Can a Virginia lawyer put a clause in a contingent-fee agreement converting to an hourly or contingent fee if the client fires the lawyer mid-case without cause?

Plain-English summary

A personal-injury plaintiffs' lawyer wanted standard contingent-fee language providing that, if the client terminates, the lawyer's services are valued at stated hourly rates, or in the alternative the lawyer may elect the agreed contingent fee on any settlement offer made before termination. The committee was asked whether the clause is ethically permissible (it declined the separate question of legal enforceability, a contract-law matter).

The committee explains the baseline from Heinzman v. Fine, Fine, Legum & Fine: a lawyer discharged without cause under a contingent-fee contract is ordinarily entitled to quantum meruit (the reasonable value of services through discharge), not the full contingent fee. Heinzman did not address a conversion clause, but the committee, citing other states' opinions, concludes that alternative-fee clauses are permissible in contingent-fee contracts so long as they comply with the Rules: the arrangement must be adequately explained (Rules 1.4 and 1.5(b)), be reasonable (Rule 1.5(a)), and not unreasonably hamper the client's absolute right to discharge the lawyer with or without cause (Rule 1.16). Reasonableness must be judged not only when the agreement is signed but also at termination and when any recovery is obtained; the opinion gives an example where a $20,000 hourly bill, reasonable at signing, becomes unreasonable at discharge given a small available recovery, leaving the lawyer only a quantum meruit claim.

Applying these principles, the committee finds both clauses in the inquiry improper. The second sentence is unclear about whether it sets a contractual hourly fee or an agreed quantum meruit rate; stating that a particular hourly rate satisfies quantum meruit does not make it so, since quantum meruit is a common-law concept with its own factors (County of Campbell v. Howard; Rule 1.5), so the clause is misleading and inadequately explained under Rules 1.4 and 1.5. The third sentence, letting the lawyer elect the contingent fee on a pre-termination settlement offer "where permitted by law," is likewise misleading because it does not explain when the law would permit that election, leaving the client without an adequate explanation of the fee.

In practice

The opinion holds that, under the Virginia rules as they stood at the time, a contingent-fee conversion or termination clause is ethically permissible if it is clearly explained, reasonable when measured at termination and at recovery, and does not burden the client's right to discharge the lawyer. Per the opinion, a clause that purports to fix an hourly rate as the quantum meruit value, or that invokes "where permitted by law" without explaining the circumstances, is misleading and fails the explanation duties of Rules 1.4 and 1.5; a lawyer may instead state a normal hourly rate that the lawyer will present as evidence of quantum meruit.

Common questions

Q: Can a contingent-fee agreement convert to an hourly fee if the client fires the lawyer?

A: The opinion says a conversion clause is permissible if it complies with the Rules: adequately explained, reasonable when judged at termination and recovery, and not impeding the client's right to discharge the lawyer.

Q: When is the reasonableness of the alternative fee judged?

A: The opinion says reasonableness is judged not only at signing but also at the time of termination and when any recovery is obtained; a fee reasonable at signing can become unreasonable later, leaving only a quantum meruit claim.

Q: Can the lawyer just declare an hourly rate to be the quantum meruit value?

A: No. The opinion says quantum meruit is a common-law concept with its own factors, so stating that an hourly rate meets that standard is misleading; the lawyer may instead say she will present her normal rate as evidence of quantum meruit.

Q: Why were the clauses in this inquiry rejected?

A: The opinion found both misleading and inadequately explained under Rules 1.4 and 1.5: the hourly clause blurred a contractual fee with quantum meruit, and the contingent-election clause invoked "where permitted by law" without explaining when that applies.

Background and rules framework

The opinion interprets Rule 1.5 (Model Rule 1.5), the reasonable-fee and explanation requirements (including Rule 1.5(a) and (b)), Rule 1.4 (communication), and Rule 1.16 (the client's right to discharge counsel). It applies Heinzman v. Fine, Fine, Legum & Fine and County of Campbell v. Howard on quantum meruit, and surveys other states' opinions on conversion clauses.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.5 / Virginia Rule 1.5(a), (b) (reasonable fee; explaining the fee)
• Model Rule 1.4 / Virginia Rule 1.4 (communication)
• Model Rule 1.16 / Virginia Rule 1.16 (client's right to discharge the lawyer)

Cases:

