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Category: Legislation / Politics

Attorney Fees Take a Hit Under New Florida Law

June 11, 2019

A recent Daily Business Review story by Rachel Lean, “Attorney Fees Take Hit Under New Florida Law,” reports that a new Florida law to curb alleged fraud by contractors could create collateral damage for lawyers by slashing attorney fees in insurance litigation — and all just in time for hurricane season.  Before May 23, contractors could enjoy a one-way attorney fee privilege.  It meant win or lose, they wouldn’t be liable for attorney fees if they sued an insurer to collect insurance benefits that homeowners had assigned to them in exchange for doing repairs.

Insurers, meanwhile, weren’t entitled to fees — until Florida Gov. Ron DeSantis signed House Bill 7065 into law.  The former David-and-Goliath-esque statute was designed to look out for the policyholder, considered to be at a disadvantage compared with high-powered insurance professionals with corporate counsel and significant funds in their arsenal.

But critics—led by pro-insurance groups—cried foul. They claimed the statute had exacerbated abuse through inflated repair costs and excessive lawsuits over assignment of benefits, or AOB, which were created to speed up repairs, shield consumers from exploitation and save them from having to chase claims.  Now, under the new law, homeowners can still use the one-way statute to file lawsuits against insurers, but they can’t transfer that right to contractors through AOB agreements—a provision that critics says disincentivizes contractor attorneys.  And there’s another change: The law includes a new formula for third-party cases to decide which side, if any, is entitled to attorney fees after a judgment.

‘No guard rails’

Tallahassee attorney Anna Cam Fentriss represents licensed contractors through the Florida Roofing and Sheet Metal Contractors Association and Florida’s Association of Roofing Professionals and was glad of the change.  Fentriss feels that while a homeowner, or “the little guy,” typically needs less risk in litigation against giant companies, there’s no reason contractors couldn’t duke it out.  “You’re transferring that benefit from an unsophisticated party to a sophisticated party, and that creates a type of imbalance that you absolutely should not have and shouldn’t encourage,” Fentriss said.

AOB is one avenue for third parties to collect payment from insurers, allowing them to legally stand in a policyholder’s shoes.  But Fentriss claims many of her members have never heard of AOB as it wasn’t widely used until a cottage industry emerged among water-damage restoration and roofing contractors.  “Some of these contractors out there, and sometimes with the help of attorneys, they really push it,” Fentriss said.  “And there’s nothing, no guard rails to stop them, as long as they have that one-way attorney fee, because they can put forth anything.”

Now, contractors might have to charge lower rates to homeowners or accept less money from insurers to avoid going to court and risking attorney fees.  Critics say by curbing attorney fee awards, the new law forces contractors to choose between doing quality work and chasing payments to stay afloat.  Tampa restoration contractor David Sweet, who regularly testifies as an expert witness in insurance suits, said many of the lawsuits end in judgments and settlements—a sign of their merit, Sweet suggests.

“When an insurance company tells you that they’re losing lots and lots of money in litigation expenses, what did they really just say?” he said.  “They’re actually losing almost all of their cases.”  But Liz Reynolds, regional vice president of state affairs for the National Association of Mutual Insurance Companies in the Southeast, says AOB litigation is so prevalent that some insurers first learn of claims only after they’re hit with contractor lawsuits.  That’s why Reynolds hopes the new legislation will reduce lawsuits in Florida, a nationwide outlier in attorney fee privileges, thanks to the former win-or-lose award provision for contractors.

“No other state has a one-way attorney fee statute, and assignment of benefits are being used in other states,” Reynolds said.  “Now you would have to have a more egregious situation to have the insurer pay the attorney fees for the assignee.”  But California attorney Edward Cross disagrees.  Cross has represented disaster-recovery and restoration contractors since 1997, and says he’s noticed an “unfriendly” environment for contractors “as the insurance industry and its partners grow increasingly aggressive in driving down prices.”

But even so, Cross, who doesn’t handle AOB cases in Florida, believes California has done well without a one-way attorney fee statute.  “I have always subscribed to the school of thought promoted by President George H.W. Bush— that the loser in litigation should pay the other side’s attorney fees,” he said.

Even more litigation?

