Litigating the amount of attorneys' fees.

A Proposal for Reform

One of the most contentious battles that accompanies litigation is the determination of the amount of attorneys' fees to be awarded to a prevailing party who has proven entitlement to fees.(1) Prevailing parties are generally authorized to recover fees expended for successfully litigating the entitlement issue. Attorneys' fees incurred to establish the amount of fees, however, generally are not recoverable.(2) Beyond the sometimes difficult issue of separating fees incurred for proving "entitlement to" versus the "amount of" attorneys' fees,(3) the determination of the amount of fees--particularly in large and protracted cases--can easily become a "mini-trial" whose expense rapidly escalates and imposes additional burdens on the parties and an already strained judiciary. For this reason, methods for avoiding such litigation should be considered.

This article proposes a simple procedural tool to encourage resolution of disputes over the amount of attorneys' fees: the offer of judgment. The premise of the proposal is straightforward. Attorneys' fees incurred for establishing the amount of fees should be recoverable if the party seeking recovery has made a reasonable offer that was rejected. The prevailing party, who is in the best position to determine the amount of fees actually incurred, should be required to make an offer with supporting documentation. The nonprevailing party must either accept or reject the offer. If properly structured, this type of offer encourages settlement of disputed claims and shifts the risk of fees to parties who are unwilling to enter reasonable settlements.

In general, litigants have no entitlement to recover attorneys' fees expended in establishing the amount of attorneys' fees except in certain circumstances.(4) The caselaw, which holds that fees for proving the amount of fees are nonrecoverable, is based on the American Rule that parties bear their own attorneys' fees, unless authorized by statute or contract.(5) The caselaw also is based on the proposition that fees incurred for proving entitlement benefit the client, while fees incurred for proving the amount of fees are for the attorney's benefit.(6) Courts typically have made this distinction where the language of a contractual or statutory fee-shifting provision is phrased in such a way that it can be interpreted in this limited manner.(7) This distinction, however, is somewhat artificial because clients clearly have a keen interest in the amount of fees that ultimately are recoverable. Nonetheless, courts are unwilling to permit recovery absent specific statutory language authorizing recovery or a clear showing that the client is contractually obligated for such fees.(8)

Due to the general unavailability of recovery for establishing the amount of fees, an offer of judgment provides a mechanism and an incentive for resolving such disputes. Without a means of shifting the economic costs of litigating fee-amount disputes to opponents, parties are limited to traditional means of dispute resolution, which increasingly means burdensome and wasteful mini-trials. An offer of judgment would provide an additional, and perhaps highly effective, means not only of encouraging the parties to initiate settlement discussions, but also to narrow the focus of negotiations that ordinarily occur.

An offer of judgment for attorneys' fees has a significant potential for success for a number of reasons. First, unlike situations in which offers of judgment are made prior to trial when liability is uncertain, offers of judgment for attorneys' fees will arise only when the issues of liability and entitlement to fees have been decided and are certain. Because entitlement to attorneys' fees is already established, the remaining question is the amount of the attorneys' fees award. In other words, the prevailing party is only concerned with risks about the amount of attorneys' fees to be awarded. As such, the incentive to settle will be correspondingly greater because of the certainty that the court will enter a fee award in some amount.

Second, offers of judgment generally are more effective when the expected cost of litigation is proportionate with the amount of recovery at stake. If the costs of litigation and the anticipated recovery are about the same, a greater incentive to settle exists than if the possible recovery far exceeds litigation expenses. In other words, litigation costs become less significant as the magnitude of the overall expected recovery of litigation increases. For instance, a party seeking to recovery $10,000 in attorneys' fees (but having to incur $10,000 in attorneys' fees in doing so) typically will have a greater incentive to settle than if the amount of recovery is expected to be $100,000. Because many, if not most, disputes over the amount of attorneys' fees will involve the former situations, the availability of an offer of judgment should promote settlement to a great degree.

The manner in which offers of judgment for attorneys' fees can be made is a policy choice that can be designed in many ways. The timing of offers, the number of offers permitted, and the documentation to accompany offers are all open for discussion and study. In addition, the comparison between the amount of the offer with the actual amount awarded can be structured according to numerous methodologies and formulae.

With these caveats in mind, the following proposal provides a starting point for further discussion. The authors propose a "shotgun" offer, which requires the prevailing party to make a single, "take it or leave it" offer that the nonprevailing party must accept or reject. No counter-offer is permitted. The proposal, which could be adopted as either a statute or rule,(9) states: 768.79(9). Offer of Judgment for Attorneys' Fees.

