The Florida Supreme Court last week resolved a circuit split between the Second and Fourth District Courts of Appeal and held that alternative fee recovery clauses in attorney engagement contracts are permissible and enforceable. What is an alternative fee recovery clause and why is it important to lawyers and clients? An alternative fee recovery clause, in essence, allows the court to award attorneys fees for the true value of the work performed, even if the client actually paid a discount rate. This allows lawyers to take cases their clients might not otherwise be able to afford, with the promise of a market rate fee award at the end of the litigation. As explained by the Court:
This clause generally provides for an attorney’s fee of the greater of either (i) a specified fee if the fee is paid by the client, or (ii) a court-awarded reasonable fee if the fee is paid by a third-party pursuant to a fee-shifting provision.
First Baptist Church of Cape Coral, Florida, Inc. v. Compass Const., Inc., __ So.3d ___, No. SC11-1278, 2013 WL 2349380 (Fla. 2013) [.pdf].
The Court upheld the billing arrangement even though the issue arrose in the context of an indemnification action (which was the reason for the dissent of Justice Lewis). The Court noted that the balancing act required by the lodestar analysis ensures that the resulting fee award is reasonable and not excessive.
The case is important because there is a line of fee award cases that hold that the recovery is limited to a reasonable fee or the amount actually paid by the client, whichever is greater. But First Baptist makes clear that the analysis is more nuanced — it’s limited not to what the client paid, but what the client agreed the fee would be. If the client agrees in advance that the fee is the greater of two calculations, the Court should conduct the calculations and award the greater of them, enforcing the parties’ contract.
That makes this case a must-read for any attorney considering having such a clause in his or her engagement contract.
