Can a contingent-fee agreement charge a higher fee if the client turns down a settlement the lawyer considers reasonable?

Plain-English summary

The committee considered whether a contingent-fee contract could include a clause stating that if the client rejected a settlement offer the lawyer deemed "reasonable in light of all the circumstances," the contingent fee would be based on the larger of the recovery later obtained at trial or arbitration or the amount of the rejected settlement. The committee answered no.

It explained that, although the rules approve contingent fees (with conditions, such as a writing requirement, a reasonableness requirement, and bars on contingent fees in marital-dissolution and criminal-defense matters), a contingent agreement must not contravene other rules. RPC 1.2(a) requires a lawyer to abide by the client's decision whether to settle, phrased in mandatory terms; the committee read "abide" as accepting the client's settlement decision without question, and noted that courts likewise affirm the client's unfettered right to accept or reject a settlement offer. The committee found the proposed clause antithetical to that duty, because it economically coerces the client toward accepting the offer and directly penalizes a client who exercises the right to reject, shifting all of the litigation's downside risk to the client while leaving the lawyer the upside. It concluded that the clause's tendency to coerce was enough; the contract may not base the fee on the larger of the trial recovery or the rejected settlement offer.

Currency note

This opinion was issued in 1994 and amended in 2009. The amended text references the current Washington Rules of Professional Conduct (RPC 1.2, 1.5, and 1.8). Later rule amendments or opinions may have changed the analysis. Treat this page as historical context, not current guidance, and verify against the current rules before relying on any specific provision mentioned here.

Common questions

Q: Can a contingent fee go up if the client rejects a settlement?

A: The committee said no, not where the clause bases the fee on the larger of the trial or arbitration recovery or a rejected settlement the lawyer deemed reasonable; such a clause violates RPC 1.2(a).

Q: Why does that kind of clause violate the rules?

A: The committee said RPC 1.2(a) requires the lawyer to abide by the client's settlement decision, and the clause economically coerces the client into accepting and penalizes a client who rejects, shifting the downside risk entirely to the client.

Q: Does it matter whether the clause actually coerced the client in a given case?

A: The committee said no. Quoting authority, it said it is the clause's tendency to coerce, not proof that it caused harm in a particular case, that makes it improper.

Background and rules framework

The opinion interpreted RPC 1.2 (Model Rule 1.2, scope of representation and allocation of authority), specifically RPC 1.2(a)'s requirement that the lawyer abide by the client's decision whether to settle, read against the rules permitting and conditioning contingent fees, RPC 1.5 (Model Rule 1.5, fees) and RPC 1.8 (Model Rule 1.8, conflicts; specific rules on advancing costs and contingent arrangements). The committee treated the client's authority over settlement as a limit on what a fee agreement may provide.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.2 / Washington RPC 1.2(a) (abiding by the client's decision whether to settle)
• Model Rule 1.5 / Washington RPC 1.5(a), 1.5(c), 1.5(d) (reasonableness; writing; prohibited contingent fees)
• Model Rule 1.8 / Washington RPC 1.8(e), 1.8(i) (advancing costs; contingent arrangements)

Cases:

• Bernard v. Moretti, 518 N.E.2d 599 (Ohio Ct. App. 1987), client's discretion to reject a settlement
• Goldman v. Home Mutual Ins. Co., 126 N.W.2d 1 (Wis. 1964), the claim belongs to the client
• Giles v. Russell, 567 P.2d 845 (Kan. 1977), fee contract cannot interfere with the right to settle
• Hagans, Brown & Gibbs v. First National Bank of Anchorage, 783 P.2d 1164 (Alaska 1989), client control over litigation
• Wunschel Law Firm, P.C. v. Clabaugh, 291 N.W.2d 331 (Iowa 1980), a clause's tendency to coerce is sufficient

See also

• ABA Formal Op. 94-389: Contingent Fees
• WSBA Ethics Op. 1025: Contingent Fee, Forfeiture
• ABA Formal Op. 93-373: Reverse Contingent Fees

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1534

Original opinion text

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

Advisory Opinion: 191
Year Issued: 1994
RPC(s): RPC 1.2, 1.5, 1.8
Subject: Contingent Fee May Not be Based Upon the Larger of the Recovery Obtained at Trial/Arbitration or the Amount Offered in Settlement

Issue: May a lawyer properly include a provision in a contingent fee contract which states that if the client rejects a settlement offer that the lawyer deems "reasonable in light of all the circumstances," then the contingent fee will be based upon the larger of the recovery obtained at trial/arbitration or the amount offered in settlement?