A. A party who is entitled to an award of attorneys' fees may serve upon the opposing party an offer of judgment for the amount of attorneys' fees sought. The offer shall be served no later than fifteen (15) days from the date of the order or ruling determining entitlement to fees.

B. The offer of judgment for attorneys' fees shall:

1. be in writing and name the party or parties making the proposal and the party or parties to whom the offer is being made;

2. state the total amount of attorneys' fees sought for prevailing on the merits of the case, which shall not include any attorneys' fees for litigating either (i) the issue of entitlement to attorneys' fees or (ii) the amount of attorneys' fees;

3. include the time records relied upon for the amount sought, including (i) a detailed statement of services rendered by date and the nature of the services performed, and (ii) time spent performing such services, excluding any time spent on litigating the issue of entitlement to attorneys' fees;

4. include any written fee arrangement between the attorney seeking fees and the client.

C. The offer of judgment for attorneys' fees shall be served on the party or parties to whom it is made but shall not be filed unless necessary to enforce the provisions of this section.

D. A party's offer of judgment shall be deemed rejected unless accepted by delivery of a written notice of acceptance within thirty (30) days after service of the offer. During this time period, expedited discovery regarding the amount of attorneys' fees sought shall be permitted subject to court order. Upon filing of the offer and acceptance, the court has full jurisdiction to enter and enforce the attorneys' fees award.

E. If no offer of judgment for attorneys' fees has been accepted prior to a hearing on attorneys' fees, the court shall take and consider evidence during the hearing on the amount of attorneys fees incurred by the offeror(s) in litigating the amount of attorneys' fees.

F. If an offer of judgment for attorneys' fees is rejected, one of the following provisions shall apply:

1. If the amount of attorneys' fees awarded is equal to or exceeds the amount stated in the offer of judgment of the party entitled to an award of attorneys' fees, the party permitted to recover attorneys' fees is entitled to an award of its reasonable attorneys' fees for litigating both (i) the issue of entitlement to attorneys' fees and (ii) the amount of attorneys' fees.

2. If the amount of attorneys' fees awarded is less than the amount stated in the offer of judgment of the party permitted to recover attorneys' fees, that party shall not be entitled to an award of its reasonable attorneys' fees for litigating any issue of attorneys' fees, including entitlement or amount.

G. The trial court shall enter a single order that sets forth the total attorneys' fees award. The award shall separate and specify the amount of attorneys' fees awarded on the merits of the case from the amount for litigating the issue of attorneys' fees.(10)

H. This subsection shall apply to any case where attorneys' fees are awarded by contract, statute, or common law.

This proposed offer of judgment for attorneys' fees incorporates portions of, and seeks to be consistent with, the provisions of Rule 1.442, Florida Rules of Civil Procedure (except for certain timing issues). In 1996, the Florida Supreme Court amended this rule, now entitled "Proposals for Settlement," to set forth the procedural requirements for any proposals to settle authorized under Florida law.(11) Among other requirements, the rule requires that a written proposal state the total amount of the proposal and whether the proposal includes attorneys' fees (or whether attorneys' fees are part of the legal claim).(12)

The best way to explain the proposed statute's operation is through three examples. Suppose Mr. Bono has prevailed against Mr. Edge in a breach of contract action. Pursuant to a provision in the contract at issue, Mr. Bono is entitled to an award of attorneys' fees incurred in the litigation. Within the time limits of the proposed statute, Mr. Bono serves an offer of judgment for attorneys' fees in the amount of $10,000. Mr. Edge rejects the offer. Each party incurs $500 in litigating entitlement to attorneys' fees issue and $2,500 in litigating the amount of attorneys' fees. At the hearing, the trial court considers evidence of Mr. Bono's attorneys' fees on the merits.

Suppose the court awards Mr. Bono $11,000 in attorneys' fees pursuant to the contract solely on the merits of the case. Under the proposed statute (or rule), Mr. Bono also is entitled to his reasonable attorneys' fees incurred in proving entitlement to fees ($500) and proving the amount of fees (which is $2,500) (a total of $3,000) because the award is greater than Mr. Bono's offer of $10,000. The trial court then enters a total attorneys' fee award of $14,000 for Mr. Bono. To assist appellate review, the court must specify that $11,000 of this amount is for contractual attorneys' fees and $3,000 is pursuant to the offer of judgment statute for attorneys' fees incurred in litigating the issue of attorneys' fees.

As a second example, suppose the court awards Mr. Bono $4,000 in attorneys' fees pursuant to the contract. In this case, under the proposed statute Mr. Bono recovers only $4,000 in attorneys' fees. He is not entitled to any attorneys' fees for litigating either entitlement to attorneys' fees ($500) or the amount of attorneys' fees ($2,500). As such, the trial court enters a total attorneys' fee award of $4,000 for Mr. Bono and $0 for litigating the issue of attorneys' fees. To assist appellate review, the court must specify that the entire $4,000 is for contractual attorneys' fees for Mr. Bono.

