Court Opinion

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Opinions of the United
1997 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

9-30-1997

Polselli v. Nationwide Mutl Fire
Precedential or Non-Precedential:

Docket
96-1107

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Recommended Citation
"Polselli v. Nationwide Mutl Fire" (1997). 1997 Decisions. Paper 234.
http://digitalcommons.law.villanova.edu/thirdcircuit_1997/234

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Filed September 30, 1997

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 96-1107

REGINA POLSELLI; RUDOLPH R. POLSELLI,
       (Intervenor-Plaintiff in D.C.)

v.

NATIONWIDE MUTUAL FIRE INSURANCE COMPANY
       Regina Polselli,
       Appellant

Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 91-cv-01365)

Argued
February 7, 1997

Before: STAPLETON and MANSMANN, Circuit Judges
and RESTANI, Judge.*

(Filed September 30, 1997)

       Harry P. Begier, Jr., Esquire
        (ARGUED)
       Harry P. Begier, Jr., Ltd.
       1650 Market Street
       One Liberty Place, 50th Floor
       Philadelphia, PA 19103

        Counsel for Appellant
_________________________________________________________________

*Honorable Jane A. Restani, Judge, United States Court of International
Trade, sitting by designation.

       R. Bruce Morrison, Esquire
        (ARGUED)
       Marshall, Dennehey, Warner,
        Coleman & Goggin
       1845 Walnut Street
       Philadelphia, PA 19103

        Counsel for Appellee
OPINION OF THE COURT

MANSMANN, Circuit Judge.

In this case of first impression, we must decide whether
a plaintiff who prevails on a claim for bad faith conduct,
pursuant to 42 Pa. Cons. Stat. Ann. S 8371, may recover
attorney's fees against an insurer for time spent
prosecuting the bad faith claim itself, in addition to those
fees attributable to prosecuting the underlying insurance
contract claim, under section 8371(3). We conclude that
such fees may be assessed.

We are also faced with the issue of 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. We conclude
that a court may enhance a fee in such circumstances, but
only to the extent that the enhancement (1) reflects the
contingent risk of the particular case and (2) is not based
on factors already considered in calculating the lodestar
amount.

We will reverse the judgment of the district court in part
and will remand for further proceedings.

I.

After a fire destroyed her home,   Regina Polselli sued
Nationwide Mutual Fire Insurance   Company for benefits
due under her insurance contract   with Nationwide and for
damages under 42 Pa. Cons. Stat.   Ann. S 8371 for

                                2

Nationwide's alleged bad faith in handling her claims.1 On
the day of trial, the parties settled Polselli's contract claims
for building loss, personalty loss, and additional living
expenses. The court conducted a bench trial on the bad
faith claim, the only remaining claim.

The court found, by a preponderance of the evidence,
that Nationwide had acted in bad faith with respect to
Polselli's personalty and living expense claims and awarded
$90,000 in punitive damages. Polselli v. Nationwide Mut.
Fire Ins. Co., No. CIV.A.91-1365, 1992 WL 247271 (E.D. Pa.
Sept. 23, 1992). The court did not assess attorney's fees at
that time, or upon motion for reconsideration, because
Polselli had not presented evidence at trial to establish a
reasonable assessment. Id., 1992 WL 247271, at *8; Polselli
v. Nationwide Mut. Fire Ins. Co., No. CIV.A.91-1365, 1993
WL 137376, at *1 (E.D. Pa. Apr. 30, 1993).

Polselli subsequently filed a Motion to Assess Costs and
Attorney's Fees accompanied by a verified statement signed
by Polselli's counsel, Harry P. Begier, Jr. After an
evidentiary hearing, the court assessed costs and attorney's
fees against Nationwide. Polselli v. Nationwide Mut. Fire Ins.
Co., No. CIV.A.91-1365, 1993 WL 479050 (E.D. Pa. Nov. 12,
1993). Begier submitted a list of billable hours totaling
346.9 hours, and Nationwide did not dispute the
reasonableness of this claim. Id., 1993 WL 479050, at *4.
The court determined that Begier's regular hourly rate was
$300. The court thus calculated the "lodestar" amount to
be $104,070 ($300 per hour multiplied by 346.9 hours).
Finding the case to be unique in that it was based upon the
"relatively new" Pennsylvania bad faith statute, the court
concluded that Begier faced a "substantial risk of a minimal
recovery and [an] extensive number of hours risked . . .
with no guarantee of remuneration." Id. Citing what it
called the "closely analogous" provisions of Pa. Stat. Ann.
tit. 41, S 503, which permit a court to enhance a fee award
_________________________________________________________________

1. The district court had diversity jurisdiction pursuant to 28 U.S.C.
S 1332. A federal court exercising diversity jurisdiction must apply the
substantive law of the state whose laws govern the action. Kleinknecht v.
Gettysburg College, 989 F.2d 1360, 1365 (3d Cir. 1993). The parties
agree that Pennsylvania law governs this dispute.

                                3

based on the "contingency or the certainty of
compensation," the court found it appropriate to increase
the lodestar amount by sixty percent, or $62,442. Id. The
court assessed a total attorney's fee against Nationwide in
the amount of $166,412. Id.

Nationwide appealed both the merits determination of
bad faith and the subsequent assessment of fees and costs.
We reversed the merits determination and remanded for
application of the "clear and convincing evidence" standard
to the bad faith claim. Polselli v. Nationwide Mut. Fire Ins.
Co., 23 F.3d 747, 750-51 (3d Cir. 1994); see also Terletsky
v. Prudential Property & Cas. Ins. Co., 649 A.2d 680, 688
(Pa. Super. Ct. 1994) (bad faith must be proven by clear
and convincing evidence). We did not reach the issue of
attorney's fees.

On remand, the district court found that Polselli satisfied
the higher burden of proof. Polselli v. Nationwide Mut. Fire
Ins. Co., No. CIV.A.91-1365, 1995 WL 430571 (E.D. Pa.
July 20, 1995). We affirmed by judgment order. Polselli v.
Nationwide Mut. Fire Ins. Co., No. 95-1715 (3d Cir. May 3,
1996).

Polselli filed a Renewed Motion to Assess Attorney's Fees,
and the district court heard oral argument on the motion.
At that time, Nationwide conceded that $300 per hour was
a reasonable rate for Begier's services.2 Likewise,
Nationwide did not challenge the hours claimed by Begier.
Rather, Nationwide argued that section 8371 allows for the
award of attorney's fees only with respect to those hours
expended on the underlying insurance contract claim and
not on the bad faith claim itself.

