Can a lawyer's contingent fee agreement give the lawyer a power of attorney to sign settlements, checks, and documents for the client?

Plain-English summary

The Board addressed whether a lawyer in a civil matter may enter a contingent fee agreement under which the client grants the lawyer a power of attorney to take any action and execute all documents the lawyer deems necessary, including signing on the client's behalf a settlement agreement and release, a settlement check, or a closing statement. The Board recognized that such an arrangement might streamline a busy lawyer's representation and spare the client trips to sign documents, but concluded that any convenience does not outweigh the ethical problems.

The Board explained that Prof. Cond. R. 1.2(a) confers on the client the ultimate authority over the objectives of the representation and requires the lawyer to abide by the client's decision whether to settle, while R. 1.4(a) requires the lawyer to keep the client informed and to consult about the means of pursuing the client's objectives. A broad power of attorney that shifts all authority and signing power to the lawyer improperly reallocates authority from client to lawyer (contravening Rule 1.2(a)) and eliminates the communication the rules require (disregarding Rule 1.4(a)).

The Board concluded the practice is improper unless the lawyer can demonstrate an extraordinary circumstance with an exigent reason for the client to grant such authority, giving as examples an urgent surgery or travel to a remote location.

In practice

The opinion holds that, under Ohio Prof. Cond. R. 1.2(a) and 1.4(a) as they stood at the time of the opinion, a contingent fee agreement may not vest the lawyer with a blanket power of attorney to act and sign for the client across the matter, including settlement documents and checks. Per the opinion, the client retains ultimate authority over the objectives and the decision whether to settle, and the lawyer must keep the client informed; the only exception the opinion recognizes is an extraordinary, exigent circumstance such as urgent surgery or remote travel.

Common questions

Q: Can a contingent fee contract let the lawyer sign a settlement and the settlement check for the client?

A: The opinion concluded no; a broad power of attorney granting that authority violates Rule 1.2(a) (which reserves the settlement decision to the client) and Rule 1.4(a) (communication).

Q: Is there any exception?

A: The opinion concluded the practice is improper unless the lawyer can demonstrate an extraordinary circumstance with an exigent reason for the grant, such as urgent surgery or travel to a remote location.

Q: Why isn't client convenience enough to justify it?

A: The opinion concluded that any convenience does not outweigh the ethical risks, because the grant shortchanges the client's role by reallocating all authority to the lawyer and eliminating required communication.

Background and rules framework

The opinion interprets Ohio Prof. Cond. R. 1.2(a) (allocation of authority; client's decision whether to settle) and R. 1.4(a) (communication and consultation) (Model Rules 1.2, 1.4), with reference to Comment [1] to Rule 1.2.

Citations and references

Rules of Professional Conduct:

• Ohio Prof. Cond. R. 1.2(a) (allocation of authority; settlement decision) (Model Rule 1.2)
• Ohio Prof. Cond. R. 1.4(a) (communication and consultation) (Model Rule 1.4)

See also

• Ohio BPC Op. 2009-009: Billing for Outsourced Health Care Lien Resolution
• Ohio BPC Op. 2011-001: Lawyer Personal Indemnification as a Settlement Condition

Source

• Landing page: https://ohioadvop.org/advisory-opinion-index/
• Original PDF: https://www.ohioadvop.org/wp-content/uploads/2017/04/Op_10-006.pdf

Original opinion text

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

The Supreme Court of Ohio
BOARD OF COMMISSIONERS ON GRIEVANCES AND DISCIPLINE
65 SOUTH FRONT STREET, 5TH FLOOR, COLUMBUS, OH 43215-3431
(614) 387-9370 (888) 664-8345 FAX: (614) 387-9379
www.supremecourt.ohio.gov

                                  OFFICE OF SECRETARY




                                  OPINION 2010-6
                                Issued October 8, 2010

SYLLABUS: A lawyer representing a client in a civil matter may not enter into a
contingent fee agreement whereby the client grants the lawyer a power of attorney to take
any action and execute all documents that the attorney deems necessary in the matter,
including but not limited to signing on the client’s behalf a settlement agreement and
release, a settlement check, or a closing statement. Such use of a broad power of attorney
in a contingent fee agreement contravenes Prof. Cond. Rule 1.2(a) by improperly
allocating all of the authority regarding the representation from the client to the lawyer
and disregards Prof. Cond. Rule 1.4(a) by eliminating required communication by the
lawyer to the client. Such practice is improper unless a lawyer is able to demonstrate that
there is an extraordinary circumstance in which there is an exigent reason for a client to
grant such authority to the lawyer. For example, an extraordinary circumstance might
arise when there is an urgent surgery or travel to a remote location.

