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The Right to Recover “Fees for Fees” Based on a Contractual Prevailing Party Fee Provision

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Photo of Matthew C. Lucas A client’s complete vindication for the successful pursuit or defense of litigation often includes the ability to be made whole, including an award of attorneys’ fees as the prevailing party. However, a client’s complete satisfaction is sometimes tempered by the precedent established in 1993 by the Florida Supreme Court in State Farm Fire & Casualty Co. v. Palma, 629 So. 2d 830 (Fla. 1993). Based on Palma, for two decades the prevailing assumption in Florida’s legal community has been that attorneys’ fees may only be recovered for litigating the issue of entitlement to fees, and not for litigating the amount of fees to be awarded. Stated another way, the accepted rubric has been that a client cannot be awarded “fees for fees.” But in the right circumstances, as illustrated by a recent decision from the Fourth District Court of Appeal, that “rule” may be inapplicable.

In Waverly at Las Olas Condominium Association, Inc. v. Waverly Las Olas, LLC, 88 So. 3d 386 (Fla. 4th DCA 2012), the Fourth District distinguished Palma and affirmed a judgment awarding attorneys’ fees, including “fees for fees,” when the substantive basis for the award was a broad contractual provision authorizing fees for “any litigation between the parties under [the] [a]greement.” The prevailing party in Waverly successfully argued to the trial court, and on appeal, that denying “fees for fees” would have been unfaithful to the parties’ unambiguous (contractual) intent that the prevailing party in “any litigation” arising under the contract would be made whole by recovering all fees reasonably expended in the litigation.

Other exceptions to Palma’s rule precluding “fees for fees” exist, but the “contract” exception recognized in Waverly will likely be widely applicable, since many contracts contain a prevailing party fee provision. Thus, Waverly is an important development in the law for attorneys drafting such contracts, or for litigation counsel moving to recover fees for their clients. A nonprevailing party will still have the right to challenge the reasonableness of the amount to be awarded (time expended and hourly rates), but when the contractual fee provision is broad enough to encompass recovery of “fees for fees,” as in Waverly, in doing so, the nonprevailing party will necessarily be responsible for the additional fees incurred by the prevailing party in that phase of the litigation.1 Whether this change will foster more settlements of fee claims remains to be seen.

The method to challenge the reasonableness of the amount of fees sought, including the elements of a successful fee application, the applicable factors to be considered in assessing reasonableness of the fees sought, and the use of expert testimony, is a subject beyond the scope of this article. Here, the authors focus on the legal right to recover fees for those efforts.

Palma and its Progeny
Before Palma, the district courts conflicted with respect to the “fees for fees” issue. The First, Third, and Fifth districts found that in certain situations “fees for fees” were, in fact, recoverable, while the Second District held that the time spent litigating the issue of the amount of attorneys’ fees was not compensable.2

In 1993, the Florida Supreme Court resolved the conflict, adopting a restrictive view, at least with regard to the statute at issue. In Palma, an insured sued State Farm for failing to pay medical bills for injuries sustained in an automobile accident.3 A ttorneys’ fees were recoverable under F.S. §627.428(1), which governs fees between an insurer and its insureds.4 The relevant portion of the statute, designed to discourage insurance companies from contesting valid claims,5 provides that when a beneficiary prevails over the insurer, “a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney” shall be awarded.6 The Supreme Court reasoned that permitting recovery to the insureds’ attorney for time spent establishing entitlement to fees comported with the purpose and language of the statute, but awarding fees for the time spent establishing the amount did not.

Palma also reasoned that because the insured had not actually expended any funds under a contingency fee agreement, and the dispute over the amount of fees to be awarded inured only to the benefit of the attorneys, awarding “fees for fees” was not contemplated by the statute. Thus, the Court concluded that when a court awards fees based on that statute, fees incurred in litigating the prevailing party’s entitlement to fees are recoverable, but fees incurred litigating the amount of fees — “fees for fees” — are not. From that beginning, the widely held belief that “fees for fees” are not recoverable under Florida law was born.7

But rarely is a legal principle so absolute that it does not have an exception, and Palmas “no fees for fees” rule is no different. In some circumstances, recovery of fees for litigating the amount of a fee award has been found to be consistent with the purpose of the applicable statute. Courts have made exceptions to the Palma rule when the statutory fee provision pertained to workers’ compensation,8 marital dissolution proceedings,9 sanctions,10 and wage claims arising under F.S. §448.08.11 But, for many years, no appellate decision concluded that “fees for fees” should be available under a contractual fee provision. Indeed, other courts had applied Palma’s limitation to contract-based fee claims.12

