* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not

be published and is not precedent except under the limited circumstances set forth in 5TH CIR.

R. 47.5.4.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 07-10900

In re: RONALD D. WELLS,

Debtor.

RONALD D. WELLS,

Appellant,

v.

RHONDA HUGHES; RONALD HUGHES, SR.,

Appellees.

Appeal from the United States District Court

for the Northern District of Texas

USDC No. 3:06-CV-1815

Before SMITH, WIENER, and HAYNES, Circuit Judges.

PER CURIAM:*

Debtor Ronald Wells appeals the district court’s affirmance of a

bankruptcy court order finding one of his clientfee contracts unconscionable and

United States Court of Appeals

Fifth Circuit

F I L E D

September 26, 2008

Charles R. Fulbruge III

Clerk
No. 07-10900

1 The parties dispute whether Hughes’s daughter, Rhonda Montee, was ever Wells’s

client. She held a power of attorney for her father, and no one disputes her intense

involvement in the control of the defense and the various transactions at issue. Her signature

appears on all three contracts, one expressly as client, and one, the Third Contract, more

ambiguously. Given the evidence in this case, we cannot conclude that the bankruptcy judge’s

award to “Plaintiffs” was in error.

2

Interestingly, the ground Wells identified as giving a “slim hope” is not the same

ground upon which habeas relief was ultimately granted by the trial court.

2

requiring a partial refund to the clients.1 Because the bankruptcy court properly

ordered the refund under the circumstances of this case, we AFFIRM.

I.

A jury convicted Hughes of money laundering, and he was sentenced to

prison. After his direct appeal failed, his trial counsel recommended Wells as an

attorney to review the case and identify any grounds on which to attack the

conviction or sentence. The trial counsel paid Wells by the hour, and Wells

identified a “slim hope”2for obtaining relief on a petition for writ of habeas

corpus under 28 U.S.C. § 2255 (Supp. V 2005). Wells communicated in a letter

to the trial counsel (with a copy to Hughes’s daughter, Rhonda Montee) that it

would “be a very difficult argument to make successfully, and even if [the trial

judge] grants this relief, the family and client should consider that the government will likely appeal.”

On February 2, 1999, Hughes, acting through Montee, entered into the

first of three contracts with Wells for legal representation (the “First Contract”).

The First Contract was for the investigation and preparation of the habeas

petition. In exchange, the Hugheses paid Wells $125,000, in advance, with a

$10,000 expense deposit. The contract included a “no refund” provision that

stated:

Clientfurther understands and agrees that should these matters be

dismissed or settled in any manner, NO part of the Attorneys’ fee is

to be refunded to Client. Because of Attorneys’ commitment to

handle this matter, Client further understands and agrees that
No. 07-10900

3 Wells was hopeful that he could negotiate a deal with the Government whereby

Hughes would plead guilty and receive a sentence equal to time served (instead of the several

years then remaining on his original sentence). In exchange, Wells would testify against his

son-in-law, Montee’s husband, in an administrative proceeding involving Mr. Montee’s job as

an FBI agent.

3

Attorneys’ fees set out above will be considered by all parties as

earned at the time of payment, and no part of that fee will be

refunded to the Client.

Accordingly, Wells and several other attorneys prepared a habeas petition

alleging nine issues. The magistrate judge agreed with Hughes’s first issue and,

on February 23, recommended to the district court that it vacate the conviction.

On March 4, after the magistrate judge had given her recommendation, the

Hugheses and Wells entered their second contract (the “Second Contract”) for

“[r]epresentation after Findings, Conclusions, and recommendations [sic] of U.S.

Magistrate Judge.” The contract continued:

It is agreed that this employment is for the purpose of negotiating

a settlement of the criminal sentence and/or seeking a sentence

reduction to allow release and is in addition to the fee previously

paid in contract dated February 2, 1998, between the same parties

hereto. In the event a New Trial is granted and no settlement can

be obtained, a separate fee shall be required prior to any

representation in a new trial.

(emphasis added). Under this contract, the Hugheses made a series of payments

totaling $150,000 with an additional $25,000 due in the event of an appeal. The

contract contained the same “no refund” provision found in the First Contract.

The Second Contract unequivocally obligates Wells to represent Hughes in

connection with efforts to obtain a negotiated sentence reduction.3

After further proceedings on the habeas petition, the district court granted

the relief on June 30 and vacated Hughes’s conviction. It set September 20 as

the date for a new trial and released Hughes on a personal recognizance bond.

Under the Federal Rules of Appellate Procedure, the Government had until

August 30 to appeal the district court’s order granting relief. FED. R. APP. P.
No. 07-10900

4

4(a)(1)(B).

