Analysis and Interpretation by Michael A. Cassel
On September 29, 2017, the First District Court of Appeals in and for the State of Florida (hereinafter the “1st DCA”) released their decision in Florida Farm Bureau Casualty Insurance Company v. Gerald Gray, et. al., No. 1D16-3118, 2017 Fla. App. LEXIS 13613 (3d DCA 2017) (hereinafter “Gray”). The Gray opinion deals with the application of a contingency risk multiplier to a fee award under Section 627.428, Florida Statutes. While the opinion itself is not entirely groundbreaking, this is certainly a good opportunity to present a long overdue analysis and discussion regarding the recent trend in case law pertaining to the application of a multiplier to statutory attorney’s fees in first property insurance lawsuits.
Background of Contingency Risk Fee Multipliers
Before making the determination as to whether a multiplier should be applied to an award of attorney’s fees, the court must first reach a determination as to the “lodestar,” i.e., the calculation of the number of hours reasonably expended multiplied by the attorneys’ reasonable hourly rate. Fla. Patient’s Comp. Fund v. Rowe, 472 So. 2d 1145, 1151 (Fla. 1985). When determining a lodestar, the following elements should be considered:
(1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requisite to perform the legal service properly; (4) the preclusion of other employment by the attorney due to acceptance of the case; (5) the custom fee, (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances, (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the “undesirability” of the case; (11) the nature and lengths of the professional relationship with the client; and (12) awards in similar cases.
Standard Guar. Ins. Co. v. Quanstrom, 555 So. 2d 828, 834 (Fla. 1990) (quoting Blanchard v. Bergeron, 109 S. Ct. 939, 943 n.5 (1989) and Johnson v. Ga. Highway Express, 488 F.2d 714 (5th Cir. 1974)).
Once the lodestar figure is reached, it is within the court’s discretion to adjust the fee based on a “contingency risk” factor. Id. The Rowe Court set forth the following guidelines with regards to the application of a “contingency risk” factor:
When the trial court determines that success was more likely than not at the outset, the multiplier should be 1.5; when the likelihood of success was approximately even at the outset, the multiplier should be 2; and, when success was unlikely at the time the case was initiated, the multiplier should be in the range of 2.5 and 3.
Rowe, 472 So. 2d at 1151. Later, the Quanstrom Court expanded on this by stating that the trial court should consider the following:
(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 in Rowe are applicable, especially the amount involved, the results obtained, and the type of fee arrangement between the attorney and his client.
Quanstrom, 555 So. 2d at 834. Based on these factors, and as discussed infra, the Courts are usually quite hesitant to apply a contingency factor to a lodestar in first party insurance litigation.
Recent Analyses of Contingency Risk Fee Multipliers
- State Farm v. Alvarez
On September 16, 2015, the Third DCA published its opinion in State Farm Fla. Ins. Co. v. Alvarez, 175 So. 3d 352 (Fla. 3d DCA 2015). In Alvarez, a 1.5 multiplier was applied to a fee award due to the trial court’s finding that competent counsel could not be retained without a multiplier.
Using the Quanstrom analysis, the Alvarez court reasoned that the insureds did not present evidence of any substantial difficulty in obtaining competent counsel; instead, their expert testified that the mere possibility of a multiplier was necessary to obtain counsel with specialized knowledge in the area of first party property. The Alvarez court went on to say that “Quanstrom’s first prong does not concern whether the client could obtain the “best” representation available. Instead, the inquiry concerns ‘substantial’ difficulty in obtaining “competent” counsel. Thus, the Insureds did not establish the first prong of [the Quanstrom] test. Id. at 358 citing USAA Cas. Ins. Co. v. Prime Care Chiropractic Centers, P.A., 93 So. 3d 345, 347 (Fla. 2d DCA 2012) (holding no competent, substantial evidence supported a finding in favor of a plaintiff under Quanstrom’s first prong, where the plaintiff’s expert witness “summarily concluded that the market required a multiplier for [the plaintiff] to obtain competent counsel” and “did not provide the court with any evidence to support his broad assertion”).
Most importantly, the Alvarez court echoed the sentiment that “[t]he application of a multiplier is the exception, not the rule.” Alvarez, 175 So. 3d at 357; see also Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 554, 130 S. Ct. 1662, 176 L. Ed. 2d 494 (2010) (“[T]here is a ‘strong presumption’ that the lodestar figure is reasonable” and this presumption is overcome only in “rare” and “exceptional” circumstances.).
