Can a California lawyer contract with a client at the outset of representation in a civil rights case that the client irrevocably assigns to the lawyer the right to seek and collect attorney's fees under 42 U.S.C. section 1988, so the client cannot waive that right in settlement?

Currency note

This opinion was issued in 1994, before the State Bar of California's adoption of the November 1, 2018 revisions to the Rules of Professional Conduct. The opinion interprets former California Rules 3-300, 3-310, 3-510, 3-700, and 4-200. The substance is now distributed across current California Rules 1.7, 1.8.1 (formerly 3-300), 1.4.1, 1.16, and 1.5, but the opinion's analysis is rooted in the former framework. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the State Bar of California's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. The opinion text is reproduced at the bottom; the official source (linked) controls.

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Plain-English summary

The committee addressed a retainer term used by some plaintiffs' civil rights counsel: at the outset of the engagement, the client irrevocably assigns the statutory right to apply for and recover attorney's fees under 42 U.S.C. section 1988, and agrees not to waive that right. Such terms respond to the practical problem identified in Evans v. Jeff D., 475 U.S. 717 (1986), where the United States Supreme Court held that the fee award belongs to the client and that the plaintiff may waive or negotiate it in settlement. The committee analyzed the term under former Rules 3-300, 3-310, 3-510, 3-700, and 4-200, and the California Business and Professions Code.

The committee opined that the client's assignment of the right to seek a fee gives the lawyer an interest in the award the lawyer would not otherwise have. Because the assignment lets the lawyer control whether to accept a settlement that depends on the plaintiff's fee waiver, the committee characterized the interest as a "possessory interest" adverse to the client within former Rule 3-300. Former Rule 3-300 therefore required fair terms, written disclosure, written advice that the client may consult independent counsel and a reasonable opportunity to do so, and the client's written consent. The committee noted that contingency fee agreements are exempt by statute (Bus. & Prof. Code section 6147) from former Rule 3-300 by public policy, but the assignment term in question is distinct from the contingency arrangement itself, so the statutory exemption did not apply.

On fairness, the committee opined that section 1988 fee assignments can be fair and reasonable when measured against the rule's standards, citing Venegas v. Mitchell, 495 U.S. 82 (1990), which approved a contingent fee that exceeded the section 1988 award, and the access-to-counsel purpose Congress identified for section 1988. The committee opined that the disclosure required by former Rule 3-300(A) should include a candid explanation that the lawyer may seek to override the client's desire to accept settlement terms conditioned on a fee waiver, that the lawyer's right to do so may not be enforceable, and that the lawyer's and client's interests may diverge if the defendant offers full relief on those terms, with possible withdrawal by counsel.

The committee further opined that former Rule 3-310(A) and (B)(4) impose additional disclosure obligations because the lawyer has acquired an interest in the subject matter of the representation. In the event of a settlement offer contingent on a fee waiver, counsel must advise the client of all settlement terms, remind the client that counsel "owns" the right to the fee, and advise the client of the right to consult independent counsel regarding the settlement. Where the client and lawyer disagree on accepting the settlement, the committee opined that counsel may be required to withdraw under former Rule 3-700(B)(2) and (C)(1)(f). The committee noted that the client's statutory right to control settlement (former Rule 3-510; Bus. & Prof. Code section 6103.5) is not displaced by the assignment, and that enforceability questions, including those raised by Darby v. City of Torrance, 810 F. Supp. 271 (C.D. Cal. 1992), are outside the scope of the opinion. Finally, the committee opined that assignments of this kind do not violate former Rule 4-200's prohibition on illegal or unconscionable agreements, because the section 1988 amount is set by the court.

Common questions

Q: Can a California lawyer's retainer in a civil rights case assign the right to seek section 1988 fees to the lawyer?

A: Per the opinion, yes, provided counsel fully complies with former Rule 3-300. The committee concluded the assignment creates a possessory interest adverse to the client because it affects settlement control, so the rule's fair-terms, written-disclosure, independent-counsel, and written-consent protocol applied. Compliance with former Rule 3-310 disclosure was also required.

Q: Why isn't this just a contingent fee term governed by section 6147?

A: Per the opinion, the Legislature exempted contingency fee contracts themselves from former Rule 3-300's conflict rules by public policy (Bus. & Prof. Code section 6147; Cal. State Bar Formal Opn. 1987-94), but the committee opined that the section 1988 fee assignment is a separate provision and that the Legislature has not declared a comparable public policy protecting it. The assignment was therefore analyzed under the conflict rules.

