STATUTORY ATTORNEY’S FEES AND CONTINGENCY ENHANCEMENTS (Philadelphia Federal)

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The case at hand did not involve statutory bad faith, but relied on one of the Third Circuit’s leading bad faith cases, Polselli v. Nationwide Fire Insurance Company, for guidance on the issue of determining statutory attorney fee enhancements. Judge Kearney provides a good summary of Polselli’s key points.

[We are only highlighting Polselli in this post, and refer the reader to Judge Kearney’s general discussion on fee enhancement criteria as set forth in his opinion, which can be found here.]

First, Judge Kearney defined the meaning of the words being analyzed and the fees at issue:

“In a statutory fee shifting case, the attorney’s recovery is contingent on a court awarding its reasonable hourly fees (a lodestar) only if the [plaintiff] succeeds; but, a contingency could also mean a percentage of the total recovery awarded … regardless of the invested time. As we would not compare the lodestar to a percentage fee in this context and [plaintiff’s counsel] swears the lawyers kept regular time records and the firm generates approximately $500,000 annually in hourly billings, we presume [plaintiff’s counsel’s] use of the term ‘straight contingency fee’ means the lodestar awarded today — and it is not also asking [plaintiff] to pay a ‘straight contingency’ on the total recovery.”

The issue in Polselli was “whether, and under what circumstances, a court may enhance a fee under Pennsylvania law to reflect the contingent risk of nonpayment assumed by the plaintiff’s attorney in accepting the case on a contingent-fee basis.”

The Third Circuit stated the following:

  1. A contingency fee enhancement does not apply in every case.

  2. A trial court can “enhance the lodestar amount to account for a particular case’s contingent risk only to the extent that those factors creating the risk are not already taken into account when calculating the lodestar amount.”

  3. Trial courts must “’exercise caution’ in considering an enhancement ‘so as not to skew the calculation of a reasonable rate by double counting’”.

[By way of example, “if the complexity of a case is reflected in the high number of hours researching the complex issues or in the relatively high regular hourly rate of the attorney, complexity does not justify a contingency enhancement.”]

  1. The trial court must consider “’whether the attorney was able to mitigate the risk of nonpayment….’”

[By way of example, “an attorney who enters into a contingency fee agreement ‘has significantly mitigated the continued risk’ because the attorney ‘obtains the prospect of compensation under the agreement substantially in excess of the lodestar amount.’”]

  1. Trial judges “must not … deviate from [their] ultimate responsibility — the calculation of a ‘reasonable’ fee.”

In sum, “[t]o the extent factors creating a contingent risk in a particular case are mitigated or already taken into account when calculating the lodestar amount, a contingency enhancement is not reasonable and should not be awarded.”

Date of Decision: February 25, 2019

Middlebrooks v. Teva Pharms. USA, Inc., U. S, District Court Eastern District of Pennsylvania CIVIL ACTION NO. 17-412, 2019 U.S. Dist. LEXIS 30530, 2019 WL 936645 (E.D. Pa. Feb. 25, 2019) (Kearney, J.)

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