HBA-TYH S.B. 113 76(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 113 By: Fraser State Affairs 5/3/1999 Engrossed BACKGROUND AND PURPOSE Currently, state governmental entities are not prohibited from entering into contingent fee contracts for legal services. S.B. 113 establishes a formal approval process for approval of such contingent fee contracts contemplated by state governments. This bill states when, how, and on what terms state governmental entities may enter into such a contract, ensures reasonable fees, and provides that all funds recovered by a state governmental entity shall be first distributed to the state governmental entity, which will then disburse the appropriate share to the legal service provider upon determining that all fees and expenses are reasonable. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Provides legislative findings and policy. SECTION 2. Amends Subchapter F, Chapter 404, Government Code, by adding Section 404.097, as follows: Sec. 404.097. DEPOSIT OF FUNDS RECOVERED BY LITIGATION OR SETTLEMENT. Provides that notwithstanding Section 404.093 (Applicability of Subchapter; Exemptions), this section applies by its terms to each state governmental entity. Defines "contingent fee contract" and "state governmental entity." Provides that all funds recovered by a state governmental entity in litigation or in a settlement are public funds of the state or the state governmental entity. Requires that the funds be deposited in the state treasury to the credit of the appropriate fund or account. Authorizes legal fees and expenses to be paid from the recovered funds under a contingent fee contract for legal services (contingent fee contract) only after the funds are deposited in accordance with this section and Subchapter C (Contingent Fee Contract for Legal Services), Chapter 2254, Government Code. SECTION 3. Amends Chapter 2254, Government Code, by adding Subchapter C, as follows: SUBCHAPTER C. CONTINGENT FEE CONTRACT FOR LEGAL SERVICES Sec. 2254.101. DEFINITIONS. Defines "contingent fee," "contingent fee contract," and "state governmental entity." Sec. 2254.102. APPLICABILITY. Provides that this subchapter applies only to a contingent fee contract entered into by a state or local governmental entity. Provides that the legislature by this subchapter is providing, in accordance with Section 44 (Compensation of Public Officers, Servants, Agents, and Contractors; Extra Compensation; Unauthorized Claims; Unauthorized Employment), Article III, Texas Constitution, for the manner in which and the situations under which a state or local governmental entity may compensate a public contractor under a contingency fee contract. Sec. 2254.103. CONTRACT APPROVAL; SIGNATURE. (a) Authorizes a state governmental entity that has authority to enter into a contract for legal services in its own name to enter into a contingent fee contract only if the governing body of the state governmental entity approves the contract and the presiding officer of the governing body signs the contract. (b) Authorizes the attorney general to enter into a contingent fee contract in the name of the state in matters that have been referred to the attorney general under law by another state governmental entity only if the other state governmental entity approves and signs the contract in accordance with Subsection (a). (c) Authorizes a state governmental entity, including the state, to enter into a contingent fee contract not described in Subsection (a) or (b) only if the governor approves and signs the contract. (d) Provides that before approving the contract, the governing body, elected or appointed officer, or governor, as appropriate, must find that there is a substantial need for the legal services, that the legal services cannot be adequately performed by the attorneys and supporting personnel of the state governmental entity or another governmental entity, and that the legal services cannot be reasonably obtained from attorneys in private practice under a contract providing only for the hourly fees because of specified reasons, without regard to the outcome of the matter. (e) Provides that before entering into a contingent fee contract in which the estimated amount that may be recovered exceeds $100,000, a state governmental entity that proposes to enter into the contract must also notify the Legislative Budget Board (board) about the proposal to enter into the contract, send the board copies of the proposed contract, and send the board information demonstrating the existence of conditions listed in Subsection (d). Prohibits the state governmental entity, if the state governmental entity finds under Subsection (d) that the state governmental entity does not have appropriated funds available to pay the estimated amounts required under a contract for legal services providing only for the payment of hourly fees, from entering into the proposed contract in its own name or in the name of the state unless the board finds that the state governmental entity's finding with regard to available appropriated funds is correct. (f) Provides that a contingent fee contract subject to Subsection (e) is void unless the board has made the findings required by Subsection (e). Sec. 2254.104. TIME AND EXPENSE RECORDS REQUIRED; FINAL STATEMENT. (a) Provides that the contract must require the contracting attorney or law firm to keep current and complete written time and expense records that describe in detail the time and money spent each day in performing the contract. (b) Requires the contracting attorney or law firm to permit the governing body or governing officer of the state governmental