End-of-life notice: American Legal Ethics Library
As of March 1, 2013, the Legal Information Institute is no longer maintaining the information in the American Legal Ethics Library. It is no longer possible for us to maintain it at a level of completeness and accuracy given its staffing needs. It is very possible that we will revive it at a future time. At this point, it is in need of a complete technological renovation and reworking of the "correspondent firm" model which successfully sustained it for many years.
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Oregon Legal Ethics
1.5:100 Comparative Analysis of Oregon Rule
DR 2-106(A) proscribes an unreasonable fee, whereas MR 1.5(a) mandates a lawyer’s fee be reasonable. The factors enumerated in MR 1.5(a) for determination of whether a fee is reasonable are the same as those enumerated in DR 2-106(B). There is no direct Oregon counterpart to MR 1.5(b), nor does Oregon’s DR state the same requirements for contingent arrangements as are stated in MR 1.5(c), though ORS 20.340 requires the fee agreement be written in plain and simple language and gives the client a 24-hour right of rescission.
With regard to fee splitting, DR 2-107(A) permits division of fees only when (1) the client consents to employment of the other lawyer after full disclosure that a division of fees will be made and (2) the total fee of the lawyers does not clearly exceed reasonable compensation for all legal services rendered.
1.5:200 A Lawyer's Claim to Compensation
• Primary OR References: DR
• Background References: ABA Model Rule 1.5; EC 2-23, 5-7, and 5-23; Other Jurisdictions
• Commentary: ABA/BNA § 41:101, ALI-LGL §§ 38-42, Wolfram §§ 9.1-9.6
• OR Commentary: EOL ch 4, §§ 19.14, 19.16
1.5:210 Client-Lawyer Fee Agreements [see also 1.5:410]
Ambiguous fee agreements must be construed against the lawyer. OSB Legal Ethics Op No 1991-124. The duty to disclose and explain fees also ethically obliges an attorney to furnish the client with a reasonably detailed bill at the client’s request.
Verbal fee agreements are enforceable, but written fee agreements entered into at the outset of representation are desirable for both the lawyer and the client. See In re Whipple, 320 Or 476, 479 n 7, 886 P2d 7 (1994). An attorney who enters into a fee agreement after the attorney-client relationship has been established bears the burden of proving full disclosure to the client and the fairness of the terms of the agreement. Sabin v. Terrall, 186 Or 238, 250, 206 P2d 100 (1949).
Contingent fees are permitted in civil cases under DR 5-103(A)(2), subject to the limitations imposed by DR 2-106(C). ORS 20.340 requires that contingent fee agreements for personal injury, death, and property damage claims be written and in plain and simple language. See also 1.5:610.
The fee agreement should specifically identify who is, and who is not, a client for conflict-of-interest purposes. The entity to be billed and the client may not be identical. If there are multiple clients, the agreement should clarify whether all clients are to be held liable for the full cost of the work being done for the group.
The scope of representation to be undertaken should be clarified in writing at the outset. The attorney may wish specifically to exclude matters that were discussed with the client but that the attorney declined to handle or for which the client has sought or will seek representation by other counsel. If charging a fixed fee, the attorney agreement might specify what work is to be done for the quoted fee. If the client will be responsible for key tasks, these should be discussed and memorialized in writing.
Attorneys should specify in the fee agreement the events that must occur or the conditions that must exist before the attorney agrees to render service (e.g., receipt of deposit in attorney’s trust account, client’s return of signed fee agreement).
Any fee agreement involving litigation should address whether the attorney is contractually bound to provide representation until all appeal rights are exhausted or whether there will be additional fees for appeals. Alternatively, it should be possible to provide that no appeal will be prosecuted or defended without an additional agreement.
An attorney may be engaged by a client to perform limited, well-defined, or relatively ministerial tasks. However, if other issues come up, the attorney may be responsible to recognize them and, at the very least, to advise the client of the existence of the potential problems and determine with the client what additional tasks, if any, may need to be performed by that attorney.
Fee agreements must disclose either the amount of the fee or the factors on which the fee will be based. Because an attorney may charge only for the value of the services performed, that attorney is entitled and perhaps even required to take a variety of factors, other than the time and labor required, into account in setting a fee. See ABA Formal Ethics Op 93-379 (1993) (finding MR 7.1 requires such disclosure). Absent a fee agreement provision to the contrary, attorneys are permitted but are not required to charge their clients separately for the work of laypersons, as long as the total fee charged is not “clearly excessive.”
Every fee agreement should provide that the client is responsible for payment of costs and authorized out-of-pocket expenses. See DR 5-103(B). The critical issue is whether the attorney will agree to advance costs or only pay costs out of money deposited by the client in a trust account.