• Heinzman v. Fine, Fine, Legum & Fine, 217 Va. 958, 234 S.E.2d 282 (1977) (quantum meruit on discharge without cause)
• County of Campbell v. Howard, 133 Va. 19, 112 S.E. 876 (1922) (quantum meruit factors)

Other opinions cited:

• Virginia LEO 1606 (applying Heinzman); ethics opinions from Kansas, Colorado, Mississippi, New Mexico, and Nassau County on conversion clauses

See also

• ABA Formal Op. 94-389: Contingent Fees
• ABA Formal Op. 487: Fee Division With a Client's Prior Counsel
• ABA Formal Op. 93-373: Reverse Contingent Fees

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1812.pdf

Original opinion text

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

Committee Opinion
October 31, 2005
LEGAL ETHICS OPINION 1812

CAN LAWYER INCLUDE IN A FEE AGREEMENT A
PROVISION ALLOWING FOR ALTERNATIVE FEE
ARRANGEMENTS SHOULD CLIENT TERMINATE
REPRESENTATION MID-CASE WITHOUT CAUSE.

You have presented a hypothetical in which an attorney who regularly represents plaintiffs in
personal injury cases wants to include the following language in her standard fee agreement:
Either Client or Attorney has the absolute right to terminate this agreement. In
the event Client terminates this agreement, the reasonable value of Attorney’s
services shall be valued at $200 per hour for attorney time and $65 per hour for
legal assistant time for all services rendered. In the alternative, the Attorney
may, where permitted by law, elect compensation based on the agreed
contingency fee for any settlement offer made to Client prior to termination.
Based on the facts presented, you have asked the committee to opine as to whether the
provision in the third sentence of that language is ethically permissible and legally enforceable.
First, the committee notes that the issue of legal enforceability would involve an application of
contract law to this provision and, as such, is outside the purview of this committee. The
committee will limit its response to the question of ethical permissibility. The Committee further
limits its response to situations where the client has terminated the attorney’s services without
cause. While the committee notes that this request does not specifically ask about the
permissibility of the second sentence of the proposed language, the committee nonetheless will
address that provision as well.
The attorney in this hypothetical would insert the above language in contingent fee contracts
for personal injury plaintiffs. The proposed language purports to establish alternative fee
arrangements if the client terminates the representation prior to the natural conclusion of the
matter. When a client terminates a contingent fee agreement before the contemplated services
are fully performed, and the fee agreement does not contain an alternative fee arrangement
applicable upon early termination by the client, the discharged attorney is entitled to a fee based
upon quantum meruit (the reasonable value of the attorney’s services up to the date of
termination). Heinzman v. Fine, Fine, Legum, & Fine, 217 Va. 958 234 S.E. 2d 282 (1977).
The Heinzman decision holds that the discharged attorney, under the circumstances of that case,
is not entitled to recover the contractual contingent fee, but rather the discharged attorney is
limited to recovery on a quantum meruit basis. As noted in LEO 1606, the Heinzman decision
explained that:
When, as here, an attorney employed under a contingent fee contract is
discharged without just cause and the client employs another attorney who
effects a recovery, the discharged attorney is entitled to a fee based upon
quantum meruit for services rendered prior to discharge…

Committee Opinion
October 31, 2005
Heinzman at 964. 1
The committee notes, however, that the court in Heinzman did not have before it a termination
or conversion clause of the type presented in your inquiry. Thus, the Heinzman court did not
have an opportunity to consider whether an attorney and client may properly agree upon
alternative fee arrangements in the event the client elects to terminate the contingent fee
agreement before the contemplated services have been fully performed. However, the Supreme
Court did state the following in Heinzman:
We agree that, absent overreaching on the part of the attorney, contracts
for legal services are valid and when those services have been performed as
contemplated in the contract, the attorney is entitled to the fee fixed in the
contract . . . .
Heinzman at 962 (footnote omitted).
While an attorney may consider including discharge conversion clauses in the contingent fee
agreement, he or she must be mindful of the court’s characterization in Heinzman of contracts
between lawyer and client:
Seldom does a client stand on an equal footing with an attorney in the
bargaining process. Necessarily, the layman must rely upon the knowledge,
experience, skill, and good faith of the professional. Only the attorney can
make an informed judgment as to the merit of the client’s legal rights and
obligations, the prospects of success or failure, and the value of the time and
talent which he must invest in the undertaking. Once fairly negotiated, the
contract creates a relationship unique in the law. The attorney-client
relationship is founded upon trust and confidence, and when the foundation
fails, the relationship may be, indeed should be, terminated.
Heinzman at 963.
As indicated by this committee in LEO 1606, Heinzman stands for the proposition that
contracts between attorney and client are unique and not governed solely by principles that
govern ordinary commercial contracts.
Other states’ ethics opinions have held that a lawyer may ethically include in a contingent fee
agreement what he is to receive as a fee in the event he is discharged by the client. Kansas Bar
Ass’n Ethics Op. 93-03 (lawyer may included in contingent fee agreement his entitlement to a
quantum meruit recovery which could include a stated percentage of the client’s ultimate
1

