Can a California lawyer include retainer-agreement language limiting the client's recovery of punitive or non-economic damages in a malpractice action, or conditioning the lawyer's malpractice liability on the lawyer's representation of the client in a related third-party action?

Currency note

This opinion was issued in 1997, before California's November 1, 2018 adoption of the renumbered Rules of Professional Conduct. Former Rule 3-400 corresponds to current Rule 1.8.8 (limiting liability to the client and settling claims). 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 Treat this page as historical context, not current guidance.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.

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Plain-English summary

The committee considered a proposed retainer addition with two paragraphs. Paragraph A provided that in a dispute, either party would recover only actual monetary damages (including the firm's unpaid fees) and neither party would recover punitive, speculative, indirect, or emotional damages. Paragraph B provided that, where the dispute related to claims against the client by third parties, the law firm's representation of the client in defense of that claim was a condition precedent to the firm's liability.

On Paragraph A, the committee identified Rule 3-400(A) as absolutely prohibiting a member from entering into "a contract with a client prospectively limiting the member's liability to the client for the member's professional malpractice." Citing In re Matter of Fonte, the committee identified Rule 3-400 as a bar to provisions limiting the kind or amount of recoverable damages. The committee identified the provision's evenhandedness as illusory, citing Fracasse v. Brent for the client's right to terminate without financial penalty.

The committee distinguished the malpractice-arbitration cases (COPRAC Formal Opinion 1989-116 and Madden v. Kaiser Foundation Hospitals), where arbitration clauses were upheld because they "merely select the forum" rather than limit liability. The committee identified the proposed Paragraph A as not analogous because it limited the amount of damages recoverable. The committee further identified the reference to "our attorney fees" as misleading, observing that under Civil Code section 1717(A) a contractual attorney-fee provision is construed to benefit both parties even if drafted unilaterally, and identified that the public policy of California requires fee agreements to be fair and understandable (Alderman v. Hamilton).

In a footnote, the committee acknowledged that the reference to "speculative" damages was not objectionable on its own because such damages are not recoverable in any event; the reference to "indirect" damages was identified as more problematic because the term is undefined and ambiguities are construed against the lawyer.

On Paragraph B, the committee identified the provision as requiring the client, as a condition to recovering for the firm's alleged malpractice, to retain the same firm in the related third-party action. Citing General Dynamics Corp. v. Superior Court and Fracasse v. Brent, the committee identified the client's right to discharge a lawyer with or without cause as "nearly absolute," and quoted General Dynamics: "No client should be forced to suffer the representation by an attorney in whom that confidence and trust lying at the heart of the fiduciary relationship has been lost."

The committee concluded that a law firm cannot force a lawyer-client relationship on a client or condition the client's choice of counsel by the loss of a valuable right (the right to sue for malpractice), citing Merenda v. Superior Court. Because Paragraph B was independently impermissible as a restraint on choice of counsel, the committee declined to address whether it also created a conflict of interest or constituted an impermissible limitation of liability under Rule 3-400.

Common questions

Q: Can a California lawyer's retainer cap or exclude punitive or emotional-distress damages in a future malpractice claim?

A: Per the opinion, no. The committee identified Rule 3-400(A) as absolutely prohibiting prospective limits on a lawyer's malpractice liability, including limits on the kinds or amounts of damages.

Q: Are malpractice arbitration clauses also prohibited?

A: Per the opinion, no. The committee identified malpractice-arbitration clauses as ethically permissible under COPRAC Formal Opinion 1989-116 because they merely select the forum. The committee distinguished damages-limiting language from forum-selection language.

Q: Can a retainer require the client to keep the same firm in a third-party suit as a condition to suing the firm for malpractice?

A: Per the opinion, no. The committee identified this as an impermissible restraint on the client's nearly absolute right to discharge counsel and choose new counsel.

Q: Are reciprocal-sounding clauses ("either party") permissible if they technically apply to both?

A: Per the opinion, no, when the evenhandedness is illusory. The committee identified the client's right to terminate without financial penalty (Fracasse v. Brent) as defeating the reciprocity of a clause that nominally binds both sides.

Background and rules framework

The opinion interprets former California Rule of Professional Conduct 3-400(A) (prospective limitation of malpractice liability prohibited), with reference to Civil Code section 1717(A) (reciprocal attorney's fees provisions), Code of Civil Procedure section 284 (client's right to discharge counsel), and COPRAC Formal Opinion 1989-116 (arbitration of malpractice claims permissible). The committee distinguished forum-selection clauses (permissible) from damages-limitation clauses (prohibited).

Citations and references

Rules of Professional Conduct (former):

• California Rule 3-400 (limiting liability to client)

Statutes:

• California Civil Code section 1717(A)
• California Code of Civil Procedure section 284

Cases:

• Alderman v. Hamilton, 205 Cal.App.3d 1033 (1988), statutory protections in fee agreements
• Fracasse v. Brent, 6 Cal.3d 784 (Cal. 1972), client's right to terminate without penalty
• General Dynamics Corp. v. Superior Court, 7 Cal.4th 1164 (Cal. 1994), nearly absolute right to discharge counsel
• In re Matter of Fonte, 2 Cal. State Bar Ct. Rptr. 752 (Rev. Dept. 1994)
• Madden v. Kaiser Foundation Hospitals, 17 Cal.3d 699 (Cal. 1976), medical malpractice arbitration
• Manatt, Phelps, Rothenberg & Tunney v. Lawrence, 151 Cal.App.3d 1165 (1984)
• Merenda v. Superior Court, 3 Cal.App.4th 1 (1992), competent representation protects economic interests

Other opinions cited:

• COPRAC Formal Opinion 1989-116 (malpractice arbitration)

See also

• LACBA Opinion 492: Security Interest in Real Property to Secure Fees
• LACBA Opinion 488: Law Office Management Services by Non-Lawyer Companies
• LACBA Opinion 499: Interest on Costs Advanced Requires Written Fee Agreement

Source

• Landing page: https://lacba.org/?pg=ethics-opinions
• Original PDF: https://lacba.org/docDownload/2010915