Traditionally, probate lawyers set attorney fees based on the value of the estate, including probate and nonprobate assets, just as is provided for the personal representative’s fee. See ORS 116.173. This practice was legislatively discouraged in Matter of Estate of Konopka, 498 NW2d 853 (Wis App 1993). In Oregon, ORS 116.183 sets forth the factors a court considers in awarding reasonable attorney fees in probate proceedings.
If the fee agreement does not provide for an advance payment of fees and costs, the attorney should advise the client when the client should expect to be billed, and should clarify when fees and costs are due and payable. Attorneys who expect payment within a specific number of days should so advise the client before representation and include such a provision in a fee agreement.
Lawyers generally may charge interest on an unpaid account at the legal rate as set forth in ORS 82.010. Interest charged in excess of that rate, absent a fee agreement stipulating a higher rate, is proscribed by DR 2-106 as illegal and clearly excessive. OSB Legal Ethics Op No 1991-97 found that, if agreed in advance, an 18 percent interest charge (twice the rate defined by statute) on past-due amounts would not necessarily be excessive given that clients pay comparable rates for credit cards. Under certain circumstances, the disclosure provisions of the Truth in Lending Act, 15 USCA §§ 1601-1667e, will apply to attorney fee agreements.
Oregon lawyers may also use a financing plan that was proposed by a company owned by nonlawyers and that would enable clients to finance legal fees. Upon approval of the client’s credit, the attorney would submit a voucher to the company for their services rather than billing the client directly. Upon receipt of the voucher, the company would pay the attorney the amount of the voucher, minus a 10 percent service charge. The client would repay the company on an installment basis and at an interest rate comparable to those charged by credit cards. The company would be responsible for collecting amounts owed by the client; in only limited exceptions would the company have recourse against the attorney for any uncollected amounts. OSB Legal Ethics Op No 1993-133.
(6) Withdrawal or Discharge of Attorney [see also 1.5:230]
Fee agreements should also specify the grounds for which withdrawal may be contemplated. Recent amendments to DR 2-110(C) relating to permissive withdrawal facilitate withdrawal for simple nonpayment of fees without the necessity of proving deliberate, willful refusal to pay fees incurred.
Attorneys are not free to amend a fee agreement at will. Nevertheless, an attorney may be permitted to increase the hourly rate or the amount of the minimum installment payment during the course of representation if the fee agreement explicitly reserves to the attorney the right to do so.
The Oregon Supreme Court held valid the modification of an initial fee agreement covering a lawyer’s representation of clients in prior litigation following entry of a verdict in favor of the clients but before entry of the judgment. The modification was part of a three-party settlement agreement between the clients, the lawyer, and the adverse litigant under which, in exchange for a judgment of dismissal, the adverse litigant, among other things, paid an agreed fee to the clients’ lawyer. The clients later sought to recover the attorney fees paid on their behalf on the grounds that the fees were excessive. See Eagle Industries, Inc. v. Thompson, 321 Or 398, 900 P2d 475 (1995).
Some fee agreements give the attorney the right to associate other counsel of the attorney’s choice. If a division of fees is contemplated, an attorney may not associate other counsel outside of the retained attorney’s law firm without the consent of the client. See DR 2-107. A lawyer’s failure to do so may result in the lawyer’s responsibility for the other lawyer’s conduct.
(9) Cooperation of Client [see 1.2:260]
(10) Payment of Fees by Nonclients [see also 1.5:240]
An attorney may agree to receive from a nonclient compensation related to the attorney’s representation of a client as long as the client consents after full disclosure. DR 5-108(A). However, an attorney may not permit one who recommends, employs, or pays the attorney to render legal service to another to “direct or regulate” the attorney’s professional judgment with respect to such legal representation. Information from a client may not be disclosed to a nonclient who employs the attorney, nor may the nonclient who employs the attorney interfere with the attorney-client relationship. DR 5-108(B).
The purpose of these rules, as stated in EC 5-23, is to prevent a lawyer from dividing his or her loyalty between the client and the one who pays the bills. OSB Legal Ethics Op No 1991-115.
Without an agreement, disputes as to the rights and duties of lawyer and client will likely be resolved against the attorney. OSB Legal Ethics Op Nos 1991-124, 1991-15.
1.5:230 Fees on Termination [see 1.16:600]
1.5:240 Fee Collection Procedures [see also 1.5:800(B)]
An attorney is neither obligated to collect any attorney fees awarded the client nor obligated to give the client credit for any such fees unless actually paid to the attorney.