OPINION: This opinion addresses a question regarding a lawyer’s use of a contingent
fee agreement in which a client grants a power of attorney to the lawyer as to all aspects
of a legal matter.

   May a lawyer representing a client in a civil matter, enter into a contingent
   fee agreement whereby the client grants the lawyer a power of attorney to
   take any action and execute all documents that the attorney deems
   necessary in the matter, including but not limited to signing on the client’s
   behalf a settlement agreement and release, a settlement check, or a closing
   statement?

Introduction

A lawyer’s contingent fee representation of a client in a civil matter requires skillful
communication. A lawyer must communicate effectively to understand the client’s
objectives of representation, explain settlement offers, reach agreement to settlement
terms, obtain necessary client signatures, and disburse settlement proceeds. Such
communication is a time honored legal skill, but is a time laden process.
Op. 2010-6 2

In an effort to streamline a contingent fee representation, a busy lawyer might be tempted
to obtain a client’s power of attorney, granting the lawyer authority to make decisions
and sign necessary documents on the client’s behalf in the matter. The lawyer might
rationalize that such authority would benefit a client, for example, by eliminating the
need for a client to travel to the attorney’s office to sign documents or to sign a settlement
disbursement. But such benefit, if any, does not outweigh the ethical risks that arise
when a lawyer requires a client to sign a contingent fee agreement granting such broad
authority to the lawyer.

As explained in this opinion, a power of attorney granting a lawyer authority to make all
decisions and execute all documents that the lawyer deems necessary in a client’s
contingent fee matter might streamline a lawyer’s representation and provide some
convenience for a client, but, in the absence of extraordinary circumstances, the practice
is unethical for the lawyer and shortchanges the client’s role in the legal representation.
The proposed use of a broad power of attorney in a contingent fee agreement contravenes
Prof. Cond. Rule 1.2(a) by improperly allocating all of the authority regarding the
representation from the client to the lawyer, and disregards Prof. Cond. Rule 1.4(a) by
improperly eliminating required communication.

Allocating authority and communicating with a client as required by Prof.
Cond. Rules 1.2(a) and 1.4(a)

The proper allocation of authority between a lawyer and client is addressed in Prof. Cond.
Rule 1.2. Prof. Cond. Rule 1.2(a) requires that “[a] lawyer shall abide by a client’s
decisions concerning the objectives of representation and, as required by Rule 1.4, shall
consult with the client as to the means by which they are to be pursued.” Further, Prof.
Cond. Rule 1.2(a) unequivocally requires that “[a] lawyer shall abide by a client’s
decision whether to settle a matter.”

As explained in Comment [1] to Prof. Cond. Rule 1.2: “Division (a) confers upon the
client the ultimate authority to determine the purposes to be served by legal
representation, within the limits imposed by law and the lawyer’s professional
obligations. The decisions specified in division (a), such as to whether to settle a civil
matter, must also be made by the client. See Rule 1.4(a)(1) for the lawyer’s duty to
communicate with the client about such decisions. With respect to the means by which
the client’s objectives are to be pursued, the lawyer shall consult with the client as
required by Rule 1.4(a)(2) and may take such action as is impliedly authorized to carry
out the representation.”

The duty to communicate information regarding a representation is addressed in Prof.
Cond. Rule 1.4. Prof. Cond. Rule 1.4(a) requires that “[a] lawyer shall do all of the
following: (1) promptly inform the client of any decision or circumstance with respect to
which the client’s informed consent is required by these rules; (2) reasonably consult
with the client about the means by which the client’s objectives are to be accomplished;
(3) keep the client reasonably informed about the status of the matter; (4) comply as soon
Op. 2010-6 3

as practicable with reasonable requests for information from the client; (5) consult with
the client about any relevant limitation on the lawyer’s conduct when the lawyer knows
that the client expects assistance not permitted by the Ohio Rules of Professional Conduct
or other law.” Prof. Cond. Rule 1.4(b) requires that “[a] lawyer shall explain a matter to
the extent reasonably necessary to permit the client to make informed decisions regarding
the representation.”

Comment [5] to Prof. Cond. Rule 1.4 provides guidance as to a lawyer’s role in
explaining matters to a client: “The client should have sufficient information to
participate intelligently in decisions concerning the objectives of the representation and
the means by which they are to be pursued, to the extent the client is willing and able to
do so. Adequacy of communication depends in part on the kind of advice or assistance
that is involved. For example, when there is time to explain a proposal made in a
negotiation, the lawyer should review all important provisions with the client before
proceeding to an agreement. In litigation a lawyer should explain the general strategy
and prospects for success and ordinarily should consult the client on tactics that are likely
to result in significant expense or to injure or coerce others. On the other hand, a lawyer
ordinarily will not be expected to describe trial or negotiation strategy in detail. The
guiding principle is that the lawyer should fulfill reasonable client expectations for
information consistent with the duty to act in the client’s best interest, and the client’s
overall requirements as to the character of representation.”