As a third example, Mr. Edge accepts the $10,000 offer. Under Florida law, Mr. Bono will recover $500 for litigating the issue of entitlement to attorneys' fees. Mr. Bono, however, will not be entitled to recover any additional attorneys' fees for litigating the amount of attorneys' fees.

As these examples demonstrate, the risk of shifting attorneys' fees to those who reject reasonable offers of judgments can be significant. In the first example, if Mr. Edge had accepted Mr. Bono's offer, his out-of pocket expense would have been $10,000. Instead, by rejecting Mr. Bono's offer, Mr. Edge ultimately incurred out-of-pocket expense of $17,000 (i.e., the $14,000 award to Mr. Bono plus his own attorneys' fees of $3,000). In the second example, Mr. Bono only recovers $4,000 for attorneys' fees for prevailing on the merits of the case. If his offer had been more reasonable, Mr. Bono might have been entitled to an additional $3,000 ($500 for demonstrating entitlement plus $2,500 for proving the amount) for having litigated the issue of attorneys' fees.

Because the proposal can significantly alter the net economic outcomes of attorneys' fees litigation, it should encourage and foster more settlements (and make litigants more attentive to the expense of such litigation). The proposed statute will, of course, raise some issues that ultimately may require litigation or legislative clarification to resolve. As mentioned, the authors' proposal is simply one of many variations that are possible. Additional study may be necessary to determine which of the competing approaches best serves the goal of promoting cost-efficient settlements in attorneys' fees disputes.

Another issue is the extent of discovery to be permitted. In order to avoid another round of evidence on the issue of attorneys' fees, trial courts may require significant discretion to structure hearings on attorneys' fees to avert or severely limit any post-hearing evidentiary or legal submissions. This discretion may require that litigants provide time records at the hearing for work performed through the date of the hearing itself and make proffers of estimated attorney time expended on the day of the hearing. The trial court, alternatively, may ask the parties to submit affidavits and counter-affidavits as to the amounts of such fees. Other issues not currently foreseen may arise, and each should be resolved with the goal of the proposal in mind: to promote settlement and severely restrict the breadth and expense of attorneys' fees litigation.

In conclusion, an offer of judgment for attorneys' fees is a potentially worthwhile tool for reducing the oftentimes wasteful and burdensome litigation over the amount of fees. The Florida Legislature should consider enactment of an amendment to the Florida Statutes that will enable a party to make these types of offers and potentially shift the risk of litigation expense to opposing parties.

(1) See generally Marguerite H. Davis & Judge James C. Hauser, May a Prevailing Party Recover Attorney's Fees for Litigating the Issue of Attorney's Fees? A Plea for Uniformity, 64 FLA. B.J. 33 (April 1990) (discussing inconsistent rulings and posing scenario of "obstreperous" fees hearing).

(2) State Farm Fire & Cas. Co. v. Palina, 629 So. 2d 830 (Fla. 1993); Chrittenden Orange Blossom Fruit v. Stone, 514 So. 2d 351,353 (Fla. 1987) (analysis of workers' compensation statute).

(3) Palma, 629 So. 2d at 833.

(4) See, e.g., Palma, 629 So. 2d 830 (Fla. 1993); see generally JAMES C. HAUSER, ATTORNEY'S FEES IN FLORIDA, Ch. 7 (2d Ed. 1999) (Chapter on "Calculating Attorneys' Fees"). A few statutes permit the recovery of attorneys' fees for litigating the amount of attorneys' fees. See, e.g., FLA. STAT. [sections] 112.317(8) (1998) (person who files false complaint with malicious intent to injury reputation of public officer or employee is liable for costs and fees "including the costs and fees incurred in proving entitlement to and the amount of costs and fees."); see generally ATTORNEY'S FEES IN FLORIDA, supra, Ch. 7, Subsection XI (discussion of "Attorney's Fees For Litigating The Issue of Attorney's Fees").

(5) Palina, 629 So. 2d at 832 (citing Florida Patient's Compensation Fund v. Rowe, 472 So. 2d 1145, 1148 (Fla. 1985), modified, Standard Guar. Inc. Co. v. Quanstrom, 555 So. 2d 828 (Fla. 1990)).

