The Validity of Attorney’s Fees Alternative Recovery Clauses

Alternative fee recovery clauses in attorney’s fees agreements that use an hourly rate as the other basis for payment are valid, even if the alternative fee provision would result in higher fees due to the attorney than under the hourly rate. In other words, where recovery of attorney’s fees is to be had from a third party under a fee-shifting provision in a fee agreement, courts may award higher fees that those provided for under the hourly rate structure. Such was the decision of the Florida Supreme Court in First Baptist Church of Cape Coral, Florida, Inc., v. Compass Construction, Inc. (SC 11-1278 and SC11-1280).

The First Baptist Church (First Baptist) and Compass Construction (Compass) were both defendants in a suit resulting from a construction accident. First Baptist defended the suit and filed a cross-claim against Compass for indemnity. First Baptist was covered by insurance for the construction accident claim, and was represented by an attorney who had contracted with the insurer and whose payment was not contingent on the outcome of the underlying suit. First Baptist prevailed in both matters. The insurance attorney’s contract provided for an hourly fee of $170 to be paid by the insurer. However, if anyone other than the insurance company would be paying attorney’s fees, the hourly rate would be $300, or whatever rate was determined by the court, whichever was higher.

The trial court determined that First Baptist would be entitled to reasonable attorney’s fees, calculated based on a reasonable hourly fee for a reasonable amount of hours billed for the work performed. As that amount would be higher than the hourly rates that the insurance company would have paid to the attorney, Compass appealed the ruling. On appeal, the Second District held that, because the attorney’s recovery was not contingent on the outcome of the case, the alternative fee recovery clause did not permit recovery of fees in excess of those actually charged to the insurer.

The Supreme Court quashed the opinion of the Second District, and clarified “that requiring the losing party to pay an amount exceeding the prevailing party’s fee agreement does not violate [the] prohibition against awarding fees in excess of the fee agreement if the agreement contains an alternative fee recovery clause.” In other words, since the attorney’s fee agreement provided for an alternative payment structure if a third party was liable for the fees, and a third party was in fact liable for the attorney’s fees, the higher alternative provision of the agreement would not limit the attorney’s fees award to the hourly rate provided for in the contract.

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