There is indication that the Fair Debt Collection Practices Act may apply to lawyers who collect their own debts as well as debts owed to their clients. See, e.g., Fox v. Citicorp Credit Services, Inc., 15 F3d 1507 (9th Cir 1994).
Fee agreements may provide for attorneys fees in the event of action taken to collect a delinquent account.
Although an attorney generally may not acquire a financial interest in the outcome of a client’s case, an attorney may acquire a consensual lien or security interest, possessory or nonpossessory, in the client’s property to secure fees and expenses. DR 5-103(A)(1); EC 5-7. If a security interest is not obtained until after the attorney-client relationship is established and the attorney has a fiduciary duty to the client, conflict-of-interest questions giving rise to disclosure and consent requirements may be involved. See DR 5-101, 5-104(A).
An attorney has a statutory lien on the client’s personal property in the attorney’s possession, including money, to secure payment of services rendered. ORS 87.430. However, if the fee is disputed, an attorney may not unilaterally apply the client’s property to the fee. DR 9-101(A)(2); OSB Legal Ethics Op No 1991-88. Moreover, an attorney is obligated to take reasonable steps to avoid foreseeable prejudice to the client, DR 7-101(A)(3), including returning to the client all property to which the client is entitled. ORS 9.360; OSB Legal Ethics Op No 1991-125. Nevertheless, an attorney should generally be able to hold the client’s property until such time as the client files a surety bond or deposit, as provided in ORS 9.370 and 87.435, or the fee dispute is otherwise resolved. If, however, the client does not have sufficient resources to pay an attorney in full and if surrender of the materials is necessary in order to avoid foreseeable prejudice to the client, the attorney’s lien must yield to the fiduciary duty that the attorney owes to the client upon payment of whatever amount the client can afford to pay. OSB Legal Ethics Op No 1991-90.
(3) Form of Payment of Fees [see also 1.5:210(B)(10)]
Insofar as the amount of attorney fees paid by a client and the form in which the fees are paid constitute a client confidence or secret under DR 4-101, and therefore are otherwise nondisclosable, such information may be revealed without violation of the disciplinary rules when disclosure is required by law.
Collection of attorney fees in some form other than cash is not inherently unethical, assuming the fair value of the fees is reported as income in the attorney’s accounts for income tax purposes. However, ethical questions may arise in such a transaction due to the potential difficulty in agreeing on the value of tangible property and documenting payment in kind on an account stated in legal tender. See DR 5-101.
Attorneys may wish to provide in the fee agreement for arbitration through the auspices of the OSB’s voluntary arbitration program. However, attorneys cannot require that clients arbitrate disputes if the clients do not wish to do so.
DR 6-102(B)’s requirement that a lawyer enter into an agreement with a client to arbitrate malpractice claims only after full disclosure may be extended to agreements to arbitrate over fee disputes. “Full disclosure” means “an explanation sufficient to apprise the [client] of the potential adverse impact on the [client].” DR 10-101(B)(1).
[The discussion of this topic has not yet been written.]
An attorney has a duty to avoid disputes with the client over fees and to avoid, if possible, legal action to compel payment of fees. EC 2-23. When notified by a client that a client disagrees with a billing, the lawyer should not ignore the client’s grievance and resubmit the bill or file suit without first attempting to amicably resolve the problem. Lawyers are encouraged to participate in the OSB’s voluntary fee arbitration program. A lawyer is not required, however, to abandon general contractual rights to payment of an agreed and reasonable fee for services rendered. See EC 2-23.
1.5:300 Attorney-Fee Awards (Fee Shifting)
Judges determine the reasonableness of attorney fees sought pursuant to fee-shifting contractual arrangements in which attorney fees are awarded to the prevailing litigant.
In hearings pursuant to fee-shifting statutes, judges routinely determine the reasonableness of fee agreements, whether the agreements are based on a contingency or an hourly rate.
1.5:340 Financing Litigation [see 1.8:600]
1.5:400 Reasonableness of a Fee Agreement
• Primary OR References: DR
2-106(A) and (B),
• Background References: ABA Model Rule 1.5(a), Other Jurisdictions
• Commentary: ABA/BNA § 41:301, ALI-LGL § 34, Wolfram § 9.3.1
• OR Commentary: EOL §§ 4.2-.5, 4.12, 4.20, 4.23
DR 2-106(A) prohibits a lawyer from charging, collecting, or attempting to charge a “clearly excessive fee.” “Clearly excessive” is construed as synonymous with “unreasonable,” one for which a lawyer of ordinary prudence would have “a definite and firm conviction” that the fee is excessive. DR 2-106(B); DR 5-103(A); OSB Legal Ethics Op No 1991-54n1.
