By: Diana Faust
Making a claim for attorney fees or using attorney fees as a comparator in challenging an opponent’s fee request puts a party’s attorney fees at issue in the litigation. Additionally, designating counsel as an expert opens the door to expert-witness discovery as provided and limited by the Texas Rules of Civil Procedure. The Texas Supreme Court recently held that outside of these scenarios and absent unusual circumstances, information about an opposing party’s attorney fees and expenses is, in the ordinary case, privileged or irrelevant and, thus, not discoverable.
The dispute involves four MDL cases in which individual homeowners sued National Lloyds and others, asserting statutory, contractual, and extra-contractual claims. Among other damages, the homeowners sought attorney fees incurred in prosecuting their statutory and contractual claims. In addition to assailing the merits of the homeowners’ liability claims, the insurer asserts the homeowners’ attorney-fee claims are excessive for a case of comparable complexity in the relevant locality.
The insurer made no claim for attorney fees, but the homeowners submitted written discovery requesting hourly rates, total amount billed, and total reimbursable expenses, as well as production of all billing invoices, payment logs, ledgers, and payment summaries, audits, and any documents pertaining to flat-rate billing.
The homeowners contended the discovery requested was discoverable and relevant because the insurer’s counsel testified as an attorney-fee expert in a related matter, and admitted that an opposing party’s fees could be considered as a factor in determining a reasonable fee recovery. The homeowners contended that counsel used his law firm’s billing practices as an example of a proper way to allocate attorney fees to avoid an artificially inflated fee claim in MDL cases. This same counsel had been designated as a testifying expert in opposition to the homeowners’ attorney-fee requests in the cases at issue.
The insurer objected to the discovery on the basis that it was overly broad and sought information that is irrelevant and protected by the attorney-client and work-product privileges. The insurer argued the information was not relevant because it stipulated that it would not use its own billing invoices received from its attorneys, payment logs, ledgers, or payment summaries showing payments to its attorneys, or the hourly fees or flat rates being paid to its attorneys, or audits of the billing to contest the reasonableness of the homeowners’ attorney’s fees.
1. Requests for Production of All Billing Invoices, Payment Logs, Payment Ledgers, Payment Summaries, Documents Showing Flat Rates, and Audits Invade Zone of Work-Product Protection
The Court examined the parameters of the work-product privilege and explained that billing records constitute “communications made in anticipation of litigation or for trial between a party and the party’s representatives or among a party’s representatives.” The Court emphasized, [m]oreover, as a whole, billing records represent the mechanical compilation of information that reveals counsel’s legal strategy and thought processes, at least incidentally.”
The Court analogized billing invoices, payment logs, payment ledgers, payment summaries, documents showing flat rates, and audits with an attorney’s entire litigation file, which the Court has previously protected as privileged per se in National Union Fire Insurance Co. v. Valdez. Thus, when a party neither seeks to recover its own attorney fees nor attempts to use its attorney-billing records to challenge the opposing party’s attorney fees, the party’s attorney should not restricted in the preparation or his presentment of his or her billing records by the prospect that they might have to be revealed in their entirety.
The Court recognized that billing records—useful only if they describe what the attorney has done in the case—reveal the attorney’s thought processes concerning the prosecution or defense of the case. The Court explained that discovery of billing records in their entirety would provide a roadmap of how the insurer (or the party represented) plans to litigate the particular case (and in the case of repeat litigants in an MDL case, provides a roadmap of how the insurer plans to litigate other MDL cases).
2. Redaction Does Not Protect Privileged Nature of the Records
Redaction of privileged material within the attorney-billing information does not cure the problem. The Court applied the Valdez core analysis, rendering the billing records privileged per se. The Court further concluded that even redaction of privileged information—such as the specific topics researched or the descriptions of the subject of phone calls—would be insufficient as a matter of law to mask the attorney’s thought processes and strategies.
Importantly, the Court emphasized that its holding does not prevent a more narrowly tailored request for information relevant to an issue in a pending case that does not invade the attorney’s strategic decisions or thought processes. Nor does the holding preclude a party from seeking noncore work product “upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party’s case and that the party is unable without undue hardship to obtain the substantial equivalent of the material by other means.”
3. Waiver of Work-Product Privilege
The Court next examined waiver of the work-product privilege, explaining that an opposing party may waive its work-product privilege through offensive use—perhaps by relying on its billing records to contest the reasonableness of opposing counsel’s attorney fees or to recover its own attorney fees.
In the case before it, the insurer had stipulated it would not use its own billing records to contest the homeowners’ attorney fees, and the insurer did not seek to recover its own attorney fees from the homeowners. Even where a Rule 167 settlement offer could give rise to an attorney’s fees request by the insurer, the Court recognized that Rule 167 itself provides a process for reopening discovery to enable a party to ascertain the reasonableness of the requested costs.