On July 16, the Hugheses and Wells entered their third contract (the

“Third Contract”), for “Representation after Granting of Writ and New Trial.”

It stated:

It is agreed that this employment is for the purpose of

representation in the above-referenced matter and is in addition to

any fees previously paid and in no way changes the terms of prior

agreements. The fee includes representation through all District

Court proceedings but does not include a re-trial if the trial results

in a hung jury.

(emphasis added). Thus, nothing in this contract purported to undo or alter

Wells’s pre-existing obligation under the Second Contract to provide

representation in the sentence/plea negotiations. This contract required the

Hugheses to pay Wells $300,000 for his services, with an additional $25,000 due

in the event of an appeal after the new trial. Like the two previous contracts,

the Third Contract included a “no refund” provision, but the terms were

different:

Clientfurther understands and agrees that should these matters be

dismissed or settled in any manner, NO part of the Attorneys’ fee is

to be refunded to Client unless this matter settles on or before

August 23, 1999, in which event the total fee shall be $125,000. In

the event a negotiated settlement occurs in regard to the forfeited

two million dollars, a separate compensation agreement will entered

into [sic]. Because of Attorneys’ commitment to handle this matter,

Client further understands and agrees that Attorneys’ fees set out

above will be considered by all parties as earned at the time of

payment, and no part of the fee will be refunded to Client.

On August 27, 1999, the government appealed the grant of the writ of

habeas corpus and the new trial. As a result of the appeal filing, the September

trial was canceled. We reversed the grant of habeas relief and reinstated

Hughes’s conviction. United States v. Hughes, 230 F.3d 815, 822 (5th Cir. 2000).

He returned to prison to serve the remainder of his sentence and, obviously, no

new trial occurred.
No. 07-10900

4

In June 2003,the Hugheses filed grievances against Wells with the State Bar of Texas

based on the same claims. The grievances were dismissed.

5 This amount reflects the $125,000 Wells would have kept if the case were resolved

before August 23 and an additional $10,000 the bankruptcy court deemed appropriate, though

generous, for Wells’s efforts from August 23 until the government filed its appeal on August

27.

6 Somewhat cryptically, Appellee contends that although Wells appealed from the

August 9 amended judgment, he failed to appeal from the “Order Granting the Debtor’s

Objection to the Claim” thus “waiving his right to contest the terms or effect of such order.”

Because that order was entered the same day as the amended judgment and grants the same

relief, this contention is unavailing.

5

More than three years later, on December 31, 2002, the Hugheses

demanded the return of the $300,000 paid to Wells under the Third Contract,

alleging that, because the new trial had never occurred, Wells did not earn the

money. In March 2003, the Hugheses sued in state court seeking a declaratory

judgmentthatthe First and Third Contracts were unconscionable and therefore

unenforceable and that Wells had breached both contracts, entitling them to

$453,000 in damages.4

In April 2005, Wells filed for bankruptcy protection under Chapter 7 of

United States Code Title 11. Wells included the Hugheses’ claim for $453,000

as an unsecured and disputed claim. In March 2006, the bankruptcy court held

that the Third Contract was unconscionable because the anticipated new trial

had never occurred. Accordingly, the court reformed the contract and held that

Wells was entitled to $135,0005 and the Hugheses were entitled to a $165,000

refund. The court further held that the refund was a dischargeable unsecured

claim.6

Wells appealed the bankruptcy court’s ruling to the district court. The

district court affirmed, and Wells filed this appeal. The Hugheses have not

cross-appealed the dischargeability ruling or the partially adverse ruling on the

amount of the debt; thus, we do not reach those issues here.
No. 07-10900

6

II.

Wells contends the bankruptcy and district courts erred in concluding that

the Third Contract was unconscionable. Like the district court, we review the

bankruptcy court’s findings of fact for clear error and its conclusions of law de

novo. In re Hamilton, 125 F.3d 292, 295 (5th Cir. 1997). The court’s

determination that, under Texas law, the Third Contract was unconscionable is

a conclusion of law that is based on findings of fact. See Ski River Dev., Inc. v.

McCalla, 167 S.W.3d 121, 136-37 (Tex. App.SWaco 2005, writ denied).

Under Texas law, attorney fee contracts are not judged by general

commercial standards: “When interpreting and enforcing attorney-client fee

agreements, it is ‘not enough to simply say that a contract is a contract. There

are ethical considerations overlaying the contractual relationship.’” Hoover

Slovacek LLP v. Walton, 206 S.W.3d 557, 560 (Tex. 2006) (quoting Lopez v.

Muñoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 868 (Tex. 2000) (Gonzales, J.,

concurring in part and dissenting in part)). The attorney’s duty of ethical

conduct “is highest when the attorney contracts with his or her client or

otherwise takes a position adverse to his or her client’s interests.” Id. at 560-61.

At the time of the Third Contract, Wells was already Hughes’s lawyer on the

case in question. Thus, his conduct is subject to assessment as a fiduciary and

to a presumption of unfairness that arises when a fiduciary enters into a

transaction with his own client. See Keck, Mahin & Cate v. Nat’l Union Fire Ins.

Co., 20 S.W.3d 692, 699 (Tex. 2000) (“Contracts between attorneys and their

clients negotiated during the existence of the attorney-client relationship are

closely scrutinized. Because the relationship is fiduciary in nature, there is a

presumption of unfairness or invalidity attaching to such contracts.” (citations

omitted)); Archer v. Griffith, 390 S.W.2d 735, 739 (Tex. 1964) (“The relation

between an attorney and his client is highly fiduciary in nature, . . . . ‘The

burden of establishing its perfect fairness, . . . is thrown upon the
No. 07-10900

7

attorney, . . . . ’ [This] general rule . . . applies to a contract or other transaction

relating to compensation provided the attorney-client relationship was in

existence at the time.” (citations omitted)); see also Tex. Disciplinary R. Prof’l

Conduct 1.04 cmt. 6, reprinted in TEX. GOV’T CODE ANN., tit. 2, subtit. G, app. A,

art. 10, § 9 (Vernon 2005) (hereinafter “Rule 1.04 ”) (“Once a fee arrangement

is agreed to, a lawyer should not handle the matter so as to further the lawyer’s

financial interests to the detriment of the client.”).

III.

The Texas Supreme Court has relied upon the Texas Disciplinary Rules

of Professional Conduct to provide the definition for unconscionability in the

context of an attorney fee agreement. Hoover Slovacek LLP, 206 S.W.3d at 561

n.6 (“Although the Disciplinary Rules do not define standards of civil liability for

attorneys, they are persuasive authority outside the context of disciplinary

proceedings, and we have applied Rule 1.04 as a rule of decision in disputes

concerning attorney’s fees.”). Under those rules, “A fee is unconscionable if a

competent lawyer could not form a reasonable belief that the fee is reasonable.”

Rule 1.04(a). “[I]n fee disputes between lawyer and client, a fee will not be

approved to the extent that it violates [§ 34] even though the parties had agreed

to the fee.” RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 34 cmt. a

(2000). 

Texas law is clear that a contract that places an undue burden upon a

client’s ability to change counsel can be unconscionable. Hoover Slovacek LLP,

206 S.W.3d at 562-63. Courts should scrutinize whether such agreements are

unreasonably susceptible to overreaching and whether the risk-sharing

attributes of such a contract weigh too heavily in favor of the attorney at the

expense of the client. Id. at 563-64. As noted above, when a fee contract is

negotiated during the course of representing the client in an ongoing matter, it

is presumed to be unfair. Keck, 20 S.W.3d at 699; Archer, 390 S.W.2d at 739.
No. 07-10900

8

Thus, Wells had the burden of disproving the unfairness of his transaction with

his client. Keck, 20 S.W.3d at 699.

In his testimony before the bankruptcy court, Wells insisted that the Third

Contract was for “representation” and not for the new trial, though he also

claimed to be “on the hook” for the new trial if it ever occurred. He claimed the

Third Contract was to pay for services in securing Hughes’s release through a

negotiated plea arrangement. His appeal brief continues the same argument.

That argument is incredible in light of the fact that the Second Contract

expressly covers representation in the “settlement” negotiations. If Wells’s

testimony is true,theThird Contractis unconscionable because it covers services

he was already obligated to provide and for which he had already been fully and

generously compensated under the Second Contract. Wells’s own admission,

then, about the goal that the funds were actually paid to accomplish is the most

telling evidence of all against him and illustrates the one-sided nature of the

contract.

Even if the Third Contract was designed to cover pretrial preparation and

the new trial ordered by the district judge after the successful habeas, it still

suffers from the taint of unfairness. In this case, the bankruptcy court heard

testimony from two criminal defense attorneys – George R. Milner, Sr. and Gary

Alan Udashen – both of whom had participated in the Hughes representation,

and both of whom the court described as “well-regarded . . . in Dallas.” Those

attorneys testified that $300,000 would have been reasonable if the trial had

occurred; they also stated that the fee was not reasonable for a trial that never

occurred. Both were critical of Wells’s decision to treat the entire $300,000 as

earned and to keep the money regardless of what happened later.