entity, the attorney general, and the state auditor each to inspect or obtain copies of the time and expense records at any time on request. (c) Requires the contracting attorney or law firm, on conclusion of the matter for which legal services were obtained, to provide the contracting governmental entity with a complete written statement that describes the outcome of the matter, states the amount of recovery, shows the contracting attorney's or law firm's computation of the amount of the contingent fee, and contains the final complete time and expense records required by Subsection (a). Provides that the complete written statement required is public information under Chapter 552 (Public Information), and prohibits it from being withheld from a requestor under Section 552.103 (Exception: Litigation or Settlement Negotiations Involving the State or a Political Subdivision) or any other exception from required disclosure. (d) Provides that this subsection does not apply to the complete written statement required by Subsection (c). Provides that all time and expense records required under this section are public information subject to public disclosure under Chapter 552. Authorizes information in the records to be withheld from a member of the public under Section 552.103 only if, in addition to meeting the requirements of Section 552.103, the chief legal officer or employee of the state or local governmental entity determines that withholding the information is necessary to protect the entity's strategy or position in pending or reasonably anticipated litigation. Requires information withheld from public disclosure to be segregated from information that is subject to required public disclosure. Sec. 2254.105. CERTAIN GENERAL CONTRACT REQUIREMENTS. Specifies that the contract must: (1) provide the method of computing the contingent fee; (2) state the differences in the method of computing the contingent fee if the matter is settled, tried, or tried and appealed; (3) state how litigation and other expenses will be paid and, if applicable, whether the amount recovered for purposes of the contingent fee computation is considered to be the amount obtained before or after expenses are deducted; (4) state that any subcontracted legal or support services performed by a person who is not affiliated with a contracting attorney or law firm is an expense subject to reimbursement only in accordance with this subchapter; and (5) state that the amount of the contingent fee and reimbursement of expenses under the contract will be paid and limited in accordance with this subchapter. Sec. 2254.106. CONTRACT REQUIREMENTS: COMPUTATION OF CONTINGENT FEE; REIMBURSEMENT OF EXPENSES. (a) Provides that the contract must establish the reasonable hourly rate for work performed by an attorney, law clerk, or paralegal who will perform legal or support services under the contract based on the reasonable and customary rate in the relevant locality for the type of work performed and on the relevant experience, demonstrated ability, and standard hourly billing rate, if any, of the person performing the work. Authorizes the contract to establish the reasonable hourly rate for one or more persons by name and may establish a rate schedule for work performed by unnamed persons. Prohibits the highest hourly rate for a named person or under a rate schedule from exceeding $1,000 an hour. Provides that this subsection applies to subcontracted work performed by an attorney, law clerk, or paralegal who is not affiliated with the contracting attorney or law firm, as well as to work performed by a contracting attorney or by a partner, shareholder, or employee of a contracting attorney or law firm. (b) Provides that the contract must establish a base fee to be computed, as follows: for each attorney, law clerk, or paralegal who is a contracting attorney or a partner, shareholder, or employee of a contracting attorney or law firm, multiply the number of hours of work providing legal or support services under the contract times the reasonable hourly rate for the work performed by that person and add the resulting amounts to obtain the base fee. Prohibits the computation of the base fee from including hours or costs attributable to work performed by a person who is not affiliated with a contracting attorney or law firm. (c) Provides that subject to Subsection (d), the contingent fee is computed by multiplying the base fee by a multiplier. Provides that the contract must establish a reasonable multiplier based on any expected difficulties in performing the contract, the amount of expenses expected to be risked by the contractor, the expected risk of no recovery, and any expected long delay in recovery. Prohibits the multiplier from exceeding four without prior approval by the legislature. (d) Provides that the contract must limit the amount of the contingent fee to a stated percentage of the amount recovered. Authorizes the contract to state different percentage limitations, not to exceed 35 percent without prior approval by the legislature, for different ranges of possible recoveries and different percentage limitations in the event the matter is settled, tried, or tried and appealed. Provides that the contract must state that the amount of the contingent fee will not exceed the lesser of the stated percentage of the amount recovered or the amount computed under Subsections (a), (b), and (c). (e) Authorizes the contract to limit the amount of expenses that may be reimbursed, and provide that the amount or payment of only part of the fee is contingent on the outcome of the matter for which the services were obtained, with the