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The Eleventh Circuit Speaks Firmly on Calculating Attorneys’ Fees: Look to the Local Community and Mind Your Multipliers

In a previous post, we covered Sos v. State Farm Mutual Automobile Insurance and analyzed the pick-off exception under Eleventh and Fourth Circuit case law. No. 21-11769 (11th Cir. 2023)Sos involved another issue of significance: the calculation of attorneys’ fees, which is the subject of this blog post. Click here to read our previous post and catch up on the facts.

The District Court Fumbles the Ball in Calculating Attorneys’ Fees

After deciding the parties’ summary judgment motions, the U.S. District Court for the Middle District of Florida referred the calculation of attorneys’ fees to a magistrate judge. The magistrate judge recommended that the district court grant in part the amount of attorneys’ fees requested by the plaintiff, reducing the requested hourly rates. In turn, the district court adopted the magistrate’s recommendation in part, rejecting the rate reduction and applying a national market standard. 

On appeal, the Eleventh Circuit held that the district court abused its discretion as to attorneys’ fees. Additionally, the Eleventh Circuit concluded that the “federal lodestar approach,” applied by Florida law, should have been applied in this case. Under the federal lodestar approach, courts calculating attorneys’ fees must: (1) determine the number of hours the attorney(s) reasonably expended; (2) multiply that number by a reasonable hourly rate; and—where a contingency fee is at issue, such as in Sos—(3) consider whether to apply a multiplier. 

The Eleventh Circuit held that the district court appropriately determined the number of hours reasonably expended, but abused its discretion by applying “the wrong legal standard” in determining a reasonable hourly rate. Under Florida law, courts consider various factors to determine a reasonable hourly rate, the most critical of which is the “going rate” in the community, i.e., the prevailing market rate where the suit was filed. The district court departed from this standard, reasoning that a “national market standard” applied due to the specialized nature of commercial class action law. 

The Applicable Market:  Rooted in Geography, Not Practice

The district court purported to follow the Seventh Circuit, which stated in Jeffboat, LLC, v. Director, Office of Workers’ Compensation Programs, 553 F.3d 487, 490 (7th Cir. 2009), that the relevant community for calculating reasonable hourly rates may sometimes be “a community of practitioners” rather than the local market area, “particularly when . . . the subject matter of the litigation is one where the attorneys practicing it are highly specialized and the market for legal services in that area is a national market.”  Controlling law, however, tells a different story; as the Eleventh Circuit explained, Florida law provides that the community of the location in which the case was filed—in this case, Central Florida—is the only relevant community. 

Interestingly, as an additional factor in calculating reasonable hourly rates in Sos, the district court also considered the rates previously approved as reasonable for the same attorneys doing the same type of commercial class action litigation throughout the state of Florida and in the U.S. District Court for the Middle District of Florida.  That alone, the Eleventh Circuit concluded, was sufficient to warrant reversal because courts applying the federal lodestar method are prohibited from giving “controlling weight” to prior awards. Other circuit courts, the Second and Fourth Circuits among them, also follow this rule. See, e.g., E. Associated Coal Corp. v. Dir., Off. of Workers’ Comp. Programs, 724 F.3d 561, 573 (4th Cir. 2013); Farbotko v. Clinton County, 433 F.3d 204, 209 (2d Cir. 2005).

Choose Your Multipliers Wisely

The Eleventh Circuit also held that the district court abused its discretion in calculating the “maximum multiplier.”  Under Florida law, courts must consider three factors to determine whether to apply a contingency fee multiplier in an insurance contract dispute:  “(1) whether it is necessary to obtain competent counsel; (2) whether the attorney could mitigate the risk of nonpayment;” and (3) whether factors such as the novelty or difficulty of the question involved, time limitations incurred, and the experience and reputation of the attorney apply. The decision to apply a multiplier rests soundly in the trial court’s discretion—no showing of exceptional circumstances is necessary. If a court chooses to apply a multiplier, under Florida law it has three options:  (a) if success was more likely than not at the outset of the case, a multiplier of 1 to 1.5 is appropriate; (b) if the likelihood of success was approximately even at the outset, 1.5 to 2.0 is appropriate; (c) if success was unlikely at the outset, a multiplier of 2.0 to 2.5 is appropriate. 

The Eleventh Circuit concluded that the district court’s application of a multiplier was warranted because the case was novel and complex, the attorneys were likely to incur significant costs during the litigation, attorneys litigating in federal court are generally “unlikely to recover costs expended on expert testimony,” there was a high likelihood of no recovery, and “State Farm is known to be a voracious litigator with virtually unlimited resources.”  However, the district court erred in concluding that the maximum allowable multiplier of 2.5 was appropriate, because the record did not support a finding that success was unlikely at the outset of this case. 

The district court had concluded that success was unlikely because of State Farm’s “vigorous defense and intent to appeal,” the fact that plaintiff’s theory of liability had never been tested in the courts, and the “enormous outlay of capital, time and skill that advancing this theory . . . would require.”  The Eleventh Circuit reasoned that, although these factors would have warranted a conclusion that success was “not likely” at the outset, they were insufficient to conclude that success was unlikely. These circumstances were not unique, and thus nothing in this case warranted application of the extreme end of the multiplier spectrum.  Accordingly, the Eleventh Circuit reversed and remanded in part, with specific instructions to recalculate the award of attorneys’ fees.

The Fourth Circuit’s Multi-Factored Approach to Attorneys’ Fees 

If you cannot get enough of attorneys’ fees calculations, you can read our recent post addressing a Ninth Circuit’s decision explaining how to calculate attorneys’ fees, as well as a comparative discussion on the Fourth Circuit’s own standard, here. In a nutshell, the Fourth Circuit has endorsed a three-part standard for its own application of the lodestar approach. In re Lumber Liquidators, 27 F.4th 291, 303 (4th Cir. 2022).  First, the court applies a 12-factor analysis—which includes time and labor expended, attorney’s expectations at the outset of the litigation, and attorneys’ fees awards in similar cases—to determine reasonable hours and rates.  Next, the court subtracts fees for hours spent on unsuccessful claims. Finally, the court awards a percentage of the remainder based on the degree of success for the plaintiff.

Courts employing the lodestar method are allowed—though not required—to use the percentage-of-recovery method as a check, and vice versa. However, at least as recently as 2022, the Fourth Circuit has rejected a hard-and-fast rule to determine when a percentage becomes unreasonable.

Conclusion

Although you may not need an advanced degree in mathematics to calculate attorneys’ fees, the Eleventh Circuit has reiterated that, under a federal lodestar approach, getting your numbers right—and digging in on the applicable factors under governing law—is key. In Sos, the district court did not err in concluding that an award of attorneys’ fees was warranted, but it abused its discretion in calculating them; it should have applied the market standard of the location of the suit, and should have been more careful in applying a multiplier. From the defense attorney perspective, Sos serves as yet another reminder of the hurdles practitioners may face when a court rules for them to pay up.

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December 13, 2023 Chelsea Pieroni Christopher Rhodes Jr.
Posted in  Class Action Basics