Does the inclusion of a charging lien in a contingency fee agreement require California compliance with former Rule 3-300, including written advice to consult independent counsel and written client consent?

Currency note

This opinion was issued in 2006, before the State Bar of California's adoption of the November 1, 2018 revisions to the Rules of Professional Conduct. The opinion interprets former Rules 3-300 and 4-200, together with Business and Professions Code section 6147. Current Rule 1.8.1 (business transactions with clients), Rule 1.5 (fees), and Rule 1.8.10 (security interests, including the equivalent of the former Rule 3-300 analysis) now address these issues. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule reference.

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 hypothetical: Attorney agrees to represent Client as plaintiff in a personal injury case under a written contingency fee agreement of 33% if settled before trial and 40% if settled after trial commences. The agreement complies with Business and Professions Code section 6147 and includes a charging lien on any settlement or judgment Attorney recovers. Attorney does not advise Client to consult independent counsel before signing.

The committee asked whether former Rule 3-300, which requires that the attorney's acquisition of an interest adverse to the client be in writing with disclosure of the right to independent counsel and written client consent, applies to a charging lien in a contingency fee agreement. The committee said it does not. The California Supreme Court in Fletcher v. Davis (2004) 33 Cal.4th 61 held that a charging lien in an hourly fee agreement is a security interest adverse to the client, triggering Rule 3-300, but expressly declined in footnote 3 to address whether the same is true in contingency fee agreements.

The committee identified four reasons to distinguish Fletcher. First, a charging lien is an equitable corollary of a contingency fee contract: the attorney and client have agreed the fee will be a percentage of and derived only from a successful recovery, they share the risk, any fee is delayed until recovery, and the recovery is often the only source of payment. The committee cited Isrin v. Superior Court (1965) 63 Cal.2d 153 (decided under former Rule 4, which absolutely prohibited adverse interests, yet upheld charging liens in contingency contracts), L.A. County Bar Association Formal Opinion 496 (1998), and San Francisco Bar Association Formal Opinion 1997-1, plus Hazard & Hodes, The Law of Lawyering §§ 8.23, 12.21, characterizing such liens as "almost universally permitted" and "historically uncontroversial."

Second, contingency fees are capped at a previously agreed percentage and subject to Business and Professions Code section 6147 (writing requirement, fee disclosure, negotiability) and Rule 4-200 (unconscionability), so the charging lien is bounded; hourly fees are not. The committee acknowledged that costs in contingency cases can approach the recovery, but noted that section 6147 requires the written fee agreement to state how disbursements and costs will affect the fee and the client's recovery.

Third, Fletcher concerned an oral hourly fee agreement; absent Rule 3-300 there would have been no writing requirement at all. Contingency agreements are independently required to be in writing under section 6147.

Fourth, the committee observed that an independent lawyer consulted under a Rule 3-300 disclosure would likely confirm that charging liens are universally included in contingency contracts and uniformly upheld; requiring such consultation would impose cost without discernible benefit. Although not binding, members may consult the sample contingency fee agreements published by the State Bar's Standing Committee on Mandatory Fee Arbitration, which include an optional Rule 3-300-compliant lien provision recommended for the attorney's protection given that no appellate court has yet ruled on this specific question after Fletcher.

The committee was careful to limit the opinion to straight contingency fee agreements; hybrid hourly/contingency arrangements and discharged-attorney enforcement of charging liens were not addressed. Footnote 8 reminded readers that retaining liens (withholding client files for fees) are not permitted in California, citing Academy of California Optometrists (1975) 51 Cal.App.3d 999.

Common questions

Q: Does a charging lien in a contingency fee agreement require compliance with former Rule 3-300?

A: Per the opinion, no. The committee distinguished Fletcher v. Davis (2004), which held that charging liens in hourly fee contracts trigger Rule 3-300, and concluded that the inclusion of a charging lien in an initial contingency fee agreement does not create an adverse interest within the meaning of Rule 3-300. The committee identified four reasons for distinguishing hourly and contingency arrangements.