Q: What disclosure did the committee say should be made under Rule 3-300?

A: Per the opinion, the disclosure must cover the possibility that the lawyer may seek to override the client's desire to settle by accepting injunctive relief if the settlement depends on a fee waiver, that the lawyer's right to do so may not be enforceable, and that the defendant may offer full relief in exchange for the waiver with the result that the lawyer's interest and the client's interest in settling could diverge and the lawyer may have to withdraw.

Q: What happens if a defendant offers an Evans v. Jeff D. settlement that gives the client full relief but waives fees?

A: Per the opinion, counsel must promptly and fully advise the client of all settlement terms, remind the client that counsel owns the right to the fee, and advise the client of the right to consult independent counsel. If client and counsel disagree on accepting the offer, the committee opined that counsel may have to withdraw under former Rule 3-700(B)(2) and (C)(1)(f). The committee noted that the client retains the right to control settlement.

Q: Did the committee opine on whether such an assignment is enforceable?

A: Per the opinion, the committee opined that enforceability is a legal question beyond the scope of the opinion, noting that Darby v. City of Torrance held a lawyer could not enforce a fee provision by becoming a party in the underlying section 1983 case or by seeking injunctive relief to block settlement that did not protect fees. The committee opined that the appropriate procedure if a dispute over settlement arises is for counsel to withdraw and then seek to enforce the retainer agreement separately.

Q: Does the assignment violate former Rule 4-200's prohibition on unconscionable fees?

A: Per the opinion, no. The committee opined that the agreement is neither illegal nor unconscionable because the section 1988 fee amount is set by the court rather than by the agreement.

Background and rules framework

The opinion interprets former California Rules 3-300 (business transactions or pecuniary interests adverse to a client), 3-310 (avoiding the representation of adverse interests), 3-510 (communicating settlement offers), 3-700 (withdrawal), and 4-200 (unconscionable fees), together with Business and Professions Code section 6147 (contingency fee agreements) and section 6103.5 (settlement communication). The substance is now distributed across current California Rules 1.5, 1.7, 1.8.1, 1.4.1, and 1.16, but the opinion is rooted in the former framework. The federal context is 42 U.S.C. section 1988, with the United States Supreme Court's holdings in Evans v. Jeff D. and Venegas v. Mitchell central to the analysis.

Citations and references

Rules of Professional Conduct (former, in effect at time of opinion):

• Former California Rule 3-300, including (A), (B), and (C)
• Former California Rule 3-310, including (A) and (B)(4)
• Former California Rule 3-510
• Former California Rule 3-700, including (B)(2) and (C)(1)(f)
• Former California Rule 4-200

Statutes:

• 42 U.S.C. section 1988
• California Business and Professions Code section 6068
• California Business and Professions Code section 6103.5
• California Business and Professions Code section 6147

Cases:

• Evans v. Jeff D., 475 U.S. 717 (1986), settlement conditioned on waiver of section 1988 fees
• Venegas v. Mitchell, 495 U.S. 82 (1990), enforceability of contingency fee exceeding section 1988 award
• Hawk v. State Bar, 45 Cal.3d 589 (1988), promissory note secured by deed of trust under former Rule 5-101
• Ritter v. State Bar, 40 Cal.3d 595 (1985), client's loan to attorney in lieu of fees
• Gold v. Greenwald, 247 Cal.App.2d 296 (1961), real estate joint venture between lawyer and client
• Hawkins v. Faries, 49 Cal.App.2d 186 (1942), oil drilling permits
• Ames v. State Bar, 8 Cal.3d 910 (1973), burden on attorney to show fair terms and informed client
• Sampson v. State Bar, 12 Cal.3d 70 (1974), settlement without client consent
• Bodisco v. State Bar, 58 Cal.2d 495 (1962), settlement without client consent
• Bambic v. State Bar, 40 Cal.3d 314 (1985), willful settlement without consent
• Alvarado Community Hospital v. Superior Court, 173 Cal.App.3d 476 (1985), attorney lacks authority to bind without consent
• Hall v. Orloff, 49 Cal.App. 745 (1920), agreements giving lawyer settlement control against public policy
• Darby v. City of Torrance, 810 F. Supp. 271 (C.D. Cal. 1992), fee enforcement avenues in section 1983 case

Other opinions cited:

• Cal. State Bar Formal Opn. 1987-94, contingency fee exemption
• Cal. State Bar Formal Opn. 1981-62, attorney security devices for fee collection
• Cal. State Bar Formal Opn. 1989-114, duty to communicate settlement offers
• Cal. State Bar Formal Opn. 1994-135, structured settlement fee allocation
• L.A. Cty. Bar Formal Opn. 398, security interest in client assets
• L.A. Cty. Bar Formal Opn. 445, public policy on section 1988 fee assignments

See also

• CA Ethics Op. 1994-138: Outside-Lawyer Pay and Rule 2-200
• CA Ethics Op. 1994-135: Structured Settlement Fee Allocation
• CA Ethics Op. 1995-141: Lawyer Provision of Non-Legal Services
• CA Ethics Op. 2006-170: Charging Lien on Contingency Fee

Source

• Landing page: https://www.calbar.ca.gov/legal-professionals/ethics-compliance-practice-resources/ethics/ethics-opinions
• Source HTML: https://www.calbar.org/ethics/Opinions/1994-136.htm

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Ethics Opinions - FORMAL OPINION NO. 1994-136

Editor's Note:

State Bar Ethics Opinions cite the applicable California Rules of Professional Conduct in effect at the time of the writing of the opinion. Please refer to the California Rules of Professional Conduct Cross Reference Chart for a table indicating the corresponding current operative rule. There, you can also link to the text of the current rule.

THE
STATE BAR OF CALIFORNIA

STANDING COMMITTEE ON

PROFESSIONAL RESPONSIBILITY AND CONDUCT
FORMAL OPINION NO. 1994-136

ISSUE:

Do the California Rules of Professional Conduct prohibit a member from contracting with the client that the right to recover attorney's fees pursuant to civil rights statutes belongs to the attorney and may not be waived by the client?

DIGEST:

Such agreements are not prohibited in actions brought under 42 United States Code section 1988, so long as the member complies with rules 3-300 and 3-310.

AUTHORITIES INTERPRETED:

Rules 3-300, 3-310, 3-510, 3-700 and 4-200 of the California Rules of Professional Conduct.

DISCUSSION

Under 42 United States Code section 1988, a court may award a reasonable attorney's fee to the prevailing party in civil rights suits. The United States Supreme Court held in Evans v. Jeff D. (1986) 475 U.S. 717, 730-731 [89 L.Ed.2d 747, 106 S.Ct. 1531] that the attorney's fee award belongs to the client, not the attorney, and that the plaintiff may waive, settle, or negotiate the right to fees. Evans holds that the trial court may approve a settlement pursuant to which the plaintiff receives substantially all the non-pecuniary relief sought in exchange for waiver of the right to recover attorney's fees. This waiver often leaves the plaintiff's attorney without compensation.

We have been asked to provide an opinion as to whether or not a member of the State Bar of California, at the outset of the attorney-client relationship, may ethically contract with a client that the rights to apply for and receive an award of attorney's fees are irrevocably assigned, transferred, and conveyed to the attorney, and that the client shall not attempt to waive the right to apply for and receive such fees.

This committee believes that, so long as the member fully complies with rule 3-300 of the California Rules of Professional Conduct (hereafter rule(s)), there is no ethical prohibition against such an agreement. This opinion only addresses the propriety of such agreements in the context of actions brought under 42 United States Code section 1988.

Rule 3-300 provides that:

A member shall not enter into a business transaction with a client; or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client, unless each of the following requirements is satisfied:

(A) The transaction or acquisition and its terms are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which should reasonably have been understood by the client; and

(B) The client is advised in writing that the client may seek the advice of an independent lawyer of the client's choice and is given a reasonable opportunity to seek that advice; and

(C) The client thereafter consents in writing to the terms of the transaction or the terms of the acquisition.

The discussion section following rule 3-300 states that the rule does not apply to retention agreements, unless the agreement confers an ". . . ownership, possessory, security, or other pecuniary interest adverse to the client."

The effect of the client's assignment to the attorney of the right to an attorney's fee award gives the attorney an interest in the award to which he or she would not otherwise be entitled. In Evans v. Jeff D., supra, 475 U.S. 717, 722, the defense offered to settle the case by giving the plaintiff full relief in exchange for a waiver of the statutory entitlement to attorneys fees. In that event, it is in the best interest of the client to accept the settlement, while it is in the interest of the attorney who has obtained the client's waiver of the right to attorney's fees to reject the offer. In our opinion, the real possibility of an Evans settlement offer creates an actual conflict between attorney and client because it allows the lawyer to pursue a course of action that may not be in the client's best interests. The attorney's exclusive possession of the right to collect attorney's fees, and therefore to control settlement, constitutes a "possessory interest" adverse to the client such that the member must comply with rule 3-300.