The district court agreed with Nationwide. The court
concluded that section 8371 creates a new cause of action,
independent and distinct from the underlying policy action.
Further, the court found that "[t]o allow attorney['s] fees for
prosecuting bad faith claims would reimburse plaintiff for
costs beyond those necessitated by the insurer's conduct,
indirectly augmenting the punitive damages already
_________________________________________________________________

2. We express no view regarding whether $300 per hour is a reasonable
rate for Begier's services.

                                4

awarded." Polselli v. Nationwide Mut. Fire Ins. Co., No.
CIV.A.91-1365, 1995 WL 678212, at *3 (E.D. Pa. Nov. 14,
1995). The court assessed fees in favor of Polselli only for
work related to the insurance contract claims for personalty
losses and living expenses, and not for the time spent
litigating the bad faith claim. Id.

The parties subsequently filed a stipulation allocating
154.9 hours for the time Begier dedicated to the
contractual claims as to personalty losses and living
expenses. The revised lodestar amount was therefore
$46,470 ($300 per hour multiplied by 154.9 hours).

Nationwide also argued that the court should not
enhance the fee as it did in its November 1993 order. The
court agreed: "Given the decision not to assess fees for
work on plaintiff's bad faith claim, the court's earlier
rationale for enhancing the hourly rate no longer applies."
Id. The court reasoned that its earlier justification for the
sixty percent enhancement -- the complexity of the bad
faith claim and the uncertainty of prevailing on that claim
-- did not apply to an award of fees premised solely on time
spent prosecuting a straightforward insurance contract
claim. Id., 1995 WL 678212, at *2-3. The court assessed
attorney's fees in the amount of $46,470 against
Nationwide.

Nationwide appealed from the court's order of attorney's
fees on the ground that Polselli was not entitled to fees
because Nationwide had not acted in bad faith in its
handling of the underlying insurance claims, a position still
then pending in Nationwide's appeal from the merits of the
district court's finding of bad faith. Polselli cross-appealed
from the district court's calculation of the fee assessment.
When we affirmed the district court's finding of bad faith,
Polselli v. Nationwide Mut. Fire Ins. Co., No. 95-1715 (3d
Cir. May 3, 1996), Nationwide withdrew its appeal. The only
matter presently before us is Polselli's appeal from the
assessment of attorney's fees.3
_________________________________________________________________

3. We have jurisdiction over this appeal from afinal order pursuant to 28
U.S.C. S 1291. The district court's application and interpretation of
state
law is subject to plenary review. Hofkin v. Provident Life & Accident Ins.

                                5

II.

In 1981, the Pennsylvania Supreme Court refused to
create a common law "bad faith" cause of action for a
plaintiff whose insurance company wrongfully refused to
pay a claim under an insurance policy. D'Ambrosio v.
Pennsylvania Nat'l Mut. Cas. Ins. Co., 431 A.2d 966 (Pa.
1981); see also Johnson v. Beane, 664 A.2d 96, 99 n.3 (Pa.
1995) (there is no common law remedy in Pennsylvania for
insurer bad faith). In 1990, in what some call a delayed
response to D'Ambrosio, the Pennsylvania legislature
enacted 42 Pa. Cons. Stat. Ann. S 8371, entitled "Actions on
Insurance Policies." The statute reads as follows:

       In an action arising under an insurance policy, if the
       court finds that the insurer has acted in bad faith
       toward the insured, the court may take all of the
       following actions:

       (1) Award interest on the amount of the claim from
       the date the claim was made by the insured in an
       amount equal to the prime rate of interest plus 3%.

       (2) Award punitive damages against the insurer.

       (3) Assess court costs and attorney fees against the
       insurer.

42 Pa. Cons. Stat. Ann. S 8371. In this case of first
impression, we must decide whether a cause of action for
bad faith under section 8371 is itself an "action arising
under an insurance policy."

Although the issue of whether a section 8371 cause of
action arises under an insurance policy is an open
question, in other contexts a Pennsylvania intermediate
_________________________________________________________________

Co., 81 F.3d 365, 369 (3d Cir. 1996). In the absence of any precedent of
the Pennsylvania Supreme Court, we must predict how that court would
decide this issue. Winterberg v. Transportation Ins. Co., 72 F.3d 318,
321-22 (3d Cir. 1995). In predicting how the state supreme court would
rule on the issue, we should give intermediate appellate court decisions
"significant weight in the absence of an indication that the highest state
court would rule otherwise." City of Phila. v. Lead Indus. Ass'n, 994 F.2d
112, 123 (3d Cir. 1993).

                                6

appellate court has held that claims brought under section
8371 are "distinct from the underlying contractual
insurance claims from which the dispute arose." Nealy v.
State Farm Mut. Auto. Ins. Co., 695 A.2d 790, 792 (Pa.
Super. Ct. 1997) (deciding that unlike contract cause of
action, "distinct" bad faith cause of action could not be
decided by arbitration panel but had to be decided by
court); accord March v. Paradise Mut. Ins. Co., 646 A.2d
1254, 1256 (Pa. Super. Ct. 1994) (deciding that bad faith
cause of action was not barred by policy's limitations clause
since it was "separate and distinct" from underlying
contract cause of action, which was barred); Romano v.
Nationwide Mut. Fire Ins. Co., 646 A.2d 1228, 1231 (Pa.
Super. Ct. 1994) (permitting "separate and distinct" bad
faith cause of action to be based on alleged violation of
Unfair Insurance Practices Act); see also Winterberg v.
Transportation Ins. Co., 72 F.3d 318, 326 (3d Cir. 1995)
(noting that "Pennsylvania case law shows an intent to
allow a separate action on the `bad faith' statute").

Section 8371 provides an "independent cause of action to
an insured that is not dependant upon success on the
merits, or trial at all, of the contract claim." Nealy, 695
A.2d at 793; accord March, 646 A.2d at 1256 (insured's
claim for bad faith is "independent of the resolution of the
underlying contract claim"); Doylestown Elec. Supply Co. v.
Maryland Cas. Ins. Co., 942 F. Supp. 1018, 1020 (E.D. Pa.
1996) (insured may bring bad faith claim prior to resolution
of contract dispute). While not obvious from the language of
section 8371, it is apparent that Pennsylvania courts have
interpreted section 8371 to create "a cause of action that
exists separately and independently from a claim on the
insurance contract itself." Winterberg, 72 F.3d at 326.

