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Adding this clause to your contracts may boost your bottom line

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Judges can award ‘reasonable’ fees even if you gave your client a discount

Paul RegensdorfMaybe you want to cut a break for a good client facing unexpected litigation. Maybe it’s a relative. Maybe it’s a cause you believe in and the client has limited means.

Whatever the reason, you’re trying a case for an hourly rate that is substantially below your normal fee.

Then you win under a statute that allows you to recover attorney’s fees. You won’t be limited to the discounted rate if the other side is ordered to pay your fees — if you have put the appropriate clause in your client’s contract.

Paul Regensdorf, a trial and appellate attorney, long-time member of Bar rules committees, and who serves as an expert in attorney’s fee cases, said a 2013 Supreme Court ruling allows the judge to award a “reasonable” fee in such cases, even if that is more than the contracted rate, as long as there is a clause in the client contract allowing for a higher fee.

“It’s not going to cost the client a penny,” Regensdorf said. “Here is something that is extremely useful to every single lawyer who bills on an hourly rate. You have to win, and it has to be the type of case that allows you to recover the fees.

“The law for years was if you charged your client an hourly rate for services, then if you were allowed to shift that to the other side [by winning attorney’s fees in the judgment], everybody knew the maximum amount you could get was the amount you billed the client,” he explained.

That changed with First Baptist Church of Cape Coral, Florida, Inc., v. Compass Construction, Inc., 115 So .3d 979 (Fla. 2013).

Writing for the court majority (then-Justice Fred Lewis dissented), Justice Ricky Polston said that courts were obligated to award reasonable fees even if they exceeded the contracted amount as long as the client contract contained the “alternate fee recovery clause.” That clause allows for fees exceeding the contracted hourly rate if the opposing side were ordered to pay the attorney’s fees and the judge finds those ordered fees are reasonable.

“[W]e hold that the alternative fee recovery clause, which required Compass to pay prevailing party reasonable attorney’s fees in an amount greater than First Baptist’s insurance company owed under the agreement’s hourly rate, is valid,” Polston concluded.

He noted that in Florida Patient’s Compensation Fund v. Rowe, 472 So. 2d 1145, (Fla. 1985), the court adopted the federal lodestar method for determining court-awarded fees in contingency fee cases but provided that the court-awarded fee could not exceed the fee agreed on by the attorney and client.

In response to Rowe and subsequent cases, attorneys began including the “alternative fee recovery clause” that allowed for the recovery of the greater of the fee agreed to by the client or reasonable fee awarded by the court, and the Supreme Court approved that practice in Kaufman v. MacDonald, 557 So .2d 572, (Fla. 1990).

The ruling in First Baptist Church of Cape Coral extended that to hourly cases, Polston wrote.

“The concept is, ‘Hey, I gave the client a substantial discount off my normal fee for whatever reason,’” Regensdorf said. “When the other side has to pay me, why should they get a special rate that I gave to my friend or my long-term client or whatever? The answer is they shouldn’t, they should have to pay me a reasonable fee.”

Or, he noted, quoting the court in Rowe, “[B]ecause the party paying the fee has not participated in the fee arrangement between the prevailing party and that party’s attorney, the arrangement must not control the fee award.”

Under Lugassy v. Independent Fire Insurance Co., 636 So. 2d 1332 (Fla. 1994), Regensdorf said the court held that a fee contract could be altered by the client and attorney up until the time a judge or jury decided the case, even if that meant the opposing party, if ordered to pay attorney’s fees, would pay more.

That means fee contracts can be changed to include the alternative fee recovery clause in cases that are ongoing.

Six years after the court’s ruling in First Baptist Church of Cape Coral, many attorneys remain unaware of its application, he said. Regensdorf said he was recently contacted by four different law firms for advice about legal fees in their cases. In three of the cases, the firms thought they were about to (and eventually did) win cases where they gave discounted hourly fees to the client and were eligible to have fees paid by the other side.

All three were able to change their contract with the client to take advantage of First Baptist Church of Cape Coral.

In the fourth case, Regensdorf said, the case had been decided so no change was possible, and that firm lost the opportunity to collect substantially higher fees.

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