Sending an excessively high bill to a client, even with no expectation that it will be paid voluntarily, or even with the intention that the bill represent an opening negotiation position only, constitutes a violation of DR 2-106(A). In re Potts/Trammel/Hannon, 301 Or 57, 718 P2d 1363 (1986).
If, in the course of representing a client, a lawyer breaches a professional duty, such as a fiduciary duty or the duty of loyalty, the lawyer is not for that reason alone prohibited from charging a reasonable fee for services rendered. Other states may disagree with Oregon’s position on this matter. Reduction or denial of the attorney’s fees may be permitted in contexts involving violations of the disciplinary rules.
DR 2-106(B) is a nonexclusive list of factors to consider in determining whether a fee is “clearly excessive.” The Oregon Supreme Court expanded the list of factors to include “the extent to which the written brief and oral argument by counsel has been of assistance to this court in reaching a decision.” Chalmers v. Oregon Auto Ins. Co., 263 Or 449, 456, 502 P2d 1378 (1972). The court has also observed that in setting a reasonable fee in probate matters, the court may consider whether the lawyer breached a fiduciary duty to the client and, if so, whether the breach diluted or vitiated the value of the lawyer’s services. Kidney Association of Oregon v. Ferguson, 315 Or 135, 843 P2d 442 (1992). Evidence that the attorney’s work was made necessary by the attorney’s own error has been considered by some courts in the determination of reasonableness of fees. See Cirimele v. Shinazy, 134 Cal App 2d 50, 285 P2d 311 (1955).
If an attorney quotes a fee that seems reasonable at the time but, due to changed circumstances in the representation of the client, subsequently determines is clearly excessive, the attorney is required to reduce the quoted fee or refund a collected fee.
Any upwardly revised fee is excessive and violates DR 2-106(A) if it results from an attorney’s effort to retaliate against a client for challenging the bill or from the addition of charges for a lawyer’s time in defending against the client’s objection to attorney fees. See OSB Legal Ethics Op Nos 1991-78, 1991-54.
The reasonableness of contingent fees is determined on both prospective and retrospective bases. In a contingent-fee agreement, an attorney commonly will not, in anticipation that the client will decline a settlement offer, be able to reserve the right to take a fee based on the agreed percentage multiplied by the amount of the rejected settlement offer plus a fixed hourly rate for time devoted by the attorney to the matter after the client has rejected the settlement offer. Nevertheless, there are times when this may be permitted. OSB Legal Ethics Op No 1991-54.
Fees the court has found to be clearly excessive include those charged without sufficient evidence of the amount of actual time spent on a client’s matter, without knowledge of the prevailing fees for similar services rendered by other lawyers, or for the work of several lawyers if the total is clearly excessive, even if the billing lawyer’s own portion of the total bill is not clearly excessive.
1.5:420 "Retainer Fees:" Advance Payment, Engagement Fee, or Lump-Sum Fee [see also 1.5:410, 1.5:430, 1.15:210]
Rules relating to excessive fees, discussed at 1.5:410, apply to retainers and advance deposits as well.
Further, arbitration fees received in advance by a lawyer acting as an arbitrator are funds held “for another,” and therefore must be deposited in the lawyer’s client trust account under DR 9-102. OSB Legal Ethics Op No 1993-135. If withdrawn from a trust account before earned, those funds constitute an unreasonable fee.
The collection of fees pursuant to a fee agreement that are denominated “nonrefundable,” “earned on receipt,” or “advance payment” may pass ownership of the fees to the lawyer, but, if the fees are not ultimately earned, they are unreasonable and must be returned to the client. See In re Heritage Mall Associates, 184 BR 128 (Bankr D Or 1995); see also In re Gastineau, 317 Or 545, 551, 857 P2d 136 (1993) (“[A] lawyer violates DR 2-106(A) when he or she collects a nonrefundable fee, does not perform or complete the professional representation for which the fee was paid, but fails promptly to remit the unearned portion of the fee.”). Because a client has the unfettered right to discharge an attorney at any time and for any reason, the client cannot be held liable for damages for breach of contract, such as for loss of future profits.
1.5:500 Communication Regarding Fees [see also 1.5:210(B)]
To ensure that a client is fully informed, all fee arrangement options, with advantages and disadvantages, should be presented to the client in advance of representation.