Ten years after Palma, the dissent in Mediplex Construction v. Schaub, 856 So. 2d 13 (Fla. 4th DCA 2003), raised a question about the fairness of Palma as applied to attorneys’ fees awarded under the reciprocal provision of F.S. §57.105(7), which modifies certain contractual fee provisions. That subsection provides, “[i]f a contract contains a provision allowing attorneys’ fees to a party when he or she is required to take any action to enforce the contract, the court may also allow reasonable attorneys’ fees to the other party when that party prevails in any action.”13 In Mediplex, a unilateral contractual fee provision operated in favor of the insurer, but the reciprocal provision of §57.105(7) made fees available to the prevailing insured as well.14

The Mediplex majority reasoned that because the prevailing party’s “basis for fees. . . lies in their contract with Mediplex, they must look to specific provisions either in that contract or in §57.105 to authorize [fees for] fees.”15 The majority found no such authorization in §57.105(7), concluding that if the legislature had meant to include the recovery of “fees for fees” under that provision, it would have specifically included such language in the statute. Deferring to the legislature, the Court declined to infer the ability to recover “fees for fees” under the statute.16 Nor did the contract at issue specifically provide for fees for litigating the amount of fees to be awarded. Thus, perceiving no legal authority that would allow the award of “fees for fees,” the Mediplex majority followed Palma and affirmed the lower court’s denial of “fees for fees.”17

Judge Farmer dissented, calling that view a “rank injustice.” His extensive dissenting opinion concluded that “[t]o allow Mediplex to use Palma to defeat a recovery of reasonable fees for fending off the attempts of Mediplex to avoid a multiplier is not only contrary to a true appreciation of the overall language, structure and purpose of §57.105(7), it is a rank injustice to these consumers and their lawyers.”18 Judge Farmer reasoned that the prevailing party should be awarded “fees for fees” because §627.428 “does not say anything about fees-for-fees — for or against.. . . Therefore the real meat of the Palma holding is that the full text, structure, and purpose of an attorneys’ fee statute may implicitly lean against allowing fees-for-fees and that the court must examine each statute to ascertain whether such authority exists.”19 Unlike the majority, Judge Farmer concluded that “the issue of the amount of fees is well within the statutory purpose of making the insured whole for having to sue the carrier for policy benefits.”20 Additionally, he opined that because, in his view, §57.105(7) allowed for the recoverability of “fees for fees,” the precise amount of fees to be awarded could be determined by the parties’ contractual provision.21

In Mediplex, the applicable contract said “any fees” were recoverable. Thus, Judge Farmer concluded that “[s]urely the contractual term, ‘any fees’ is broad enough to include the recoverability of fees for fees.. . . [I]f the losing party is free to litigate the amount of the fee due without having to pay for the time fighting the amount, then the party who won the enforcement of the contract will often not be made whole.”22 That logical, plain language position, which did not carry the day in Mediplex, nor in other cases involving contractual fee provisions, eventually garnered support in Waverly.

Waverly — Factually and Legally Distinguished from Palma
Waverly was a dispute over the ownership and use of certain parking spaces in an urban mixed-use condominium high-rise building. Residential owners purchased reserved parking with their units, but additional desirable first-floor spaces remained available, for a time. The developer of the project (Waverly Las Olas, LLC) then conveyed approximately 100 parking spaces to a commercial unit owner, as part of a multi-million dollar transaction. When the unit owners’ association challenged the assignment and claimed that the residential owners had a right to use those spaces for guest parking and convenience, the commercial unit owner filed a declaratory judgment action to resolve the dispute. In turn, the association filed a third-party claim against the developer, alleging that its assignment of the 100 parking spaces breached the owners’ purchase and sale contracts, violated Ft. Lauderdale’s uniform land development regulations, and was otherwise unlawful.

