Legal Ethics Corner

Ethics Corner is designed to present ethical issues that practitioners might well face on a daily basis. It is a service of the Legal Ethics Committee of the San Diego County Bar Association for SDCBA members.


Accepting an Assignment of the Right to Attorney Fee Award in Fee Agreements:  Can it be Done Ethically?

In the prior Ethics Corner piece we looked at the latest ethics opinion from the State Bar’s Standing Committee on Professional Responsibility and Conduct (COPRAC) (Formal Opinion No. 2009-176).  Therein COPRAC concludes that it is ethically permissible for a defense attorney to recommend and convey settlement offers in civil rights actions where a waiver of the right to statutory attorney fees is a condition of settlement.  It also concluded that the plaintiff’s attorney is obligated to convey the offer to the plaintiff and to consummate the settlement in accordance with plaintiff’s wishes even if it reduces the likelihood of recovering the full value of legal services.

In the opinion, COPRAC briefly touches upon a bigger issue:  can an attorney ethically accept an assignment of the right to attorney fees as part of a fee agreement as a means of attempting to secure payment?  With respect to statutory attorney fees in civil rights actions, the answer is no. (See Formal Opinion No. 2009-176, p.2, disavowing its prior opinion (Formal Opn. No. 1994-136) in light of the subsequent decision in Pony v. County of Los Angeles (9th Cir. 2006) 433 F.3d 1138, 1143-1144 [right to attorney fees under 42 U.S.C. § 1988 is substantive cause of action which cannot be transferred contractually to plaintiff’s attorney].)  But what of such assignments generally?

The present piece does not attempt to address every circumstance in which the attorney accepts an assignment of the right to fees to which the client is entitled.  Instead, it seeks to address what would likely be the minimum steps for possibly making such an arrangement ethical.  As noted above, under some fee statutes the assignment might be legally void even if such minimum steps are met, and the reasoning of Pony v. County of Los Angeles, supra, might well be applicable under similar statutes. 

Ultimately, the issue of such an assignment raises the concern of the attorney taking an interest adverse to the client.  Such an arrangement is governed by Rule of Professional Conduct 3-300 (“Avoiding Interests Adverse to a Client.”)  This Rule provides:
 

    A member shall not enter into a business transaction with a client; or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client, unless each of the following requirements has been satisfied:

  1. The transaction or acquisition and its terms are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which should reasonably have been understood by the client; and
  2. The client is advised in writing that the client may seek the advice of an independent lawyer of the client's choice and is given a reasonable opportunity to seek that advice; and
  3. The client thereafter consents in writing to the terms of the transaction or the terms of the acquisition.

Despite having disavowed Formal Opn. No. 1994-136 regarding the feasibility of assignments of attorney fees under the civil rights statutes, this opinion is nonetheless very instructive regarding taking assignments generally. (Standard contingency fee agreements are treated differently, and COPRAC has concluded that Rule 3-300 does not apply to such arrangements. (Formal Opn. No. 2006-170.)  More on that in a future Ethics Corner.)    

The assignment of fees to the attorney raises the very real concern that attorney and client will find themselves at odds if a settlement offer is made that calls for the waiver of the fee award. “In that event, it is in the best interest of the client to accept the settlement, while it is in the interest of the attorney who has obtained the client's waiver of the right to attorney's fees to reject the offer.  In our opinion, the real possibility of […][such a] settlement offer creates an actual conflict between attorney and client because it allows the lawyer to pursue a course of action that may not be in the client's best interests.” (Formal Opn. No. 1994-136.)  Consequently, “[t]he attorney's exclusive possession of the right to collect attorney's fees, and therefore to control settlement, constitutes a ‘possessory interest’ adverse to the client such that the member must comply with rule 3-300.” (Ibid.)

One commonly thinks of the above situation with respect to the plaintiff’s side of the lawsuit, as with civil rights cases or claims under the California Fair Employment and Housing Act (Gov. Code, § 12900 et seq.), but the same concerns apply on the defense side.  Certain statutes contain bilateral attorney fee provisions (e.g., Civil Code § 1717), and other statutes provide for fees incurred in a defensive posture (e.g., the anti-SLAPP statute [C.C.P. § 426.16(c)].)  In either context, strict compliance with rule 3-300’s disclosure requirements are a minimum for making the fee arrangement enforceable and ethical.  Such disclosure:

  1. should include a discussion that the lawyer may attempt to override the client's desire to settle the case by accepting the relief requested, if the settlement offer depends upon a waiver of some or all of the attorney's fees, and that the lawyer's right to do so may not be enforceable;
  2. client must be informed that the opposing party may offer the full relief requested in exchange for a waiver of attorney's fees and that, in this event, the attorney's interest and the client's interest in settling the case would differ, with the possible result that the attorney must withdraw.

If/when the settlement offer calling for waiver of fees is made, the attorney:

  1. must promptly and fully inform the client of all settlement offers;
  2. must not only advise the client of all terms of the offer, but should also remind the client that the attorney "owns" the right to attorney's fees, and advise the client that he or she has the right to consult with independent counsel regarding the settlement offer.  (Rule 3-310(A) and (B)(4) impose this requirement of additional disclosure, as the attorney has acquired an interest in the subject matter of the representation); and
  3. in the event of a disagreement between client and attorney as to whether or not a settlement offer should be accepted, the attorney may be forced to withdraw from representation. (See rule 3-700(B)(2) [mandatory withdrawal when member knows or should know that continued employment will result in violation of the rules] and rule 3-700(C)(1)(f) [permissive withdrawal where client breaches agreement as to fees].)

Additionally, COPRAC warns that such assignments might not be enforceable because the client always has the right to determine whether or not to accept a settlement offer.

It appears that, in practice, many purported assignments are going to be unenforceable because attorneys simply fail to strictly follow the requirements of Rule 3-300.  Furthermore, to the extent that counsel use the availability of statutory fees as a way to charge a possible premium above what would otherwise be an acceptable hourly rate, e.g. ‘you, client, will actually pay me $250/hour but if we prevail, under the assignment you give me the right to request $400/hour from the court,’ a court might well examine that arrangement with greater suspicion, and might be less inclined to uphold the assignment as against the client if the client wishes to settle the case and the lawyer refuses. (In more extreme cases, a possible violation of Rule 4-200’s prohibition against charging an unconscionable fee might be at play and could serve as an additional basis for striking down an assignment.)

Courts generally look with disfavor upon fee arrangements whereby the attorney accepts an interest adverse to the client.  If the attorney has any hope of making a fee award assignment enforceable, he/she must strictly follow the requirements of Rule 3-300, and should take great steps to make sure the client completely understands the arrangement and the possible adverse effects to the client.  Not only should all terms be reduced to writing—in plain English—the client must be expressly advised in writing of the option to seek independent legal advice from a lawyer of the client's choice.

--Luis E. Ventura

**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis.  Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**