Putting the lid back on Pandora's 'jar': a clarion call for the elimination of contingency risk multipliers in Florida PIP litigation.

• Author: Stein, Douglas H.

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The annals of Florida jurisprudence are replete with examples of legislatively and judicially created laws, which, for better or worse, evolved precisely as their authors intended. Occasionally, however, either intentionally (i.e., as a result of an overly zealous and/or misguided belief on the part of successor legislators and judges that they could "make a good thing even better") or unintentionally (e.g., due to an analytical misstep), a statutory scheme or legal doctrine takes on a life of its own that bears little resemblance to the original intentions and expectations of its creator. The most recent and, perhaps, most notable example of this jurisprudential phenomena is the so-called "economic loss rule." In the seminal decision that gave birth to Florida's version of that rule, Florida Power & Light Co. v. Westinghouse Electric Corp., 510 So. 2d 899 (Fla. 1987), the Supreme Court of Florida sought to craft a legal doctrine that would preserve the longstanding distinction between traditional tort remedies and remedies that were or, through the exercise of due diligence, could have been the result of bargained-for contracts. Plainly, the court's intentions were well-founded. They also were in step with the prevailing school of thought on the "economic loss rule" in an overwhelming majority of state and federal courts around the country. (2) Thereafter, however, the court's "holdings expand[ed] the application of the [economic loss] rule beyond its principled origins" (Moranais v. Heathman, 744 So. 2d 973, 981-83 (Fla. 1999)). Those decisions, in turn, "contributed to applications of the rule by [Florida] trial and appellate courts to situations well beyond [the court's] original intent." (3) In fact, the evolution of the "economic loss rule" that followed the issuance of the Florida Power & Light opinion became so chaotic that, in a relatively unprecedented move, the court ultimately was forced to acknowledge that its subsequent "economic loss rule" decisions were "unnecessarily over expansive," and to attempt to return the doctrine to its intended scope. (4)

Significantly, given the recent decisions in Progressive Express Insurance Co. v. Schultz, 948 So. 2d 1027 (Fla. 5th DCA 2007), and Massie v. Progressive Express Insurance Co., 25 So. 3d 584 (Fla. 1st DCA 2009), rev. dismissed, 32 So. 3d 60 (Fla. 2010), the Supreme Court of Florida likely will soon be presented with an opportunity to embrace yet another "Moranais moment" (i.e., to recognize that a well-intended, judicially created legal principle has gone awry and to take steps to wipe the slate clean), in the now equally chaotic landscape that marks the application of contingency risk multipliers to Florida personal injury protection (PIP) claims. (5) Thus far, as evidenced by, among other things, its repeated refusal to respond to certified questions from the Fifth and Third district courts of appeal, (6) the court has shied away from that admittedly delicate and controversial issue, in part perhaps because it could mean erasing 20 years of Florida jurisprudence, emanating from Florida Patient's Compensation Fund v. Rowe, 472 So. 2d 1145 (Fla. 1985) (wherein the court first recognized that courts could use a contingency risk multiplier in calculating the attorneys' fees awarded pursuant to a "fee-shifting" statute). (7)

However, based on the following arguments and authorities and the court's own decision in Sarkis v. Allstate Insurance Co., 863 So. 2d 210 (Fla. 2003), these authors respectfully submit that the time is long overdue for the court to acknowledge that, notwithstanding several post-Rowe rulings to the contrary, it never intended Rowe to vest trial or appellate courts with the authority to apply multipliers in awarding attorneys' fees, pursuant to statutes like F.S. [section]627.428, (8) which are designed to impose "penalties" on parties who do not prevail in litigation.

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The Evolution of Contingency Risk Multipliers

In Rowe, the Supreme Court of Florida first recognized that a contingency risk multiplier may be applied to attorneys' fees awarded pursuant to a "fee-shifting" statute. In Rowe, the plaintiff prevailed against a hospital in a medical malpractice action. The trial court, in turn, awarded the plaintiff its attorneys' fees, pursuant to F.S. [section]768.56, which expressly provides for an award of attorneys' fees to the prevailing party, irrespective of whether it is the plaintiff or defendant. (9) The defendant appealed claiming, inter alia, that the award constituted a "penalty," but the Second District Court of Appeal affirmed, as did the Supreme Court of Florida.

