Contingency Fee Modification Retention Agreements: Comply With Business And Professions Code Section 6147 Or Have The Modification Declared Unenforceability

 

Second District, Division 4 Affirms Lower Court’s Section 6147 Ruling.

     Contingency fee retention agreement modifications must meet with Business and Professions Code section 6147’s requirements for the contents of the agreement. If not, the modification likely will be found unenforceable, meaning that the attorney will lose the added fees that would have stemmed from a valid modification. The next case illustrates the dire consequences from not complying with section 6147.

     The Second District, Division 4, in Hellinger v. Osborne, Case No. B214216 (2d Dist., Div. 4 Sept. 24, 2010) (unpublished), affirmed a trial court’s determination that a contingency fee attorney was not entitled to enforce a settlement agreement with a modified 50% contingency fee but could only enforce the original retainer agreement allowing for a 40% recovery after arbitration.

     The reason? The modified agreement did not comply with section 6147, because it was never signed by the lawyer and it did not state that the contingency fee was negotiable (the modification was contained in a settlement agreement signed by the client alone). Although the original retention agreement was compliant, the modification did not comply with 6147 so that the modified fee arrangement could not be enforced. (Stroud v. Tunzi, 160 Cal.App.4^th 377, 383 (2008).)

     Lawyer argued that Stroud made new law in 2008 so that it should not be applied retroactively. Nope, said the appellate court, it did not create a new rule that prevented it from being applied.

     Also, the “substantial compliance” argument by lawyer was rejected because section 6147 sets forth requirements that are not excusable in nature. (Stroud, supra, 160 Cal.App.4^th at 383.)

     The result was that the losing lawyer lost about $87,000 in the case of the unenforceable contingency fee modification.