Q: Why are charging liens treated differently in contingency fee agreements than in hourly fee agreements?

A: Per the opinion, because a charging lien is an equitable corollary of a contingency arrangement: the attorney and client have agreed that the fee will be limited to a percentage of and derived only from a successful recovery, they share the risk of a recovery, payment is delayed until the recovery occurs, and the recovery is often the only source of payment. In hourly agreements, none of these features applies; the lien is neither inherent nor common.

Q: Did the California Supreme Court already rule on this question?

A: Per the opinion, no. Fletcher v. Davis (2004) 33 Cal.4th 61 expressly limited its holding to charging liens in hourly fee cases and declined in footnote 3 to address whether Rule 3-300 applies to charging liens in contingency fee arrangements.

Q: Even though Rule 3-300 does not apply, must the contingency fee agreement still be in writing?

A: Per the opinion, yes. Business and Professions Code section 6147 provides an independent statutory basis requiring most contingency fee agreements to be in writing, with statements about the fee percentage, that the fee is negotiable, and how disbursements and costs affect the fee and the client's recovery. Workers' compensation matters and certain claims between merchants are excepted.

Q: Does the opinion address charging liens in hybrid hourly/contingency arrangements or for discharged attorneys?

A: Per the opinion, no. The committee expressly declined to address either question and limited its analysis to a straight contingency fee agreement with a charging lien.

Background and rules framework

The opinion interprets former California Rules 3-300 (business transactions and adverse interests with clients) and 4-200 (unconscionable fees), and applies Business and Professions Code section 6147 (contingency fee contract requirements). It analyzes the California Supreme Court's decision in Fletcher v. Davis (2004) 33 Cal.4th 61. Functionally, the questions now correspond, in current California numbering, to Rule 1.5 (fees) and Rules 1.8.1 and 1.8.10 (transactions with clients and security interests).

Citations and references

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

• Former California Rule 3-300
• Former California Rule 4-200
• Former California Rule 3-700(c)(1)(f)
• Former California Rule 4 (1928-1975)
• Former California Rule 5-101 (1975-1989)

Statutes:

• California Business and Professions Code sections 6147, 6147.5, 6148
• California Labor Code section 4903(a)

Cases:

• Fletcher v. Davis (2004) 33 Cal.4th 61, Rule 3-300 applies to charging liens in hourly fee agreements
• Isrin v. Superior Court (1965) 63 Cal.2d 153, charging lien as equitable security interest in litigation proceeds
• Cetenko v. United California Bank (1982) 30 Cal.3d 528, charging liens may secure contingent or hourly fees
• Haupt v. Charlie's Kosher Market (1941) 17 Cal.2d 843, charging lien recognition
• Bartlett v. Pacific National Bank (1952) 110 Cal.App.2d 683
• Jones v. Martin (1953) 41 Cal.2d 23
• Epstein v. Abrams (1997) 57 Cal.App.4th 1159
• Setzer v. Robinson (1962) 57 Cal.2d 213, arm's length negotiation of fee agreement
• Cooley v. Miller & Lux (1909) 156 Cal. 510, fee agreement negotiation
• Alderman v. Hamilton (1988) 205 Cal.App.3d 1033, fee agreement strictly construed against attorney
• Ramirez v. Sturdevant (1994) 21 Cal.App.4th 904, attorney's negotiating latitude
• Fracasse v. Brent (1972) 6 Cal.3d 784, public policy favoring contingency fee access
• Ames v. State Bar (1973) 8 Cal.3d 910, security interest adverse to client
• Silver v. State Bar (1970) 13 Cal.3d 134, levy on own writ adverse to client
• Hawk v. State Bar (1988) 45 Cal.3d 589, summarily extinguishable security interest
• Shaffer v. Superior Court (1995) 33 Cal.App.4th 993, unconscionable fees
• Jackson v. Campbell (1932) 215 Cal. 103, unconscionable compensation
• Cazares v. Saenz (1989) 208 Cal.App.3d 279, fee-payment risk allocation
• In the Matter of Feldsott (Rev. Dept. 1997) 3 Cal. State Bar Ct. Rptr. 754, discharged attorney's fiduciary duty
• Academy of California Optometrists (1975) 51 Cal.App.3d 999, no retaining liens on client papers