Use of a contingent fee agreement to grant a lawyer a power of attorney
to agree to settle a matter and to sign a settlement agreement and
release on behalf of a client

As required by Prof. Cond. Rule 1.2(a) and as explained in Comment [1], a decision to
settle must be made by the client, not the lawyer. Further, as required by Prof. Cond.
Rule 1.4(b), there is a duty for a lawyer to explain a matter so that a client is able to make
an informed decision.

Neither of these rules is fulfilled when a client signs a contingent fee agreement at the
onset of representation granting the attorney authority to take action and execute the
documents the attorney deems necessary in the matter, including the settlement of a
matter.

At a client’s signing of a contingent fee agreement with a lawyer, there is no crystal ball.
The facts and circumstances of a matter will not be fully developed and the terms and
conditions of a settlement and release will not be fully explored or determined.
Therefore, it is highly unlikely in the initial stage of a representation at the signing of a
contingent fee agreement that a lawyer would be able to fulfill the duty to explain and
inform a client so that the client is able to make an informed decision as to a settlement.

Thus, the proposed use of a contingent fee agreement to obtain a power of attorney to
settle a matter and to sign a settlement agreement and release on behalf of a client is
Op. 2010-6 4

improper, unless there is an extraordinary circumstance where the details of a particular
settlement might be available at the signing of the contingent fee agreement so that the
client could make an informed decision as to specific settlement terms and conditions
based upon fully developed facts and circumstances.

Use of a contingent fee agreement to grant a lawyer a power of attorney
to sign a settlement check and a closing statement on a client’s behalf

Upon receipt of a settlement check, a lawyer has several ethical duties. First, there is an
ethical duty to promptly notify the client. Prof. Cond. Rule 1.15(d) states: “Upon
receiving funds or other property in which a client or third person has a lawful interest, a
lawyer shall promptly notify the client or third person.” Second, there is an ethical duty
to hold client funds in a separate interest-bearing account. Prof. Cond. Rule 1.15(a)
states: “A lawyer shall hold property of clients or third persons that is in a lawyer’s
possession in connection with a representation separate from the lawyer’s own property.
Funds shall be kept in a separate interest-bearing account in a financial institution
authorized to do business in Ohio and maintained in the state where the lawyer’s office is
situated. The account shall be designated as a ‘client trust account,’ ‘IOLTA account,’ or
with a clearly identifiable fiduciary title.”

When a settlement check is made payable to both the lawyer and the client, obtaining the
client’s signature takes time and effort. For example, the client might need to come to the
lawyer’s office or elsewhere to endorse the check, or the check might need to be sent to
the client for signature and then returned to the lawyer. If, as proposed, a lawyer uses a
client’s power of attorney that was obtained through a contingent fee agreement, the
lawyer could avoid meeting with a client to endorse the check. For this reason, the
expediency of a lawyer using a power of attorney obtained in the contingent fee
agreement to endorse the client’s name on a settlement check may have appeal, but it is
not advisable. When a client personally signs a settlement check it is clear that the client
is notified of the lawyer’s receipt of the settlement funds and is aware of the amount of
the settlement check. In the absence of extraordinary circumstances, these are ethical
safeguards that a lawyer should not ask a client to relinquish.

Use of a contingent fee agreement to grant a lawyer a power of attorney
to sign a closing statement on a client’s behalf

Before a lawyer receives compensation under a contingent fee agreement, a signed
closing statement is required. A signed statement is required by both ethical rule and
Ohio law.

Prof. Cond. Rule 1.5(c)(2) states that “[i]f the lawyer becomes entitled to compensation
under the contingent fee agreement and the lawyer will be disbursing funds, the lawyer
shall prepare a closing statement and shall provide the client with that statement at the
time of or prior to the receipt of compensation under the agreement. The closing
statement shall specify the manner in which the compensation was determined under the
Op. 2010-6 5

agreement, any costs and expenses deducted by the lawyer from the judgment or
settlement involved, and, if applicable, the actual division of the lawyer’s fees with a
lawyer not in the same firm, as required in division (e)(3) of this rule. The closing
statement shall be signed by the client and the lawyer.”

