Can a bank charge borrowers for its in-house counsel's loan-closing work and pay that lawyer a bonus based on those charges?

Plain-English summary

The inquiring attorney was offered a position as in-house litigation counsel to a commercial bank, with a secondary role preparing loan closing documents and reviewing large loans; the bank would bill customers $75 per hour for his review and document work and pay him a 25 percent bonus on the amount billed, on top of his salary. He asked whether the bonus was fee-splitting with a nonlawyer, what disclosure was required, and how fee awards for in-house counsel are determined.

On fee-splitting, the committee explained that a lender may require its counsel to handle aspects of a loan and require the borrower to pay some or all of the bank's legal expense as a closing cost, but that under Rule 4-5.4(a) (which generally bars sharing legal fees with a nonlawyer) the in-house counsel may not participate in an arrangement where the bank collects and retains an amount exceeding the attorney's salary for the time plus reasonable overhead. If the bank bills customers more than its actual cost, paying the attorney a bonus on those billings would be improper because the bonus would represent a share of the bank's profit from improper fee-splitting; if the bank charges only actual cost, the bonus plan would not be improper. The committee noted the arrangement also raises unlicensed-practice concerns beyond its jurisdiction.

On disclosure, the committee stated that the borrower must be informed in advance that he will be required to pay the bank attorney's fee and that the attorney represents only the bank, not the customer. On fee awards, the committee said the determining factors are for the courts, that it is not per se unethical for salaried in-house counsel to seek a fee award for his own services, but the attorney must disclose to the court that the representation was by in-house counsel on a fixed salary.

Currency note

This opinion was issued in 1987, before The Florida Bar's adoption of the 2006 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a bank bill borrowers for its in-house counsel's work?

A: The opinion concluded a lender may require the borrower to pay some or all of the bank's legal expense as a closing cost, but the bank may not collect and retain more than the actual cost of the attorney's services.

Q: Is a bonus tied to those charges fee-splitting?

A: The opinion concluded the bonus is permissible only if the bank charges customers only the actual cost; if the bank bills more than actual cost, paying a bonus on those billings is an improper division of fees with a nonlawyer under Rule 4-5.4(a).

Q: What must the borrower be told?

A: The opinion concluded the borrower must be informed in advance that he will pay the bank attorney's fee and that the attorney represents only the bank, not the customer.

Q: Can salaried in-house counsel seek a court fee award?

A: The opinion concluded it is not per se unethical, but the attorney must disclose to the court that the representation was provided by in-house counsel on a fixed salary, leaving the fee-award factors to the courts.

Background and rules framework

The opinion interprets Rule 4-5.4(a) (Model Rule 5.4) prohibiting the sharing of legal fees with a nonlawyer, applied to a bank that bills borrowers for its in-house counsel and pays that lawyer a bonus. The disclosure points flow from the duty not to mislead the borrower about who counsel represents.

Citations and references

Rules of Professional Conduct:

• Fla. Rule 4-5.4(a) / Model Rule 5.4 (fee-sharing with nonlawyers)

Other opinions cited:

• Fla. Ethics Opinions 63-21, 64-56, 65-58, 69-39, 70-56, 73-6; Massachusetts 84-1; New Mexico 1984-13

See also

• FL Bar Ethics Op. 02-1: Nonlawyer Hourly Bonuses
• FL Bar Ethics Op. 88-12: Temporary-Lawyer Staffing Agency
• FL Bar Ethics Op. 98-3: In-House Insurance Counsel Firm Name

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-87-8/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-87-8-1.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

FLORIDA BAR ETHICS OPINION
OPINION 87-8
July 1, 1987
Advisory ethics opinions are not binding.

A bank may require borrowers to reimburse the bank for the actual cost to the bank of salaried in-house counsel's services in connection with closings of loan transactions and may pay in-house counsel a bonus based on such charges to borrowers.

RPC: 4-5.4(a)
Opinions: 63-21, 64-56, 65-58, 69-39, 70-56, 73-6; Massachusetts 84-1, New Mexico 1984-13

The inquiring attorney has been offered a position as in-house counsel to a commercial bank. His primary responsibility will be litigation. His secondary role will be to prepare all loan closing documents for complex transactions and to review all loans exceeding $100,000. The bank's customer will be billed $75 per hour for the attorney's review and document preparation. Of the amount billed by the attorney, the bank will pay him a 25 percent bonus in addition to his fixed salary as litigation attorney. The attorney asks:

1. Does his bonus plan represent fee-splitting with a nonlawyer?
2. What type of disclosure is mandated due to this relationship?

3. What are the determining factors for fee awards for mortgage foreclosures performed by in-house counsel?

4. This Committee has stated that a bank or other lender is entitled to require both that its counsel review or handle various aspects of a loan transaction and that the borrower pay some or all of the bank's legal expense as a closing cost. See Opinions 63-21; 64-56; 65-58; 69-39. However, the bank's in-house counsel ethically may not participate in an arrangement in which the bank collects from its customer and retains an amount exceeding the attorney's salary for the time spent on the loan plus a reasonable amount for overhead.

Rule 4-5.4(a), Rules Regulating The Florida Bar, generally prohibits an attorney from sharing legal fees with a nonlawyer.

The inquiring attorney would violate this rule if he was involved in an arrangement whereby the bank collected a fee for legal services from its customer that exceeded the actual cost to the bank of having its attorney provide those legal services. See Ethics Committee of the Massachusetts Bar Association Opinion 84-1; State Bar of New Mexico Advisory Opinions Committee Opinion 1984-13. The attorney may not help the bank generate a profit by permitting the bank to bill his legal services at more than the actual cost to the bank of those services. (Such an arrangement also raises unlicensed practice of law concerns, which are beyond the jurisdiction of this Committee.)

Whether the proposed bonus plan is permissible will depend on whether the attorney and the bank are involved in prohibited fee-splitting. If the bank is billing customers more than its actual cost for the legal services in question, then payment to the attorney of a bonus based on such billings would necessarily be improper. In such a situation, the bonus would in effect represent a payment to the attorney of part of the profit received by the bank as a result of an improper fee-splitting arrangement.

If, however, the bank is charging customers only the actual cost of its attorney's legal services, then the proposed bonus plan would not be improper.

2. The opinions cited above require that the borrower or other customer be informed in advance that he will be required to pay the legal fee of the bank's attorney and that he be informed that the attorney represents only the bank, not the customer.

3. The determining factors for fee awards for representation by in-house counsel are for the courts to decide. It likewise is for the courts to decide whether a fee award is appropriate when a party uses the services of an in-house attorney who is paid a fixed salary. Two opinions of this Committee indicate that it is not unethical per se for salaried in-house counsel to seek an award of fees on behalf of his client for his own services. However, the attorney must disclose to the court that the representation for which a fee award is sought was provided by in-house counsel on a fixed salary. Opinions 70-56; 73-6.