Can a contingent-fee agreement switch the client to an hourly fee if the client turns down a settlement the lawyer thinks is reasonable?

Plain-English summary

A lawyer who frequently represents personal-injury plaintiffs on contingency proposes a standard fee term: if a client rejects a settlement offer the lawyer deems reasonable, the lawyer may, at the lawyer's option, convert the agreement into one entitling the lawyer to the agreed percentage of the rejected settlement amount plus an hourly fee from the point of rejection forward. The opinion asks whether, if the requirements of ORS 20.340 are met and the client understands the terms, the lawyer may use and enforce the provision.

The opinion concludes yes, qualified. Under Oregon RPC 1.2(a), a lawyer must abide by a client's decision whether to settle, because the client, not the lawyer, decides. The opinion observes that "[d]epending on the circumstances, the proposed clause could unduly interfere with the client's unfettered decision whether to settle."

The opinion also applies Oregon RPC 1.5(a), which bars an illegal or clearly excessive fee, and RPC 1.8(i), which requires a reasonable contingent fee. It concludes the clause "could very well turn an otherwise lawful fee into a 'clearly excessive fee'" or an unreasonable contingent fee, and notes that because RPC 1.5(a) also reaches charging and collecting, later events could make it improper to collect the full agreed amount even if it looked reasonable at the outset. The opinion concludes it cannot say as a matter of law that all such split contingent-fee/hourly agreements violate these standards.

In practice

The opinion holds that, under the Oregon fee rules as they stood at the time of the opinion, a settlement-triggered conversion clause is not per se prohibited but must clear two limits: it cannot operate to coerce the client's settlement decision contrary to RPC 1.2(a), and the resulting fee cannot be clearly excessive under RPC 1.5(a) or an unreasonable contingent fee under RPC 1.8(i). Because the analysis is fact-specific and depends on ORS 20.340 and the current fee rules, verify the current text before relying on any specific term.

Common questions

Q: Is it allowed to make my contingent fee turn into an hourly fee if the client rejects a settlement?

A: Yes, qualified. The opinion concludes such a clause is not automatically improper if the ORS 20.340 requirements are met and the client understands it, but it may not coerce the settlement decision or produce an excessive fee.

Q: Why might such a clause violate the rules?

A: The opinion concludes it could unduly interfere with the client's decision whether to settle (RPC 1.2(a)) or make the fee clearly excessive (RPC 1.5(a)) or an unreasonable contingent fee (RPC 1.8(i)).

Q: Can a fee that looked fine at signing still be improper to collect later?

A: The opinion concludes yes, because RPC 1.5(a) bars charging or collecting a clearly excessive fee, so later events can make collecting the full agreed amount improper.

Background and rules framework

The opinion interprets Oregon RPC 1.2(a) (abiding by the client's settlement decision), RPC 1.5(a) (no illegal or clearly excessive fee), and RPC 1.8(i) (reasonable contingent fee), together with the contingent-fee statute ORS 20.340. These correspond to Model Rules 1.2, 1.5, and 1.8.

Citations and references

Rules of Professional Conduct:

• Oregon RPC 1.2(a) / Model Rule 1.2 (client's decision to settle)
• Oregon RPC 1.5(a) / Model Rule 1.5 (excessive fees)
• Oregon RPC 1.8(i) / Model Rule 1.8 (reasonable contingent fee)

Statutes:

• ORS 20.340 (contingent-fee agreements)

Cases:

• In re Kerrigan, 271 Or 1, 530 P2d 26 (1975)
• In re Yacob, 318 Or 10, 860 P2d 811 (1993)
• Hagans, Brown & Gibbs v. First Nat'l Bank of Anchorage, 783 P2d 1164 (Alaska 1989)

See also

• OSB Ethics Op. 2005-15: Contingent Fees Paid in Installments
• OSB Ethics Op. 2005-13: Contingent Fees in Domestic Relations
• OSB Ethics Op. 2005-45: Deferred Fee if the Client's Finances Change

Source

• Landing page: https://www.osbar.org/ethics/toc.html
• Original PDF: https://www.osbar.org/_docs/ethics/2005-54.pdf