Nationwide argues, and the district court agreed, that
since a section 8371 cause of action is separate and
distinct from the cause of action to obtain benefits due
under the policy, the section 8371 cause of action is not an
"action arising under an insurance policy" and fees may not
be awarded for the time spent litigating the bad faith claim.
We conclude, however, that the separate and independent
cause of action for bad faith is still an action"arising under
an insurance policy" such that attorney's fees may be

                                7

awarded for time spent litigating the issue of bad faith. We
reach this conclusion for three reasons: (1) the bad faith
cause of action depends on the existence of a predicate
contract cause of action; (2) the bad faith cause of action
enables an insured to enforce an insurer's implicit
contractual duty of good faith; and (3) assessment of
attorney's fees for time spent prosecuting the bad faith
cause of action is necessary to fulfill the "make whole"
purpose of section 8371(3).

Initially, we observe that under the plain language of the
statute, it is reasonably clear that a section 8371 claim may
not be the sole claim of an insured. Section 8371 provides
that "[i]n an action arising under an insurance policy, if the
court finds that the insurer has acted in bad faith toward
the insured, the court may take all of the following actions
. . . ." 42 Pa. Cons. Stat. Ann. S 8371. This language implies
that a determination of bad faith is merely an additional
finding to be made in a predicate action arising under an
insurance policy. Absent a predicate action to enforce some
right under an insurance policy, an insured may not sue an
insurer for bad faith conduct in the abstract.

In Winterberg, the district court concluded that the bad
faith claim "must be related to at least one other colorable
claim over which the court has jurisdiction." Winterberg v.
CNA Ins. Co., 868 F. Supp. 713, 722 (E.D. Pa. 1994), aff'd,
72 F.3d 318 (3d Cir. 1995). The court reasoned that "[h]ad
the legislature wanted to allow a person wronged by his or
her insurance company to sue directly, and only, under
[section] 8371, surely it would not have used the language
it did." Id. at 722 n.13 (emphasis in original). We agree.
Instead of creating a cause of action for bad faith conduct
that can exist in a vacuum, the Pennsylvania legislature
provided an insured with additional remedies upon a
finding of bad faith made in a predicate action under an
insurance policy.
Of course, an insured may list the section 8371 cause of
action and the contract cause of action as separate counts
in the same complaint. E.g., Boring v. Erie Ins. Group, 641
A.2d 1189, 1190 (Pa. Super. Ct. 1994); Doylestown, 942 F.
Supp. at 1020 (noting that courts interpreting section 8371
have "consistently entertained multi-count complaints

                                8

containing both unresolved insurance contract disputes
and bad faith claims"). An insured may also, as Polselli did
here, settle the claim under the policy and proceed to trial
on the bad faith claim alone. Indeed, the bad faith claim
may remain viable even if the insured fails to file suit on
the predicate policy claim within the period required by the
policy. March, 646 A.2d at 1256-57; accord Margolies v.
State Farm Fire & Cas. Co., 810 F. Supp. 637, 641-42 (E.D.
Pa. 1992). At the very least, however, the predicate policy
cause of action must be ripe before a section 8371 cause of
action may be recognized. Doylestown, 942 F. Supp. at
1019-20 (so long as claim under insurance policy is ripe for
judicial determination, bad faith issue is also ripe); see also
Nealy, 695 A.2d at 793, 794 n.4 (bad faith claim runs
"parallel" to contractual claim and can be "brought
contemporaneously with or subsequent to" the contractual
claim); March, 646 A.2d at 1256 ("[S]ection 8371 provides
relief only in actions `arising under' an insurance policy
. . . . [Section] 8371 was promulgated to provide additional
relief to insureds . . . .") (emphasis supplied).4

Next, we conclude that since an insurer's duty of good
faith toward an insured is implicit in every insurance
policy, an action to enforce that duty must necessarily
"arise under" that policy. There is no common law private
remedy for bad faith conduct, but the Pennsylvania
Supreme Court has long recognized that an insurer must
act with the "utmost" good faith toward its insured. Fedas
v. Insurance Co. of Pa., 151 A. 285, 286 (Pa. 1930); accord
Dercoli v. Pennsylvania Nat'l Mut. Ins. Co., 554 A.2d 906,
909 (Pa. 1989) (insurer was "bound" to act in good faith
toward the insured). In Romano v. Nationwide Mut. Fire Ins.
Co., 646 A.2d 1228 (Pa. Super. Ct. 1994), the court
concluded that an insurer's duty of good faith exists
_________________________________________________________________

4. In the ordinary case, the insured's insurance contract cause of action
and bad faith cause of action may be brought in the same action. It may
be, however, that an insured is unable to bring the contract action due
to the running of the applicable limitations period. See, e.g., March, 646
A.2d at 1256. In that case, the insured should indicate that the
predicate contract cause of action, which was viable at one time, may
not now be brought due to the running of the applicable limitations
period.

                                9

"because of the special relationship between an insurer and
its insured and the very nature of the insurance contract.
The insurer's duty of good faith, therefore, is contractual
and arises because the insurance company assumes a
fiduciary status by virtue of the policy's provisions which
give the insurer the right to handle claims and control
settlement." Id. at 1231.

In Okkerse v. Prudential Prop. & Cas. Ins. Co., 625 A.2d
663 (Pa. Super. Ct. 1993), the court held that section 8371
applied so long as the alleged bad faith conduct occurred
after the effective date of section 8371, even though the
insurance contract was entered into prior to the effective
date of the section. Id. at 664. The court reasoned:

        [The insurer's] obligations under the policy issued
       prior to the effective date of section 8371 have not been
       changed. Section 8371 also does not affect either the
       terms of the insurance contract or the vested rights
       thereunder. It merely prohibits an insurer from
       engaging in a bad faith refusal to pay benefits due
       under the policy. An insurer did not have a right to act
       in bad faith toward its insured prior to the statute's
       enactment. Thus, it is clear that the statute is not
       being applied retroactively in this case.

Id. at 665-66 (citations and footnote omitted, emphasis
supplied); see also Seeger by Seeger v. Allstate Ins. Co., 776
F. Supp. 986, 988 (M.D. Pa. 1991) (there is no contractual
right to act in bad faith); Coyne v. Allstate Ins. Co., 771 F.
Supp. 673, 675 (E.D. Pa. 1991) (insurer "never had the
right to act in bad faith toward the insured").

