Contingency Fees and Contingency Fee Multipliers: The One-Two Punch
By: Tucker H. Byrd, Esq. & Thomas C. Allison, Esq., Byrd Campbell, P.A.
The American legal system has long promoted principles of its adversary process which level the playing field between everyday people and the powerful. Unique among legal systems, the American legal system, for example, allows attorneys to undertake representation on a “contingency fee” basis, a fee structure abhorrent to some legal systems which believe such fee structures promote unjustified litigation. The American legal system does not force the losing party to pay attorneys’ fees—an outcome which could deter even the most ardent litigant—unlike the English system which mandates that the losing party always pays, and worse, often requires substantial attorneys’ fee deposits just to litigate. Under the English system, litigation has become tantamount to a privilege for the rich, not the oppressed, ensuring the rich remain rich, justice be damned. The American legal system typically only allows fees to the prevailing party when mandated by contract or statute.
What makes the American legal system perhaps most unique of all—in keeping with its “underdog” mentality—is the court’s ability to apply a “multiplier” to augment the amount of attorneys’ fees awarded. Rather than award attorneys’ fees strictly based on the usual measure of the value of an attorney’s effort (i.e., hours billed at a reasonable hourly rate), often referred to as the “lodestar,” the court may apply a multiplication factor (typically 1.0-2.5 times) when the attorney representing the prevailing party has undertaken the representation on a contingency fee basis. This enhancement makes contingency attorneys’ fee awards something more than just a way to balance the ability of parties to afford counsel. The contingency attorneys’ fee multiplier bestows a reward to the risk-taking attorney while imposing a sanction on the vanquished litigant. This post explores recent developments in the law on when the attorneys’ fee multiplier may be allowed.
Attorneys undertaking representation on a contingency attorneys’ fee basis face two distinct risks: the risk of winning/losing; and the risk of collectability. Either of these risks could scuttle the attorney’s ability to collect a penny. Because of these risks, the American legal system has instituted a reward system to compensate the attorney for the risks assumed. The contingency attorneys’ fee multiplier, when applied, compensates for that risk.
A trilogy of Florida Supreme Court cases set forth and refined the analysis for when a court may apply a contingency attorneys’ fee multiplier: Florida Patient’s Compensation Fund v. Rowe, 472 So.2d 1145 (Fla. 1985); Standard Guaranty Insurance Co. v. Quanstrom, 555 So.2d 828 (Fla. 1990), and Bell v. U.S.B. Acquisition Co., 734 So.2d 403 (Fla. 1999); see also Joyce v. Federated National Ins. Co., 228 So. 3d 1122 (Fla. 2017) (reaffirming Rowe, Quanstrom, and Bell). Rowe and its progeny all favored multipliers for allowing “increased access to the court system and the services of attorneys.”
Rowe Decision: The Court recognized a two-step analysis to apply a multiplier, starting with an objective calculation of a “lodestar,” determined as a function of reasonable hours worked at a reasonable hourly rate. The Court described a “contingency risk factor,” and authorized the application of a contingency risk multiplier of between 1.5-3.0 times the lodestar amount, depending upon the “likelihood of success” at the outset. The less the “likelihood of success,” the greater the risk undertaken, and thus the greater the reward for having taken that risk. Several factors determined the amount of the lodestar adjustment, notably, the amount in controversy, the results obtained, and the type of fee arrangement between the attorney and client.
Quanstrom Decision: In a case involving the recovery of attorneys’ fees by statute (i.e., an insurance dispute under Section 627.428, Florida Statutes), the Court receded somewhat from the Rowe decision, holding that the multiplier was not mandatory but that the court “‘must consider whether or not to apply’ the contingency fee multiplier.” The Court described categories of cases and the ordinary treatment of contingency fee multipliers in those categories of cases. In an appropriate category of case (e.g., tort or contract cases), when determining whether to apply a contingency fee multiplier a trial court should consider three factors: “(1) whether the relevant market requires a contingency fee multiplier to obtain competent counsel; (2) whether the attorney was able to mitigate the risk of nonpayment in any way; and (3) whether any of the factors set forth in Rowe are applicable, especially, the amount involved, the results obtained, and the type of fee arrangement between the attorney and [their] client.” The Court modified the multiplier itself to a range of 1.0-2.5.
Bell Decision: In a dispute about the recovery of attorneys’ fees allowed by contract, the Court held a trial court may consider and apply a 1.0-2.5 contingency attorneys’ fee multiplier in a contract action, even when there is no independent statute or rule authorizing an award of attorneys’ fees. The Court otherwise reaffirmed the Quanstrom analysis.
While Florida state courts have continued to apply contingency attorneys’ fee multipliers, federal courts have been less tolerant. The United States Supreme Court addressed contingency fee enhancements under fee-shifting statutes in Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542 (2010), and found that multipliers should be allowed only in “rare” and “exceptional” circumstances.
Florida Courts – Recent Application of the Test:
Courts applying the Rowe/Quanstrom/Bell standards have wrestled with applying the following first Quanstrom factor: “whether the relevant market requires a contingency fee multiplier to obtain competent counsel.” Courts had been undecided whether to apply an “objective” or “subjective” test to this factor. Under a “subjective” test, the court should examine the efforts undertaken by a party to engage counsel on other than a contingency attorneys’ fee basis. Under an “objective” test, the court should examine the relevant market to determine whether the type of legal services required typically commands a relationship founded upon a contingency attorneys’ fee in hopes of having the court apply a multiplier to an attorneys’ fee award.
Recently, a Florida appellate court in the case of Wesson v. Florida Peninsula Ins. Co., Case No. 1D19-1559, 2020 WL 2553087, (Fla. 1st DCA, May 20, 2020), addressed the “subjective” vs. “objective” test issue and applied an “objective” test to the “relevant market requires” factor. In Wesson, the plaintiffs prevailed in a breach of contract action against their insurance company. The plaintiffs filed a motion for statutory attorneys’ fees, and asked the court for a contingency fee multiplier. The trial court decided that no contingency fee multiplier would be awarded based on the plaintiffs’ “actual experience” hiring an attorney, and because the plaintiffs had a likelihood of success under two applicable insurance coverages. On appeal, the court reversed. The first factor (“whether the relevant market requires a contingency fee multiplier”) requires analysis of the market itself, and not of the plaintiff’s actual experience. The Court also considered the second Quanstrom factor (“whether the attorney was able to mitigate the risk of nonpayment”) and determined that the likelihood of success should not be considered in assessing the risk of nonpayment. Rather, the court should consider the possibility the client may not be able or willing to pay their attorney if engaged on other than a contingency fee basis. The Court stated: “we reverse and remand to consider if the Wessons are entitled to a contingency fee multiplier without considering their actual experience in locating an attorney and without considering the likelihood of success as mitigating the risk of nonpayment.”
The ability to engage attorneys on a contingency attorneys’ fee basis has leveled the legal playing field somewhat, and the prospect of a contingency attorneys’ fee award with a multiplier perhaps even more so, but one should not assume that a multiplier will always be applied. The Wesson decision, however, lessens the burden on the prevailing party seeking to recover contingency attorneys’ fees by not making litigants prove they looked high and low and exhausted all efforts to find a lawyer willing to work without the promise of an enhanced “success” attorneys’ fee multiplier.
Tucker H. Byrd, Esq. & Thomas C. Allison, Esq.