This ethical provision applies to all contingent fee agreements; whereas the statutory
requirements of R.C. 4705.15(C) apply to contingent fee agreements in tort actions. R.C.
4705.15(C) requires that if an attorney represents a client in connection with a claim that
is or may become the basis of a tort action and “if their contract for the provision of legal
services includes a contingent fee agreement, and if the attorney becomes entitled to
compensation under that agreement, the attorney shall prepare a signed closing statement
and shall provide the client with that statement at the time of or prior to the receipt of
compensation under that agreement. The closing statement shall specify the manner in
which the compensation of the attorney was determined under that agreement, any costs
and expenses deducted by the attorney from the judgment or settlement involved, any
proposed division of the attorney’s fees, costs, and expenses with referring or associated
counsel, and any other information that the attorney considers appropriate.”

While it may be expedient for a lawyer to use a power of attorney obtained in a
contingent fee agreement to sign a closing statement on a client’s behalf, it is not
advisable. The signing of the closing statement provides an additional opportunity for a
lawyer to fulfill the required ethical duties of communication with a client about the
representation. It is the lawyer’s time to bring closure to the representation, to explain to
the client the disbursement of funds, and to respond to the client’s final questions
regarding the representation and the disbursement of settlement funds. In the absence of
extraordinary circumstances, a lawyer should not ask a client to relinquish this
opportunity to receive information and a thorough explanation about the disbursement of
the actual settlement.

It can be argued that language in Comment [3] to Prof. Cond. Rule 1.2 and Comment [2]
to Prof. Cond. Rule 1.4 permits such advance authorization as the inquiry presented.
Comment [3] to Prof. Cond. Rule 1.2 states: “At the outset of a representation, the client
may authorize the lawyer to take specific action on the client’s behalf without further
consultation. Absent a material change in circumstances and subject to Rule 1.4, a
lawyer may rely on such an advance authorization. The client may, however, revoke
such authority at any time.” Comment [2] to Prof. Cond. Rule 1.4 states: “If these rules
require that a particular decision about the representation be made by the client, division
(a)(1) requires that the lawyer promptly consult with and secure the client’s consent prior
to taking action unless prior discussions with the client have resolved what action the
client wants the lawyer to take. For example, a lawyer who receives from opposing
counsel an offer of settlement in a civil controversy or a proffered plea bargain in a
criminal case must promptly inform the client of its substance unless the client has
previously indicated that the proposal will be acceptable or unacceptable or has
authorized the lawyer to accept or to reject the offer. See Rule 1.2(a).”
Op. 2010-6 6

These Comments are not to be interpreted as permission for a client to give blanket
authority to a lawyer over all aspects of a case, settlement, and the signing of necessary
documents. Prof. Cond. Rule 1.2(a) is clear that it is a client’s decision whether to settle.
Prof. Cond. Rule 1.4(a) is clear that clients must be consulted and kept reasonably
informed. Prof. Cond Rule 1.5(c)(2) is clear that a client shall be provided with a closing
statement and the statement shall be signed by the client and the lawyer.

Views of other states

In Arizona, the Committee on the Rules of Professional Conduct advised upon a fee
agreement that provided: “[Client] . . . does make, constitute and appoint, [Attorney],
true and lawful attorney of HIS/HERS and in HIS/HER name, place, and stead, to settle,
adjust, file and prosecute by suit in the proper courts, or otherwise dispose of, claims.”
The Arizona committee advised that “[a] client may not be asked to agree to
representation so limited in scope that the client surrenders the right to settle his or her
own matter” and that the attorney “would have an obligation under ER 1.4 to inform the
client adequately so that the client could make the decision whether to accept or reject the
offer.” Arizona State Bar Op. 94-02 (1994).

Later, a different but related question was presented to the State Bar of Arizona. “May an
attorney ask a client for authority to allow the attorney, if the client disappears or
otherwise cannot be contacted, to settle the client’s case and then to sign any drafts or
releases necessary to finalize the settlement?” The Committee on the Rules of
Professional Conduct concluded “that an attorney may not ethically obtain such advance
blanket authorization because doing so would conflict with an attorney’s obligations
under ERs 1.2 and 1.4, and also would result in an impermissible conflict of interest
under ER 1.8.” State Bar of Arizona, Op. 06-07 (2006). The committee stated that
“[d]espite the changes to ER 1.2(a), we conclude that the result and reasoning of Ariz.
Ethics Op. 94-02 are still valid, and preclude a lawyer’s ability to obtain a blanket
authorization from a client allowing the lawyer to decide whether to settle the client’s
claim. As ER 1.2(a) provides, only the client may make that decision.” Id.