The Court began its analysis by noting that:

[T]he Florida Legislature has enacted more than seventy statutes authorizing the courts to award attorney fees in specific types of actions. These provisions fall into two general categories. In the first, statutes direct the courts to assess attorney fees against only one side of the litigation in certain types of actions. See, e.g., Section 627.428, Fla. Stat. (1983) (attorney fees assessed against insurer) .... The second category adopts the English rule, authorizing the prevailing party, whether plaintiff or defendant, to recover attorney fees from the opposing party [as does [section]768.56].(10)

The court went on to note that "prevailing party" attorneys' fee statutes, such as F.S. [section]768.56, do not assess a "penalty" against the nonprevailing party. (11) Instead, the prospect of an award of fees against either party imposes an equal burden on each party, which encourages the plaintiff "to consider carefully the likelihood of success before bringing an action, and similarly encourages a defendant to evaluate the same factor in determining how to proceed once an action is filed." (12)

After concluding that an award of attorneys' fees pursuant to F.S. [section]768.56 is not a "penalty," the court turned its attention to the proper method for calculating what constitutes a reasonable attorneys' fee in such a case. The court first noted that, consistent with The Florida Bar Code of Professional Responsibility, the fee award analysis must include consideration of 1) the time and labor required, the novelty and difficulty of the question involved, and the skill requisite to perform the legal service properly; 2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; 3) the fee customarily charged in the locality for similar legal services; 4) the amount involved and the results obtained; 5) the time limitations imposed by the client or by the circumstances; 6) the nature and length of the professional relationship with the client; 7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and 8) whether the fee is fixed or contingent. (13)

The court next adopted the federal lodestar approach, which, at the time, provided that, in awarding attorneys' fees, a trial court must 1) determine the number of hours reasonably expended on litigation; 2) determine a reasonable hourly rate for the services of the prevailing party's attorney; and 3) multiply these two numbers to produce a "lodestar." (14) Finally, the Rowe court held that, if the fee arrangement between the prevailing party and its attorney provided for a contingent fee, the trial court was permitted to apply a contingency risk multiplier of 1.5 to 3.0. (15) The court justified its recognition of a contingency risk multiplier, on the following grounds: "Because the attorney working under a contingent fee contract receives no compensation when his client does not prevail, he must charge a client more than the attorney who is guaranteed remuneration for his services." (16) In other words, "this factor was added to the lodestar formula to compensate attorneys who receive no fees if they do not prevail." (17)

The Post-Rowe Expansion of Contingency Risk Multipliers

Following Rowe, the court issued a series of opinions that expanded the application of contingency risk multipliers far beyond medical malpractice actions. For example, five years after Rowe, the court considered the application of a contingency risk multiplier to fees awarded against insurers pursuant to F.S. [section]627.428 in the companion cases of State Farm Fire & Casualty Co. v. Palma, 555 So. 2d 836 (Fla. 1990), and Standard Guaranty Insurance Co. v. Quanstrom, 555 So. 2d 828 (Fla. 1990), and held that trial courts could apply contingency risk multipliers in such cases because of the "risk of nonpayment." (18) Significantly, the court reached its conclusion: 1) notwithstanding the fact that, in the time since Rowe, federal courts questioned the viability of the lodestar approach pertaining to the application of a contingency risk multiplier; (19) and 2) without expressly considering the indisputable fact that, unlike the fee awarded in Rowe, a fee awarded pursuant to F.S. [section]627.428 is a penalty (i.e., it only allows a fee award in the event that the policyholder prevails in the litigation).

However, the court went on to modify the lodestar approach by 1) recognizing that there are three categories of cases in which a trial court can award attorneys' fees, the second of which is comprised of tort and contract cases, including actions against insurers; 2) reducing the maximum applicable multiplier from 3.0 to 2.5; and 3) holding that a multiplier was not mandatory (i.e., that a trial court has the discretion to refrain from applying a multiplier). (20) Finally, and perhaps most importantly, the court expressly limited the application of a contingency risk multiplier to those cases where its use is "consistent with the purpose of the fee-shifting...