Can a California lawyer agree to cap a client's hourly-rate obligation and refund any excess statutory attorney's fees awarded under CCP section 1021.5 to the client without violating the fee-sharing prohibition?

Plain-English summary

The opinion examines a non-profit client's proposed retainer with a law firm in a public-interest case. The client pays the firm's hourly rate up to a cap ($50,000 in the hypothetical), the firm continues to accrue charges past the cap without further client liability, and on success the firm moves for an award of CCP section 1021.5 private attorney general fees against the defendants. If the court awards more than the firm's unpaid balance, the firm refunds the excess to the client.

The committee concludes the structure does not violate former Rule 1-320. Awards of CCP section 1021.5 fees are properly made to the attorneys rather than to the plaintiff (Folsom v. Butte County Assn. of Governments, 32 Cal.3d 668 (1982)), so the firm receives the fees in the first instance; the amount returned to the client is treated as a refund of the client's overpayment under the agreement, not a sharing of the firm's earned fee.

The committee anchors its analysis in the fiduciary duty captured in former Rule 4-200(A) (no illegal or unconscionable fee). A fee agreement is evaluated at the time of its making and must be fair, reasonable, and fully explained to the client; if those conditions are met and the firm abides by the agreement's terms, refunding excess statutory fees raises no ethics problem.

The opinion notes in a footnote that the result might differ if the statutory fees were awarded to the party rather than to the attorneys, or if the agreement contemplated splitting the overpayment between attorney and client rather than refunding it.

In practice

The opinion holds that, under former California Rule 1-320 as it stood in 2005, refunding the excess of a CCP section 1021.5 fee award above the contractually agreed maximum to the client is permitted because the excess is not an "earned fee" subject to the fee-sharing prohibition. The committee treats the analysis as turning on (a) whether the statutory fees are properly awarded to the attorney or to the party and (b) whether the agreement is fair and reasonable in its terms.

California's professional-conduct rules were revised effective November 1, 2018; the successor to former Rule 1-320 is current Rule 5.4. The opinion's reasoning has not been re-examined under the new rule numbering by the committee.

Common questions

Q: Does refunding a portion of a court-awarded attorney fee to the client violate the fee-sharing rule?

A: Per the opinion, no, when the refund returns the excess of a CCP section 1021.5 award above the contractually agreed fee. The committee treats the excess as a refund of an overpayment rather than a sharing of an earned fee.

Q: Does it matter whether the statutory fees are awarded to the attorneys or to the party?

A: Per the opinion's footnote, yes. The committee's analysis depends on the fact that CCP section 1021.5 fees are awarded to the attorneys. The committee suggests a different analysis might apply if the fees were awarded to the party.

Q: Can the lawyer and client agree to split the overpayment?

A: The opinion does not approve a split. The committee specifically distinguishes its conclusion from a hypothetical agreement to split any overpayment, suggesting that would change the analysis.

Q: What rule controls whether the underlying fee agreement is enforceable?

A: Per the opinion, former Rule 4-200(A) (no illegal or unconscionable fee). The agreement must be fair, reasonable, and fully explained at the time of its making, and the attorneys must abide by its terms.

Background and rules framework

The opinion interprets former California Rule of Professional Conduct 1-320 (no direct or indirect sharing of legal fees with a non-lawyer), former Rule 4-200(A) (no illegal or unconscionable fees), and Bus. & Prof. Code section 6068. It applies CCP section 1021.5 (private attorney general fee awards) and California cases on fee-agreement fairness: Alderman v. Hamilton (1988) 205 Cal.App.3d 1033 and Severson & Werson v. Bollinger, 235 Cal.App.3d 1569 (1991). The fee-sharing question is framed against Folsom v. Butte County Assn. of Governments, 32 Cal.3d 668 (1982), holding that statutory attorney fees are properly awarded to the attorneys rather than the plaintiff.

Citations and references

Rules of Professional Conduct:

• Former California Rule 1-320 (no fee sharing with non-lawyers)
• Former California Rule 4-200(A) (no illegal or unconscionable fee)

Statutes:

• Code of Civil Procedure section 1021.5 (private attorney general fees)
• Bus. & Prof. Code section 6068

Cases:

• Folsom v. Butte County Assn. of Governments, 32 Cal.3d 668 (Cal. 1982), CCP section 1021.5 fees awarded to attorneys
• Evans v. Jeff D., 475 U.S. 717 (1986), settlement bargaining over statutory fees
• Press v. Lucky Stores, Inc., 34 Cal.3d 311 (Cal. 1983), fee multiplier in public-interest cases
• Alderman v. Hamilton, 205 Cal.App.3d 1033 (1988), fee agreements strictly construed against attorney
• Severson & Werson v. Bollinger, 235 Cal.App.3d 1569 (1991), attorney fiduciary duty regarding fee terms
• Atschul v. Sayble, 83 Cal.App.3d 153 (1978), Rules of Professional Conduct as public policy

See also

• LACBA Opinion 523: Contingency Fee on Combined Damages and Statutory Fees
• LACBA Opinion 526: First-Proceeds Contingency Fee Calculation

Source

• Landing page: https://lacba.org/?pg=ethics-opinions
• Original PDF: https://lacba.org/docDownload/2010588