State of Oregon
FORMAL OPINION NO. 2005-97
1. May Lawyer charge 18% annual interest if a client expressly agrees to it as part of the fee agreement?
2. What interest rate may Lawyer charge in the absence of an interest rate agreement?
3. If no agreement concerning a charge of 18% is reached, may Lawyer amend the fee agreement to include an 18% per annum charge by stating on a bill sent to the client that, in the future, the client must begin to pay 18% per annum if payment is not received within 30 days?
1. Yes, qualified.
2. Nine percent, pursuant to ORS 82.010(1)(a).
1. Eighteen Percent Per Year Is Not Excessive Per Se. Oregon RPC 1.5(a) provides that “[a] lawyer shall not enter into an agreement for, charge or collect an illegal or clearly excessive fee or a clearly excessive amount for expenses.” See also Oregon RPC 1.8(i)(2), which permits a lawyer to “contract with a client for a reasonable
contingent fee in a civil case” subject to certain limitations. We held in OSB Formal Ethics Op No 2005-54 that the “clearly excessive” standard in Oregon RPC 1.5(a) and the “reasonable contingent fee” standard in Oregon RPC 1.8(i)(2) are the same.
See also ORS 20.340, which places an 18% interest charge on past-due amounts would not be clearly excessive if the charge is within the range of interest normally charged for credit transactions. In Oregon, as in many other states, clients may now pay for legal services with credit cards. See OSB Formal Ethics Op No 2005-172. A substantial portion of the public also uses credit cards for other purposes. Because many credit cards provide for interest charges of 18% or more, we do not believe that an 18% charge would be clearly excessive or unreasonable unless the fee agreement taken as a whole could be said to be clearly excessive or unreasonable.
2. Only 9% May Be Charged If No Enforceable Agreement Is Reached. If no enforceable agreement is reached between Lawyer and Client regarding payment of interest on past-due amounts at a greater rate, Lawyer would be limited to interest at 9% pursuant to ORS 82.010(1)(a). See In re Schroeder, 15 DB Rptr 212 (2001). Cf. United Farm Agency v. McFarland, 243 Or 124, 133–134, 411 P 1017 (1966).
3. A Statement on the Monthly Bill Would Not Support an 18% Charge. In OSB Formal Ethics Op Nos 2005-69 and 2005-15, we noted that a lawyer may not charge or collect more than the agreed-on fee. See also In re Yacob, 318 Or 10, 860 P2d 811 (1993). Cf. Com. on Legal Ethics of W. Va. v. Tatterson, 319 SE2d 381 (W Va 1984) (lawyer has burden to establish terms of fee agreement in the event of dispute). Because fee agreements can, in principle, be modified to make them more favorable to the lawyer (such as by including greater interest), it is necessary to
consider whether the mere addition of a statement on a bill that 18% interest will be charged in the future constitutes a valid and enforceable modification. A modification of a fee agreement in the lawyer’s favor requires client consent based on an explanation of the reason for the change and its effect on the client. See In re Skinner, 14 DB Rptr 38 (2000). In addition, the modification must be objectively fair. See, e.g., Ward v. Richards & Rossano, Inc., 51 Wash App 423, 428–429, 754 P2d 120 (1988); Durr v. Beatty, 491 NE2d 902, 907–908 (Ill App 1986); Sabin v. Terrall, 186 Or 238, 250, 206 P2d 100 (1949); Jacobson v. Sassower, 66.
COMMENT: For additional information on this general topic and other related subjects, see THE ETHICAL OREGON LAWYER §§3.1–3.3, 3.5–3.9, 3.11, 3.22, 3.25, 3.42 (Oregon CLE 2003); RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS.
§§18, 34 (2003); and ABA Model Rules 1.5(a), 1.8(i)(2). See also Washington Formal Ethics Op Nos 157, 158; Washington Informal Ethics Op No 1960 (unpublished).
NY2d 991, 499 NYS2d 381, 489 NE2d 1283 (1985). See also Cord v. Smith, 338 F2d 516, 524–525 (9th Cir 1964) (discussing fiduciary obligations of lawyers in conflict-of-interest context).
The mere addition of a statement on a client’s bill to the effect that 18% interest will be charged does not meet these standards and thus could not justify a charge of 18% interest rather than 9% interest. Moreover, this is true even if, as a matter of general substantive contract law, the addition of such a statement would be sufficient to modify a contract not involving a lawyer. Approved by Board of Governors, August 2005.