Ohio Board Advisory Opinion Op. 24-03

OCR transcription; preserved printed pages are authoritative

e Ohio Board of Professional Conduct

OPINION 2024-03
Issued April 5, 2024
Withdraws Adv. Op. 1995-07

Propriety of Fee Agreement Permitting Conversion from an Hourly Rate to a
Contingent Fee

SYLLABUS: It is improper for a lawyer to enter into a fee agreement where the client
agrees to pay an hourly rate until settlement or collection of judgment at which time the
lawyer may choose between charging the hourly fee or receiving a total fee equal to a
percentage of the settlement or judgment depending upon whichever results in the larger

fee to the lawyer.

This nonbinding advisory opinion is issued by the Ohio Board of Professional Conduct
in response to a prospective or hypothetical question regarding the application of
ethics rules applicable to Ohio judges and lawyers. The Ohio Board of Professional
Conduct is solely responsible for the content of this advisory opinion, and the advice
contained in this opinion does not reflect and should not be construed as reflecting the
opinion of the Supreme Court of Ohio. Questions regarding this advisory opinion
should be directed to the staff of the Ohio Board of Professional Conduct.

€> Ohio Board ot Professional Conduct

THOMAS J. MOYER OHIO JUDICIAL CENTER
65 SOUTH FRONT STREET, 5™ FLOOR, COLUMBUS, OH 43215-3431
614.387.9370
www.bpc.ohio.gov

HON. D. CHRIS COOK RICHARD A. DOVE
CHAIR DIRECTOR
PATRICK M. MCLAUGHLIN D. ALLAN ASBURY
VICE- CHAIR SENIOR COUNSEL
VACANT
COUNSEL

OPINION 2024-03
Issued April 5, 2024
Withdraws Adv. Op. 1995-07

Propriety of Fee Agreement Permitting Conversion from an Hourly Rate to a
Contingent Fee

SYLLABUS: It is improper for a lawyer to enter into a fee agreement where the client
agrees to pay an hourly rate until settlement or collection of judgment at which time the
lawyer may choose between charging the hourly fee or receiving a total fee equal to a
percentage of the settlement or judgment depending upon whichever results in the larger

fee to the lawyer.
APPLICABLE RULES: Prof.Cond.R. 1.2, 1.5.
QUESTION PRESENTED:

May a lawyer enter into a fee agreement where the client pays an hourly rate until
settlement or collection of judgment at which time the lawyer chooses between
keeping the hourly fee or receiving a total fee equal to a percentage of the
settlement or recovery depending upon whichever results in the larger fee to the

lawyer?
ANALYSIS:
Contingent Fee Agreements

Lawyers are permitted to enter into contingent-fee agreements with clients.

Prof.Cond.R. 1.5(c). Contingent fee arrangements enable clients to pursue actions when

Op. 2024-03 2

they do not have the financial resources to pay a lawyer during impending and pending
litigation. Contingent fees are normally greater than the hourly fees that would be
charged for the same representation because the lawyer bears the risk of no recovery, and
the higher fee is compensation for incurring that risk. N.Y. Eth. Op. 697 (1997). In essence,
contingent fee agreements imply a "shared risk of non-recovery" between the client and
the lawyer. Cincinnati Bar Ass'n v. Schultz, 71 Ohio St. 3d 383, 384, 1994-Ohio-46.

Reasonableness of Fee

Any fee charged by a lawyer must be reasonable. Prof.Cond.R. 1.5(a). Prof.Cond.R.
1.5, cmt. [5]. Prof.Cond.R. 1.5(a) lists eight nonexclusive factors to be considered in the
determination of whether a fee is reasonable. Prof.Cond.R. 1.5, cmt.[1]. A decision of
which fee will be imposed based on the amount of the fee at the conclusion of the
representation is not a factor considered to determine reasonableness under the rule.
Moreover, the fact that a client agrees to a particular fee arrangement does not relieve the

lawyer from the reasonable fee requirement of Prof.Cond.R. 1.5(a).

The Supreme Court has reviewed contingent fee contracts that give a lawyer the
right to charge an hourly fee when (a) the representation concludes prematurely or (b)
upon the unsuccessful occurrence of the contingency and held that the lawyers
consequently violated the reasonable fee requirement of what is now Prof.Cond.R. 1.5(a).
Cuyahoga Cnty. Bar Ass‘n v. Levey, 88 Ohio St. 3d 146, 148, 2000-Ohio-283 (disciplining
attorney whose "contingent-fee agreement with [clients] provided for an hourly charge if
he was discharged whether or not, a successful completion [of case] occurred"); Columbus
Bar Ass'n v. Klos, 81 Ohio St. 3d 486, 489, 1998-Ohio-610 ("The contingent fee portion of
the contract * * * was also flawed" because it "provided that should the attorneys be
discharged or withdraw prior to settlement, they would be compensated" at the hourly

rate.)
Interference With Client’s Decision to Settle

The proposed fee agreement gives the lawyer the unilateral ability to choose the
higher of the hourly rate or contingent fee when the matter is successfully resolved. This
type of fee agreement likely interferes with the client’s authority to choose when and
whether to settle a matter and increases the likelihood in some circumstances for the

charging or collection of an unreasonable or excessive fee. See Prof.Cond.R. 1.2(a) (a

Op. 2024-03 3

lawyer shall abide by the client’s decision whether to settle a matter.) Under the proposed
fee arrangement, interference with the client’s decision to settle the matter may arise if a
client perceives that it is better to settle the matter early in order to avoid mounting hourly

fees, irrespective of the amount that may be offered in settlement.
Improper Fee Agreement

With regard to the question presented, the Board concludes it is improper for a
lawyer to enter into a fee agreement where the client agrees to pay an hourly rate until
settlement or recovery, at which the lawyer can unilaterally decide whether to charge an
hourly rate or a contingent fee. Other jurisdictions have reached a similar conclusion. See
e.g. Tex. Comm. Prof. Ethic 518 (1996). Such an agreement is largely illusory since the
lawyer can elect to charge the larger of two fees without incurring any risk of no recovery.
The traditional risks that a lawyer accepts by entering into a contingency fee agreement
with a client cannot be eliminated by permitting the lawyer by agreement to collect the

fee with the highest value at the conclusion of the matter.