Can a Colorado contingent fee agreement include a clause that converts the fee to an hourly or quantum meruit amount if the client fires the lawyer before the case resolves?

Plain-English summary

Opinion 100 (adopted June 21, 1997) addressed conversion clauses in contingent fee agreements, meaning provisions that convert the fee from the contingent percentage to an alternate fee (a lodestar/hourly figure, a percentage of the last settlement offer, a quantum meruit amount, or another formula) if the agreement is terminated before the contingency occurs. The Committee concluded that the Rules do not per se prohibit such clauses; whether a particular clause complies must be evaluated case by case, because a conversion clause can interfere impermissibly with the client's absolute right to discharge counsel (recognized in Rule 1.16(a)(3) and the comments to Rules 1.2 and 1.16) or can produce an unreasonable fee under Rule 1.5.

The opinion identified six relevant factors: whether the clause applies even when the client terminates with cause or the attorney terminates without cause; whether it converts to quantum meruit or defines another basis; whether the alternate fee is unreasonable in amount, facially or as events develop; whether it requires immediate payment before the contingency occurs; whether it caps the alternate fee at the contingent amount; and the sophistication of the client. The Committee concluded that conversion clauses should be drafted to apply only to client terminations without cause and attorney terminations with cause, and that a clause requiring immediate payment regardless of whether the client ever recovers is presumptively improper except for sophisticated, able-to-pay clients who specifically negotiated it.

The Committee treated a clause that simply provides for quantum meruit recovery on termination as permissible (and noted that under Elliott v. Joyce a contingent fee agreement must address how the attorney is paid if the attorney withdraws, or risk no recovery). A fixed-fee conversion was called inherently suspect, and an uncapped lodestar conversion that could exceed the contingent amount was viewed as likely to impinge on the client's right to discharge counsel. The opinion stressed that when more than one firm works a case the aggregate fee must remain reasonable, and that even a facially reasonable clause can become unethical as enforced.

Currency note

This opinion was issued in 1997, before Colorado's 2008 revisions to the Rules of Professional Conduct. 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.

Common questions

Q: Were conversion clauses in Colorado contingent fee agreements allowed?

A: Not categorically barred. The opinion concluded the Rules do not per se prohibit conversion clauses, but whether a clause complies must be judged case by case against the client's right to discharge counsel and the reasonable-fee requirement.

Q: When did a conversion clause become improper?

A: When it penalized the client or produced an unreasonable fee. The opinion concluded a clause is improper if it operates as a penalty that chills the client's absolute right to discharge counsel, or if the alternate fee is unreasonable in amount.

Q: How did the opinion suggest drafting a conversion clause?

A: Narrowly. The opinion concluded a conversion clause should apply only to client terminations without cause and attorney terminations with cause, should generally cap the alternate fee at the contingent amount, and should be tailored to the particular engagement rather than used as a form.

Q: Could the clause require immediate payment when the client fired the lawyer?

A: Presumptively no. The opinion concluded that requiring immediate payment of the alternate fee before, or regardless of, the contingency occurring was presumptively improper, unless the client was relatively sophisticated, had the means to pay, and specifically negotiated the clause.

Background and rules framework

The opinion interpreted Colo. RPC 1.5 (reasonable fees, including the contingent-fee requirements of Rule 1.5(c) and the Rules Governing Contingent Fee Agreements, C.R.C.P. ch. 23.3), Rule 1.16(a)(3) and its comments (the client's right to discharge counsel and the lawyer's withdrawal duties), the comment to Rule 1.2, and Rule 1.4(b) (the lawyer's duty to ensure the client understands the fee agreement). It read these against Colorado Supreme Court decisions scrutinizing contingent fee contracts, including People v. Nutt and Elliott v. Joyce.

Citations and references

Rules of Professional Conduct:

• Colo. RPC 1.5(a)-(d) / Model Rule 1.5 (reasonable fees; contingent fees)
• Colo. RPC 1.16(a)(3) and 1.16(b) / Model Rule 1.16 (client's right to discharge; withdrawal)
• Colo. RPC 1.2, comment / Model Rule 1.2 (client may not be asked to surrender the right to terminate)
• Colo. RPC 1.4(b) / Model Rule 1.4 (communication for informed decisions)

Court rules:

• C.R.C.P. ch. 23.3 (Rules Governing Contingent Fee Agreements), Rule 5(d)

Cases:

• People v. Nutt, 696 P.2d 242 (Colo. 1984), courts scrutinize contingent fee contracts for reasonableness
• Elliott v. Joyce, 889 P.2d 43 (Colo. 1994), agreement must state the basis for recovery if the attorney withdraws
• Feiger, Collison & Killmer v. Jones, 926 P.2d 1244 (Colo. 1996), conversion to lodestar on withdrawal for cause did not facially violate public policy
• Olsen and Brown v. City of Englewood, 889 P.2d 673 (Colo. 1995), client's right to discharge counsel at any time

Other opinions cited:

• ABA Formal Op. 93-373 (1993): reverse contingent fee agreements
• ABA Formal Op. 94-389 (1994): contingent fees in non-traditional contexts
• CBA Formal Op. 82 (1989): retaining liens (distinguished)

See also

• ABA Formal Op. 93-373: Reverse Contingent Fees
• ABA Formal Op. 94-389: Contingent Fees
• AlaBar Op. 1990-86: Contingent Fee Lien and Quantum Meruit

Source

• Landing page: https://www.cobar.org/ethicsopinions
• Original PDF: https://www.cobar.org/Portals/COBAR/repository/ethicsOpinions/FormalEthicsOpinion_100_2011.pdf