Answer: No. The provision infringes on Rule 1.2(a) of the Rules of Professional Conduct that requires a lawyer to abide by a client’s decision whether to accept or reject a settlement offer.

Discussion: Contingent fee contracts are specifically approved by the Rules of Professional Conduct. See, RPC 1 .5(c), 1.8(e)(2), 1.8(i)(2). However, the RPCs also impose certain restrictions upon such agreements. For example, a lawyer may not charge a contingent fee for representation relating to either marital dissolution or criminal defense. See, RPC 1.5(d). A contingent fee agreement must always be in writing, See, RPC 1.5(c), and, as with all fee arrangements, the contingent fee must be reasonable. See, RPC 1.5(a), 1.8(e)(20, 1.8(i)(2).

In addition to those Rules which apply to contingent fee agreements by their express terms, any such agreement also must not contravene any other requirement of the RPCs. One such requirement is contained in RPC 1.2(a). That rule provides in relevant part (emphasis added):

A lawyer shall abide by a client’s decision whether to settle a matter.

The proscription is phrased in mandatory terms. Although not defined by the RPCs, "abide" is generally understood to mean "to await submissively; accept without question or objection ... to submit to." See, Webster’s Third International Dictionary (1986). Thus, RPC 1.2(a) requires a lawyer to "accept without question" a client’s decision to accept or reject a settlement offer. Moreover, as a legal matter, courts also affirm a client’s unfettered right to accept or reject a settlement offer. See, Bernard v. Moretti, 518 N.E.2d 599, 601 (Ohio App. 1987) (a client does not breach a contingent fee agreement by refusing to accept a settlement offer even if the refusal was foolish; it is solely within the client’s discretion to accept or reject a settlement offer); Goldman v. Home Mutual Ins. Co., 126 N.W.2d 1, 5 (Wis. 1964) ("Claim belongs to the client and not the attorney; the client has the right to compromise or even abandon his claim if he sees fit to do so"); Giles v. Russell, 567 P.2d 845, 850 (Kan. 1977) (". . .neither a valid contingent fee contract nor an attorney’s lien can interfere with a client’s right to settle"); but see, Hagans, Brown & Gibbs v. First National Bank of Anchorage, 783 P.2d 1164, 1167 (Alaska 1989) ("Should the client fail to exercise control over the litigation in a manner consistent with the reasonable expectations of the parties, the client may become liable to his attorney").

The proposed provision is antithetical to a lawyer’s duty to "abide by" a client’s decision regarding settlement. Rather than accept a client’s settlement decision without question, the provision—and thus the lawyer by extension—restricts the client’s freedom to reject a settlement offer. In very real terms, the provision functions to economically coerce the client into accepting an offer that the client might otherwise perceive to be inadequate. The theoretical possibility of a non-coercive use does not justify permitting this provision. Regardless of any coercive effect the provision may have, the client who does exercise his or her rightful prerogative to reject a settlement offer is directly penalized. The provision shifts all downside risk of the litigation—otherwise shared by the lawyer and client alike—to the client alone. Nonetheless, the lawyer remains entitled to share in all upside risk. "It is not necessary that the contract actually caused the feared evil in a given case; its tendency to have that result in [sic] sufficient." Wunschel Law Firm, P.C. v. Clabaugh, 291 N.W.2d 331, 335 (Iowa 1980). For the foregoing reasons, it is the opinion of the Rules of Professional Conduct Committee that a contingent fee contract may not include a provision that bases the contingent fee upon the larger of the recovery obtained at trial/arbitration or the amount offered in settlement in the event that the client rejects a settlement offer that the lawyer deemed reasonable. Such a provision is unduly coercive to a client’s choice with respect to settlement or trial of the client’s matter.

[amended 2009]