Other opinions and authorities cited:

• California State Bar Formal Opinion 1987-94: legislative public policy on contingency fees
• California State Bar Formal Opinion 1994-135: structured settlement may create conflict requiring Rule 3-300
• California State Bar Formal Opinion 1983-71: looking to ABA Model Rules when not in conflict
• L.A. County Bar Association Formal Opinion 416 (1983)
• L.A. County Bar Association Formal Opinion 496 (1998)
• San Francisco Bar Association Formal Opinion 1997-1
• ABA Standing Committee on Ethics Formal Opinion 02-427: Rule 1.8(i) permits contractual lien
• ABA Model Rules 1.5(c), 1.8(i)
• Restatement (Third) of the Law Governing Lawyers §§ 36(1), 43(2) (2000)
• Hazard & Hodes, The Law of Lawyering (2004 Supp.) §§ 8.23, 12.21

See also

• CA COPRAC Op. 2002-159: Attorney referral to broker for loan-funded fees
• CA COPRAC Op. 2005-169: Client trust account overdraft protection
• CA COPRAC Op. 2002-160: Missing client settlement authority and fees

Source

• Landing page: https://www.calbar.ca.gov/legal-professionals/ethics-compliance-practice-resources/ethics/ethics-opinions
• Original PDF: https://www.calbar.ca.gov/sites/default/files/portals/0/documents/ethics/Opinions/2006-170_04-0002_Published_Version.0614-wpd-PAW.pdf

Original opinion text

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

THE STATE BAR OF CALIFORNIA
STANDING COMMITTEE ON
PROFESSIONAL RESPONSIBILITY AND CONDUCT
FORMAL OPINION NO. 2006-170

ISSUE: Must an attorney comply with rule 3-300 when entering into a contingency fee agreement that contains a provision for a charging lien?

DIGEST: The inclusion of a charging lien in the initial contingency fee agreement does not create an "adverse interest" to the client within the meaning of rule 3-300 of the California Rules of Professional Conduct. Unlike a charging lien in an hourly case, the charging lien is a natural corollary of the contingency arrangement. This conclusion is not intended to discourage lawyers from conforming to the standards established in rule 3-300 in their contingency agreements.

AUTHORITIES INTERPRETED: Rules 3-300 and 4-200 of the Rules of Professional Conduct of the State Bar of California. Business and Professions Code section 6147.

STATEMENT OF FACTS

Attorney agrees to represent Client as a plaintiff in a personal injury suit arising from an automobile accident. Attorney and Client enter into a written contingency fee agreement providing that Attorney's fee will be 33% of Client's recovery if the suit is settled before trial, and 40% of the recovery if settled after trial commences. The contingency fee agreement complies with all of the requirements of Business and Professions Code section 6147. The agreement also provides for Attorney to have a lien on any settlement or judgment Attorney recovers for Client. Attorney does not advise Client to consult independent counsel prior to consenting to the fee agreement.

I. Contingency Fee Agreements

The negotiation of an original fee agreement is an arm's length transaction. (Setzer v. Robinson (1962) 57 Cal.2d 213, 217 [18 Cal.Rptr. 524]; Cooley v. Miller & Lux (1909) 156 Cal. 510, 524 [105 P. 981].) However, as a contract drafted by the attorney, its provisions are strictly interpreted against the attorney and any ambiguity is interpreted in favor of the client. (Alderman v. Hamilton (1988) 205 Cal.App.3d 1033, 1037 [252 Cal.Rptr. 845].) Within these parameters, "the attorney is entitled to negotiate the terms on which he would accept employment as he wished . . . absent issues of duress, unconscionability, or the like." (Ramirez v. Sturdevant (1994) 21 Cal.App.4th 904, 913 [26 Cal.Rptr.2d 554].)