But some observers aren’t sure the new law will have the desired effect.  In fact, some expect the opposite.  Policyholders attorney David Graham of David Graham Insurance Lawyers in Jacksonville, for instance, suspects the new attorney-fee provision could lead to even more litigation.  “I think, ultimately, any smart attorney is going to work around that by representing the policyholder directly,” Graham said.

But William Stander, who heads multiple insurance trade groups, including the Florida Property and Casualty Association, applauded the change.  Stander advocated for the rollback of one-way fees for vendors, particularly those doing water-damage mitigation, which created a cottage industry and what he said spawned “no-risk litigation” for contractors.  “They should have some skin in the game, and not be able to sue in the sense of throwing darts at a wall and hope something hits,” Stander said.

Whatever happens, contractor Ken Larsen said he’s tired of what he considers an unnecessarily adversarial industry when compared to the rest of the U.S. and the world.  “It is astounding to most others contractors in our industry in Australia, Europe and elsewhere,” Larsen said.  “Why on earth do we do battle like this on every insurance claim, to the point where it’s hard feelings and companies going broke?”

Texas Legislation Changes Fee-Shifting Provision in Dismissals

May 17, 2019

A recent Texas Lawyer story by Angela Morris, “Why Are Civil Defense Lawyers Thrilled the Texas House Passed This Bill?,” reports that, just as lawmakers are pushing to narrow Texas’ anti-SLAPP motion to dismiss, the Texas House also passed a bill that would sweeten the deal for civil defense attorneys to make more use of a different type of motion to dismiss.

Under current law, this motion, known as the “91a motion to dismiss” because it’s located in Texas Rules of Civil Procedure Rule 91a, allows attorneys to argue for the dismissal of a case that has no basis in law or fact.  There’s a mandatory loser-pays provision that says the prevailing party collects attorney fees from the losing party.  Defendants have not used the motion too frequently because they don’t want to risk paying attorney fees to plaintiffs if they lose a dismissal fight.

House Bill 3300, which the Texas House passed 136-5, proposes a small but significant tweak to the law.  In the loser-pays provision, it changes the word “shall” to “may,” which gives a judge discretion to decide to award fees.  The bill heads to the Senate where, in the final weeks of the session, it must get a public hearing in committee, pass committee and pass the full Senate.

Texas Lawyer asked attorneys on Twitter whether this legislation, if passed, might lead defendants to file 91a motions to dismiss more often.  Here are a handful of the tweets we got in reply, edited for style and grammar.

“Yes — no question. Loser-pays is the only disincentive to filing a 91a motion in every case.  And defendants often waive their fee recovery from plaintiffs because courts are more likely to grant 91a dismissal if it doesn’t require saddling plaintiffs with fees,” tweeted Anne Johnson, a partner in Haynes and Boone in Dallas.

“As things stand, TRCP 91a creates a sort of game of chicken: A lot of defendants will file the motion but then pull it down before it is heard, unless they are almost 100% confident they will prevail.  With mandatory fees, the risk of paying the other side money is just too high,” tweeted Christopher Kratovil, managing member of Dykema’s Dallas office.

“As someone who works more in federal court — where 12(b)(6) reigns — I’ve always thought 91[a]‘s mandatory fee-shifting was a big problem.  This would be helpful.  I suspect more plaintiff oriented folks strongly disagree,” tweeted Raffi Melkonian, a partner in Wright, Close & Barger in Houston.

“I’m against the mandatory fees provision.  The fees usually aren’t too high, but it still discourages the use of an otherwise valuable tool,” tweeted Jadd Masso, a member of Clark Hill Strasburger in Dallas.

“This is a welcome change, though the Rule 91a standard itself should be clarified and improved,” tweeted Lee Whitesell, an associate with Hogan Lovells in Houston.

Florida Legislation Changes Fee-Shifting Rule in Insurance Coverage

May 15, 2019

A recent Law 360 story by Jeff Sistruck, “4 Things Attys Need to Know About Fla’s ‘AOB’ Reform Bill,” reports that Florida Gov. Ron DeSantis gave the insurance industry cause for celebration when he said he would sign legislation aimed at curbing what carriers call an epidemic of abusive litigation by repair contractors seeking payment under property policies.  Here, Law360 breaks down four key provisions of the so-called Assignment of Benefits reform bill.