Contracting with the client for the right to statutory attorney's fees is different from a contingency fee agreement, which the Legislature has decreed to be exempt from conflict of interest rules because of public policy. (See Bus. & Prof. Code, § 6147; Cal. State Bar Formal Opn. No. 1987-94.) The Legislature has declared no such public policy protecting contracts for the right to collect attorney's fees. In the absence of such a declaration, we must conclude that the conflict of interest rules do apply to the provision in question. Moreover, retainer agreements which give the attorney the right to control settlement are against the public policy of the State of California. (Hall v. Orloff (1920) 49 Cal.App. 745, 749.)

Courts have held other arrangements by which attorneys secure the right to collect fees, to be subject to rule 3-300's predecessor, rule 5-101. (See Hawk v. State Bar (1988) 45 Cal.3d 589, 601 [247 Cal.Rptr. 599, 754 P.2d 1096] [taking promissory note secured by deed of trust in real property owned by client]; Ritter v. State Bar (1985) 40 Cal.3d 595, 602 [221 Cal.Rptr. 134, 709 P.2d 1303] [client's loan to attorney in lieu of attorney's fees].)

Rule 3-300 does not prohibit attorneys from obtaining pecuniary interests adverse to their clients so long as the transaction is fair and reasonable and the client consents after having been appropriately informed. Other contractual provisions by which attorneys attempt to secure their right to compensation have been held not to violate the Rules. In California State Bar Formal Opinion Number 1981-62, this committee concluded that an attorney may obtain a lien, promissory note, or other security device to protect the ability to collect fees, so long as the attorney complies with former rule 5-101 (the predecessor to rule 3-300). Another committee has opined that an attorney may obtain a security interest in client assets to secure payment of attorney's fees. (L.A. Cty. Bar Formal Opn. No. 398.)

In determining whether or not a transaction is "fair and reasonable" to the client, the courts have examined whether the terms of the transaction would have been fair had the client entered into the transaction with a third party who was not his attorney. (See, e.g., Hawk v. State Bar, supra, 45 Cal.3d at p. 601 [discipline against attorney upheld where attorney had obtained notes secured by deed of trust on client's property and then caused the properties to be foreclosed upon. Although the terms of the transactions were "fair and reasonable", the clients did not understand their legal significance]; Gold v. Greenwald (1961) 247 Cal.App.2d 296, 304 [55 Cal.Rptr. 660] [even though the client's financial exposure in a real estate joint venture was greater than her attorney's, the court ruled the agreement was fair but refused to enforce it because the client had not been fully informed of her responsibilities and liabilities]; Hawkins v. Faries (1942) 49 Cal.App.2d 186, 192 [client sold oil drilling permits to attorneys; attorneys sold the permits to a third party at a large profit. When client sued to recover this "secret profit," the court ruled in favor of the attorneys as the client had received a "fair and adequate price" for the permits].) The attorney bears the burden of proving that the terms of the transaction are fair, and that the client was fully informed. (See Ames v. State Bar (1973) 8 Cal.3d 910, 916 [106 Cal.Rptr. 489, 506 P.2d 625].)

Assignment by the client of the statutory right to attorney's fees appears fair. Such an assignment is consistent with the purposes of the attorney's fees award in civil rights cases. Congress intended that the entitlement to fees would enable indigent plaintiffs to obtain competent counsel. (See Venegas v. Mitchell (1990) 495 U.S. 82 [109 L.Ed.2d 74, 83, 110 S.Ct. 1679].) Permitting defendants to settle such actions in exchange for the plaintiff's waiver of the right to attorney's fees may eliminate access to the courts in civil rights cases by reducing the number of lawyers willing to take on such cases. (See L.A. Cty. Bar Formal Opn. No. 445.) Allowing lawyers to contract with their clients for an assignment of the right to fees should enhance the public's access to competent counsel.