In Winterberg v. Transportation Ins. Co., 72 F.3d 318 (3d
Cir. 1995), we held that a workers' compensation claim is
not "based on an insurance policy" within the meaning of
section 8371:

       The [workers' compensation] claim is statutory and has
       its genesis in the contract of hire between the employer
       and employee, see, [Pa. Stat. Ann. tit. 77, S 431], not
       an insurance contract. The employer's obligation to pay
       for a compensable injury is not predicated on an
       insurance policy.

                                10
Id. at 325 n.4. In contrast, while a section 8371 bad faith
claim itself is created by statute, the claim has its genesis
in the policy of insurance. The insurer's duty of good faith
toward an insured is predicated on the fiduciary
relationship created at the inception of the contract
between the parties. In other words, but for the insurance
policy, Nationwide would not owe a duty of good faith to
Polselli. The fact that Polselli's ability to enforce that duty
was altered by statute does not change the fact that the
duty itself arose by contract.

In deciding whether a section 8371 action "arises under"
an insurance policy, we should determine where the
insured's rights at issue arose, not whether the policy itself
permits the insured to enforce those rights. In this case, a
section 8371 action is brought to enforce an insured's right
to be free from the bad faith conduct of the insurer. That
right is inherent in every insurance policy, and it therefore
"arises under" the insurance policy. The fact that the
enforcement mechanism is statutory is of no consequence.5

Finally, an award of attorney's fees under section 8371 is
meant "to compensate the plaintiff for having to pay an
attorney to get that to which [the plaintiff was]
contractually entitled. Along with interest, costs and delay
damages, the object of an attorney fee award is to make the
successful plaintiff completely whole." Klinger v. State Farm
Mut. Auto. Ins. Co., 115 F.3d 230, 236 (3d Cir. 1997). In
this case, Nationwide's bad faith conduct forced Polselli to
incur attorney's fees to obtain the benefits due under the
insurance policy. To be made "completely whole," therefore,
Polselli needed to obtain those fees from Nationwide. To
obtain those fees, however, Polselli was required to incur
additional attorney's fees to prove, by clear and convincing
evidence, that Nationwide acted in bad faith. In other
_________________________________________________________________

5. Our view is informed by reference to the Pennsylvania legislature's use
of the phrase "arising under" in other contexts. For example, Pa. R. Civ.
P. 2207 is captioned "Actions Arising Under Foreign Law." Rule 2207
deals with actions brought "to enforce rights arising under the laws of
some other jurisdiction." Pa. R. Civ. P. 2207 (emphasis supplied). Thus,
in this context, an "action to enforce rights arising under [X]" is itself
an
"action arising under [X]."

                                11

words, to obtain the fees necessary to make Polselli whole,
Polselli was required to incur additional fees.
This is not a traditional fee-shifting statute where a
prevailing party may be automatically entitled to a
reasonable fee. An insured is not entitled to recover her fees
merely because she prevails on her claim to enforce the
policy; rather, the insured must also prevail on the bad
faith claim. The Pennsylvania rules of statutory
construction state that, in general, the "provisions of a
statute shall be liberally construed to effect their objects
and to promote justice." 1 Pa. Cons. Stat. Ann. S 1928(c).
The narrow construction of section 8371 proposed by
Nationwide runs counter to this rule. If Polselli was unable
to obtain the fees incurred in proving Nationwide's bad
faith, Polselli would never be made whole and the purpose
of section 8371(3) would be thwarted.6

We predict that the Pennsylvania Supreme Court would
conclude that, upon a finding of bad faith conduct by clear
and convincing evidence, a trial court may assess attorney's
fees against an insured for the time spent (1) litigating the
claim under the policy and (2) litigating the bad faith claim
itself.7
_________________________________________________________________

6. Cf. In re Tutu Wells Contamination Litig. , 120 F.3d 368 (3d Cir.
1997).
In Tutu Wells, the district court imposed heavy sanctions upon a law
firm, several of its partners, and its client for discovery violations in
connection with an environmental lawsuit. The court also imposed the
sum of $120,000 on the law firm as counsel fees and costs incurred by
the moving parties for the time they spent in connection with the
underlying sanctions proceedings. We affirmed the award of counsel fees
and costs. We reasoned:

       The time, effort, and resources expended in bringing sanctionable
       conduct to light would have been unnecessary had the sanctionable
       conduct never occurred. These costs are as much a harm to a party
       in the litigation as is the delay in the litigation or the
substantive
       prejudice caused by the conduct. If we exclude from a possible
       award the costs of sanctions proceedings, we would undermine the
       compensatory goal of a sanctions award.

Id. at 388.

7. We recognize that some other jurisdictions draw a distinction between
fees incurred by an insured to obtain benefits due under a policy and

                                12

III.

Section 8371 does not provide any guidance on how a
trial court should calculate a reasonable attorney's fee.8
Courts deciding cases under Pennsylvania law are guided
by Pennsylvania Rule of Civil Procedure 1716 when
considering the amount of a reasonable fee:

       In all cases where the court is authorized under
       applicable law to fix the amount of counsel fees it shall
       consider, among other things, the following factors:

       (1) the time and effort reasonably expended by the
       attorney in the litigation;

       (2) the quality of the services rendered;

       (3) the results achieved and benefits conferred upon
       the class or upon the public;

       (4) the magnitude, complexity and uniqueness of the
       litigation; and

       (5) whether the receipt of a fee was contingent on
       success.

Pa. R. Civ. P. 1716.9 The district court did not rely on Rule
_________________________________________________________________

those incurred in prosecuting a bad faith claim against the insurer to
obtain damages that are not included in the policy benefits. See, e.g.,
Bernhard v. Farmers Ins. Exch., 885 P.2d 265, 271-72 (Colo. Ct. App.
1994), aff'd, 915 P.2d 1285 (Colo. 1996); Schwartz v. Farmers Ins. Co.
of Ariz., 800 P.2d 20, 22-23 (Ariz. Ct. App. 1990); Brandt v. Superior
Court, 693 P.2d 796, 798-800 (Cal. 1985); see also Kirchoff v. American
Cas. Co., of Reading, Pa., 997 F.2d 401, 406-07 (8th Cir. 1993)
(predicting South Dakota law). Other jurisdictions allow a successful
plaintiff to recover fees for time spent preparing and trying a bad faith
claim. See, e.g., Thompson v. Shelter Mut. Ins., 875 F.2d 1460, 1463-64
(10th Cir. 1989) (predicting Oklahoma law).

