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Attorney fee rulings set to alter execution, costs of comp cases

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A long-standing principle governing workers compensation cases provides access to an attorney who will help the injured worker litigate the case efficiently and capably. To give attorneys incentive to take on such cases and to ease the burden on an injured worker to find a capable attorney, attorneys receive their fees from the worker's damage award. Jim Woods and Jeyshree Ramachandran of Mayer Brown L.L.P. discuss states' attorney fee schedules and their effect on these comp cases.

Listen to Mr. Woods weigh in here:

Many states, including Florida and Utah, have implemented mandatory schedules for how attorneys' fees should be awarded in workers compensation cases. Courts in these states, however, recently struck down the schedules. The Florida court ruled the statute was unconstitutional for denying due process by precluding consideration of whether a fee award is reasonable to compensate the attorney. The Utah court also held its mandatory fee schedule unconstitutional, ruling, in part, that it impaired workers' access to capable attorneys. The Florida case and the reasoning from the Utah case, which mirrors the analysis of the Florida court, are set forth below.

Florida

On April 28, the Supreme Court of Florida held in Marvin Castellanos v. Next Door Co. et. al. that the statute mandating a conclusive attorney fee schedule for workers compensation claims was unconstitutional. It remanded the case to the judge of compensation claims for the entry of a reasonable attorney's fee.

The statute allows for the payment of attorney's fees according to a set schedule:

Any fee approved by a judge must be equal to 20% of the first $5,000 of the benefits secured, 15% of the next $5,000 benefits secured, 10% of the remaining amount secured to be paid during the first 10 years after the date the claim is filed, and 5% after 10 years. The judge of compensation claims cannot approve any amount in excess of that permitted by Section 440.34 of the statute.

That goes to the heart of the case. Marvin Castellanos was injured while working at Next Door and won his workers compensation suit. But because of Section 440.34 limits, Castellanos' lawyer received only $1.53 per hour for 107.2 hours of work.

The JCC found that it was “highly unlikely that (Castellanos) could have succeeded and obtained the favorable result he did without the assistance of capable counsel.” Bound by the fee schedule, the judge found that Castellanos could recover only $164.54 in attorney's fees, despite calling the result “absurd” and saying “lawyers can't work for $1.30 an hour.”

In striking down the law, the majority opinion of the Supreme Court of Florida notes that the right to a reasonable attorney's fee when successful “has been considered a critical feature of the workers compensation law since 1941.” Section 440.34, however, “does not allow for any consideration of whether the fee is reasonable or any way for the JCC or the judiciary on review to alter the fee.”

The court held that while the schedule does standardize fees (a purpose behind Section 440.34), it disregards the time and effort expended by an attorney. Further, any worry the Florida Legislature had regarding excessive fee awards when enacting the schedule is mitigated by other provisions. For example, time and labor required, the complexity of the case and the skills required to competently render legal service are all considered when deciding whether a fee award is reasonable.

Further the court held that there is no reasonable basis to assume that the conclusive fee schedule prevents excessive fees. After all, it does not adjust fees downward where the recovery is high.

And the court held that individual determinations can be made, but the imprecision of Section 440.34's fee schedule prevented the lower courts from doing anything about the unreasonableness of the resulting fee.

Utah

On May 18, 2016, the Utah Supreme Court in Injured Workers Association of Utah, et al. v. State of Utah, invalidated an attorney fee schedule law. Similar to the Florida law, the Utah regulation dictated that attorneys representing injured workers in compensation claims receive their fees out of the worker's award. Specifically, the regulation provided that attorneys may be granted a fee of 25% for the first $25,000 awarded to the worker, 20% for the next $25,000 and 10% of the amount awarded in excess of $50,000. Fees were capped at $18,590, with some exceptions.

As in Florida, the Utah Supreme Court focused on the policy reasons in invalidating the fee schedule. It reasoned that the fee schedule failed to protect “unsophisticated litigants with limited bargaining power.” Because of the fee schedule, “many attorneys are economically unable or unwilling to take on injured workers' cases.” Indeed, the Utah Supreme Court found that affected the “quantity” as well as “quality” of lawyers willing to take the cases. The court indicated its hope that “the absence of a fee schedule will allow injured workers the flexibility to negotiate appropriate fees with their attorneys” — simple cases could be covered by a small fee, with more complex cases garnering a larger fee.

Consequences

As a result of these decisions in Florida and Utah, employers will likely see costs to litigate workers compensation claims rise. Employers should remain vigilant in how these cases are applied and how they affect future legislative actions.

Others see these cases as a win for claimants and their lawyers. The hope is that claimants will have more access to attorneys, because the attorneys will be compensated in a more “reasonable” manner for their work.

There is a worry that attorneys may take advantage of unsophisticated injured workers and misuse superior bargaining power to obtain higher fees. After all, it may be difficult for a worker to know whether the case is a simple or complex. The Utah Supreme Court advised that the attorneys remember they are bound by the rules of professional conduct to mitigate fears they will prey “upon unsophisticated injured workers.” It remains to be seen how the new frameworks in Florida and Utah will operate on the ground.

Jim Woods is a partner at Mayer Brown L.L.P. in New York. Contact him at 212-506-2390 or jrwoods@mayerbrown.com.

Jeyshree Ramachandran is an associate at Mayer Brown L.L.P. in Palo Alto, California. Contact her at 650-331-2049 or jramachandran@mayerbrown.com.