Rethinking the Application of Contingency Risk Multipliers in Fee Awards Should Florida Courts Recede from Quanstrom?
In two recent opinions, Florida’s Fifth District Court of Appeal affirmed trial court orders that increased attorney’s fees from the lodestar by applying a contingency risk multiplier. In Bluegrass Art Cast, Inc., et al., v. Consolidated Erection Services, Inc., 864 So. 2d 1215 (Fla. 5th DCA 2004), and Holiday v. Nationwide Mutual Fire Insurance, 864 So. 2d 1215 (Fla. 5th DCA 2004), the Fifth District Court of Appeal held that a contingency fee multiplier applied despite the recent Florida Supreme Court ruling in Sarkis v. Allstate Insurance Co. , 863 So. 2d 210 (Fla. 2003). In Allstate v. Sarkis, the court held that a contingency risk multiplier should not be used to compute attorneys’ fees in an offer of judgment case. The Fifth District Court of Appeal in its Bluegrass Arts and Holiday decisions certified the following issue to the Florida Supreme Court for consideration:
In Light of the Supreme Court’s Decision in Sarkis, May a Multiplier be Applied to Enhance an Award of Attorney’s Fees Granted Under a Fee-shifting Statute Such as Section 627.428 Florida Statutes (2002).1
With the question certified to the Florida Supreme Court, the court as well as the lower courts must re-examine the future of the contingency risk multiplier in all circumstances in Florida litigation. Florida’s foundational case on the risk multiplier, Standard Guaranty Insurance Co. v. Quanstrom, 555 So. 2d 828 (Fla. 1990), was premised upon the U.S. Supreme Court’s decisions in Blanchard v. Bergeron, 489 U.S. 87, 109 S. Ct. 939 (1988), and Delaware Valley Citizen’s Council for Clean Air, 483 U.S. 711 (1987). Now that the high court has retreated from these cases in City of Burlington v. Dague, 505 U.S. 557 (1992), the authority by which the Florida courts adopted the contingency risk multiplier now appears to have dissipated as well. In Dague, the Supreme Court held “that fee shifting statutes generally do not permit enhancement of a fee award beyond the lodestar amount to reflect” the contingency agreement between a party and his or her attorney.2 The appellate court noted that F.S. §627.428, like the statute that Sarkis upheld, did not allow a multiplier and lacked express authorization for the use of the enhancement. Pursuant to that analysis, the question certified by the Fifth District Court of Appeal begs the question: Should the Florida Supreme Court take the immense step of receding from over a decade of precedent formed under Quanstrom in the face of this “tidal shift” away from a multiplier? A careful review of the Dague case and other cases on the issue clearly suggest a resounding “Yes.”
Quanstrom: Introduction of the Contingency Fee Multiplier
In Quanstrom the Florida Supreme Court classified three kinds of cases in which a contingency fee multiplier might be appropriate:
[A]lthough we reaffirm our decision in Rowe, concerning the lodestar approach as the basic starting point, we find that the use of the contingency fee multiplier should be modified. For better understanding, we find it appropriate to place attorney’s fees cases into the following three categories: (1) public policy enforcement cases; (2) tort and contract claims; and (3) family law, eminent domain, and estate and trust matters.3
In category one cases, a multiplier is rarely applicable as the traditional lodestar approach is appropriate and a multiplier should not normally be awarded. The use of a multiplier in public policy enforcement cases is severely restricted, and no enhancement for risk is appropriate unless the applicant can establish that, without an adjustment, the prevailing party would have faced substantial difficulties in finding counsel.4
In the second category of cases, which includes most contract disputes and issues, including insurance related cases, the multiplier may be applied. In the third category of cases, family law and eminent domain, the courts have been very restricted in the awarding of multipliers, except in exceptional circumstances. The third category involves family law, eminent domain, and estate and trust proceedings, which have special factors that are relevant in setting the attorneys’ fees. In some instances, a contingency fee arrangement is ethically prohibited or cannot be reasonably justified because payment in some amount is assured. In this third category of cases, a contingency fee multiplier is not justified, although the basic lodestar method of computing a reasonable fee “may be an appropriate starting point.”5
The Florida Supreme Court laid out a number of factors in evaluating the need for a multiplier including:
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 non-payment 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 attorney and client.6
In the third category of cases, encompassing family law, eminent domain, and estates and trusts issues, Quanstrom held that, under ordinary circumstances, there was no justification for permitting a contingency fee multiplier in such cases.