Fee-Shifting Switch

The bill passed by the Florida Legislature is expected to have a significant impact on long-standing insurance practices in the Sunshine State, where homeowners often assign their insurance benefits to contractors working on hurricane-damaged houses.  Once signed by the governor, it will take effect July 1.

In recent years, insurers have complained that some contractors have abused the Assignment of Benefits, or AOB, system by accepting assignments from policyholders and then performing excessive repairs or imposing inflated charges, leading to widespread coverage litigation.  Reform advocates have blamed that spike in litigation for increases in insurance premiums.  According to attorneys and experts interviewed by Law360, the surge in AOB actions was attributable in large part to Florida’s “one-way” attorney fee rule, which required an insurance company to pay an assignee’s costs to litigate a coverage suit, regardless of which side prevailed in court.

The new bill replaces that rule with a formula that allows for an award for either the assignee or the insurer — or neither — based on a comparison of a court’s judgment and pre-suit settlement offers.  That change doesn’t apply to policyholders who sue their insurers directly.  The formula for determining attorney fee awards compares the gap between the insurer's pre-suit settlement offer and the assignee's pre-suit demand, dubbed the "disputed amount," and the difference between the judgment obtained and the settlement offer.  If the difference is less than 25% of the disputed amount, the insurer is entitled to attorney fees.  If the difference is 25% to 49% of the disputed amount, neither party gets fees.  And if the difference is 50% or more, the assignee is entitled to a fee award.

Beth A. Vecchioli, senior director for government consulting at Carlton Fields, said the new fee shifting provision is an attempt to “level the playing field so everyone has skin in the game.”  “The current one-way attorney fee provision was always originally designed to help consumers who don't have the same financial resources as their insurers to go through litigation,” Vecchioli said.  “Once these assignments started popping up, though, the insurer was no longer in litigation against a consumer, but against another sophisticated commercial company.  It didn't seem fair or right that the insurance industry still had to deal with this one-way attorney fee provision in those situations."

However, Rob Friedman of Friedman PA, who represents policyholders, said that while the bill’s fee shifting provision applies only to contractors wielding AOBs, he is concerned that insurers may use their legislative success to try to curtail or eliminate the one-way fee rule in disputes with policyholders, too.  “[The one-way fee provision] has been one of the most important protections insurance consumers have under the law,” Friedman said.  “While this erosion of that protection is limited to assignment of benefits situations, I am concerned the industry is targeting the one-way fee provision more broadly.  This may be a slippery slope for the industry to push for doing away with that provision altogether or to erode it in other contexts as well."

Pre-suit Protocol

The new bill states that assignees must give insurance companies notice of intent to file a suit and cannot serve the insurer before it has a chance to make a coverage determination within the statutory time frame.  The insurer must respond within 10 days with a settlement offer or a demand for appraisal or other alternative dispute resolution.

Fred Karlinsky, co-chair of Greenberg Traurig LLP's insurance regulatory and transactions practice, said that in the past, some contractors have quickly filed suit before even giving insurers the chance to perform their own investigations.  “Under this legislation, we will hopefully avoid some of these 'gotcha'-type situations,” he said.  As Friedman sees it, though, the new raft of pre-suit requirements may discourage contractors, particularly smaller operations, from taking on repair jobs.  Companies will have to “lawyer up” at the outset of a job just to understand their rights and obligations under the AOB reform bill, he said.

“A small 'mom and pop' contractor isn't going to want to take on a $1,000 roof repair under an assignment of benefits if they have to hire a lawyer just to tell them what their rights and obligations are,” Friedman said.  “There are so many pitfalls in this statute that a contractor could wind up facing a coverage denial for violating any number of requirements."

Limiting AOBs

In another notable change, the bill opens the door for insurers to offer policies that cannot be assigned to a third party as long as they clearly provide notice to prospective policyholders of those restrictions and also offer assignable policies with the same coverage.  If an insurer opts to sell both types of policies, the restricted policy must cost less.  In addition, an insurer must notify its policyholders “at least annually” of the coverage options it is making available.

According to attorneys and experts, that provision provides clarity for the insurance industry, which had faced confusion about whether insurers can ever place restrictions on AOBs.  “This concept was originally developed by the [Florida] House under the theory that it is better for consumers to have more options than less,” said Vecchioli of Carlton Fields.  “They recognized that they couldn't completely restrict all assignments.  This is a smart, consumer choice-driven option, allowing insurers to offer both options."

