Adopt Resolution Authorizing the City Attorney to Retain the Law Firm of Kelly Hart & Hallman, LLP, as Outside Legal Counsel, Pursuant to Chapter VI, Section 3 of the City Charter, to Provide Legal Representation to Defend the City in a Fee Dispute Brought by Cantey Hanger LLP (ALL COUNCIL DISTRICTS)

It is recommended that the City Council:

1.  Authorize the City Attorney to retain the law firm of Kelly Hart & Hallman, LLP, as outside legal counsel, pursuant to Chapter VI, Section 3 of the City Charter, to provide legal representation to defend the City in a fee dispute brought by Cantey Hanger LLP; and

2.  Adopt the attached resolution designating in advance, as far as practicable, that the amount to be paid to Kelly Hart & Hallman, LLP, will not exceed $100,000.00.

The City, as lessor, entered into a number of oil and gas leases with various lessees, including Chesapeake Exploration, L.L.C. and its affiliates ("Chesapeake"). In 2010, Total E&P (USA) ("Total") acquired a (25 percent) working interest in the lease from a Chesapeake entity.   In 2013, the City filed suits as Cause Nos. 48-268798-13 and 352-272138-14, alleging that Total and Chesapeake breached their obligations under those leases by underpaying royalties.

On October 3, 2013, the City entered into an Engagement Agreement with Cantey Hanger to pursue its claims against Chesapeake and Total.  Cantey Hanger agreed to represent the City pursuant to the Engagement Agreement's terms. Cantey Hanger independently associated with the Austin firm of Cardwell, Hart & Bennett to assist it with the litigation.

In 2016, the City settled its claims with Chesapeake and Total and paid Cantey Hanger a total of $7,000,000.00 in legal fees. The fee amount was paid based on a calculation of 33 1/3% of the payments received by the City from Chesapeake and Total, after fees and expenses.  

On December 13, 2016, the City Attorney received an email letter from Baker Botts, LLP, informing the City that Baker Botts has been engaged by the law firms of Cantey Hanger and Cardwell, Hart & Bennett in connection with their claims against the City for additional attorneys' fees due under the Engagement Agreement.  Cantey Hanger seeks a percentage of the City's future royalty payments received from Chesapeake and Total.  The City disputes that Cantey Hanger is entitled to any additional fees under the Engagement Agreement.

Because of the extraordinary complexity of this area of law, the City Manager and the City Attorney recommend that the City retain outside legal counsel with knowledge and expertise in matters involving contract law; and the law firm of Kelly, Hart, and Hallman, L.L.P., possesses the required knowledge and expertise in contract law.