In California, contingency fee agreements are permitted for the pursuit of most civil claims and are generally favored because they allow access to the courts by persons who might otherwise have no opportunity for redress due to lack of resources to pay an attorney. Studies have demonstrated that contingency fee representation is an important vehicle for access to justice. In California State Bar Formal Opinion No. 1987-94 and again in Formal Opinion No. 1994-135, we observed that the California Legislature "has made entering into a contingency fee contract . . . exempt from the effects of conflict of interest rules because of public policy." The long-standing California rule mirrors the ABA Model rules.

For a contingency fee contract to be enforceable, the attorney must ensure compliance with certain safeguards. California Business and Professions Code section 6147 is designed to protect clients by requiring, among other things, that: (a) the agreement be in writing with a signed duplicate original provided to the client; (b) the client be notified that the fee is negotiable; and (c) the client be notified of the percentage fee as well as the manner in which costs and disbursements will affect the size of the fee and the client's recovery. In addition to statutory regulation of attorney fee contracts, contingent fees are governed by rule 4-200, which states that an attorney may not charge an unconscionable fee.

II. Charging Liens

A charging lien, as defined by the California Supreme Court in Fletcher v. Davis (2004) 33 Cal.4th 61, 66 [14 Cal.Rptr.3d 58], is a lien "created upon the fund or judgment the attorney recovers for compensation in recovering the fund or judgment." In our factual setting, the contractual lien created by Attorney's contingency fee agreement with Client is a "charging lien."

Charging liens may be used to secure either contingent or hourly fees (Cetenko v. United California Bank (1982) 30 Cal.3d 528, 531-32 [179 Cal.Rptr. 902]), thereby creating a "security interest" in the proceeds of the litigation. (Fletcher v. Davis, supra, 33 Cal. 4th at 67, citing Isrin v. Superior Court (1965) 63 Cal.2d. 153, 158 [45 Cal.Rptr. 320].) The lien may be express or implied as use of the word "lien" is not required so long as the parties manifest an intent for the attorney to look to the client's recovery as the source of the attorney's fee. (Isrin v. Superior Court, supra, 63 Cal.2d 153, 157 [45 Cal.Rptr. 320].)

DISCUSSION

I. Fletcher v. Davis

In Fletcher v. Davis, supra, 33 Cal.4th 61 [14 Cal.Rptr.3d 58], the Supreme Court held that an attorney who wishes to secure payment of hourly legal fees and costs of litigation by obtaining a charging lien must comply with rule 3-300, which requires, among other things, that the attorney advise the client in writing that the client may seek the advice of an independent lawyer and obtain the client's consent in writing. The court held that a charging lien in an hourly fee contract constitutes a security interest adverse to a client, thereby triggering the requirements of rule 3-300. In so holding, the Fletcher court noted that a charging lien was not inherent in the nature of an hourly fee agreement and that it was reasonably foreseeable that the charging lien could significantly impair the client's interest by delaying payment of the recovery or proceeds until any dispute over the lien could be resolved. The Fletcher court limited its holding to charging liens in hourly fee cases and expressly declined to address the issue we discuss in this opinion, namely "whether rule 3-300 applies to a contingency fee arrangement coupled with a charging lien on the client's prospective recovery in the same proceeding."

II. Court Interpretation of Rule 3-300 and Its Predecessors

Rule 3-300 was enacted in its present form in 1989. From 1975 to 1989, rule 5-101, the immediate predecessor to rule 3-300, was in effect. Rule 5-101 was substantially similar in its wording to the current version of the rule. From 1928 through 1975, rule 4 was in effect. Under rule 4, attorneys were absolutely prohibited from acquiring any interest adverse to a client: "A member of the State Bar shall not acquire an interest adverse to a client." Thus, until 1975, even fairness, notice, and an opportunity to consult with independent counsel and written consent did not validate a transaction in which an attorney acquired an interest adverse to a client.