8. Like costs, attorney's fees under section 8371(3) may be assessed after
a finding of bad faith is made at the conclusion of trial. It is not
necessary for an insured's attorney to introduce evidence of attorney's
fees and costs at trial; rather, such evidence may be considered upon
motion following trial.

9. Before the adoption of Rule 1716, the Pennsylvania Supreme Court
instructed trial courts to consider, inter alia, the amount of work

                                13

1716; it looked instead to Pa. Stat. Ann. tit. 41,S 503,
which permits borrowers and debtors who prevail in usury
actions against their lenders to recover a "reasonable
amount for attorney's fee." Id. S 503(a). In determining the
amount of a section 503 fee, the court may consider:

       (1) the time and labor required, the novelty and
       difficulty of the questions involved and the skill
       requisite properly to conduct the case;

       (2) the customary charges of the members of the bar
       for similar services;

       (3) the amount involved in the controversy and the
       benefits resulting to the client or clients from the
       services; and

       (4) the contingency or the certainty of the
       compensation.

Id. S 503(b).10

The question of what standard to apply in calculating
attorney's fees and costs is a legal question and is subject
to plenary review. While section 503 and Rule 1716 are
similar, the district court should have looked to Rule 1716
in calculating a reasonable fee. Ultimately, however, we are
not concerned with the specific list of factors the district
court cited when it calculated the fee in this case. Rather,
we turn to the task of determining whether the fees
_________________________________________________________________

performed, the character of the services rendered, the difficulty of the
problems involved, the importance of the litigation, the amount of money
or value of the property in question, and the results the attorney was
able to obtain. In re Trust Estate of LaRocca, 246 A.2d 337, 339 (Pa.
1968).

10. Contrary to Polselli's assertion, a court assessing a section 503 fee
is
not required to enhance a fee based on the contingency or the certainty
of compensation. Indeed, whether the court even considers contingency
is a matter within the court's discretion. Pa. Stat. Ann. tit. 41, S 503
(court "may" consider contingency). Even under Rule 1716, where
consideration of contingency is required, a district court need not
actually enhance a fee based on contingency.

                                14

assessed are, under the circumstances of the case,
"reasonable."11

A.

We will affirm the judgment of the district court insofar
as it assessed attorney's fees in the amount of $46,470
against Nationwide for the time Begier spent litigating the
contract claim. The district court first calculated the
lodestar amount based on the stipulated hourly rate for
Begier's work in non-contingency matters and stipulated
number of hours allocated to the contract claim. 12
Assuming that an enhancement for contingent risk was
permissible, see Pa. Stat. Ann. tit. 41,S 503(b)(4), the court
considered a myriad of factors in an effort to determine
whether it was appropriate to enhance the lodestar amount
to account for the contingency or certainty of the
compensation. The court found that the contract claim was
not unique or complex, and that it did not entail a
substantial risk of failure. Thus, the court concluded that
a contingency enhancement was not appropriate for the
time Begier spent litigating the contract claim. Polselli v.
Nationwide Mut. Fire Ins. Co., No. CIV.A.91-1365, 1995 WL
678212, at *3-4 (E.D. Pa. Nov. 14, 1995). We will not
interfere with the district court's exercise of discretion. On
remand, the district court should not reconsider the fee
award relating to prosecution of the contract claim.
_________________________________________________________________

11. If the correct legal standards are applied and the findings of fact
are
not clearly erroneous, the reasonableness of a fee award is reviewed only
for abuse of discretion. Abrams v. Lightolier Inc., 50 F.3d 1204, 1219 (3d
Cir. 1995); accord In re Trust Estate of LaRocca, 246 A.2d 337, 339 (Pa.
1968); Commonwealth v. PBS Coals, Inc., 677 A.2d 868, 870 (Pa.
Commw. Ct.) ("award of attorney's fees and costs is within the discretion
of the trial court, whose discretion will not be disturbed on appeal
absent abuse of discretion"), appeal denied, 686 A.2d 1313 (Pa. 1996);
Shaw by Ingram v. Bradley, 672 A.2d 331, 332 (Pa. Super. Ct. 1996).

12. The "lodestar" amount is a product of the number of attorney hours
reasonably expended on the particular case and the reasonable hourly
rate of compensation for the attorney's services. Adjustments to the
lodestar amount are made as appropriate. While the Pennsylvania state
courts have not yet embraced the lodestar method, we believe that the
factors considered in Rule 1716 are implicitly taken into account in the
lodestar method.

                                15

B.

We turn now to the district court's task on remand.
Before it decided that Polselli was unable to recover
attorney's fees for the time spent litigating the bad faith
cause of action, the district court found that the bad faith
claim was based on a relatively new statute, that there was
little guidance from the statute or the caselaw, and that
Polselli faced a high risk of no recovery on the bad faith
claim. Citing section 503, the court increased the lodestar
amount by sixty percent to account for the "the contingency
or the certainty of the compensation." Pa. Stat. Ann. tit. 41,
S 503(b)(4). Since the district court later eliminated the
enhancement when it determined that fees were
unavailable for the bad faith claim, we are not in a position
to review a final order of the district court imposing
attorney's fees calculated with a contingency enhancement.
We write further only to provide the district court with
some guidance in the hope that this case, which began
almost seven years ago and which has reached our court
for decision three times, will soon draw to a close.

Initially, we are reminded that a trial court in a section
8371 action "may" assess attorney's fees and costs against
an insurer upon a finding of bad faith, but it need not
award such fees. The decision to assess attorney's fees and
costs against an insured upon a finding of bad faith is
wholly within the discretion of the trial court, whose
discretion will not be disturbed on appeal absent abuse of
discretion. Thus, if a district court exercises its discretion
to assess fees for time spent litigating the contract cause of
action, but not the time spent litigating the bad faith cause
of action, or if it elects not to assess any fees at all, we will
not disturb that decision absent abuse of discretion.13

Should the district court on remand elect to assess
attorney's fees against Nationwide for the time spent
litigating the bad faith claim, it must apply the proper legal
_________________________________________________________________

13. Our ability to review, and reverse, the district court's decision not
to
assess fees on Polselli's bad faith cause of action rests on the court's
legal error in concluding that such fees may not be awarded as a matter
of law. Had the court elected not to assess such fees as a matter of
discretion, we could not have interfered with that decision.