Assessing the Impact

The new bill also contains a built-in mechanism for assessing the effectiveness of the AOB reforms.  Starting on Jan. 30, 2022, insurers must submit annual reports to Florida’s Office of Insurance Regulation accounting for each “residential and commercial property insurance claim” paid under an AOB agreement in the preceding year.

According to attorneys and experts, those numbers will give the Florida Legislature concrete information to decide whether additional measures are needed to further rein in abuses of the AOB system.  The true test of the legislation will come when the next major hurricane or other catastrophe hits the Sunshine State, yielding huge quantities of AOB-related claims data, sources said.  "We would welcome the Legislature continuing to monitor AOB fraud and making any changes they feel are appropriate,” Greenberg Traurig's Karlinsky said.

DOJ Opposes Attorney Fees in Dial Soap Class Action

May 10, 2019

A recent NLJ story by Nate Robson and Amanda Bronstad, “DOJ Opposes $3.8M in Legal Fees in Latest Swipe at Plaintiffs Bar,” reports that the U.S. Justice Department announced it is opposing a class action settlement in New Hampshire federal court that grants a $3.8 million attorney fee award to plaintiffs’ lawyers who alleged Dial overstated the ability of its antibacterial soap to kill germs.

The government said in a prepared statement that the fee award “would afford little value to consumers while handsomely compensating attorneys.”  The department’s opposition to the class action settlement was filed as a statement of interest by trial attorneys in the consumer protection branch, a component of the civil division.  The government argued that the settlement fund of $7.4 million fails to adequately compensate consumers and that the injunctive relief, in the form of changes to the soap’s ingredients, is “virtually worthless.”

“A class action settlement that affords little meaningful consumer benefit while rewarding attorneys with sizable fees is inappropriate,” said Assistant Attorney General Jody Hunt for the Department of Justice’s Civil Division.  “Congress intended to prevent these types of unbalanced settlements with the Class Action Fairness Act.”  A final approval hearing is set for May 29.  Plaintiffs attorney Lucy Karl of Shaheen & Gordon and Robert Miller, of Sheehan Phinney, who represents Dial, did not respond to requests for comment. Both are in New Hampshire.

The Trump-era Justice Department has ramped up efforts to weigh in on pending class actions under the Class Action Fairness Act.  In a separate class action settlement with Lenny & Larry’s, the department in February criticized the purported $3.5 million settlement, preliminarily approved Nov. 1, for giving $1.1 million in legal fees to plaintiffs attorneys, while class members received up to $50 in cash or $30 worth of cookies.  Separately, the DOJ also filed a Feb. 4 amicus brief challenging a settlement over allegedly defective Tristar pressure cookers that gave $2.3 million to plaintiffs attorneys and discount coupons to class members.  The Arizona Attorney General’s Office, joined by 17 other states, has petitioned the U.S. Court of Appeals for the Sixth Circuit to unravel that deal.

Plaintiffs in the soap case, In re: Dial Complete Marketing & Sales Practices Litig., alleged that The Dial Corp. falsely advertised its “Dial Complete” hand soaps containing triclosan as more effective at killing germs over other brands’ soap.  Under a proposed settlement reached between the parties, Dial would pay $2.32 million to class members, with most class members receiving up to $8.10 in compensation for previous purchases of certain soap products, according to the statement of interest.  The settlement also provides for injunctive relief that would require Dial to refrain from using triclosan or claiming that its hand wash product “Kills 99% of Germs.”

Under the agreement, class counsel would seek a total of $3.825 million in attorney’s fees without opposition from Dial, including $1.9 million in fees specifically tied to obtaining the injunctive relief.  In its Statement of Interest, the United States argues that the injunction would provide no benefit to consumers, given that Dial years ago voluntarily made the same changes to its soap products that are required by the proposed injunctive relief.  Moreover, the U.S. Food and Drug Administration banned the use of triclosan in such products in 2016.  The case is pending in U.S. District Court for the District of New Hampshire, which must approve any settlement.

The government also complained about the use of cy pres in the settlement.  Under the deal, any unclaimed funds would go to the Ronald McDonald House Charities or Children’s Health Fund.  A footnote in the Statement of Interest said a cy pres distribution is “very unlikely,” given the government’s communication with the parties.  The settlement had no objectors.

