Texas court requires new look at fees when damages are reduced.

If an appellate court reduces a trial court's damages award, the case must go back to the trial court again so a jury can reassess how much the prevailing attorney fees should be. That's the decision rendered recently by the Texas Supreme Court, which issued the ruling in a bailment case. (Barker v. Eckman, 2006 WL 3456569 (Tex. Dec. 1, 2006).)

In 1981, Walter Eckman entered into a business arrangement with Emzy and Ava Barker, owners of Brushy Creek Custom Sires, which boarded Brahman bulls and brokered the sale of bull semen. Eckman boarded two bulls there and owned shares in the semen of a third bull.

In 1995, Eckman became convinced that the Barkers had breached the terms of their business agreement. He asked them to return the semen he owned and compensate him for his share of storage, overcharges, and semen sales.

The Barkers returned the semen but did not pay Eckman anything, and after an unsuccessful attempt at mediation, Eckman filed suit against the Barkers and Brushy Creek. His suit alleged that the Barkers breached their bailment agreement, and a jury found in his favor, awarding him compensatory damages and attorney fees.

The Barkers then moved for a judgment notwithstanding the verdict on the ground that Eckman's claims were barred by the four-year statute of limitations. The trial court denied that motion, and one for a new trial, and the Barkers appealed.

The appeals court held that while some of Eckman's claims were time-barred, he was entitled to compensation on others, and it reduced the compensatory damages to about 15 percent of the original award. It affirmed the award of attorney fees.

Both parties filed petitions for review, and the case went to the state high court. The supreme court upheld the appellate court's ruling that the statute of limitations barred some of Eckman's claims. But it reversed the affirmation of the attorney fees, saying that it was based on an incorrect decision--the wrong "results obtained"--by the trial court. The high court concluded that the Barkers were entitled to "meaningful evidentiary review, by court of appeals, as to each of the factors the jury had been instructed to consider when determining reasonable attorney fees."

The court noted that review of fees would not be automatic in every case where an appeals court amended a damages award. "In this case, however," Justice Phillip Johnson wrote for the court, "considering both the absolute value of the difference between the erroneous and correct amounts of damages, and the fact that the correct damages were one-seventh of the erroneous damages, we are not reasonably certain that the jury was not significantly affected by the error. Accordingly, the trial court's error was harmful. That part of the judgment awarding attorney fees to Eckman must be reversed."

The court also refused to establish a rule requiring attorney fees to be proportionate to damages, which the petitioners had recommended. "Such an approach ... would require us to impose a presumption that the jury awarded attorney's fees on some proportionality basis to actual damages," Johnson wrote. "The jury was not instructed to consider such methodology in making its finding, we see no indication that the jury did so, and we decline to impose such a remedy for the error before us."

Robert Ketchand, a Houston lawyer who represented Eckman, said the ruling will have limited impact outside Texas, and even there, its primary effect will be to "create uncertainty about the future. The ruling doesn't say when you have to reassess the fees and when you don't. How do you try a case, wondering the whole time what will happen during appeal?"

Ketchand noted that while some have characterized the ruling as a win for tort "reformers" (Texans for Lawsuit Reform filed an amicus brief in the case), in reality they did not get what they wanted.

"What they pushed for, what they most wanted, was for the court to establish a strict proportionality between damages and attorney fees," he said. "And the court expressly declined to do that."