While not expressly at issue here or in Heinzman, the committee does note a body of cases from a number of
jurisdictions suggesting that this notion of quantum meruit may not be appropriate in those extreme cases where the
client terminates the representation at the last moment before accepting an award or receiving an award, with the
attorney’s work substantially performed and the client in bad faith attempting to circumvent the contractual
agreement. See Restatement (Third) of Law Governing Lawyers §40 Comment c at 293 (1988), and cases cited
therein.

Committee Opinion
October 31, 2005
recovery); Colo. Bar Ass’n Ethics Op. 100 (1997) (lawyer not ethically precluded from using
“conversion clause” providing for alternative fee, so long as the fee charged does not
unreasonably interfere with client’s absolute right to fire lawyer); Miss. Bar Ethics Op. 144
(1988) (discharge clause entitling lawyer to $60 per hour or 20% of any recovery is permissible
as long as it does not result in an excessive fee); New Mexico Bar Ethics Op. 1995-2 (1995)
(approving contingent fee agreement that proposes a quantum meruit recovery if lawyer is fired
without cause or if client gives lawyer cause to withdraw); Nassau County Bar Ass’n Op. 90-24
(1990) (discharged lawyer may charge contingent fee if it is reasonable and represents
reasonable value of services rendered prior to discharge); cf. Kirshenbaum v. Hartshorn, 539 So.
2d 497 (Fla. Dist. Ct. App. 1989) (lawyer loses right to any fee when contingent fee contract did
not specify compensation in event client elected to discharge lawyer before recovering anything).
The committee opines that such alternative fee arrangements are permissible in contingent fee
contracts so long as the alternative fee arrangements otherwise comply with the Rules of
Professional Conduct. For example, the alternative fee arrangement must be adequately
explained to the client (Rule 1.4 and 1.5(b)), be reasonable (Rule 1.5(a)), and not unreasonably
hamper the client’s absolute right to discharge his lawyer, with or without cause, at any point in
the representation (Rule 1.16) 2. Given these parameters, the committee believes that when
determining reasonableness, the reasonableness of the alternative fee must be evaluated and
judged not only in the context of when the fee agreement was signed, but also as of the time that
the lawyer’s services were terminated, as well as when the recovery, if any, was obtained. An
example is in order. Client retains Lawyer A on a one-third contingent fee, with an alternative
hourly fee arrangement to apply if the Client terminates Lawyer A’s services before recovery.
After discovery is completed, Lawyer A concludes that the insurance coverages available total
$25,000.00 and the defendant has no means to satisfy a judgment in any amount. Given the
expenses involved in trying the case and the risks associated with litigation, Lawyer A
recommends to the Client that the Client accept the defendant’s last and final offer of
$22,500.00. The Client not only rejects the offer, but terminates the relationship with Lawyer A.
Employing the alternative hourly fee arrangement, Lawyer A sends Client a bill for $20,000.00,
which is properly calculated by Lawyer A by multiplying his stated hourly rate by the number of
hours worked on the file. Lawyer A also claims a lien in this amount on any recovery in the case
and notifies Lawyer B, who now is reviewing the case to determine whether he will represent
Client. The committee believes that while the alternative hourly fee arrangement may have been
reasonable at the time the fee agreement was signed, it is not reasonable when viewed at the time
of discharge. Under this scenario, the alternative hourly fee arrangement is impermissible and,
therefore, Lawyer A would only be left with a quantum meruit claim.
With these general principles in mind, the committee will address the second and third
sentences of the alternative fee provision presented in your hypothetical.
Second Sentence of the Proposed Language
2

Comment 6 to Rule 1.16 (“Declining or Terminating Representation”) states that a “client has the right to
discharge a lawyer at any time, with or without cause.” See also Law. Man. On Prof. Conduct (ABA/BNA) 41:116
(2005), citing Florida Bar v. Hollander, 607 So. 2d 412 (Fla. Sup.Ct. 1992); Florida Bar v. Doe, 550 So.2d 1111
(Fla. Sup.Ct. 1989); Cincinnati Bar Association v. Schultz, 643 N.E.2d 1139 (Ohio Sup.Ct. 1994).

