A California bar committee called fee conversion clauses prohibited in 2024. Its 2026 draft says not per se.

The State Bar of California's Standing Committee on Professional Responsibility and Conduct has issued three versions of a draft ethics opinion on conversion clauses in contingent fee agreements. The 2022 draft said the clauses were not prohibited per se, although permissible circumstances would be rare. The 2024 draft prohibited them. The 2026 draft returns to the not-per-se-prohibited position, subject to fact-specific review.

COPRAC tentatively approved Proposed Formal Opinion Interim No. 20-0005 for circulation at its September 11, 2026 meeting. The current draft is open for public comment until December 21, 2026, at 11:59 p.m., after a 90-day comment period. Comments may be submitted through an online form or by email to [email protected].

The opinion interprets California Rules of Professional Conduct 1.2, 1.5 and 1.16. Its closing text says the opinion is advisory only. It is not binding on courts, the State Bar, its Board of Trustees or any member of the State Bar. A footnote says the opinion does not address whether conversion clauses are legally enforceable or attorney liens.

The drafts moved from rare permission to prohibition and back

A conversion clause states that a contingent fee will convert to another measure after a specified event. The alternate measure may be an hourly rate, a lodestar amount or a percentage of a settlement offer. Triggers can include the client's discharge of the lawyer, the client's refusal to settle on recommended terms or the client's abandonment of a transaction.

The 2022 draft, tentatively approved July 29, 2022, described conversion clauses as not ethically prohibited per se. It called for careful ethical scrutiny and described permissible circumstances as rare. The comment period ended November 17, 2022.

The 2024 draft, tentatively approved June 21, 2024, took a different position. Its digest said conversion clauses were ethically prohibited because they interfered with the client's right to discharge the lawyer and the client's right to decide whether to settle. It also said the clauses might amount to agreements to charge unconscionable fees. The State Bar's public comment page describes that version as prohibiting the clauses per se in all matters, including transactional matters. Its comment period ended September 3, 2024.

The 2026 draft again says a conversion clause is not prohibited per se. It warns of a heightened risk that the clause will produce an unconscionable fee or impair rights reserved to the client. The desk pulled the 2022, 2024 and 2026 versions from the State Bar's public comment pages and read the three digests next to each other. Without that comparison, the current notice's short history paragraph is easy to read as a simple first draft story. The digests show the conclusion changing from not prohibited per se, to prohibited, and back.

The successive drafts and older out-of-state ethics opinions show the sources of the dispute. They do not reflect a recorded floor debate, and the notice does not identify any named bar group as supporting one position.

The 2026 test turns on the trigger, timing and fee

Under the current draft, a conversion clause is impermissible when it burdens the client's absolute right to discharge counsel, interferes with the client's right to control the objectives of the representation or produces an unconscionable alternate fee.

The draft identifies several facts relevant to that analysis. They include the client's sophistication, the client's informed written consent, the nature and timing of the triggering event, the alternate fee and whether that fee is unconscionable. A clause demanding an alternate fee before the matter is complete is likely unconscionable if it gives the lawyer a risk premium when no risk remains and the client's objectives have not changed.

For a fee imposed after discharge, unconscionability is judged using facts existing at the time of termination. Those facts include the proportionality between the fee and the value of services performed, the client's sophistication and informed consent. The draft also notes that established law already permits payment to discharged contingent fee counsel on a quantum meruit basis where appropriate.

The draft cites Arnall v. Superior Court (2010) 190 Cal.App.4th 360, where a success fee based on a percentage of tax savings was treated as a contingent or hybrid fee subject to Business and Professions Code section 6147. It says contingent fees are common in plaintiff-side personal injury work and increasingly appear with sophisticated clients in transactional matters.

One hypothetical permits the clause, while another does not

The draft describes a corporate client with limited liquidity that hires a lawyer to negotiate an acquisition under a hybrid fee. The arrangement uses a reduced hourly rate plus a success fee. It says that if the client abandons the deal for reasons unrelated to the lawyer's advice, compensation converts to a specific hourly rate for work performed, subject to a cap. The client gave informed written consent.