The case got attention in 2017 when Dial appealed class certification based on the plaintiffs’ inability to identify class members, particularly in cases where people don’t keep receipts, like consumer products.  The U.S. Court of Appeals for the First Circuit refused to take up the interlocutory appeal, but, in a dissent, Judge William Kayatta warned his colleagues that the court’s recent precedent over how class members could be identified was destined to result in “further mischief” that could challenge the constitutional rights of defendants.

Texas Legislation Would Limit Contingency Fee Contracts with Local Governments

April 8, 2019

A recent Texas Lawyer story by Angela Morris, “Bill Would Limit Some Attorney Contingency Fee Contracts with Local Governments,” reports that local governmental entities would have to follow a new procedure to hire contingent-fee plaintiffs law firms for cases involving engineering and architects under a bill that a Texas legislative committee passed.  Current law already restricts state agencies and departments from entering contingent-fee representations, and now the House Judiciary and Civil Jurisprudence Committee has passed a version of House Bill 2826, by Rep. Greg Bonnen, R-League City, that would make the procedure apply to governmental entities at the county and city level as well.

When the committee was considering the bill during a March 25 public hearing, a representative of the tort reform lobbying group, Texans for Lawsuit Reform, testified in support of the proposal along with seven other witnesses.  Meanwhile, testifying against the bill were two representatives of the plaintiffs attorney trade group Texas Trial Lawyers Association and five other witnesses.

The county- and city-level governmental entities, under the bill, would only be able to pick a contingent-fee lawyer or law firm if it was well qualified with demonstrated competence, qualifications and experience in the type of legal services at issue.  The governmental entity would have to negotiate for a fair and reasonable price.  It would be able to require the lawyer or firm to indemnify it from claims of acts or omissions of the lawyer, firm or firm employees.

Before hiring the lawyer or firm, the city or county officials involved would have to provide a notice for a public meeting to explain the reasons they wanted to pursue the legal matter for which they were hiring the lawyer or firm.  They’d have to explain their desired outcome, and explain why it was in the public’s best interests.  The notice would have to explain the lawyer’s competence, qualifications and experience in that type of matter.  Officials would have to reveal in the notice what relationship they had with the lawyer or firm, and how the relationship began.  They’d have to tell why they could not use their governmental entity’s own resources rather than hiring the outside contingent-fee law firm.  The officials would also have to say why they couldn’t get the same legal services from a lawyer charging an hourly fee, rather than a contingency.

When holding the public meeting regarding the contingent-fee representation, public officials would have to approve the contract in an open meeting where they considered the need for the legal services, terms of the contract, the lawyer’s or firm’s competence and experience, and why the contract served the public’s interest.  Once they approved the contract, officials would have to state in writing why they needed the legal services, why they couldn’t use their own resources for it, why they couldn’t hire an hourly rate lawyer for the job, and more.

Before the contract could become effective, the city or state governmental entity would have to submit it for review and approval by the Texas attorney general, along with documentation that it held a public meeting and officials approved it.  It would have to describe the matter and say whether the state or any other governmental entity may have an interest in the matter.  If the governmental entity had not followed the right procedure, the attorney general could refuse to approve the legal contract, and he could also disapprove if he found the matter was similar to a matter that the state was also pursuing, and the other governmental entity’s similar matter wouldn’t help resolve the dispute.  The bill lays out a 90-day deadline for the attorney general to make a decision, or else the contract would be considered approved.

When state governmental agencies or departments enter legal contracts, those lawyers or firms already have to reveal their time and expense records on request, and after the matter is resolved, they must provide a written statement about the outcome, recovery, the contingent-fee amount, final time and expense records and more.  The bill creates the same requirement for lawyers or firms representing city- or county-level governmental entities, and makes it clear that some of that information on time and expenses would be public records under the state’s open-records law, with some exceptions.

The bill places limits on expenses the contingent-fee lawyer and firm could collect from the city- or county-level governmental entity, with a requirement to ensure they’re reasonable and necessary, similar to limits in current law for state agencies or departments that contract with outside lawyers.  If a governmental entity didn’t follow the right procedures as laid out in the bill, then any legal services contract it improperly entered would be void under the bill, and it would be prohibited from paying any fees for work under the voided contract.