Committee Opinion
October 31, 2005

The second sentence states as follows:
In the event Client terminates this agreement, the reasonable value of
Attorney’s services shall be valued at $200 per hour for attorney time and $65
per hour for legal assistant time for all services rendered.
In the committee’s view, this provision is unclear. The committee cannot determine whether
the language is attempting to establish an alternative contractual hourly fee arrangement or is
attempting to establish an agreed upon hourly rate to be used in employing a quantum meruit
calculation. Rule 1.5(b) requires that the fee arrangement be adequately explained to the client,
preferably in writing. The committee opines that the second sentence of the proposed language
fails to meet this requirement of Rule 1.5(b).
Furthermore, this provision is misleading if it purports to establish a quantum meruit fee. An
attorney stating in a fee agreement that a particular hourly rate meets quantum meruit standards
does not in fact make it so. Quantum meruit is a common law concept, with case law presenting
appropriate factors for determining the fee in a particular case. See County of Campbell v.
Howard, 133 Va. 19, 112 S.E. 876 (1922) (discussing the pertinent factors). See also Virginia
Rule 1.5 which sets out the factors used to determine whether a lawyer’s fee is reasonable.
Significantly, neither Howard nor Rule 1.5 employs the attorney’s usual hourly rate or “lodestar”
as a factor in determining the reasonableness of the fee. If an attorney states a rate in the
agreement that would not be reasonable under the quantum meruit concept, such a provision
would be misleading to the client. Rule 1.5 places an affirmative obligation on an attorney to
adequately explain his fee to the client. While the committee believes that an attorney is not
required to do so, some attorneys may want to advise their clients that if the attorney is
terminated without cause before completion of the attorney’s services, the attorney will present
evidence of her normal hourly rate in determining an appropriate quantum meruit amount. It is
not impermissible for the attorney to state that her normal hourly rate is $200 an hour, if that is
so, and to indicate to the client that in the event the client prematurely terminates the
representation, the attorney will seek quantum meruit compensation based on that hourly rate for
services performed up to the date of termination. Unfortunately, the second sentence of the
proposed language goes too far and actually appears to attempt to set an hourly rate for quantum
meruit analysis, which is misleading and, therefore, impermissible.
Based on the foregoing, the committee opines that the second sentence of the termination
clause in the proposed contract is improper as it is misleading and fails to fully inform the client
of the basis of the attorney’s fee when a contingent fee representation is terminated by the client
before its completion. See Virginia Rules 1.4 and 1.5.
Third Sentence of the Proposed Language
The third sentence states as follows:

Committee Opinion
October 31, 2005
In the alternative, the Attorney may, where permitted by law, elect
compensation based on the agreed contingency fee for any settlement offer
made to Client prior to termination.
The committee is of the opinion that this provision is likewise improper as it is misleading and
fails to fully and properly inform the client of the lawyer’s entitlement to compensation in the
event the client terminates the representation prior to a recovery from the defendant. The
committee notes that the provision does state that it applies “where permitted by law.” However,
the contract does not explain under what circumstances law may permit the attorney to elect
compensation based on the agreed contingent fee or any settlement offer made to client prior to
termination. As stated by the Supreme Court in the Heinzman case, contracts for legal services
are not the same as other contracts. The client actually retains the lawyer for the purposes of
explaining the client’s legal rights and to advise the client as to what actions are “permitted by
law.” In this hypothetical, the lawyer’s contract does not fully explain when the lawyer would be
entitled to elect to receive a contingent fee “where permitted by law.”
The Committee concludes that the agreement does not fully and adequately explain to the
client the fee arrangement and, in fact, contains language that, without more, is likely to be
confusing for and misunderstood by the client.
This opinion is advisory only, based only on the facts you presented and not binding on any court
or tribunal.