Our conclusion that such agreements may be fair and reasonable is also supported by the United States Supreme Court's opinion in Venegas v. Mitchell, supra, 495 U.S. 82, which held that an attorney's contingency fee contract was enforceable even though it gave the attorney greater fees than the district court had awarded pursuant to 42 United States Code section 1988. The Court notes that since a civil rights plaintiff may agree to waive the right to fees in favor of the defendant, refusing to enforce a contingency agreement would place plaintiffs ". . . in the peculiar position of being freer to negotiate with their adversaries than with their own attorneys." Id. at p. 88. Additionally, the Court recognized that ". . . depriving plaintiffs of the option of promising to pay more than the statutory fee if that is necessary to secure counsel of their choice would not further 42 United States Code section 1988's general purpose of enabling such plaintiffs in civil rights cases to secure competent counsel." Id. at p. 89. Therefore, the concept of an assignment of the right to recover attorney's fees does not appear to us to be unfair.

To establish compliance with rule 3-300, the member must also satisfy the disclosure requirement of the rule. (Rule 3-300(A).) Disclosure should include a discussion that the lawyer may attempt to override the client's desire to settle the case by accepting the injunctive relief requested, if the settlement offer depends upon a waiver of some or all of the attorney's fees, and that the lawyer's right to do so may not be enforceable. The client must be informed that the defendant may offer the full injunctive relief requested in exchange for a waiver of attorney's fees and that, in this event, the attorney's interest and the client's interest in settling the case would differ, with the possible result that the attorney must withdraw.

Furthermore, because there is a conflict of interest between attorney and client regarding settlement, the attorney must promptly and fully inform the client of all settlement offers. (See Cal. State Bar Formal Opn. No. 1989-114.) In the event of a settlement offer contingent upon waiver of attorney's fees, the attorney must not only advise the client of all terms of the offer, but should also remind the client that the attorney "owns" the right to attorney's fees, and advise the client that he or she has the right to consult with independent counsel regarding the settlement offer. We believe that rule 3-310(A) and (B)(4) imposes this requirement of additional disclosure, as the attorney has acquired an interest in the subject matter of the representation. In the event of a disagreement between client and attorney as to whether or not a settlement offer should be accepted, the attorney may be forced to withdraw from representation. (See rule 3-700(B)(2) [mandatory withdrawal when member knows or should know that continued employment will result in violation of the rules] and rule 3-700(C)(1)(f) [permissive withdrawal where client breaches agreement as to fees].)

Although such agreements do not appear to be unethical if the attorney makes the appropriate disclosures and obtains client consent, there is no guarantee that such agreements are enforceable. A member may not agree to settlement without the client's consent. (See Sampson v. State Bar (1974) 12 Cal.3d 70, 82 [115 Cal.Rptr. 43, 524 P.2d 139]; Bodisco v. State Bar (1962) 58 Cal.2d 495, 497-498 [24 Cal.Rptr. 835] [concluding settlement without client's consent warrants discipline]; Bambic v. State Bar (1985) 40 Cal.3d 314, 323 [219 Cal.Rptr. 489, 707 P.2d 862] [willful settlement without client's consent is a dishonest act warranting severe discipline]; Alvarado Community Hospital v. Superior Court (1985) 173 Cal.App.3d 476, 480 [219 Cal.Rptr. 52] [attorney has no authority to bind client to settlement without client's consent].) Since an attorney may not dictate a settlement decision against the client's will, it appears that the attorney also does not have the right to veto a settlement that the client wishes to accept. The client always has the right to determine whether or not to accept a settlement offer. (Rule 3-510; Bus. & Prof. Code, § 6103.5.) In Darby v. City of Torrance (C.D. Cal. 1992) 810 F.Supp. 271, the District Court held that a lawyer could not enforce a fee provision in a 42 U.S.C. § 1983 case by becoming a party in the underlying case, or by filing for injunctive relief in that case to prohibit settlement without protecting the lawyer's fees. Thus, in the event of a disagreement between attorney and client regarding settlement, the appropriate procedure would require the attorney to withdraw from representation and then seek to enforce the retainer agreement. Whether the attorney has legal standing to oppose the settlement and whether or not a court would enforce the agreement between attorney and client, are legal questions beyond the scope of this opinion. We make note of these issues because they obviously influence an attorney's decision to enter into such a retainer agreement.

For the reasons discussed above, and despite concerns regarding enforceability, agreements assigning the right to attorney's fees are neither illegal nor unconscionable, and therefore do not violate rule 4-200. The court sets the amount of attorney's fees awarded pursuant to 42 United States Code section 1988; the agreement in question does not affect the amount of fees to be awarded.

This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of the State Bar of California. It is advisory only. It is not binding on the courts, the State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.