The State Bar seeks public comment on Proposed Formal Opinion Interim No. 20-0005 (Conversion Clauses in Contingent Fee Agreements).
Deadline: September 3, 2024, 11:59 p.m.
Comments should be submitted using the online Public Comment Form. The online form allows you to input your comments directly and can also be used to upload your comment letter and/or other attachments.
The State Bar Standing Committee on Professional Responsibility and Conduct (COPRAC) is charged with the task of issuing advisory opinions on the ethical propriety of hypothetical attorney conduct. In accordance with applicable State Bar policy and procedure, the committee shall publish proposed formal opinions for public comment (See, State Bar Board of Trustee Resolutions July 1979 and December 2004. See also, Board of Trustee Resolution November 2016).
Proposed Formal Opinion Interim No. 20-0005 considers:
Under what circumstances, if any, are “conversion clauses” in contingent fee agreements ethically permissible?
The opinion interprets rules 1.2, 1.5, and 1.16 of the Rules of Professional Conduct of the State Bar of California.
The opinion digest states: “A conversion clause is a term in any contingent fee agreement, in either a litigation or transactional matter, that provides that, upon termination of the relationship or refusal to settle on terms recommended by an attorney before the happening of the contingent event, the attorney’s fee may convert to an hourly rate or some other calculation other than the original contingent fee. Conversion clauses in contingent fee agreements are ethically prohibited primarily because their use improperly interferes with important client rights, including the client’s right to discharge the attorney or the client’s right to determine whether to settle. Conversion clauses violate an attorney’s ethical duties and may constitute an agreement to charge an unconscionable fee.”
At its June 21, 2024, meeting, and in accordance with their procedures, COPRAC tentatively approved Proposed Formal Opinion Interim No. 20-0005 for a 60-day public comment distribution. This is the second public comment period for this opinion. A prior version of the opinion was issued for public comment with a November 17, 2022, comment deadline. The prior draft of the opinion advised: “Conversion clauses are not ethically prohibited per se, but require careful ethical scrutiny, and the circumstances where a conversion clause is ethically permissible are rare. They are ethically prohibited where their use may improperly interfere with important client rights or may violate an attorney’s ethical duties, primarily the client’s right to discharge the lawyer or the client’s right to determine whether to settle and where they would result in an unconscionable fee.” The opinion provided five scenarios. In four scenarios, the committee advised that a conversion clause was ethically prohibited. In one scenario, the committee advised that there could be a “settlement-related conversion clause that may be ethically permissible” based on (1) the sophistication of the client; (2) the alternate fee being designed to encourage the lawyer to provide a contingent fee representation based on the client’s preference; (3) the alternate fee not interfering with the client’s decision whether to settle and the possibility that the client may choose not to pursue the claim to disposition; (4) the alternate fee not constituting an unconscionable fee; and (5) the client providing informed written consent to the unusual fee arrangement.
The revised version of the opinion, as issued for this 60-day public comment period, advises that conversion clauses are never ethically permitted.
The committee seeks comment on the revised opinion. In particular, the committee invites public comments addressing (1) the opinion’s position that a conversion clause should be prohibited per se in all matters and representations, including in transactional matters; and (2) whether the opinion should be limited to prohibiting conversion clauses only certain types of representation, such as in a litigation context.
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Committee on Professional Responsibility and Conduct
September 3, 2024, 11:59 p.m.