In the third-party action, the association, suing as a representative of the residential unit owners, sought attorneys’ fees under the prevailing party fee provision of the unit owners’ individual purchase and sale agreements. The developer moved to dismiss the third-party claims, and sought fees under the same provision.23 Because the association candidly represented that some unassigned spaces remained and no residential unit owner had been denied the ability to purchase an additional parking space, the trial court dismissed the association’s claims against the developer on ripeness and standing grounds, and awarded fees to the developer as the prevailing party. The association also lost in the main case, with the court finding that the assignment gave the commercial unit owner the exclusive right to use the disputed 100 ground-floor spaces.24

Following a finding of fee entitlement in favor of the developer, an extensive hearing was conducted on two fee-related issues: 1) whether all the association’s unsuccessful claims were inextricably intertwined with the contract claim, thus justifying fees for all the litigation;25 and 2) whether the developer was entitled to recover “fees for fees.” On the first point, the court found that all the claims arose from the purchase and sale agreements, whether framed in contract, tort, or statute, and were “inextricably intertwined” with the contract, so that fees were awardable for all claims.

To prove that “fees for fees” should be awarded, and in an effort to distinguish the contingency fee facts in Palma, the developer presented testimony to establish that it paid hourly attorneys’ fees throughout the litigation. Thus, the developer — not its counsel — would be the sole beneficiary of the fee award. Unlike the contingency fee facts in Palma, the Waverly fee award did not inure to the benefit of the attorneys, who had been paid on an ongoing basis by the client. Rather, an award of fees for litigating the amount to be awarded was both consistent with the contractual fee provision and necessary to make the client, who had borne the expense of all the litigation, whole. That critical distinction led the trial court to follow Judge Farmer’s dissent in Mediplex.

On the association’s appeal of the fee judgment, the Fourth District acknowledged that, under Palma, prevailing parties are generally precluded from recovering “fees for fees.” But the plain and very broad contractual language in Waverly persuaded the court that the facts were distinguishable, and not controlled by Palma. The court explained that, “[u]nlike Palma, which relied upon a statute and limited fees to those incurred in litigating entitlement, the contractual provision here alone authorizes attorney’s fees for ‘any litigation’ between the parties under the agreement.”26

To the extent that Waverly conflicts with other decisions reading such contractual provisions more narrowly in light of Palma, the authors suggest that Waverly is more faithful to the plain meaning of the contracting parties’ intent to make the prevailing party whole, and, therefore, is better reasoned. And, because the disputed fees would inure to the benefit of the client, not the attorney, awarding “fees for fees” was not inconsistent with Palma.

The Future of “Fees for Fees” in Florida
What does the future hold for parties seeking to recover “fees for fees”? Certainly Palma remains good law. Thus, where prevailing party fees are available under a state statute, in most cases, the recovery of fees will be limited to litigating entitlement to fees, but not for litigating the amount of recoverable fees. However, if a statute provides the legal basis for fees, the purpose and context of the statute should be examined to see if an exception to Palma exists.

But Palma did not involve a contractual prevailing party fee provision, and should not control fee claims based on contract. Thus, where a contractual provision is the basis for awarding attorneys’ fees, the prevailing party may be entitled to recover “fees for fees” if the contractual provision is broad enough to encompass recovery of fees for “all litigation,” including litigation over the reasonableness of the amount sought, and if the recovery benefits the litigant rather than the lawyer, as in Waverly.

Waverly is an important development in Florida attorneys’ fee jurisprudence, both to attorneys litigating attorneys’ fee claims and to attorneys who draft contracts with prevailing party fee provisions, because contractual language, if sufficiently broad or if it explicitly addresses litigation over amount, may properly be construed to authorize the recovery of “fees for fees.” As with most legal principles, there are factual and legal exceptions to the commonly held belief that only the time spent in litigating entitlement to fees is recoverable. Fee counsel should be aware of the exceptions, and should make the necessary record to demonstrate that an award of “fees for fees” is consistent with the applicable statute or contract and for the benefit of the prevailing party. Since the goal of prevailing party contractual fee provisions is to make the prevailing litigant whole, in a contract-based fee claim, Waverly now makes that result attainable.

1 Costs of litigating the reasonableness of the amount, such as expert costs, are also recoverable from the nonprevailing party. See, e.g., D’Alusio v. Lamb, LLC, 36 So. 3d 842 (Fla. 2d DCA 2010).