In addition to these factors, use of the contingency fee multiplier often depends on the likelihood of a plaintiff’s success. If
success was more likely at the outset, a court may apply a multiplier of 1.0 to 1.5. For cases in which the chance of success is even (50-50), a multiplier of 1.5 to 2.0 may be awarded. When the chance of success is unlikely at the outset, a 2.0 to 2.5 multiplier may be awarded.7
Dague and Federal Courts Recision
Although Florida courts recognize the contingency fee multiplier in certain categories of cases, it is important to note that the authority upon which the Florida courts rely originated in federal courts. In Quanstrom, the Florida Supreme Court adopted the lodestar approach as well as the application of the contingency fee multiplier from the method developed by the federal courts.8 Since Quanstrom, however, federal courts have receded further from the application of a contingency fee multiplier when dealing with fee shifting statutes such as F.S. §627.428.
Quanstrom relies on two contemporary decisions of the U.S. Supreme Court: Blanchard v. Bergeron and Delaware Valley. The U.S. Supreme Court receded from Delaware Valley in City of Burlington v. Dague, which held “that fee-shifting statutes generally do not permit enhancement of a fee award beyond the lodestar to reflect” the fact that a party’s attorneys were retained on a contingent fee basis.9 Examining the enhancement of the lodestar amount in a fee shifting statute; the Court recounted a previous discussion of the issue:
[I]n Delaware Valley II, we reversed a judgment that had affirmed enhancement of a fee award to reflect the contingent risk of nonpayment. In the process, we addressed whether the typical federal fee-shifting statute (there, § 304(d) of the Clean Air Act, 42 U.S.C. § 7604(d)) permits an attorney’s fees award to be enhanced on account of contingency. In the principal opinion, Justice White, joined on this point by three other Justices, determined that such enhancement is not permitted. 483 U.S., at 723-727, 107 S.Ct., at 3085-3088. Justice O’Connor, in an opinion concurring in part and concurring in the judgment, concluded that no enhancement for contingency is appropriate “unless the applicant can establish that without an adjustment for risk the prevailing party would have faced substantial difficulties in finding counsel in the local or other relevant market,” id., at 733, 107 S.Ct., at 3091 (internal quotations omitted), and that any enhancement “must be based on the difference in market treatment of contingent fee cases as a class, rather than on an assessment of the ‘riskiness’ of any particular case,” id., at 731, 107 S.Ct., at 3089-3090 (emphasis in original). Justice Blackmun’s dissenting opinion, joined by three other Justices, concluded that enhancement for contingency is always statutorily required. Id., at 737-742, 754, 107 S.Ct., at 3092-3096, 3101. We turn again to this same issue.10
Dague re-examined the need for an enhancement of the risk multiplier under a fee shifting statute by reviewing §7002(e) of the Solid Waste Disposal Act (SWDA), 90 Stat. 2826, as amended, 42 U.S.C. §6972(e), or §505(d) of the Federal Water Pollution Control Act (Clean Water Act (CWA)), 86 Stat. 889, as amended, 33 U.S.C. §1365(d). Writing for the majority, Justice Scalia noted that the lodestar amount is presumed to be a “reasonable” fee without an enhancement, stating:
The “lodestar” figure has, as its name suggests, become the guiding light of our fee-shifting jurisprudence. We have established a “strong presumption” that the lodestar represents the “reasonable” fee, Delaware Valley I, supra, 478 U.S., at 565, 106 S.Ct., at 3098, and have placed upon the fee applicant who seeks more than that the burden of showing that “such an adjustment is necessary to the determination of a reasonable fee.” Blum v. Stenson, 465 U.S. 886, 898, 104 S.Ct. 1541, 1548, 79 L.Ed.2d 891 (1984) (emphasis added). …
[W]e note at the outset that an enhancement for contingency would likely duplicate in substantial part factors already subsumed in the lodestar. The risk of loss…[i]s the product of two factors: 1) the legal and factual merits of the claim, and 2) the difficulty of establishing those merits. The second factor, however, is ordinarily reflected in the lodestar—either in the higher number of hours expended to overcome the difficulty or in the higher hourly rate of the attorney skilled and experienced enough to do so. Blum, supra, at 898-899, 104 S.Ct. at 1548-1549. Taking account of it again through the lodestar enhancement amounts to double counting. Delaware Valley II, 483 U.S. at 726-727, 107 S.Ct. at 3087-3088 (plurality opinion).11
The Court adopted the reasoning in Delaware Valley II, 483 U.S. at 715-727, and held that “enhancement for contingency is not permitted under the fee-shifting statutes at issue.”12
The Florida Supreme Court in Quanstrom did not mandate the application of the multiplier. Rather than simply determine the size of a multiplier, a court must decide whether application of a multiplier is appropriate and then determine the amount of the enhancement.