                                16

standards in calculating such fees. Rule 1716 instructs the
court to consider, inter alia, the magnitude, complexity and
uniqueness of the litigation, and whether the receipt of a
fee was contingent on success. Polselli asserts that the
district court should consider two manifestations of
contingency enhancement: (1) an enhancement to take into
account the complexity and risk of Polselli's bad faith claim
against Nationwide; and (2) an enhancement to reflect the
risk of contingency-fee cases as a class. Nationwide
contends that contingency enhancement is impermissible in
any context. Absent guidance from the Pennsylvania courts
on these issues, we predict that the Pennsylvania Supreme
Court would limit the use of contingency enhancements
that reflect the risk of the particular contingency litigation
and that it would reject the use of contingency
enhancements that reflect the risk of contingency-fee cases
as a class.

1.

In City of Burlington v. Dague, 505 U.S. 557 (1992), the
Supreme Court held that the fee-shifting provisions of two
federal statutes do not permit enhancement of a fee beyond
the lodestar amount to reflect the fact that the prevailing
party's attorneys were retained on a contingent-fee basis.
The Court rejected the argument that "a `reasonable' fee for
attorneys who have been retained on a contingency-fee
basis must go beyond the lodestar, to compensate for risk
of loss and of consequent nonpayment." Id. at 562.

The Court first rejected the use of contingency
enhancements that reflect the risk of no recovery in a
particular case. The Court concluded that an "enhancement
for contingency would likely duplicate in substantial part
factors already subsumed in the lodestar." Id. The Court
reasoned that the attorney's contingent risk of no recovery
in a particular case is the product of (1) the legal and
factual merits of the claim and (2) the difficulty of
establishing those merits. Id.

Rejecting the encouragement of attorneys to bring
nonmeritorious claims, the Court noted that thefirst factor
should not be considered in calculating a reasonable fee. Id.

                                17

at 563. In other words, the risk of no recovery in a case is
high if the legal and/or factual merits of the case are low.
In this context, to enhance a fee award based on degree of
risk would encourage attorneys to bring nonmeritorious
claims -- clearly not an objective of the typical fee-shifting
statute. Id.

The Court noted that the second risk factor -- difficulty
and complexity -- is ordinarily reflected in the lodestar,
"either in the higher number of hours expended to
overcome the difficulty, or in the higher hourly rate of the
attorney skilled and experienced enough to do so." Id. at
562. Taking into account the complexity or difficulty of a
case would, therefore, ordinarily amount to double counting
and would skew the calculation of a "reasonable" rate. Id.
at 563.
The Supreme Court concluded that a contingency
enhancement based on the attorney's contingent risk in a
given case is unwarranted. Were this case based on a
federal fee-shifting statute, we would instruct the district
court pursuant to Dague not to consider the contingent risk
Begier accepted when he agreed to pursue Polselli's bad
faith claim against Nationwide.

Since this case is governed by Pennsylvania law,
however, we must predict whether the Pennsylvania
Supreme Court would permit consideration of the
contingent risk of a particular case in calculating a
reasonable fee for that case. We conclude that the
Pennsylvania Supreme Court would permit such
consideration in a bad faith claim under section 8371.

The federal fee-shifting statutes considered in Dague did
not provide for consideration of contingent risk. If those
statutes did require district courts to consider contingent
risk, we believe that Dague would have been decided
differently. The Dague majority found no justification for
recognizing a common law enhancement for contingent risk;
a statutory provision requiring consideration of
enhancement would have been quite another matter.

Unlike courts assessing fees under the federal fee-shifting
statutes like those considered in Dague, courts assessing
fees under section 8371 are guided by Pennsylvania Rule of

                                18

Civil Procedure 1716. Rule 1716 provides that courts shall
consider, among other things, the magnitude, complexity
and uniqueness of the litigation and whether the receipt of
a fee was contingent on success. Pa. R. Civ. P. 1716. Thus,
even if the Pennsylvania Supreme Court was persuaded by
Dague, it would be bound by Rule 1716.

While we predict that the Pennsylvania Supreme Court
would permit courts to consider a case's contingent risk
when calculating a reasonable fee, we also predict that the
court would conclude that a contingency enhancement
would not apply in every case. As the Supreme Court
reasoned in Dague, a contingency enhancement often will
duplicate factors already subsumed in the lodestar amount.
For example, a difficult case may require a high number of
hours dedicated to research or discovery. Or, it might
require the skills of someone who ordinarily bills at a high
hourly rate. Both of these factors are considered in
calculating the lodestar amount, and they should not be
reconsidered in enhancing the lodestar.
We predict that the Pennsylvania Supreme Court would
permit a trial court to 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.
Thus, when a trial court is faced with a request to enhance
a fee based on contingent risk arising from the magnitude,
complexity and uniqueness of the litigation, the court
should exercise caution so as not to skew the calculation of
a reasonable rate by double counting. For 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.

The court should also consider whether the attorney was
able to mitigate the risk of nonpayment. For example, an
attorney who has entered into a contingency-fee contract in
a suit seeking substantial damages has significantly
mitigated the contingent risk; in exchange for accepting the
risk of nonpayment, the attorney obtains the prospect of
compensation under the agreement substantially in excess
of the lodestar amount. Likewise, "attorneys who are paid a

                                19

portion of their reasonable hourly fee irrespective of result
have partially mitigated the risk of nonpayment." Rendine v.
Pantzer, 661 A.2d 1202, 1229 (N.J. 1995).

We emphasize that the determination of a reasonable fee
is an inherently case-specific endeavor. Just as every case
is unique, so too are the particularized risks faced by
attorneys accepting contingency-fee cases. We are therefore
reluctant to provide courts with a specific list of factors to
consider in determining whether and to what extent a
contingency enhancement is appropriate in any given case.
When applying Rule 1716, courts must consider whether
the receipt of a fee was contingent on success. Courts must
not, however, deviate from their ultimate responsibility --
the calculation of a "reasonable" fee. To the extent that the
factors creating a contingent risk in a particular case are
mitigated or are already taken into account when
calculating the lodestar amount, a contingency
enhancement is not "reasonable" and should not be
applied.