A New Jersey ethics committee, appointed by the Supreme Court of New Jersey,
addressed the granting of such power of attorney, not in the retainer agreement, but at the
time of the signing of a closing statement. The Advisory Committee on Professional
Ethics, in a now superseded opinion, did not find improper a law firm’s proposed use of
an Authorization to Endorse form to be signed when the client comes to the law office to
execute release and disbursement statement. The committee advised that “[t]he
requirements with respect to fee agreements and closing or written statements showing
the remittance to the client and the method of its determination make the client aware of
the amount of the recovery which the client is entitled to receive. If after that has been
done, the client for his own convenience executes a written authorization permitting his
attorney to endorse the settlement draft or check received in settlement of the matter or in
satisfaction of a judgment and to deposit same in the attorney’s trust account for the sole
purpose of disbursing the funds in accordance with the closing statements, we see nothing
improper in such a procedure.” New Jersey Sup.Ct, Op. 635.
Op. 2010-6 7

But, the New Jersey Advisory Opinion 635 was appealed to the New Jersey Supreme
Court and was modified by the court. In the Matter of Advisory Committee on
Professional Ethics Opinion 635, 125 N.J. 181, 592 A.2d 1210 (1991). The Supreme
Court of New Jersey stated: “We should make clear exactly what it is that we are
disapproving: the routine use of a form that extends power of attorney to the lawyer in
endorsing the client’s name to a settlement draft. We will not permit the form to become
a part of the package of a lawyer’s ordinary closing papers. We acknowledge that there
may be extraordinary circumstances-the client on the eve of departure for an extended
stay in a foreign land, a client about to undergo surgery with a doubtful prognosis and an
extended hospital stay to follow-that might justify use of such a power of attorney.
Those, however, are not the situations contemplated by the inquiry nor does Opinion 635
purport to be so limited.” Id. at 187. In 1994, there was a Notice to the Bar that the
opinion is superseded. 136 N.J.L.J. 1638, 3 N.J.L. 852 (1994).

In an earlier case, the New Jersey Supreme Court disapproved of an attorney’s practice in
negligence cases of using a form of retainer containing a power of attorney to endorse the
client’s name on the settlement check, deposit the check and make disbursements. In the
Matter of John S. Conroy, III, 56 N.J. 279, 281-82, 266 A.2d 279 (1970). The court
stated: “We . . . make clear that we consider employment by members of the bar of the
type of retainer and power of attorney described above to be highly improper. The
practice of insurance carriers or other settlors in drafting settlement checks in the joint
names of the attorney and claimants is to protect and preserve the interest of all three
parties to the transaction. The form of retainer in question facilitates the subversion of
that purpose and is unqualifiedly disapproved.” Id. at 282. This 1970 case was addressed
in both New Jersey Advisory Opinion 635 and in the court’s decision to modify the
advisory opinion in In the Matter of Advisory Committee on Professional Ethics Opinion
635, 125 N.J. 181, 183-187, 592 A.2d 1210 (1991).

For other authority finding it improper for a lawyer to add a provision to a fee agreement
allocating to the lawyer all settlement authority on the client’s behalf, see In re Grievance
Proceeding, 171 F. Supp.2d 81, 85 (D. Conn. 2001); In re Lansky, 678 N.E.2d 1114,
1115 (Ind. 1997); Parents Against Drunk Drivers v. Graystone Pines Homeowners’
Ass’n, 789 P.2d 52, 55 (Utah Ct. App. 1990).

Conclusion

In conclusion, the Board advises as follows. A lawyer representing a client in a civil
matter may not enter into a contingent fee agreement whereby the client grants the lawyer
a power of attorney to take any action and execute all documents that the attorney deems
necessary in the matter, including but not limited to signing on the client’s behalf a
settlement agreement and release, a settlement check, or a closing statement. Such use of
a broad power of attorney in a contingent fee agreement contravenes Prof. Cond. Rule
1.2(a) by improperly allocating all of the authority regarding the representation from the
client to the lawyer and disregards Prof. Cond. Rule 1.4(a) by eliminating required
communication by the lawyer to the client. Such practice is improper unless a lawyer is
Op. 2010-6 8

able to demonstrate that there is an extraordinary circumstance in which there is an
exigent reason for a client to grant such authority to the lawyer. For example, an
extraordinary circumstance might arise when there is an urgent surgery or travel to a
remote location.

Advisory Opinions of the Board of Commissioners on Grievances and Discipline are
informal, nonbinding opinions in response to prospective or hypothetical questions
regarding the application of the Supreme Court Rules for the Government of the
Bar of Ohio, the Supreme Court Rules for the Government of the Judiciary, the
Ohio Rules of Professional Conduct, the Ohio Code of Judicial Conduct, and the
Attorney’s Oath of Office.