Practice Alert–Segregate Your Attorney Fees

Patrick J. Dyer

            Civil trial attorneys should take note of a recent Texas Supreme Court decision that signals a significant change in the recovery and review of attorney fee awards in mixed contract and tort cases.  In Tony Gullo Motors I, L.P. v. Chapa, 50 Tex.S.Ct.J. 278, 2006 Tex. Lexis 1301 (Tex. December 22, 2006), the Texas Supreme Court announced a rule that essentially requires the segregation of attorney fees in all such cases.  Although the opinion has not yet been released for publication, it is unlikely that the six-Justice majority will modify this aspect of the opinion.

            In Texas, the law generally allows the recovery of attorney fees in breach of contract cases.  Conversely, the law does not allow the recovery of attorney fees in tort cases.  Hence, in a law suit involving claims of both tort and breach of contract, the party seeking fees was usually required to segregate recoverable from non-recoverable fees.  In 1991, the Texas Supreme Court recognized an exception: “[W]hen the causes of action involved in the suit are dependent upon the same set of facts or circumstances and thus are ‘intertwined to the point of being inseparable,’ the party suing for attorney’s fees may recover the entire amount covering all claims.”  Not surprisingly, from that point forward, it became quite commonplace in civil trials to hear testimony that the contract and tort claims were inextricably intertwined and therefore all of the attorney fees were recoverable.  As the Texas Supreme Court noted in Chapa, more and more claimants invoked the exception, and it threatened to swallow the rule. 

            Chapa dramatically curtailed the exception: “[I]f any attorney’s fees relate solely to a claim for which such fees are unrecoverable, a claimant must segregate recoverable from unrecoverable fees.  Intertwined facts do not make tort fees recoverable; it is only when discrete legal services advance both a recoverable and unrecoverable claim that they are so intertwined that they need not be segregated.”  Although the opinion suggests that there are still some mixed contract and tort cases that will not require segregation, it is difficult to conceive what they may be.  Based on the facts in Chapa, fee segregation will always be required in a mixed contract and tort case because “unrecoverable” fees include fees related to drafting the pleadings and jury charge relating to the tort. 

            Lesson of the story: Always segregate and be prepared to testify, if necessary, to the manner in which the fees were segregated, whether by time records, or, as the Court suggested in Chapa, by percentage reduction.