While rule 4 was in effect, absolutely prohibiting attorneys from acquiring any interest adverse to a client, the Supreme Court upheld charging liens in contingent fee contracts. In Isrin v Superior Court, supra, 63 Cal.2d at 158-159, the court wrote:

[I]n whatever terms one characterizes an attorney's lien under a contingent fee contract, it is no more than a security interest in the proceeds of the litigation. . . [T]he attorney's lien is "an equitable right to have the fees and costs due to him for services in a suit secured to him out of the judgment or recovery in the particular action, the attorney to the extent of such services being regarded as an equitable assignee of the judgment. It is based, as in the case of a lien proper, on the natural equity that a party should not be allowed to appropriate the whole of a judgment in his favor without paying for the services of his attorney in obtaining such judgment . . ." [C]ontingent fee contracts "do not operate to transfer a part of the cause of action to the attorney but only give him a lien upon his client's recovery."

Likewise, Los Angeles County Bar Association Formal Opinion No. 496 (1998) noted that: "A contingent fee coupled with a lien against the client's recovery in the same matter in which legal services are being provided has never been held to require compliance with the terms of rule 3-300." Similarly, San Francisco Bar Association Formal Opinion No. 1997-1 stated that rule 3-300 was inapplicable to a standard charging lien in a contingency fee contract.

As noted in The Law of Lawyering, charging liens in contingency fee contracts are recognized as "almost universally permitted" and have been "historically uncontroversial." (Hazard & Hodes, The Law of Lawyering (2004 Supp.) §8.23, p. 8-56.2, §12.21, p. 12-59.) The authors point out that charging liens constitute "sound policy, for without . . . [them] a lawyer might find it necessary to take other protective measures during the representation, or to be more cautious about investing time or advancing costs. Thus, by offering the lawyer reasonable assurance in collecting fees and advances, liens . . . may actually better serve the client's interests, by eliminating a potential source of friction." (Ibid.; emphasis in original.)

Los Angeles County Bar Association Formal Opinion No. 416 (1983) reflects the difference between a charging lien, which applies to funds the attorney will recover for the client, and other types of security interests. In Opinion 416, the Los Angeles committee addressed a fee payable to new counsel entirely out of proceeds to be realized from a judgment another lawyer had previously obtained for the client. The committee opined that the fee arrangement would be permissible provided there was compliance with former rule 5-101. The distinction between that fact pattern and the one we consider in this opinion is that in that fact pattern the security for the attorney's fee was not a fund recovered for the client through the lawyer's efforts, but rather was a separately created fund the client owned before the attorney was retained.

III. Differentiating between Charging Liens in Hourly Fee Contracts and Contingency Fee Contracts

Because the Supreme Court determined in Fletcher that charging liens in hourly fee contracts are a security interest adverse to the client, thereby triggering rule 3-300, the Committee has considered whether the policy considerations underlying that decision should lead to the conclusion that rule 3-300 also applies to charging liens in contingency fee contracts. The Committee believes that material differences between hourly and contingency fee contracts require a different analysis and lead to a different result.

The Fletcher court's opinion that charging liens in hourly fee contracts are adverse to the client was based in large part upon a finding that charging liens impose risks and consequences that can impair the client's interest by delaying payment of the recovery until any dispute over the lien can be resolved. While the delay in payment to the client referenced by the Fletcher court can occur in the contingency fee context as well, the Committee believes that substantial public policy considerations support the limitation of the court's holding to charging liens in hourly fee contracts.