In Rendine, the New Jersey Supreme Court departed from
Dague and established a rule favoring the award of
contingency enhancements to prevailing parties under the
New Jersey Law Against Discrimination. The court held
that "a counsel fee awarded under a fee-shifting statute
cannot be `reasonable' unless the lodestar, calculated as if
the attorney's compensation were guaranteed irrespective of
result, is adjusted to reflect the actual risk that the
attorney will not receive payment if the suit does not
succeed." Rendine, 661 A.2d at 1228. The court focused on
risk of attorney non-payment, and it recognized that such
risk will vary with the circumstances of each unique case.
The court concluded that "contingency enhancements in
fee-shifting cases ordinarily should range betweenfive and
fifty-percent of the lodestar fee, with the enhancement in
typical contingency cases ranging between twenty and
thirty-five percent of the lodestar." Id. at 1231. We believe
that our prediction of Pennsylvania law is not significantly
different from the statement of New Jersey law in Rendine.
See, e.g., id. at 1228 (acknowledging concern about
overpayment and double counting).

                                20

2.

Polselli also contends that the district court should have
considered a contingency enhancement to account for the
riskiness of contingency-fee cases as a class. In her
concurring opinion in Pennsylvania v. Delaware Valley
Citizens' Council for Clean Air, 483 U.S. 711 (1987)
(Delaware Valley II), Justice O'Connor wrote that
contingency enhancements should not be based on the
particular risks of an individual case, but rather should be
based on the risk of loss in the "class" of case. Id. at 731
(O'Connor, J., concurring). In Dague, the Court rejected
this theory of enhancement. Dague, 505 U.S. at 563-65.14
In Rendine, the New Jersey Supreme Court also rejected
the view that "all contingent-fee cases should be treated as
a class, without distinction based on their specific
circumstances." Rendine, 661 A.2d at 1229.
_________________________________________________________________

14. Polselli draws our attention to Black Grievance Comm. v. Philadelphia
Elec. Co., 690 F. Supp. 1393 (E.D. Pa. 1988). In Black, the district court
awarded a 200 percent contingency enhancement in an employment
discrimination action. That court followed the reasoning of Delaware
Valley II, and it placed special emphasis on Justice O'Connor's
concurring opinion in that 4-1-4 decision. Black , 690 F. Supp. at 1398
(citing Delaware Valley II, 483 U.S. at 731 (O'Connor, J., concurring)).
The district court found that "the market compensates for contingency
cases at a rate of approximately 200% and that it would be significantly
more difficult for plaintiffs to obtain counsel willing to handle
employment discrimination class actions if plaintiff's counsel had no
prospect of receiving a contingency enhancer." Black, 690 F. Supp. at
1401.
While Polselli relies heavily on Black, she fails to mention that in
Dague, the Supreme Court expressly rejected Justice O'Connor's
concurring opinion in Delaware Valley II, and concluded that a
contingency-fee enhancement was never appropriate under the fee-
shifting statutes at issue. Dague, 505 U.S. at 563-67. If the district
court
decided Black today, the court would have concluded that a contingency
enhancement was not appropriate in that case.

We are reminded that Third Circuit Local Appellate Rule 28.3(b)
provides that for each legal proposition supported by citations in the
argument, "counsel shall cite to any opposing authority if such authority
is binding on this Court, e.g., U.S. Supreme Court decisions . . . ." 3d
Cir. R. 28.3(b) (emphasis supplied).

                                  21

Trial courts are charged with the duty to attempt to
calculate a "reasonable" fee in a particular case. To
consider the risk of contingency fee cases as a class skews
that calculation. Recognizing the individualized inquiry
necessary to the calculation of a "reasonable" fee, we
predict that the Pennsylvania Supreme Court would reject
the argument that trial courts may enhance a lodestar
amount to account for the riskiness of contingency-fee
cases as a class.15

Similarly, we predict that the Pennsylvania Supreme
Court would not permit trial courts to enhance a lodestar
amount to account for the purported riskiness of a more
limited class of contingency-fee cases (e.g., insurance cases
"as a class" or civil rights cases "as a class"). To the extent
that it is permitted at all, enhancement must be based on
the specific risks of the specific case.

Polselli also contends that Begier's "contingent-fee billing
rate" is approximately double his non-contingent fee billing
rate, and that the district court should use his "contingent-
fee billing rate" in the calculation of a reasonable fee. This
argument ignores the reality of the contingency agreement.
By its very nature, contingent litigation entails an
_________________________________________________________________

15. In Romano by Romano v. Lubin, 530 A.2d 487 (Pa. Super. Ct. 1987),
the Pennsylvania Superior Court reasoned:

         It must also be noted that attorneys often accept cases on a
         contingent fee basis which result in no recovery. The lawyer not
only
         does not get paid, he will lose the money he has advanced the
client
       to pay for the costs of the suit. When the court calculates the fee
of
       a plaintiff 's attorney, it must consider that the very same
attorney
       may have spent thousands of uncompensated hours working on
       other cases. A single recovery may constitute the better portion of
       his yearly income.

Id. at 488. We predict that the Pennsylvania Supreme Court would not
agree with this reasoning. Fee-shifting statutes"were not designed as a
form of economic relief to improve the financial lot of lawyers." Dague,
505 U.S. at 563 (quoting Pennsylvania v. Delaware Valley Citizens'
Council for Clean Air, 478 U.S. 546, 565 (1986) (Delaware Valley I)). An
attorney's inability to obtain fees in unrelated cases should have no
bearing on the attorney's "reasonable fee" in the case in which he is
successful.

                                22

agreement whereby a client agrees to pay an attorney a
certain percentage of any money recovered by settlement or
judgment. It does not entail an agreement whereby a client
agrees to pay an attorney a fee of double his non-
contingency hourly rate if the plaintiff is successful. Thus,
while a reasonable fee is to be calculated "according to the
prevailing market rates," Rode v. Dellarciprete, 892 F.2d
1177, 1183 (3d Cir. 1990), there is "no such thing as a
prevailing market rate in contingent litigation." 2 Mary
Frances Derfner & Arthur D. Wolf, Court Awarded Attorney
Fees P 16.04[4], at 16-140 (rev. ed. 1997). It may be true
that an attorney's fee in a contingent-fee case is often
mathematically equivalent to twice the fee the attorney
would have received if the attorney billed at the attorney's
non-contingent regular hourly rate. It does not follow that
the attorney's contingent fee "rate" is equal to double the
attorney's non-contingent fee "rate."