2 State Farm Fire & Casualty Co. v. Palma, 629 So. 2d 830, 831 (Fla. 1993) (citing Ganson v. State, Dep’t of Admin. , 554 So. 2d 522 (Fla. 1st DCA 1989); Tiedeman v. City of Miami, 529 So. 2d 1266 (Fla. 3d DCA 1988); Gibson v. Walker, 380 So. 2d 531 (Fla. 5th DCA 1980); and State Farm Mut. Auto. Ins. Co. v. Moore, 597 So. 2d 805 (Fla. 2d DCA 1992)).

3 Id.

4 Id.; see Fla. Stat. §627.428 (1983).

5 Palma, 629 So. 2d at 833 (“Florida’s courts, including this Court, have consistently held that the purpose of section 627.428 is ‘to discourage the contesting of valid claims against insurance companies and to reimburse successful insureds for their attorney’s fees when they are compelled to defend or sue to enforce their insurance contracts.’”).

6 See Fla. Stat. §627.428(1) (1983).

7 The rule is different under federal law. There, under a host of fee-shifting statutes, a prevailing party is generally permitted to recover attorneys’ fees for litigating the reasonableness of the amount sought by the prevailing party. See Palma, 629 So. 2d at 833 (“In awarding fees for litigating all issues relating to attorney’s fees, the federal courts have noted that such awards comport with the purpose behind most statutory fee authorizations, namely to encourage attorneys to represent indigent clients.”); see also McMahan v. Toto, 311 F.3d 1077, 1086 (11th Cir. 2002).

8 See generally Crittenden Orange Blossom Fruit v. Stone, 514 So. 2d 351 (Fla. 1987).

9 Schneider v. Schneider, 32 So. 3d 151, 153 (Fla. 4th DCA 2010) (“[A]warding fees for fee litigation in a marital dissolution falls within the discretion of the trial court.”).

10 Bennett v. Berges, 50 So. 3d 1154, 1160-61 (Fla. 4th DCA 2010) (affirming “fees for fees” in a sanctions proceeding).

11 Diaz v. Santa Fe Healthcare, Inc., 642 So. 2d 765, 766 (Fla. 1st DCA 1994) (“[T]he trial court has discretion…to make a fee award under [§448.08] which encompasses time spent establishing the amount of the fee.”).

12 See, e.g., Paladyne Corp. v. Weindruch, 867 So. 2d 630 (Fla. 5th DCA 2004); N. Dade Church of God, Inc. v. JM Statewide, Inc. , 851 So. 2d 194 (Fla. 3d DCA 2003); Mangel v. Bob Dance Dodge, Inc. , 739 So. 2d 720 (Fla. 5th DCA 1999).

13 See Fla. Stat. §57.105(7) (2003).

14 Mediplex, 856 So. 2d at 19 (Farmer, J., dissenting) (The contractual fee provision in Mediplex was as follows: “In the event that charges for services rendered by MR-PB require collection, the cost of collection and any attorney’s fees, whether or not a lawsuit is brought, must be borne by the client and his designee, if any.”).

15 Id. at 15.

16 Id.

17 Id.

18 Id. at 20.

19 Id. at 17.

20 Id.

21 Id. at 19.

22 Id.

23 See Fla. Stat. §718.111(3), Fla. R. Civ. P. 1.221. The parties presumed that the association was entitled to invoke the fee provision in the purchase and sale agreements, and that the fee provision applied to the developer’s fee claim even though the unit owners were not parties to the case. Thus, that issue was not presented to the court.

24 The association appealed the adverse declaratory judgment and the dismissal of its third-party claims against the developer. Both judgments were per curiam affirmed without a written opinion. See Waverly at Las Olas Condo. Assoc., Inc. v. Waverly Las Olas, LLC, 85 So. 3d 500 (Fla. 4th DCA 2012) (unpublished).

25 The association alleged various claims in three versions of its complaint, not all of which were based on the contract.

26 Id.

Adam G. Rabinowitz is a partner at Broad and Cassel in Ft. Lauderdale, and is a member of the firm’s commercial litigation and real estate litigation practice groups. He is a 1999 graduate of the Nova Southeastern University Shepard Broad Law Center. He represented the developer in Waverly at trial.

Beverly A. Pohl is a partner at Broad and Cassel in Ft. Lauderdale, and is the chair of the firm’s appellate practice group. She is a 1991 graduate of the Nova Southeastern University Shepard Broad Law Center. She was appellate counsel for the developer in Waverly.

The authors recognize summer associate Nicole R. Kurtz, from the University of Miami School of Law, for her valuable assistance with this article.