfall if services < flat-fee hours	Contracted legal services are within board authority to sue and defend; may serve a public purpose	Apply Texas Supreme Court three-part test (predominant public purpose; retained control; return benefit/clear public benefit); whether violation exists is fact-specific and not resolved in opinion
Whether loss of trustees’ control (board replaced by managers) defeats required control over expenditure	Trustees argue lack of control means no assurance of public-purpose accomplishment	Appointment of board of managers suspends trustees’ powers but does not change whether contractual controls existed when expenditure made	Who implements control is less important than whether contractual or other controls were put in place; replacement by managers does not by itself negate controls
Whether a non‑refundable flat fee or alleged Rule 1.04 violation bears on constitutionality	Allegedly non‑refundable prepayment and potential violation of professional rules suggests unconscionable fee and improper use of public funds	Professional-discipline rules govern attorney conduct and remedies, but do not themselves determine constitutional validity	Alleged disciplinary-rule violation is not dispositive; courts would apply the Texas Municipal League three-part test to underlying facts
Whether refusal to refund unearned fees after contract severance renders the original expenditure unconstitutional	If firm refuses refund, district may receive no return benefit, transforming payment into an unconstitutional grant	Contract terms and timing govern entitlement; courts assess public-purpose and control at time of contract formation	Subsequent private-party conduct unlikely to change constitutional analysis of the contract itself unless contract allowed nonperformance such that insufficient control existed at formation

Key Cases Cited

Dallas Indep. Sch. Dist. v. Finlan, 27 S.W.3d 220 (Tex. App.-Dallas 2000) (school boards have broad authority to expend funds and to initiate suits relating to district management)
Texas Mun. League Intergov'tl Risk Pool v. Texas Workers' Comp. Comm'n, 74 S.W.3d 377 (Tex. 2002) (art. III, § 52(a) three-part test for public-purpose expenditures)
Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717 (Tex. 1995) (purpose of art. III, § 52(a) is to prevent gratuitous grants of public funds)
Barrington v. Cokinos, 338 S.W.2d 133 (Tex. 1960) (incidental private benefit does not invalidate an expenditure made to accomplish a legitimate public purpose)
Key v. Comm'rs Ct. of Marion Cty., 727 S.W.2d 667 (Tex. App.-Texarkana 1987) (contractual terms can supply sufficient control to satisfy constitutional requirements)
Parker v. Dodge, 98 S.W.3d 297 (Tex. App.-Houston [1st Dist.] 2003) (courts generally do not inquire into adequacy of consideration absent unconscionability or fraud)