The draft says that clause may be ethically permissible if the hourly fee is reasonable, tied to the value of the work and does not interfere with the client's right to discharge counsel. A clause conditioning payment solely on the client's decision to abandon the transaction presents a closer question.

The second hypothetical involves a personal injury plaintiff whose agreement says that, if the client discharges the lawyer before settlement or judgment, the lawyer immediately becomes entitled to the full contingent fee based on the most recent settlement offer, regardless of work performed. Several potential replacement lawyers decline because of the fee burden.

The draft says that clause may interfere with the client's right to discharge counsel. It describes the fee as a predetermined contingent fee that does not reflect the value of services and says it risks being unconscionable. The draft treats the clause as ethically impermissible.

The competing positions rest on different risks

The case for a bright-line prohibition appears in COPRAC's 2024 position and in older opinions from other state bar committees cited in footnotes to the 2026 draft.

Wisconsin State Bar Professional Ethics Committee Formal Opinion E-82-5 (1982) treated a contingent fee agreement allowing hourly charges if the lawyer deemed a settlement offer inadequate as overreaching and unethical. Nebraska State Bar Association Ethics Advisory Opinion for Lawyers No. 95-1 (1995) found that a clause triggered when the client did not follow the lawyer's settlement advice impermissibly restricted the client's authority to settle. It said it would be extremely difficult to determine whether a lawyer was legitimately withholding approval of a settlement, and identified an outright prohibition as a way to avoid that problem.

The 2026 draft states that Rule 1.2(a)'s requirement that a lawyer abide by the client's decision whether to settle is clear and unwaivable. It cites Amjadi v. Brown (2021) 68 Cal.App.5th 383, which held that a fee agreement giving the lawyer sole discretion to accept a settlement for the client violated the rules and was void. Rule 1.16(a)(4) and Fracasse v. Brent (1972) 6 Cal.3d 784 establish the client's absolute right to discharge counsel at any time.

The case for case-by-case review starts with the draft's premise that negotiating a fee agreement at the outset is an arm's-length transaction. It cites Setzer v. Robinson (1962) 57 Cal.2d 213, 217, and says there is no prototypical client, lawyer or allocation of risk.

Philadelphia Bar Association Professional Guidance Committee Formal Opinion 2001-1 had a majority that would permit conversion when the agreement clearly stated the client's goals and alternate compensation if those goals changed. A minority would permit it only for sophisticated clients. The 2026 draft says it can conceive, however rare, of circumstances in which a conversion clause might ethically account for a material change in the client's objectives that conflicts with the advance agreement.

It therefore prefers careful review over a per se prohibition. The draft also cites Little v. Amber Hotel Co. (2011) 202 Cal.App.4th 280, 296, which held that a provision requiring lawyer consent to settle was void as against public policy, while stating that fee agreements with reasonable limits on the client's authority to settle are enforceable.

These other-state opinions are older and appear in the draft's footnotes. The current draft does not identify a final answer to the conflict between protecting client control and recognizing negotiated fee arrangements.

The current draft leaves firms with an unresolved record question

Firms that use or are asked to sign agreements containing fee-conversion language will find that the proposed test focuses on the specific clause. The relevant details include what triggers the conversion, when payment is due, how the alternate fee relates to the work performed and whether the client gave informed written consent.

Where a clause touches the client's right to leave or the client's right to settle, the draft treats it as impermissible. Enforceability remains a separate question that the opinion expressly does not answer.

Archivar is an operating system for a law firm that answers every call 24/7 in English and Spanish, runs intake, manages matters and remembers everything the firm does. This opinion turns on facts such as when the client gave informed written consent and what the client was told at intake, with that sequence maintained in the firm's matter records.

The text and conclusion could change after comments close. Anyone who wants to comment has until December 21, 2026, at 11:59 p.m., through the State Bar's comment form or at [email protected]. Until then, the final text remains unresolved.