Plaintiff’s Ability to Find Competent Counsel
Florida courts recognized that, in the context of insurance related cases, for example, at one time a need for the multiplier existed to “level the playing field” between the insurance carrier and the individual insured or plaintiff. The fact that the insurance carrier possessed greater resources and means to oppose the individual insured justified the need for an additional fee to encourage attorneys to take on risky insurance cases. This access to court argument was at the forefront of the reasoning in Quanstrom because the difficulty of obtaining competent counsel was the dominant, if not controlling, factor in the court’s analysis.13 In U.S.B., the Florida Supreme Court found that:
A primary rationale for the contingency risk multiplier is to provide access to competent counsel for those who could not otherwise afford it. In Rowe, we observed that the benefit of the contingent fee system is to provide a party with “increased access to the court system and the services of attorneys.” 472 So.2d at 1151. We recognized in Rowe that the availability of attorney’s fees would have the effect of encouraging plaintiffs to bring meritorious claims that would not otherwise be economically feasible to bring on a noncontingent fee basis. Id. at 1149. These goals are consistent with the Florida Constitution. See art. I, § 21, Fla. Const. (providing that courts shall be open to every person for redress of any injury).
Similarly, in his concurring opinion in Lane, Justice Grimes emphasized that “[t]he justification for a contingency fee multiplier is that without providing an added incentive for lawyers to obtain higher fees, clients with legitimate causes of action (or defenses) may not be able to obtain legal services.” The importance of this policy consideration is highlighted by the fact that the very first factor listed in Quanstrom for courts to consider in determining if a multiplier should be utilized in tort and contract cases is “whether the relevant market requires a contingency fee multiplier to obtain competent counsel.”
…[w]e find that the primary policy that favors the consideration of the multiplier is that it assists parties with legitimate causes of action or defenses in obtaining competent legal representation even if they are unable to pay an attorney on an hourly basis. In this way, the availability of the multiplier levels the playing field between parties with unequal abilities to secure legal representation.14
The Florida Supreme Court clearly indicated an intent to give the greatest weight in the multiplier determination to a plaintiff’s ability to retain counsel. A plaintiff’s ability to retain counsel today, however, is greater than it was at the time U.S.B. was decided. The sheer number of plaintiff’s attorneys, particularly those involved in insurance litigation, and the additional assets and abilities of those attorneys level the playing field. Because these advances negate many of the advantages held by insurance companies, the primary rationale for a risk multiplier is moot.
Other Florida courts similarly ruled against the general application of the multiplier. In Allstate Indemnity Co. v. Hicks, 880 So. 2d 772 (Fla. 5th DCA 2004), the court stated that, “[t]he statute (§627.428) is intended to allow the court to award a reasonable attorney’s fee for a successful action under an insurance contract, not two or three times a reasonable fee, except in rare instances.”15 The court approved the following language:
An award of attorney’s fees under a fee shifting statute isn’t a prize to the winning lawyer. Rather, it compensates the prevailing party for mutual fees prudently incurred. Normally this is of a reasonably hourly rate, multiplied by a reasonable number of hours (the lodestar). There is a “strong presumption” that an attorney’s fee award may not exceed this figure. (citation omitted). On rare occasions, a court may grant a multiplier to account for factors not adequately reflected in the lodestar. (citation omitted)(emphasis added).16
The Fifth DCA clearly seems to perceive an even playing field between insurers and the claimants involved in litigation, explaining in another of its decision’s finding:
[T]he multiplier provides an incentive to a lawyer to represent a client in a case in which few lawyers would venture. The potential use of a multiplier in calculating a fee aids an injured person having a tenuous case to secure competent counsel and improves access to our system of justice. The United States Supreme Court has cautioned, however, that the use of the multiplier can also have the negative social cost of encouraging claimants with nonmeritorious claims. City of Burlington v. Dague, 503 U.S. 557, 563 (1992). We conclude that the multiplier was improperly applied in this case where there was an absence of any evidence indicating that a premium was necessary to obtain competent counsel.17
Other courts have similarly found the award of the multiplier unnecessary because the leveling of the playing field between the insurer and the insured accomplishes the original purpose of imposing a multiplier. In Seminole County, Judge Erickson, in his Order on Plaintiff’s Motion for Attorney’s Fees, ruled that, in P.I.P. cases involving an assignment of benefits to a provider, the multiplier should decrease, even to zero, because of the plaintiff attorney’s desire to obtain such work.18 Judge Erickson opined:
[T]he Rowe criteria also talks about the skill needed to do the work and whether the acceptance of employment in this case would preclude other employment. Just as was explained earlier that this kind of case was essentially a P.I.P. Benefits Assignment Case, we should remember that in Standard Guaranty v. Quanstrom, 555 So. 2d 828 (Fla. 1990) one of the policy considerations behind having a multiplier was so that everyone could have adequate representation and that one party’s inferior financial position to the other would not cause it to be unable to have any (or less than adequate) legal representation when compared to the other party. A multiplier would be appropriate in the situation where the patient/insured is up against their insurance company to pay for medical services pursuant to an insurance contract and the patient has to beg for a lawyer to take their case, when the lawyer hardly ever does this kind of case. However, over time a P.I.P. Benefits Assignment Case has evolved into a situation where the parties are now on equal footing. The patient has assigned their benefits to the medical facility, a corporation. This corporation does not have trouble finding a lawyer. In today’s world a person can no longer turn on the television or radio, look at the back of a phone book (much less the tabs in it, or the yellow pages) or drive down the road without seeing the advertisements on billboards and at bus stops, without seeing an abundance of lawyers advertising that they are ready, willing and able to take these kinds of cases. Thus, there is no shortage of lawyers willing (wanting) to take these cases. P.I.P. Benefits Assignment Cases are the kind of work that the lawyers want to do, and it is not a field that a lawyer would have to do extensive background work in to get “up to speed” in the field. The lawyers that advertise in the field are holding themselves out as specialists in these kinds of cases by sheer volume and repetition. This would cause the multiplier to gravitate downward. (It is not unusual to see one law firm representing a medical facility in case, after case, after case.)19
Judge Erickson concluded by stating that:
[A]lthough the lawyers stipulated at the beginning of the hearing that a multiplier could very easily cause one to conclude that the use of a multiplier may have passed its usefulness (it is obviously no longer needed across the board). The multiplier should probably be revised to apply to only those situations where it was originally intended (the patient who is on unequal economic terms with their insurance company and has to look high and low to find that rare lawyer willing to take these kind of cases). 20
As Judge Erickson’s ruling so plainly explained, the need for a multiplier may have outlived its usefulness in the face of the realities of P.I.P. litigation. Plaintiffs’ firms may be as large, if not larger, than the defense counterparts representing the insurance carriers in these cases. These plaintiffs’ firms have the assets and manpower to outlast their smaller predecessors in extended litigation. Many of the cases before Florida courts are brought, as in the case cited above, by corporate plaintiffs, utilizing P.I.P. litigation as much for bill collection as for litigation. With this in mind, most litigants in P.I.P. cases have the same access to the courts as insurers. Because the risk to plaintiff’s attorneys has decreased so significantly, the contingency fee multiplier creates more problems than it solves.
It is clear that the authority provided by the federal courts, permitting the award of a contingency fee multiplier in certain cases has deteriorated significantly in the face of the Dague decision as well as numerous Florida court decisions. The public policy reasons for permitting the multiplier have also dissipated with the rise of larger, better staffed plaintiff’s attorneys as well as the sheer number of attorneys making access to courts, a main concern of the courts that authorized the multiplier, a nonissue. The playing field has been leveled between plaintiffs and defendants in most categories of cases. The multiplier no longer benefits the individual plaintiff in litigation serving solely to benefit attorneys, congesting the courts and encouraging, not discouraging, litigation in many cases. As a result, clearly as the federal courts have receded from the award of the contingency fee multiplier, so too should the Florida courts bid farewell to it.
1 Holiday, 864 So. 2d at 1221; Bluegrass, 897 So. 2d at 197.
2 Dague, 505 U.S. at 1221.
3 Quanstrom, 555 So. 2nd at 828.
4 Lane v. Head, 566 So.2d 508 (Fla. 1990)(Overton, J. concurring)
5 Quanstrom, 555 So. 2nd at 835.
6 Id. at 834.
8 Id. at 828.
9 Holiday, 864 So. 2d at 1221.
10 Dague, 505 U.S. at 2641.
11 Id. at 562-563
12 Id. at 567.
13 Sun Bank of Ocala v. Ford, 564 So. 2d 1078 (Fla. 1990); Bell v. U.S.B. Acquisition Company, Inc., 734 So. 2d 403 (Fla. 1999).
14 Bell, 734 So. 2d at 411 (italics added).
15 Id. at 774.
17 Strahan v. Gauldin, 756 So. 2d 158, 162 (Fla. 5th D.C.A. 2000)(disapproved on other grounds).
18 Peter J. Godleski d/b/a Central Florida Orthopedic & Neurology Specialists a/a/o Stefany Groover v. Nationwide General Insurance Company, 11 Fla. L. Weekly Supp. 855(a) (18th Judicial Circuit in and for Seminole County, July 8, 2004).
20 Id. (emphasis added)
Aaron Leviten is an attorney with Allen-Kopet and Associates in Orlando and practices mainly in the areas of insurance defense and corporate matters.
Michael Olexa is a professor of agricultural law and director of the University of Florida/Institute of Food and Agricultural Sciences Agricultural Law Center.
Robert Sheesley is an attorney with Coffman, Coleman, Andrews and Grogan, P.A. in Jacksonville.
This column is submitted on behalf of the General Practice, Solo and Small Firm Section,Linzie F. Bogan, chair, and David Donet, editor.