Contingent Fees: Conversion Clauses, Withdrawal And Termination, And Fee Forfeiture

• Jurisdiction: United States,Federal
• Law Firm: Fairfield and Woods
• Subject Matter: Litigation, Mediation & Arbitration, Trials & Appeals & Compensation
• Author: Cecil Morris
• Published date: 17 May 2023

Contingent fees are the lifeblood of a plaintiffs' practice. To protect their right to a contingent fee, plaintiffs' law - yers must ensure that they have a proper, written contin gent fee agreement, signed by the client(s).

Colorado Rule of Professional Conduct 1.5(c) requires that the terms of a contingent fee agreement be communi - cated in writing before or within a reasonable time after commencing the representation, and the writing must in - clude certain, specified information¹

Rule 1.5(c) also provides that "[n]o contingent fee agree - ment shall be enforceable unless the lawyer has substantially complied" with all the provisions of the Rule.² A form Con - tingent Fee Agreement is provided as an appendix to Rule 1.5, and that form Agreement "shall be sufficient to comply with paragraph (c)(1) of this Rule [1.5]."³

Lawyers are not required to use the form Contingent Fee Agreement authorized in Rule 1.5, as long as the agreement is consistent with the Rule.⁴

However, using the authorized form Agreement is the pru - dent approach. Doing so ensures that the Agreement will be enforceable. Further, the language in the authorized form Agreement is well established and predictable because it has been interpreted in numerous appellate decisions.

Withdrawal, Termination, and Conversion Clauses

One of the issues that arises in practice is that a representation ends before the event occurs that triggers the lawyer's right to a contingent fee (e.g., a recovery of money).

Sometimes, the lawyer withdraws from the representation, either because withdrawal is mandatory⁵ or permissive.⁶ Of course, if a lawyer moves to withdraw in a civil action or arbitration, the lawyer must strictly limit the information disclosed in the motion, in light of the lawyer's duty of confidentiality under Rule 1.6(a).⁷

Other times, the client terminates the lawyer and retains a new lawyer to pursue the claim and obtain a recovery as successor counsel. Rarely, a client terminates the lawyer after a settlement has been negotiated-but before it is finalized or funds disbursed-but the client does not engage successor counsel and instead proceeds to conclude the settlement without counsel in an effort to avoid paying the terminated lawyer a contingent fee and thus increase the funds payable to the client.

The effect of withdrawal or termination on a lawyer's right to a contingent fee is addressed in a so-called conversion clause in a contingent fee agreement. The conversion clause notifies the client of the lawyer's right to compensation if the representation is concluded before the event occurs that trigger's the lawyer's right to a contingent fee, whether by the lawyer's withdrawal or the client's termination of the representation.

Importantly, a conversion clause is one of the provisions that must be included in a contingent fee agreement if it is to be enforceable.⁸

The conversion clause in the authorized form Contingent Fee Agreement provides:

The Client is not to be liable to pay compensation otherwise than from amounts collected for the Client by the Lawyer, except as follows: In the event the Client terminates this contingent fee agreement without wrongful conduct by the Lawyer which would cause the Lawyer to forfeit any fee, or if the Lawyer justifiably withdraws from the representation of the Client, the Lawyer may ask the court or other tribunal to order that the Lawyer be paid a fee based upon...