First and foremost, a charging lien is an equitable corollary to, and thus inherent in, a contingency fee contract because, unlike the situation in hourly fee arrangements: (a) the attorney and client have agreed that the attorney's fee will be limited to a percentage of, and derived only from, a successful recovery created by the attorney's work; (b) the attorney and client share the risk of a recovery; (c) any fee the attorney earns or receives is delayed until the client obtains a recovery, usually at the very end of the representation; and (d) the recovery often represents the only source of funds from which the attorney can ever be paid. For these reasons, charging liens are not only inherent in contingency fee contracts, they are almost universally found and almost universally uncontroversial in such contracts. By contrast, charging liens are neither inherent, nor common, in hourly fee agreements where: (a) there is no condition or limit on the fee in relation to the recovery; (b) the client bears the full financial risk of the costs of the representation; (c) the attorney may protect his or her right to be paid as agreed by requiring deposits or advances against fees as well as through pay-as-you-go arrangements; and (d) a breach of the agreement by the client to keep current on fees owed to the attorney provides grounds for permissive withdrawal.

Second, because hourly fees are not in any way limited in relation to the client's recovery, a charging lien for fees in an hourly fee context can readily tie up the entire recovery pending resolution of a fee dispute between the attorney and client. That situation is distinguishable from a contingency fee contract where the charging lien for fees is limited to the previously agreed upon percentage of the attorney's recovery. The contingency fee client is therefore protected by requirements that the fee be: (a) "decisive as to its existence and amount;" (b) subject to negotiation between the attorney and the client; and (c) limited in amount by common law principles governing unconscionable fees as well as rule 4-200. The Committee is mindful that in some contingency fee cases, costs advanced by the attorney can approach the amount of the recovery, so that a lien for fees and costs in a contingency case can approach the client's entire recovery. However, even in contingency fee cases, attorneys can contract with their clients to require payment of all or a portion of the costs independent of any recovery. Moreover, with regard to costs, the client is protected by the terms of Business & Professions Code section 6147 which requires the attorney to include in the written fee agreement [a] statement as to how disbursements and costs incurred in connection with the prosecution or settlement of the claim will affect the contingency fee and the client's recovery."

Third, at issue in Fletcher was the fact that the hourly fee agreement between the attorney and the corporate client was oral. The court therefore stated the issue before it as: "When an attorney wishes to secure payment of hourly legal fees and costs of litigation by obtaining a charging lien against a client's future recovery, must the attorney obtain the client's consent in writing?" Absent application of rule 3-300, there was no statutory or rule-based requirement that the charging lien be in writing. In contingency fee contracts, on the other hand, Business and Professions Code section 6147 provides an independent statutory basis, other than application of rule 3-300, that requires all such agreements (other than in workers' compensation matters and in claims between merchants) be in writing.

Finally, if a client with a contingency fee contract were induced by a rule 3-300 disclosure to consult independent counsel about the charging lien before agreeing to it, the independent lawyer would likely confirm that charging liens are universally included in contingent fee contracts, that their inclusion in such contracts has consistently been upheld by the courts, and that the client would be hard pressed to find a competent lawyer to take a case on a contingency fee basis without a charging lien. Thus, the client would have consulted with an independent lawyer, quite possibly for a fee, only to learn there was little reason to do so. The client's interests are adequately protected by the attorney's compliance with Business and Professions Code section 6147, rule 4-200, and other statutes, rules, and case law governing the attorney's duties in this context. Requiring compliance with rule 3-300 in contingency fee contracts would cause clients to seek independent consultations without any discernible benefit.

While the Committee has concluded that rule 3-300 does not apply to charging liens in contingency fee contracts, members are reminded that this opinion is advisory only and not binding. No appellate court has addressed this specific issue since the Supreme Court's ruling in Fletcher v. Davis, supra, 33 Cal.4th 61. Accordingly, in order to protect themselves from the potential risk that a court may disagree with the Committee's position, members of the State Bar entering into contingency fee agreements with their clients may wish to consult the sample forms of fee agreements prepared by the Standing Committee on Mandatory Fee Arbitration of the State Bar of California. That committee has published an optional lien provision in the sample forms for contingency retainers that is designed to comply with rule 3-300.

CONCLUSION

The inclusion of a charging lien in the initial contingency fee agreement does not create an "adverse interest" to the client within the meaning of rule 3-300 of the California Rules of Professional Conduct.

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 upon 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.