Texas Should Not Pay Outside Lawyers $3,780 Per Hour to Sue Google

A few weeks ago, to much fanfare and media attention, Texas Attorney General Ken Paxton announced that his office, along with the Attorneys General from nine other states, had sued Google. The lawsuit alleges that Google engaged in various forms of anticompetitive and deceptive conduct.

One aspect of the lawsuit that raised eyebrows among some in the legal community was Paxton’s decision to retain two outside law firms to represent the State of Texas alongside his office. While Paxton’s press release about the Google litigation alluded to the contingent-fee nature of the arrangements with the outside law firms, no details were provided. The two outside law firms retained by Paxton are Keller Lenkner of Chicago, Illinois and the Lanier Law Firm of Houston, Texas.

I have obtained copies of the contracts Paxton’s office entered into with these two law firms, which indicate that they stand to reap significant financial rewards should the litigation prove successful.

The two contracts, while similar in many respects, contain a key difference in how the law firms could potentially be paid.

The contract with Keller Lenkner is a contingent-fee contract that provides that the firm will be paid the lesser of 1) 11% the net monetary recovery from any settlement or final judgment or 2) a calculation based on the contractual billable hourly rate of a person performing work under the contract, multiplied by four. The contract provides for billable hourly rates ranging from $200 per hour for paralegals ($800 per hour with the multiplier) and up to $945 per hour for “Partner,” “Shareholder,” or “Of Counsel” attorneys ($3,780 per hour with the multiplier).

The contract with the Lanier Law Firm contains two potential ways the firm could be paid under the contract. The first is similar to that contained in the contract with Keller Lenkner-a contingent fee comprised of the lesser of 1) 11% the net monetary recovery from any settlement or final judgment or 2) a calculation based on hourly rates ranging from $200 per hour for paralegals ($800 per hour with the multiplier) and up to $945 per hour for “Founder,” “Senior Attorney,” or “Of Counsel” attorneys ($3,780 per hour with the multiplier).

The second potential way the Lanier Law Firm could be paid under the contract is a provision for a mixed hourly fee. Under this provision, should the Texas Legislature specifically appropriate at least $43,283,112 for the Google litigation, the Lanier Law Firm would be entitled to be paid monthly based on invoiced hourly fees of half of the contractual hourly rates until such time as the appropriated funds are exhausted. At the conclusion of the litigation, the Lanier Law Firm would then be entitled to a contingent fee of 5% of any net financial recovery, minus the hourly fees paid to the firm. It is unclear at this time whether the legislature will make an appropriation during the upcoming legislative session that would trigger a mixed hourly fee for the Lanier Law Firm.

Texas law has strict provisions governing the hiring of outside lawyers on a contingent-fee basis by the state. These laws were adopted as a result of public outcry surrounding the settlement of tobacco litigation during the 1990s, which resulted in a $3.3 billion windfall for five politically connected law firms and a prison sentence for former Texas Attorney General Dan Morales.

One of the reforms passed in the wake of the tobacco settlement was a requirement that there be a demonstrated need before the state can hire outside lawyers on a contingent-fee basis. This requirement is found in Section 2254.103(d) of the Texas Government Code, which reads as follows:

(d) Before approving the contract, the governing body, elected or appointed officer, or governor, as appropriate, must find that:

(1) there is a substantial need for the legal services;

(2) the legal services cannot be adequately performed by the attorneys and supporting personnel of the state governmental entity or by the attorneys and supporting personnel of another state governmental entity;  and

(3) the legal services cannot reasonably be obtained from attorneys in private practice under a contract providing only for the payment of hourly fees, without regard to the outcome of the matter, because of the nature of the matter for which the services will be obtained or because the state governmental entity does not have appropriated funds available to pay the estimated amounts required under a contract providing only for the payment of hourly fees.

While Paxton has made these findings with respect to the Google litigation, whether he had a factual basis to do so is highly questionable.

According to the website of the Attorney General’s office, the office has over 4,000 employees, including nearly 750 attorneys. In addition, nine other states have joined Texas as plaintiffs in this litigation. It is hard to imagine that the Attorneys General of these ten states do not have the manpower to handle at least the bulk of this litigation on their own.

Additionally, Paxton made a finding that services from outside lawyers could not be reasonably obtained on an hourly fee basis. Texas has a robust legal market, including many attorneys with significant experience handling complex commercial litigation. To claim that the Attorney General’s office could not reasonably find lawyers willing to work on the Google litigation for an hourly fee is preposterous.

Since these contracts awarded by Paxton are likely to be worth greater than $100,000, Section 2254.103(e) of the Texas Government Code imposes a requirement that he provide the Legislative Budget Board with information demonstrating that the legal services cannot be obtained from attorneys working under an hourly fee contract. Based on documents I have obtained from the Attorney General’s office and the Legislative Budget Board, it appears that Paxton failed to provide the Legislative Budget Board with this legally required information. While Paxton provided his findings as well as copies of the contracts to the Legislative Budget Board, as required by law, he failed to provide any required information supporting his findings.

Perhaps one reason why Attorney General Paxton failed to “find” that his office lacked sufficient appropriated funds to pay outside lawyers on an hourly basis is that if he had made such a finding, the Legislative Budget Board would have to concur with such a finding in order for the contracts to be valid. As the budget for the Attorney General’s office exceeded $623 million during Fiscal Year 2020, it is questionable whether such a finding would be upheld. By “finding” instead that the legal services could not reasonably be obtained on an hourly fee basis, no concurrence from the Legislative Budget Board is required at this time.

There are a couple of potential pitfalls for the outside lawyers hired by Paxton. First, the contracts are arguably void. Section 2254.110 of the Texas Government Code states that a “contract entered into or an arrangement made in violation of” applicable law is void as being against public policy and no fees may be paid under such a contract. Section 2254.103(e) of the Texas Government Code required Paxton to provide the Legislative Budget Board with information demonstrating that the legal services could not be obtained on an hourly fee basis prior to entering into the contingent-fee contracts and he appears to have failed to do so based on the information I have reviewed. Such a procedural defect could potentially void the contracts.

Additionally, Section 2254.108 of the Texas Government Code requires that either the legislature appropriate funds to pay fees and expenses under the contracts or that the Legislative Budget Board approve the payment of any fees or reimbursements under the contracts before they are made. Absent a legislative appropriation, not only must the Legislative Budget Board find that the contract and proposed payments comply with applicable state laws, they must also find that the proposed payments are reasonable and necessary. This provides the Legislative Budget Board a possible opportunity to prevent payments for work that they deem unreasonable or unnecessary.

As the contracts awarded by Attorney General Paxton in the Google litigation are likely unnecessary and procedurally defective, I strongly encourage him to re-examine his approach to this litigation. With Texas and nine other states spearheading this litigation, there should be ample manpower without the need for contingent-fee outside counsel. To the extent outside lawyers may be needed due to their specialized expertise, they should be paid reasonable hourly fees far less than the $3,780 per hour the contingent-fee lawyers potentially stand to make. If the litigation is as meritorious as Paxton claims, he should have no problem finding the money in his $623 million budget to bring on any necessary outside lawyers.

On his campaign website, Paxton touts “a lead role in protecting taxpayers” as Attorney General. Signing unnecessary and potentially void contingent-fee contracts worth as much as $3,780 per hour of taxpayer dollars is about as far from protecting Texas taxpayers as you can get.

Mark McCaig is an attorney and Republican Precinct Chairman in Harris County.