4. Requested Attorney Fee Information May Also be Protected by Attorney-Client Privilege
Next, the Court examined the application of the attorney-client privilege. It explained that its description of billing records as work product when requested en masse does not foreclose the possibility that some or all of the information may also be protected from compelled disclosure by the attorney-client privilege. But to be protected by the attorney-client privilege, the insurer/party must establish that the communications were confidential and made to facilitate the rendition of professional legal services to the client. This requires the insurer/party to establish a prima facie case for the privilege by affidavit or testimony.
5. Requests for Hourly Rates, Total Amount Billed, and Total Reimbursable Expenses Generally Do Not Seek Discoverable Information
The Court held this type of information is generally not relevant because (1) the opposing party may freely choose to spend more or less time or money than would be “reasonable” in comparison to the requesting party; (2) comparisons between the hourly rates and fee expenditures of opposing parties are inapt, as differing motivations of plaintiffs and defendants impact the time and labor spent, hourly rate charged, and skill required; (3) “the tasks and roles of counsel on opposite sides of a case vary fundamentally,” so even in the same case, the legal services rendered to opposing parties are not fairly characterized as “similar”; and (4) a single law firm’s fees and hourly rates do not determine the “customary” range of fees in a given locality for similar services.
However, when a party uses its own hours and rates as yardsticks by which to assess the reasonableness of those sought by the requesting party or seeks to shift responsibility for those expenditures, the party places its own attorney-billing information at issue, making the information discoverable.
Applying the rules under the discovery guideposts,the Court concluded the requested information was not relevant. For an opposing party’s fees to serve as a relevant measure to any legitimate degree, the claimant would first have to establish those fees are themselves reasonable and necessary. Doing so necessitates consideration of other data points beyond the instant parties’ expenditures. Because other evidence would be required to make an opposing party’s fees relevant in the first instance, discovery concerning an opposing party’s attorney-fee expenditures serves no purpose besides unnecessarily complicating the litigation in pursuit of a collateral matter.
Thus, in accord with both the literal and practical reading of various Arthur Anderson factors, evidence of an opposing party’s fees lacks genuine probative value as a comparator for a requesting party’s fees and, at best, would be merely cumulative or duplicative of other evidence directed to that inquiry. The Court agreed with other jurisdictions concluding that a party’s attorney-billing information is generally not discoverable and, in the ordinary sense, “patently irrelevant.”
The fact that the insurer challenged the homeowners’ attorney fees as excessive does not, in and of itself, alter the analysis. A party can challenge another party’s fee request as not “customary” even though that party also paid a fee that was not “customary,” as long as the challenger does not rely on its own fees to prove the point.
In sum, the Court concluded that barring unusual circumstances, an opposing party’s attorney-fee information is not relevant because there is no reasonable expectation that the information will aid the dispute’s resolution. Moreover, whatever marginal relevance might theoretically exist would not come close to surpassing competing concerns about undue prejudice, confusion of the issues, and abusive discovery practices, among others. Aside from lacking genuine probative value, discovery of an opposing party’s attorney-billing information should generally not be permitted for these additional reasons.
6. Attorney-Billing Information May Be Discoverable If Opposing Party Designates Its Counsel as a Testifying Expert
Despite the privileged nature of the information and the general prohibition on discoverability of attorney-billing information, the Court recognized that where the opposing party designates its counsel as a testifying expert on the reasonableness and necessity of attorney fees, the information may be discoverable under Rule 192.3 (allowing discovery of facts known by the testifying expert relating to the expert’s mental impressions and opinions formed, bias of the witness, and documents provided to or reviewed by the witness in anticipation of testimony). Work-product privilege does not apply to information sought under Rule 192.3 concerning experts, trial witnesses, witness statements, and contentions.
Where the tactical decision is made to put a party’s attorney fees at issue in the litigation and to designate an expert to testify about the reasonableness and necessity of the requesting party’s or to contest the excessiveness or unreasonableness of an opposing party’s request, Rule 195 methods should be utilized for obtaining discovery about these issues.
 Id., *6, citing Tex. R. Civ. P. 192.5(a)(2).
 863 S.W.2d 458, 460-61 (Tex. 1993) (orig. proceeding).
 Id., *7.
 Id., *8.
 Id., *9.
 The discovery guideposts are summarized as: only relevant evidence is discoverable; relevant evidence that is privileged is not discoverable; relevant evidence that is not privileged is discoverable when (i) it is admissible or (ii) it is inadmissible but reasonably calculated to lead to the discovery of admissible evidence; and failing either of those admissibility criteria, the request for discovery may be denied even if the requested information is relevant and unprivileged. Id.,
 Arthur Andersen & Co. v. Perry Equipment Corp., 945 S.W.2d 812, 818 (Tex. 1997). Those factors include: (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill required to perform the legal service properly; (2) the likelihood ... acceptance of the particular employment will preclude other employment by the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and the results obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) whether the fee is fixed or contingent on results obtained or uncertainty of collection before the legal services have been rendered.
 Id., *10-*11.
 Id., *13.
 Id., *14.
 Id., *15.