1.5:600 Contingent Fees
• Primary OR References: DR
2-106(B)(8) and (C), 5-103(A)(2)
• Background References: ABA Model Rule 1.5(c), Other Jurisdictions
• Commentary: ABA/BNA § 41:901, ALI-LGL §§ 34, 35, Wolfram § 9.4
• OR Commentary: EOL § 4.5
1.5:610 Special Requirements Concerning Contingent Fees [see also 1.5:210(A)]
For the client’s agreement to a contingent-fee contract to be fully informed, all fee arrangement options, with advantages and disadvantages, should be presented to the client in advance of representation. The reasonableness of contingent fees is determined on both a prospective and a retrospective basis. But see Powell v. Goff, 126 Or App 194, 868 P2d 26, rev den 318 Or 661 (1994).
Contingent fees in connection with a civil action arising out of bodily injury, death, or property damage cannot be charged or collected without a written fee agreement that is in plain and simple language and gives the client a 24-hour right of rescission. See ORS 20.340. These statutory requirements apply to “claims” and therefore to fee agreements even if no suit or action is ever filed. Contingent fees may be used only in cases involving personal injury protection benefits if the overall fee is reasonable OSB Legal Ethics Op Nos 1991-124, 1991-98.
Oregon law likely allows “reverse” contingent-fee agreements, i.e., representation of a defendant in a civil case when the contingency is the amount of money potentially saved by the defendant. Of course, the fee cannot in any case be excessive, and the client’s agreement to the fee arrangement must be fully informed.
[The discussion of this topic has not yet been written.]
1.5:700 Unlawful Fees
• Primary OR References: DR
2-106(C)(2), ORS 116.183, 656.386, ORCP 32 N
• Background References: ABA Model Rule 1.5(d), Other Jurisdictions
• Commentary: ABA/BNA §§ 41:901, ALI-LGL § 36, Wolfram §§ 9.3.2; 9.4
• OR Commentary: EOL §§ 4.3-.4
DR 2-106(C)(2) prohibits contingent fees in the representation of a defendant in a criminal case.
DR 2-106(C)(1) prohibits contingent fees in domestic relations matters when the fee’s “payment or amount . . . is contingent upon the securing of a divorce or upon the amount of spousal or child support or a property settlement.”
In certain contexts, charging or collecting attorney fees is unethical or illegal only if the attorney fails to observe the specific regulatory limitations on fees or fails to obtain advance judicial or administrative agency approval. For example, no attorney fees should be charged for handling a workers’ compensation matter without approval from the workers’ compensation referee, Workers’ Compensation Board, or the court, as appropriate. ORS 656.386; In re Sassor, 299 Or 570, 704 P2d 506 (1985). Attorney fees must also be approved in advance of collection for class actions, ORCP 32 N, and probate proceedings, ORS 116.183.
However, a fee charged in connection with a matter in which the lawyer may have violated a disciplinary rule is not illegal or excessive for that reason alone.
A court-appointed criminal defense attorney may not charge an indigent client fees in addition to the court-approved payment in order to more fairly compensate the attorney for time spent on the case.
1.5:800 Fee Splitting (Referral Fees)
• Primary OR References: DR
2-107(A), 3-102, 3-103,
ORS 9.515, 9.520
• Background References: ABA Model Rule 1.5(e), ABA Model Code DR 2-107(A), Other Jurisdictions
• Commentary: ABA/BNA § 41:701, ALI-LGL § 47, Wolfram § 9.24
• OR Commentary: EOL §§ 4.4, 4.39-.41
Under DR 2-107(A), attorneys are free to negotiate a fee division, provided that (1) each attorney assumes some responsibility or performs some services, (2) the referring attorney fully discloses to the client that a division of fees will be made, (3) the client consents to the employment of the other attorney, and (4) the total fees charged to the client are reasonable. A lawyer working for a pro bono organization may properly share court-awarded fees with the organization. OSB Legal Ethics Op No 1991-101.
(B) With Nonlawyers [see also 1.5:210(B)(5)]
An attorney should not agree to pay a nonlawyer a portion of a legal fee earned as a result of the nonlawyer’s use of his or her influence to help the attorney control the client. In re Little and King, 247 Or 503, 431 P2d 284 (1967). ORS 9.520 prohibits a lawyer from offering to pay or paying compensation to laypersons for referring personal injury or death claims specifically. Nor should an attorney participate as a lawyer-mediator with nonlawyers as partners or shareholders in a divorce mediation center, though such a mediation partnership is permissible so long as no services provided constitute the practice of law. OSB Legal Ethics Op No 1991-101; see also DR 3-103.
Further, a plan under which lawyers submit vouchers to a business owned by nonlawyers that offers financing to clients for legal fees owed, which fees were for legal services rendered to the clients by the lawyers, was not found to be prohibited by DR 3-102(A).