Untitled Texas Attorney General Opinion
KP-0099
Tex. Att'y Gen.Jul 2, 2016Background
- 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)