The evidence also showed that, atthe time of contracting, Wells put undue

pressure on the Hugheses to sign the Third Contract. Montee testified that

shortly after Hughes was released from prison on the grant of the writ, Wells
No. 07-10900

7 Wells admitted that he filed only one pretrial motion (a motion for extension of time),

because former trial counsel had already filed “every motion that anyone has ever dreamt up.”

9

called a meeting and expressed to the Hugheses that it was imperative for them

to sign the new contract so that Wells, Udashen, and one other attorney could

divide the work and begin preparing for trial. Montee also testified that Wells

told her that if she did not sign the agreement, she “could go look for another

attorney, and thatthere was no attorney in Dallas that[she] would be able to get

for anywhere near this on such short notice with all of the reading and

everything else that . . . he had already done.” The parties settled on $300,000

for Wells’s and Udashen’s services under the Third Contract. After the contract

was signed but before the consideration was paid, Wells further pressured

Montee by telling her that if she did not pay, he would seek to withdraw as trial

counsel, that he believed that the judge (whom Wells represented was his close

friend) would then revoke Hughes’s personal recognizance bond, and that

Hughes would be returned to prison pending trial. Even though Montee’s and

Wells’s characterizations ofthis conversation differ,they both acknowledge that

the conversation occurred and proceeded along these lines. This kind of undue

pressure is completely inconsistent with the high duty Wells owed to his clients.

Not only did Wells put undue pressure on the Hugheses, but also the time

pressure imposed was a fictional one – the attorneys knew there would be an

appeal such that no trial would occur in September. Udashen testified that

Wells was relying on him for most of the preparation work. Yet, Wells paid him

nothing, and Udashen did nothing to prepare for the new trial. Udashen

testified that he did not prepare for the new trial because he knew an appeal

would be filed.7

Finally, it is inexplicable why Wells, as a fiduciary, would allow his client

to enter into a contract with a “drop dead” date just one week before the true

appellate deadline. The Third Contract specified August 23 as the date when
No. 07-10900

8

In negotiating the Third Contract, Wells had a duty to disclose all conflicts of interest

with his own self-interest. Tex. Disciplinary R. Prof’l Conduct 1.06(b)(2), (c). If an appeal were

filed, Wells had a self-interest in seeing Hughes lose so that Wells would pocket the entire

$300,000 without having to do any work. Yet he was the lawyer retained to defend the appeal

under the Second Contract. We do not suggest that Wells deliberately lost the habeas appeal

to profit personally, just that this inherent conflict should have been disclosed under the

particular circumstances presented here. Disclosure obligations are fact intensive and we

express no opinion about the need to make such a disclosure in other cases.

9 Although the bankruptcy judge appeared to conclude that the Hugheses knew there

would be no trial in September if an appeal were filed, no evidence was presented to that effect

during the trial before that court. Even if the Hugheses knew this fact, it would not excuse

Wells’s conduct, without any reason, of entering into a contract using the hurry-up date of

August 23, rather than the actual appellate deadline of August 30.

10

the entire $300,000 would become nonrefundable. Wells testified this date was

“loosely tied” to the deadline for the Government to appeal the habeas ruling.

He offers no other explanation for picking a date that was one week before the

true appellate deadline, August 30. Udashen testified that Wells knew there

would be an appeal because the Government’s lawyer had said there would be.

The filing of the appeal would cause the September trial setting to be vacated,

eliminating the need to rush and the concomitant difficulty of finding other

counsel that created the pressure to sign the Third Contract. Indeed, if the

appeal were filed, Wells would have been required to resume work under the

Second Contract to respond to the appeal.8 Yet none of that was disclosed to the

clients.9

In sum, attorney-fiduciary Wells entered into a contract with his existing

clients during his continuing representation of their interests (the settlement

negotiations) for services that he was already obligated to provide under an

existing contract. Even if the Third Contract was for pretrial and trial services

associated with the potential new trial,the evidence shows that Wells placed his

clients in an unnecessarily pressured situation, performed little or no work

under that contract, did not expect to perform much work under that contract

in the immediate future, and failed to disclose material information to his
No. 07-10900

11

clients. This contract “weighs too heavily in favor of the attorney at the client’s

expense.” Hoover Slovacek, LLP, 206 S.W.3d at 564.

Wells had the burden of disproving the unfairness of his transaction with

his client. Archer, 390 S.W.2d at 739. He failed to do so. The evidence and

Texas law supportthe bankruptcy court’s determination that atleastthe second

half of the Third Contract was unconscionable. 

IV.

The judgment of the district court affirming the bankruptcy court is

AFFIRMED.