• Alternative Fee Recovery Clause' Is Enforceable
  • July 12, 2013
  • Law Firm: Butler Pappas Weihmuller Katz Craig LLP - Tampa Office
  • First Baptist Church of Cape Coral, Florida, Inc. v. Compass Construction, Inc., Nos. SC11-1278, SC11-1280, 2013 WL 2349380 (Fla. May 30, 2013)

    Significance:

    The Supreme Court of Florida held that a fee agreement setting forth an "alternative fee recovery clause" (with an hourly rate alternative) is enforceable against third parties. The clause—which was part of a fee agreement between a liability insurer and counsel retained by the insurer to defend its insured—provided that, in the event anyone other than the insurer is required to pay attorney fees, the hourly rate for the fees would be in an amount significantly higher than the hourly rate paid by the insurer. The court stated it has routinely upheld such clauses in cases where there was a contingency-fee alternative and that there was no logical reason to not enforce the clauses in cases where there is an hourly rate alternative.

    Facts:

    A property owner (First Baptist Church of Cape Coral, Florida, Inc.) and a general contractor (Compass Construction, Inc.) were named as defendants in an action arising from a construction accident. First Baptist's liability insurer assigned an attorney to defend First Baptist. The attorney had a written fee agreement with the insurer under which the attorney billed the insurer for his services at the rate of $170 per hour. The agreement further set forth a provision that stated "[s]hould anyone other than the [insurer] be required to pay attorney's fees ... the hourly rate for attorney's fees would be $300 ..., or such amount as is determined by the [c]ourt, whichever is higher." The court described the foregoing provision as "an alternative fee recovery clause."

    First Baptist prevailed in its defense of the plaintiff's claim in the main action and on its cross-claim for contractual indemnity against the general contractor. The general contractor conceded that First Baptist was entitled to an award of attorney fees as part of its indemnity claim. However, the parties disagreed about the appropriate hourly rate at which the fee for First Baptist's attorney should be calculated. The general contractor argued that the fee for First Baptist's attorney should be limited to the hourly rate actually charged and billed to the client (i.e., $170 per hour). First Baptist contended that its attorney was entitled to a fee calculated based on a substantially higher hourly rate, pursuant to the "alternative fee recovery clause."

    The trial court ruled that First Baptist could recover from the general contractor "a reasonable fee to be later determined by this [c]ourt even if that amount is greater than the amount [First Baptist's] counsel charged First Baptist Church."

    On appeal, the Second District reversed the award calculated at the higher rate, holding that the trial court was limited by the non-contingent fee agreement between First Baptist and its attorney (setting forth the $170 hourly rate) in making the award of fees against the general contractor. However, the Second District certified conflict with the Fourth District's decision in Wolfe v. Nazaire, 758 So. 2d 730 (Fla. 4th DCA 2000) (holding that the court could award attorney fees that exceeded the hourly rate the attorney and client agreed upon, where the fee agreement states that compensation would be either a specific hourly rate or an amount awarded by the court under the prevailing-party statute, whichever yielded the higher fee).

    Issue:

    Whether an "alternative fee recovery clause" (with an hourly rate alternative) of a fee agreement between an liability insurer and its insured is enforceable against a third party to the fee agreement, when the clause requires the third party to pay the prevailing party's reasonable attorney fees in an amount greater than the amount owed by the insurer under the agreement.

    Holding:

    The "alternative fee recovery clause," which required a third party to pay the prevailing party's reasonable attorney fees in an amount greater than the hourly rate owed by the insurer under the fee agreement, is valid and binding on the third party.

    Analysis:

    The court stated that over twenty years ago it held that an "alternative fee recovery clause" (with a contingency-fee alternative) was enforceable against third parties. The court noted that in several cases over the past twenty years it has recognized that an "alternative fee recovery clause" does not violate the court's prohibition against a fee award exceeding the fee agreement because it establishes an agreed rate that the client must pay but also states that the court may award a higher, reasonable attorney fee if someone other than the client is required to pay. The court further stated that in the present case the amount of the fee award did not exceed the third party's contractual indemnity obligation because First Baptist (through its insurer) is actually obligated to pay that amount under the fee agreement.

    Additionally, the court indicated that any court-ordered fee is subject to judicial review and, therefore, the court has not "authorized the widespread arbitrary deprivation of property in violation of due process," as warned in a dissenting opinion by Justice Lewis.