On remand, the district court may elect to assess
attorney's fees against Nationwide for the time Begier spent
litigating Polselli's bad faith claim. If it chooses to assess
such fees, the court may consider the possibility of
enhancing those fees to reflect the contingent risk posed by
this particular case. In considering this possibility, the
court should not consider any factor already taken into
account in calculating the lodestar amount nor should the
court consider the risk posed by contingent-fee cases as a
class.

IV.

Polselli also contends that the district court may assess
fees against Nationwide for the time Begier spent preparing
and litigating the fee petition itself. It is well-settled that
under federal law, "the time expended by attorneys in
obtaining a reasonable fee is justifiably included in the
attorneys' fee application, and in the court's fee award."
Prandini v. National Tea Co., 585 F.2d 47, 53 (3d Cir. 1978)
(explaining that a contrary holding would "not comport with
the purpose behind most statutory fee authorizations");
Public Interest Research Group of N.J., Inc. v. Windall, 51
F.3d 1179, 1190 (3d Cir. 1995) ("legal services rendered in

                                23

a dispute over the attorneys' fees due a prevailing plaintiff
are recoverable under a fee shifting statute").

Pennsylvania courts have carved out a narrow exception
to this general rule, concluding that an attorney may not
recover fees for time spent preparing and litigating a fee
petition when such efforts are directed solely to the benefit
of the attorney and not the client. Weidner v. Workmen's
Comp. Appeal Bd., 442 A.2d 242, 245 (Pa. 1982). In
Weidner, a workmen's compensation claimant had a
contingent fee agreement with his attorney whereby there
would be no fee if the claimant did not receive an award.
Although the attorney successfully resisted suspension of
the claimant's benefits, there was no additional award;
hence, the attorney was not entitled to any fee from the
claimant. When the attorney later successfully pursued
statutory fees under the Workmen's Compensation Act, the
claimant had no interest in the fee litigation because the
outcome of that litigation did not impact the claimant's
obligation to pay his attorney. Thus, the attorney was not
entitled to recover fees for the time the attorney spent
seeking fees on his own behalf. See Allums v. Workmen's
Comp. Appeal Bd., 532 A.2d 549, 551-52 (Pa. Commw. Ct.
1987) (discussing Weidner).

Reasonable fees incurred in the course of fee petition
preparation and litigation may be recovered, however, as
long as the client has a material interest in the fee
litigation. Milton S. Hershey Med. Ctr. v. Workmen's Comp.
Appeal Bd., 659 A.2d 1067, 1070-71 (Pa. Commw. Ct.
1995); Allums, 532 A.2d at 552 (attorney is entitled to fees
when work is on behalf of client's interests).16 We believe
_________________________________________________________________

16. In American Mut. Liab. Ins. Co. v. Zion & Klein, P.A., 489 A.2d 259
(Pa. Super. Ct. 1985), the court stated that an award of counsel fees "is
not usually intended to include reimbursement for fees and expenses
incurred in proceedings to recover such attorney's fees." Id. at 262
(citing
Weidner, 442 A.2d 242). Weidner did not stand for this proposition;
rather, the Pennsylvania Supreme Court merely held that an attorney
may not recover fees for time spent solely for the benefit of the attorney
and not the client. Weidner, 442 A.2d at 245. We predict that the
Pennsylvania Supreme Court would choose not to follow Zion & Klein,
and would instead adopt the "material interest" test of Milton S. Hershey
Medical Center, 659 A.2d at 1070-71.

                                24

that a client has a material interest in the outcome of the
fee proceedings when those proceedings could affect the
client's duty to pay her attorney. See Milton S. Hershey, 659
A.2d at 1070-71. We leave it to the district court to
determine whether Polselli had a material interest in the
outcome of the fee proceedings. If she did have a material
interest in those proceedings, the court may, in its
discretion, assess a reasonable attorney's fee for the time
Begier spent preparing and litigating the fee petition.17

V.

In Klinger v. State Farm Mut. Auto. Ins. Co., 115 F.3d 230
(3d Cir. 1997), the district court denied attorney's fees to a
successful section 8371 plaintiff because it believed that
the insurer "had been punished enough" by the punitive
damages already awarded. Reasoning that punitive
damages are awarded to punish the defendant for bad faith,
while attorney's fees are awarded to make the successful
plaintiff whole, we rejected the district court's explanation.
Id. at 236. We declined to remand for assessment of
attorney's fees, however, finding that the "district court
obviously intended to both punish State Farm and to make
the appellant whole, and it believed that the punitive
damages award accomplished both." Id.

We are unable to determine whether the district court in
this case had the same intention as the district court in
Klinger. It appears from its opinions that the district court
intended that the punitive damages award serve exclusively
to punish Nationwide and that the attorney's fee award
serve to compensate Polselli. To the extent that the district
court did intend the punitive damages award to both
punish Nationwide and make Polselli whole, the court
should indicate how much of the punitive damages award
was attributed to attorney's fees, and it may reduce the
_________________________________________________________________

17. Since the fee petition litigation is separate from the merits
litigation,
the court should calculate the fee assessment for this time separately
from the fee assessment for the time spent litigating the bad faith claim.
In this case, it is highly unlikely that a contingency enhancement would
be appropriate for the time spent preparing and litigating the fee
petition.

                                25

final assessment of fees accordingly. To avoid the potential
confusion we faced in Klinger, courts should specify which
portion of the final award is attributable to punitive
damages under section 8371(2) and which portion is
attributable to attorney's fees under section 8371(3).

VI.

In Hensley v. Eckerhart, 461 U.S. 424 (1983), the
Supreme Court stated that "[a] request for attorney's fees
should not result in a second major litigation." Id. at 437.
In Dague, the Supreme Court noted that permitting
contingency enhancement "make[s] the setting of fees more
complex and arbitrary, hence more unpredictable, and
hence more litigable. It is neither necessary nor even
possible for application of the fee-shifting statutes to mimic
the intricacies of the fee-paying market in every respect."
Dague, 505 U.S. at 566-67. Unfortunately, as in a growing
number of cases in both state and federal court, the real
issues in this case have been overshadowed by a dispute
over attorney's fees. We join the Supreme Court in hoping
that future litigants will be able to resolve amicably the
amount of a fee. Hensley, 461 U.S. at 437. While the issue
of attorney's fees is not necessarily minor, it should remain
"ancillary and collateral to the underlying controversy.
Thus, [parties] should refrain from making it a major
controversy." Windall, 51 F.3d at 1190.

We will remand this case so that the district court may
assess attorney's fees in a manner consistent with this
opinion.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                                26