- Citizens v. Pulloquinga
On December 30, 2015, the Third DCA published its opinion in Citizens Prop. Ins. Corp. v. Pulloquinga, 183 So. 3d 1134 (Fla. 3d DCA 2015). The Pulloquinga court affirmed the application of a 1.5 multiplier in a first party property claim where after two (2) years of litigation, 27 statewide depositions, and four (4) summary judgment hearings, policy limits were tendered on the eve of trial along with a stipulation to entitlement for attorney’s fees and costs. Despite initially paying minimal policy benefits at the outcome of the claim, Citizens raised the defenses of arson, insurance fraud, material misrepresentation in the application as defenses to the lawsuit and diverted attention away from the facts of the claim in order to contest the Plaintiff’s ownership in the property, whether it was actually her homestead, and whether she operated a business out of her home. The Third DCA utilized the Rowe factors and concluded that Pulloquinga was not a “run of the mill” case based on the defenses asserted.
The Pulloquinga court then applied the evidence presented at the fee hearing to the Quanstrom factors outlined supra. Based on testimony provided, it was found that the Plaintiff interviewed seven (7) attorneys who would have accepted her case under an up-front fee agreement and a handful of others who would have accepted the case had she been willing to agree to a settlement of pennies on the dollar. Additionally, the Plaintiff’s counsel would have been unable to mitigate the non-payment of fees as the Plaintiff had no other means to pay, that the results were the maximum recovery, and the fee arrangement was entirely contingent. As such, the court concluded that the testimony provided amounted to competent substantial evidence of the Quanstrom factors in support of a multiplier and the application of a multiplier could not be considered an abuse of discretion by the trial court. The court stated that “a primary rationale for the contingency risk multiplier is to provide access to competent counsel for those who could not afford it… Multipliers are intended to level the playing field, to provide litigants, who may otherwise lack the resources, to obtain competent counsel, as a means of access to the legal system. Pulloquinga, 183 So. 3d at 1137 quoting Michnal v. Palm Coast Dev., Inc., 842 So. 2d 927, 934 (Fla. 4th DCA 2003).
- Citizens v. River Oaks Condo. II Ass’n,
On March 30, 2016, the Second DCA published its opinion in Citizens Prop. Ins. Corp. v. River Oaks Condo. II Ass’n, 190 So. 3d 1110 (Fla. 2d DCA 2016). In River Oaks, a 2.0 multiplier was applied to a fee award after the recovery of almost $5,000,000 in appraisal due to a sinkhole claim.
The River Oaks court reversed the trial court’s finding that a 2.0 multiplier was appropriate due to the fact that the “fee agreement… was not a true contingency contract. Instead, it guaranteed payment at a lesser hourly rate, which mitigated the risk of nonpayment, and the evidence showed that [the attorney] had indeed been paid under the contract.” Id. at 1113 citing Bell v. U.S.B. Acquisition Co., 734 So. 2d 403, 412 (Fla. 1999) (“[W]e recognized the economic reality that attorneys who work on a contingent fee basis only receive compensation when they prevail, and thus must charge a higher fee than if they had been guaranteed an hourly rate.”) Because the evidence showed that the insured’s attorney stood to recover attorney’s fees and, in fact, was paid regardless of the outcome of the case, no multiplier could be awarded due to the lack of a true contingency fee contract.
- Florida Peninsula v. Wagner
On June 1, 2016, the Second DCA published its opinion in Fla. Peninsula Ins. Co. v. Wagner, 196 So. 3d 419 (Fla. 2d DCA 2016). In Wagner, a 2.0 multiplier was applied to a fee award due to the trial court’s reasoning that “there may be multiple attorneys out there that are willing to go to trial, actually going to trial is another issue…” Id. at 421.
The Wagner court went on to say that “[i]t is the rare attorney that actually goes all the way through trial to the completion.” Id. Ultimately, the Wagner court disagreed with this analysis stating that the evidence presented fell short of fulfilling the elements outlined in Quanstrom as “[t]here was no showing or finding that without the prospect of a multiplier to an otherwise reasonable fee award, the Wagners would have had difficulty finding competent counsel to represent them in this insurance coverage dispute. Id. at 422; see Sun Bank of Ocala v. Ford, 564 So. 2d 1078, 1079 (Fla. 1990) (“[T]here should be evidence in the record, and the trial court should so find, that without risk-enhancement plaintiff would have faced substantial difficulties in finding counsel in the local or other relevant market.”
Finally, the court rationalized that “a contingency fee multiplier under Quanstrom serves to correct a deficiency in a legal market for representation.” Wagner at 422; see also Bell v. U.S.B. Acquisition Co., 734 So. 2d at 411 (“A primary rationale for the contingency risk multiplier is to provide access to competent counsel for those who could not otherwise afford it.”). Furthermore, “[a] Quanstrom fee multiplier is not a surrogate for a sanction, and it should not be applied based solely, and in hindsight, upon how far along in the civil adjudication process a particular case happened to be resolved.” Wagner at 422.