amount and payment of the remainder of the fee payable on a regular hourly rate basis without regard to the outcome of the matter. (f) Provides that this section does not apply to a contingent fee contract in which the expected amount to be recovered and the actual amount recovered do not exceed $100,000, or under which a series of recoveries is contemplated, and the amount of each individual recovery is not expected to and does not exceed $100,000, except as provided by Section 2254.107. (g) Provides that this section applies to a contract described by Subsection (f) for each individual recovery under the contract that actually exceeds $100,000 and that the contract must provide for computing the fee in accordance with this section for each individual recovery that actually exceeds $100,000. (h) Provides that, except as provided by Section 2254.107, this section does not apply to a contingent fee contract authorized under Section 6.30, Tax Code (Attorneys Representing Taxing Units), for the recovery of delinquent taxes owed by persons to a local governmental entity. Sec. 2254.107. MIXED HOURLY AND CONTINGENT FEE CONTRACTS; REIMBURSEMENT FOR SUBCONTRACTED WORK. (a) Provides that this section only applies to a contingent fee contract under which the amount or payment of only part of the fee is contingent on the outcome of the matter for which the services were obtained, with the amount and payment of the remainder of the fee payable on a regular hourly rate basis without regard to the outcome of the matter, or under which reimbursable expenses are incurred for subcontracted services performed by a person who is not affiliated with a contracting attorney or law firm. (b) Provides that Subsections 2254.106(a) and (e) apply to the contract without regard to the expected or actual amount of recovery under the contract. (c) Provides that the limitations prescribed by Section 2254.106 on the amount of the contingent fee apply to the entire amount of the fee under the contingent fee contract, including the part of the fee not contingent on the outcome of the matter. (d) Provides that the limitations prescribed by Section 2254.108 on payment of the fee apply only to payment of the contingent portion of the fee. Sec. 2254.108. FEE PAYMENT AND EXPENSE REIMBURSEMENT. (a) Provides that a contingent fee and a reimbursement of an expense under a contract with a state governmental entity is payable only from funds the legislature specifically appropriates to pay the fee or reimburse the expense, except as provided by Subsection (b). Provides that an appropriation to pay the fee or reimburse the expense must specifically describe the individual contract, or the class of contracts classified by subject matter, on account of which the fee is payable or expense is reimbursable. Provides that a general reference to contingent fee contracts or to contracts subject to this subchapter or a similar general description is not a sufficient description for purposes of this subsection. (b) Authorizes a state governmental entity, if the legislature has not specifically appropriated funds for paying the fee or reimbursing the expense, to pay the fee or reimburse the expense from other available funds only if the legislature is not in session and if the Legislative Budget Board gives its prior approval for that payment or reimbursement under Section 69 (Prior Approval of Expenditure or Emergency Transfer of Appropriated Funds), Article XVI, Texas Constitution, after examining the statement required under Section 2254.104(c) and determining that the requested payment and the contract under which payment is requested meet all the requirements of this subchapter. (c) Prohibits a payment or reimbursement under the contract from being made until final and unappealable arrangements have been made for depositing all recovered funds to the credit of the appropriate fund or account in the state treasury and until the state governmental entity and the state auditor have received from the contracting attorney or law firm the statement required under Section 2254.104(c). (d) Authorizes litigation and other expenses payable under the contract to be reimbursed only if the state governmental entity and the state auditor determine that the expenses were reasonable, proper, necessary, actually incurred on behalf of the state governmental entity, and paid for by the contracting attorney or law firm. Prohibits the contingent fee from being paid until the state auditor has reviewed the relevant time and expense records and verified that the hours of work on which the fee computation is based were actually worked in performing reasonable and necessary services for the state governmental entity under the contract. Sec. 2254.109. EFFECT ON OTHER LAW. (a) Provides that this subchapter does not limit the right of a governmental entity to recover fees and expenses from opposing parties under other law. (b) Provides that compliance with this subchapter does not relieve a contracting attorney or law firm of an obligation or responsibility under other law, including under the Texas Disciplinary Rules of Professional Conduct. (c) Prohibits a state officer, employee, or governing body, including the attorney general, from waiving the requirements of this subchapter or from prejudicing the interests of the state under this subchapter. Provides that this subchapter does not waive the state's sovereign immunity from suit or its immunity from suit in federal court under the Eleventh Amendment to the federal constitution. SECTION 4. Effective date: September 1, 1999. Makes application of this Act prospective. SECTION 5. Emergency clause.