Barratry? What does it mean to you?

February 24th, 2017 By Sheila Tan

In recent years, Texas has seen a rise in hailstorm litigation that exceeds the rise in hailstorms. While, insured homeowners who are unhappy with the adjustment of their claim are entitled to their contractual remedies, it appears that some homeowners are being victimized by unscrupulous actors, including unethical lawyers. See, e.g., Yates, David, “Barratry class action against hail firm alleges ‘elaborate web of fraud.” SE Texas Record, May 17, 2016.  Barratry is the solicitation of employment to prosecute or defend a claim with intent to obtain a personal benefit.” State Bar of Texas v. Kilpatrick, 874 S.W.2d 656, 659 (Tex. 1994). It has long been illegal in Texas and encompasses prohibited solicitations and payments. See Tex. Disciplinary Rules Prof’l Conduct R. 7.03. The basic premise is encapsulated in 7.03(a) of the disciplinary rules:

(a) A lawyer shall not by in-person contact, or by regulated telephone or other electronic contact as defined in paragraph (f), seek professional employment concerning a matter arising out of a particular occurrence or event, or series of occurrences or events, from a prospective client or nonclient who has not sought the lawyer’s advice regarding employment or with whom the lawyer has no family or past or present attorney-client relationship when a significant motive for the lawyer’s doing so is the lawyer’s pecuniary gain.

Likewise, a non-lawyer cannot solicit clients for attorneys in the same manner. See Tex. Disciplinary Rules Prof’l Conduct R. 8.04(a)(1). This was most recently evidenced by the case Catherine pointed to last week of attorney misconduct in Hidalgo County, wherein contractors approached a doctor unsolicited, claiming that his office building roof had suffered hail damage. The contractors then informed the doctor that it was necessary for him to retain a certain attorney with respect to his insurance claim and had the doctor sign the Attorney’s Contingency Fee Contract & Power of Attorney without the doctor ever having met or spoken to the attorney. See Yates, David. “Barratry charge surfaces in Hidalgo County, hail lawyer accused of using contractors to secure agreement.” SE Texas Record, February 10, 2017.

A few years ago, the Texas Legislature amended Section 82.065 of the Texas Government Code to include Section 82.0651, covering civil liability for prohibited barratry. The change allows a client to bring an action to void a contract for legal services, not just a contingency fee contract, which was procured as a result of conduct violating the Penal Code or the Texas Disciplinary Rules of Professional Conduct regarding barratry. If a client prevails, he can recover: 1) all fees paid to the person who committed barratry; 2) any excess fees and expenses paid to a lawyer entitled to a quantum meruit award; 3) actual damages; and 4) attorney’s fees.

Insurance carriers defending lawsuits that were initiated improperly do not have direct cause of action for barratry. However, recently introduced hail reform legislation would allow an insurance carrier to assert barratry as an affirmative defense, potentially eliminating liability for attorneys’ fees.

The Texas Penal Code provides the criminal equivalent of the disciplinary rules and civil statutes regarding barratry. Tex. Penal Code Ann. § 38.12(d).  Unlike the disciplinary rules, the penal code further prohibits payments or giving anything of value to any “person” to solicit employment, which could include other lawyers. Id. at § 38.12(a)(4).  However, the statute provides an exception to prosecution if the attorney’s conduct is authorized under the disciplinary rules, such as case referrals. See Tex. Disciplinary Rules Prof’l Conduct R. 1.04(f).  That said, a lawyer must still be very cautious about meeting the requirements of the disciplinary rules when referring cases to other attorneys, or they run the risk of falling under the criminal barratry statute.

Finally, the changing role of public adjusters is a related, troubling trend related to attorney misconduct in these hail claims. Intended originally to assist policyholders with their insurance claims, unscrupulous public adjusters were entering into contracts with clients for the sole purpose of immediately referring the insured to an attorney. These contingency-fee splits were akin to illegal barratry. In response, Senate Bill 1060 was passed in 2015 and among other things, added § 4102.164 of the Texas Insurance Code, which prohibited the acceptance of referral payments to a public adjuster from “any third-party individual or firm, including an attorney, appraiser, umpire, construction company, contractor, or salvage company.” Section 4102.103(d) now also specifically prohibits a license holder from “[entering] into a contract with an insured and [collecting] a commission as provided by Section 4102.104 without the intent to actually perform the services customarily provided by a licensed public insurance adjuster for the insured.” However, given the latest spate of professional misconduct cases involving hail disputes, the need for legislative reform to curb such actions continues.