May a California lawyer use an initial engagement agreement that waives the lawyer's fee if the client agrees not to accept any settlement confidentiality clause, but provides for the lawyer's full reasonable fee if the client does accept one?
LACBA Ethics Opinion 505: Fee Waiver Conditioned on No Settlement-Confidentiality Clause
Short answer: Under former California Rule 4-200 and California public policy as analyzed in this opinion, an initial engagement agreement that waives or reduces the lawyer's fee if the client rejects any settlement-confidentiality ("gag") clause, but charges the lawyer's full reasonable fee if the client accepts one, does not unlawfully restrain the client's settlement authority. The committee bases the conclusion on the client's retained ability to settle on any terms and on the fact that the lawyer's recovery on acceptance of a confidentiality clause is the reasonable value of services, not a punitive minimum fee.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the Los Angeles County Bar Association's view 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. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Plain-English summary
The committee considers an attorney (a retired physician) who created a non-profit firm representing patients in managed-care disputes. To advance the firm's mission of public disclosure of HMO misconduct, the engagement agreement offers an "advantageous fee structure," potentially a full waiver, in exchange for the client's agreement to reject any settlement-confidentiality clause. If the client nonetheless accepts a confidentiality clause and cooperates in binding the firm to it, the fee waiver does not occur and the client pays the lawyer's full reasonable fee.
The committee, citing Ramirez v. Sturdevant (1994), starts from the proposition that the initial engagement agreement is arm's-length subject to duress and unconscionability constraints. It then anchors the limit on engagement-agreement restraints of settlement in Calvert v. Stoner (Cal. 1948), which voided as against public policy a provision requiring the lawyer's consent to settle, and in Hall v. Orloff (1920), which struck down a $1,000 minimum fee triggered by settlement without the lawyer's knowledge or consent. Hall held that the lawyer's measure of recovery when the client abandons the action is the reasonable value of services, recoverable in breach-of-contract or quantum meruit.
The committee applies that framework to the proposed gag-clause provision. The provision does not prevent or restrict the client from settling, does not require the lawyer's consent to settle, and does not impose a penalty on accepting a confidentiality clause; it converts the waiver back to the lawyer's reasonable fee. Following Klein v. Lange (1928), a contingent fee agreement that fixes a payment but does not bar settlement is not illegal. Even if the provision were invalid, Calvert v. Stoner and Rosenberg v. Lawrence (Cal. 1938) would allow the lawyer to recover the reasonable value of services.
The committee directs the lawyer to make "full disclosure of the nature of the alternative fee" so the client can make an informed decision. The committee does not opine on the firm-side question of whether the lawyer may, in the underlying litigation, refuse to be bound by a confidentiality clause the client accepts; that is addressed by the firm's separate provision to cooperate with binding by court order.
In practice
The opinion holds that, under former California Rule 4-200 as it stood in 2000 and the Calvert v. Stoner line of cases, a contingent fee waiver conditioned on the client rejecting settlement confidentiality is permitted because (1) the client retains complete settlement authority and (2) the lawyer's recovery on acceptance of confidentiality is limited to the reasonable value of services rather than a fixed penalty. The committee identifies full disclosure of the alternative-fee structure as the operative duty.
California's professional-conduct rules were revised effective November 1, 2018; former Rule 4-200 corresponds substantially to current Rule 1.5 (fees for legal services). LACBA Opinion 512 (2004) later addressed the converse question: whether a lawyer may agree to a settlement-confidentiality clause binding the lawyer. The committee's analysis in Opinion 505 predates both the 2018 revisions and Opinion 512.
Common questions
Q: Can a California lawyer condition a fee waiver on the client's refusal to accept settlement confidentiality?
A: Per the opinion, yes, as long as the client retains the ability to settle on any terms and the alternative fee is limited to the reasonable value of services rather than a penalty.
Q: What about a clause that simply requires the lawyer's consent to settle?
A: Per the opinion's reading of Calvert v. Stoner, such a clause is against public policy and void. The provision the committee analyzes here does not require the lawyer's consent.
Q: Does the provision restrict the client's ability to settle the case?
A: Per the opinion, no. The provision does not prevent or restrict any settlement. It changes the fee owed depending on whether the client accepts confidentiality; the client may accept or reject any settlement offer.
Q: What happens if the client accepts a confidentiality clause and the gag waiver is voided?
A: Per the opinion's reading of Hall v. Orloff, the lawyer would recover the reasonable value of services. The opinion treats this as a permissible alternative to the fee waiver, not a contractual penalty.
Q: Does the engagement agreement itself need to disclose how the alternative fee works?
A: Per the opinion, yes. The committee directs the lawyer to make "full disclosure of the nature of the alternative fee" so the client can make an informed decision.
Background and rules framework
The opinion interprets former California Rule of Professional Conduct 4-200 (unconscionable fees) and California public policy from Calvert v. Stoner (Cal. 1948), Hall v. Orloff (1920), Klein v. Lange (1928), Rosenberg v. Lawrence (Cal. 1938), Ramirez v. Sturdevant (1994), and Hawk v. State Bar (Cal. 1988). It treats the initial engagement agreement as arm's-length subject to duress and unconscionability.
Citations and references
Rules of Professional Conduct:
- Former California Rule 4-200 (unconscionable fees)
Cases:
- Calvert v. Stoner, 33 Cal.2d 97 (Cal. 1948), provision requiring lawyer's consent to settle is void
- Hall v. Orloff, 49 Cal.App. 745 (1920), minimum-fee penalty triggered by settlement is void; quantum meruit available
- Hawk v. State Bar, 45 Cal.3d 589 (Cal. 1988), adverse pecuniary interest under Rule 3-300
- Klein v. Lange, 91 Cal.App. 400 (1928), contingent fee permitting settlement at any time is legal
- Ramirez v. Sturdevant, 21 Cal.App.4th 904 (1994), arm's-length engagement fee negotiation
- Rosenberg v. Lawrence, 10 Cal.2d 590 (Cal. 1938), reasonable value recovery despite invalid contract provision
See also
- LACBA Opinion 512: Settlement Confidentiality Clauses Binding the Lawyer
- LACBA Opinion 489: Retainer Agreement Language Limiting Client
- LACBA Opinion 521: Fee Disputes With Current Clients
Source
- Landing page: https://lacba.org/?pg=ethics-opinions
- Original PDF: https://lacba.org/docDownload/2010601