In Hoover Slovacek LLP v. Walton, 206 S.W.3d 557 (Tex. 2006), Walton hired attorney Parrott of Hoover Slovacek to recover royalties from oil and gas companies operating on his ranch. Under the fee agreement, Hoover Slovacek was entitled to a 30 percent contingent fee for all claims on which collection was achieved. Id.
The fee agreement also included a provision stating that, in the event the firm was discharged before completing the representation, Walton immediately had to pay a fee equal to the present value of the firm's interest in Walton's claim. Id.
Parrott negotiated settlements with Texaco and El Paso Natural Gas, and Walton paid the firm its contingent fee. Parrott then turned to Walton's claims against Bass Enterprises Production Company, and Walton authorized Parrott to settle for $ 8.5 million. Id.
Parrott's initial settlement demand was for $ 58.5 million. A month later, Bass offered $ 6 million not only to settle Walton's claims, but also to acquire surface estates of eight sections of Walton's ranch. Id. Walton refused to sell, authorized Parrott to settle Walton's claims for unpaid royalties for $ 6 million, and expressed his discontent with Parrott for not consulting Walton before making the $ 58.5 million settlement demand. Id. at 559-60.
When Parrott responded by urging Walton to sell part of his ranch, Walton discharged Parrott and hired Andrews & Kurth LLP. Id. at 560.
That firm settled Walton's claims against Bass for $ 900,000. Id. In the meantime, Hoover Slovacek demanded that Walton pay $ 1.7 million under the fee agreement. Hoover Slovacek contended that Bass's $ 6 million offer and Walton's subsequent authorization to settle for that amount established the present value of Walton's claims at the time of discharge. Id.
The court examined whether the termination fee provision was contrary to public policy. Id. at 561-66. It concluded that the firm's provision penalized Walton for changing counsel; granted the firm an impermissible proprietary interest in Walton's claims; shifted the risks of representation almost entirely to Walton's detriment; and subverted several policies underlying the use of contingent fees. Id. at 566.
Thus, the court determined that it was unenforceable because it was unconscionable as a matter of law, severed the termination provision, and held the remainder of the fee agreement was enforceable. Id.