- Sawgrass Mutual v. Mone
On September 2, 2016, the Fifth DCA published its opinion in Sawgrass Mut. Ins. Co. v. Mone, 201 So. 3d 182 (Fla. 5th DCA 2016). In Mone, a 1.5 multiplier was applied to a fee award following a one (1) week jury trial wherein the insureds prevailed on a sinkhole claim.
The Mone court reiterated the previously discussed maxims that the lodestar calculated utilizing the elements outlined in Rowe carries with it “a ‘strong presumption’ that the lodestar represents the ‘reasonable fee.’“ Id. at 184 citing Federated National Insurance Co. v. Joyce, 179 So. 3d 492, 493-94 (Fla. 5th DCA 2015), review granted, SC16-103 (Fla. 2016) and Progressive Express Ins. Co. v. Schultz, 948 So. 2d 1027, 1030 (Fla. 5th DCA 2007).
The Mone court also delved further into the abuse of discretion standard of review regarding same as “highly deferential… because of the trial court’s ‘first-hand knowledge of the case,’ ‘superior understanding of the litigation,’ and ‘extensive contact with the parties and their counsel.’” Mone, 201 So. 3d at 185 citing State Farm v. Alvarez, supra at 355. The court stated that the appellate court is “not required to abandon what we learned as lawyers . . . in evaluating the reasonableness of an award.” Mone, 201 So. 3d at 185 citing Trumbull Ins. Co. v. Wolentarski, 2 So. 3d 1050, 1057 (Fla. 3d DCA 2009). As such, it was determined that Mone was not a case “involving ‘rare’ and ‘exceptional’ circumstances and, therefore, conclude that the strong presumption against the application of the contingency risk multiplier has not been overcome. Mone, 201 So. 3d at 185.
- Florida Farm v. Gray
Similar to the finding in River Oaks, supra, the Gray court determined that a 2.0 multiplier was misapplied due to the nature of the fee agreement between Plaintiff and counsel. The fee agreement outlined a situation in which the insureds were required to pay their counsel an initial lump sum payment of $5,000.00.
During his testimony on the issue of attorney’s fees, Mr. Gray’s attorney acquiesced that the only contingency aspect of the fee agreement was that the court would set the reasonable amount of fees. Evidence was also put forth regarding the Plaintiff’s inability to actual pay the fees due and owing; however, the Gray court rejected this stating that the inability for a client to pay does not transform a fee agreement into a cogency fee agreement. Gray at 10 citing Superior Ins. Co. v. Cordle, 851 So. 2d 207, 207 (Fla. 1st DCA 2003) (agreeing with the appellant that the trial court erred in applying a “‘contingent risk’“ multiplier where the insured’s attorney “‘would have technically been entitled to recover his fee up to $200.00 per hour from the client, win or lose’“ but agreed to a reasonable fee awarded by the court and holding that the “likelihood that the client will not pay the agreed-upon hourly fee is not the criterion upon which ‘contingency’ in this context is based”).
Analysis, Impact, and Effect
Based on the review of the above cases, it is clear that the trend in first party property law opposes the application of a contingency fee multiplier. The most important factor, or at least the most difficult factor to establish, seems to be the first Quanstrom element – “whether the relevant market requires a contingency fee multiplier to obtain competent counsel.” In Pulloquinga, the only first party case analyzed where a multiplier was upheld, one of the factors discussed which was unique to the above cases was the number of attorneys who refused to accept the claim on a contingency basis. That said, due to Section 627.428, Florida Statutes, which grants fees in the event that a party prevails against an insurance company, there is currently an oversaturation in the market of attorneys “specializing” in first party property insurance claims. Accordingly, as echoed in Alvarez, supra, an instance calling for the application of a multiplier is the exception and not the rule.
Another issue that was unique to the analysis in Pulloquinga dealt with the types of defenses raised by the insurance company, e.g., fraud, arson, etc., and that said defenses were ultimately dismissed on summary judgment. This goes directly to the Rowe factor pertaining to the desirability of the case. As such, insurers must be cognizant of how their behavior/the behavior of their counsel may affect the possibility of the application of a contingency risk multiplier. Utilizing policy exclusions related to fraud and intentional loss as the basis for denial of a claim or employing said provisions as defenses without any factual bases supporting same will be considered by the trial courts as part of the elements necessary to fulfill the Rowe/Quanstrom factors and may weigh heavily in a judge’s decision depending on the venue. As such, it is likely more appropriate to utilize policy provisions/defenses which can be supported by then existing facts and seek leave to amend the defenses at a later date once additional facts have been ascertained which can support more aggressive defenses such as fraud or intentional loss.