(6) Palma, 629 So. 2d at 833; Chrittenden Orange Blossom Fruit, 514 So. 2d at 353; Seminole County v. Butler, 676 So. 2d 451 (Fla. 5th D.C.A. 1996) (eminent domain statute). Under federal law, attorneys' fees for litigating the issue of fees are permitted under the lodestar approach. See, e.g., King v. McCord, 707 F.2d 466,468 (11th Cir. 1983) ("The court properly allowed the hours spent seeking attorney's fees."); Johnson v. State of Mississippi, 606 F.2d 635, 638 (5th Cir. 1979) ("We conclude that attorney's fees may be awarded for the time spent litigating the fee claim."); see generally JAMES C. HAUSER, ATTORNEY'S FEES IN FLORIDA Ch. 7, at 104 (2d Ed. 1999) ("Virtually every federal court that has employed the loadstar method of awarding attorney's fees has permitted attorney's fees for litigating the issues of both entitlement and amount of attorney's fees.") (bold in original; footnote omitted).

(7) For instance, the majority in Palma held that the language of the statute at issue, [sections]627.428(1) (1983), reflected a legislative policy of deterring insurers from contesting valid claims. 629 So. 2d at 833. This policy supported the award of fees for establishing entitlement to fees, but not for the amount of fees. Id. The majority indicated that expanding recovery to fees incurred in proving the amount of fees was a legislative rather than judicial task. Id. Similarly, the majority in Chrittenden held that because the "workers' compensation law places primary responsibility for claimant's attorney's fees on the claimant[,]" fees incurred in proving entitlement to--but not the amount of--attorney's fees are recoverable. 514 So. 2d at 351.

(8) See generally Davis & Hauser, supra note 1 (discussing then-existing state of the caselaw). For example, a factual issue may be whether the client has a financial obligation for the extra effort entailed in establishing the amount of fees. See, e.g., Pirretti v. Dean Witter Reynolds, Inc., 578 So. 2d 474 (Fla. 4th D.C.A. 1991) (upholding award of attorneys' fees for establishing amount of fees under securities law statute providing for award of fees unless it finds such an award to be "unjust"). As a practical matter, contractual provisions for attorneys' fees could easily make this distinction academic by explicitly providing that prevailing parties are entitled to attorneys' fees for litigating the amount of such fees.

(9) The authors have chosen to draft the proposal as a statutory revision to FLA. STAT. [sections]768.79. The proposal could also be designated as a new rule, Rule 1.443, Florida Rules of Civil Procedure.

(10) In the appendix, the authors have prepared a proposed order for instances in which a prevailing party makes an offer of judgment that is rejected.

(11) In re: Amend. to Fla. Rules of Civ. Proc., 682 So. 2d 105 (Fla. 1996).

(12) Id. at 125.

APPENDIX

Order on [Prevailing Party's] Motion For Taxation of Costs and Attorneys' Fees

THIS CAUSE is before the Court on the [prevailing party's] Motion for Taxation of Costs and Attorneys' Fees. The Court has previously ruled that [prevailing party] is the prevailing party in this action. As such, [prevailing party] is entitled to an award of taxable costs under [the parties' contract/sections 57.041 & -.071, Florida Statutes], reasonable attorneys' fees and costs under [contract/ statute/common law], [and] [legal assistant expense under [section 57.104, Florida Statutes].

The Court has subsequently reviewed the parties' evidentiary submissions regarding the amount of costs and fees, and heard argument of counsel and testimony. [Prevailing party] made an offer of judgment pursuant to section 768.79(9), Florida Statutes, in the amount of $--, which [the non-prevailing party] did not accept. [insert additional findings supporting award and amount of costs and fees as required by law]

Based upon the foregoing, it is therefore Ordered and Adjudged:

1. [Prevailing party] is entitled to $-- in attorneys' fees for prevailing on the merits.

2. [Prevailing party] is entitled to $-- in attorneys' fees for litigating the issue of attorneys' fees.

3. [Prevailing party] is entitled to $-- in total taxable costs.

[4. [Prevailing party] is entitled to $-- in legal assistant expense.]

5. The Court will enter a final judgment of costs and attorneys' fees by separate order.

Done and Ordered in Chambers, [City], [ County], Florida, this -- day of --, 20 --.

Judge

Judge James C. Hauser graduated from the Wharton School of Finance, University of Pennsylvania in 1970 and from Boston University Law School in 1973. He was appointed to the county bench in 1980 and became a circuit judge for the Ninth Judicial Circuit in 1990, where he presently sits on the family bench.

Scott D. Makar is a partner in the Jacksonville office of Holland & Knight. His practice includes trial and appellate litigation, and administrative and legislative matters. He received his J.D., M.A. and Ph.D. in economics, and M.B.A. in finance from the University of Florida.