As is often the case, the good things in a stuffy judicial opinion are often hidden in the footnotes. Footnote 4 in a recent Texas Supreme Court case reads as follows:

A “tax ferret contract” has been defined as an agreement to locate property that has been omitted from the tax rolls.” Kinder Morgan wields the term “tax ferret” as a condemnation. Mr. Lemon is eager to assure us that he is no such thing. We assume the parties mean no disrespect to the furry mammal himself, a beloved pet of Queen Elizabeth I, celebrated annually on National Ferret Day, April 2.

This deserves some background, no? Mr. Lemon is a lawyer hired by Iraan-Sheffield ISD to sue the Pecos County Appraisal District, challenging the appraised value of Kinder Morgan’s mineral interests. The contract with Mr. Lemon was a contingent fee arrangement, whereby he would recover 20% of what his lawsuit produced for the district. Kinder Morgan filed a motion asserting that Mr. Lemon should be removed from the suit because the district had no authority to enter into a contingent fee agreement in a tax-related suit.

That’s why Kinder Morgan accused Mr. Lemon of being a “tax ferret” and Mr. Lemon responded by labeling Kinder Morgan as a “tax cheat” and “progeny of Enron.” The Supreme Court gently scolded the parties for the name-calling and declared that it would decide the case based on the provisions of the Texas Tax Code “none of which use mammalian metaphors.”

The court ultimately agreed with Kinder Morgan that the district lacked the legal power to retain a lawyer on a contingent fee basis, at least in this type of litigation. The court carefully noted that it was not addressing the power of local school boards to engage counsel on a contingent fee in other types of cases, such as tort suits. But in cases involving tax appraisal, the court held that a contingent fee was not authorized. So even though the school board had voted to sign off on the contingent fee deal, they were acting “ultra vires” when they did so. In other words, they did not have the power to do what they did—so what they did never happened. That’s sort of a simple explanation of “ultra vires.”

That’s not the end of this interesting case. The Supreme Court held that the lower court went too far when it dismissed the case entirely. The Supreme Court thought the school district should have been given the opportunity to change its agreement with Mr. Lemon, or hire other counsel. However, any lawyer retained to do this work would have to be retained on a regular fee, rather than a contingent fee.

This is an interesting tactic for school districts to employ when they believe that taxable values are way out of whack. The Court’s ruling does not preclude such a challenge, so perhaps we will see more of this. But it will not be on a contingent fee.

It’s Pecos County Appraisal District v. Iraan-Sheffield ISD, decided by the Texas Supreme Court on May 19, 2023. It’s cited at 2023 WL 3556711.

DAWG BONE: CONTINGENT FEES ARE THE NORM FOR CONTRACTS TO COLLECT DELINQUENT TAXES.

Got a question or comment for the Dawg? Let me hear from you at jwalsh@wabsa.com.

Tomorrow: Toolbox Tuesday!!