Can an in-house lawyer collect statutory attorney's fees that go to the lawyer's employer?

Plain-English summary

The opinion addressed a bank that employed a full-time licensed attorney to handle collections, foreclosures, and bankruptcies, where customer contracts provided for 15 percent of the unpaid balance as attorney's fees on a defaulted loan collected by or through an attorney. The question was whether the attorney's collecting those fees, which accrue to the employer bank, violated the fee-sharing prohibition of Standard No. 26.

The Board explained that the policy behind Standard 26's bar on sharing legal fees with a nonlawyer is to preserve the lawyer's independent professional judgment by keeping nonlawyers who share a financial interest from influencing the lawyer against the client's welfare. That policy was not implicated here, because the lay organization with whom the fees are shared is the client itself; there is no outside influence on the lawyer's judgment against the client's interests. The Board distinguished the line of opinions and cases prohibiting fee sharing with a nonlawyer other than the client.

The Board concluded that the conduct is not prohibited under Standard 26, and added that it is not really fee sharing in the sense of that standard at all. Under Georgia law the statutory attorney's fees are treated as stipulated liquidated damages for collection costs that belong to the client, leaving the attorney free to contract with the client for an agreed fee, and the requirement of O.C.G.A. 13-1-11 that collection be made by and through an attorney was satisfied.

Currency note

This opinion was issued in 1988, before the State Bar of Georgia adopted the Georgia Rules of Professional Conduct in 2001, which replaced the Standards of Conduct this opinion construes. The State Bar's headnote maps Standard 26 to Rule 5.4(a) (a lawyer or firm shall not share legal fees with a nonlawyer). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against the current Rules of Professional Conduct before relying on any specific rule mentioned here.

Common questions

Q: Can a bank's in-house lawyer collect statutory attorney's fees that go to the bank?

A: Yes, under this opinion. Because the employer bank is the client, collecting the statutory fees that accrue to it does not implicate the policy behind the fee-sharing prohibition.

Q: Why isn't this barred fee-sharing with a nonlawyer?

A: The opinion reasoned that Standard 26 guards against nonlawyers who share fees influencing the lawyer's judgment against the client; here the nonlawyer receiving the fees is the client, so that concern is absent. It also noted the statutory fees are treated as liquidated damages belonging to the client, not a shared legal fee.

Background and rules framework

The opinion construed former Standard of Conduct No. 26 (no sharing of legal fees with a nonlawyer), now associated with Rule 5.4(a). It applied Georgia law treating statutory attorney's fees under O.C.G.A. 13-1-11 as stipulated liquidated damages belonging to the client.

Citations and references

Rules of Professional Conduct:

• MR 5.4 / Ga. RPC 5.4(a) (sharing legal fees with a nonlawyer; analog to former Standard 26)

Former standards construed:

• Standard of Conduct No. 26

Statutes:

• O.C.G.A. 13-1-11 (statutory attorney's fees; collection by and through an attorney)

Cases:

• Rylee v. Bank of Statham, 7 Ga. App. 489 (1918) (statutory fees as liquidated damages)
• Curran v. Department of the Treasury, 805 F.2d 1406 (1986)
• National Treasury Employees Union v. United States, 656 F.2d 848 (1981)

Other opinions cited:

• Massachusetts Bar Opinion 84-1 (1984)
• ABA Formal Opinion No. 157

See also

• ABA Formal Op. 465: Daily-Deal Marketing Programs
• ABA Formal Op. 00-420: Surcharge for Contract Lawyers

Source

• Landing page: https://www.gabar.org/handbook?rule=rule513

Original opinion text

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

State Bar of Georgia

Issued by the Supreme Court of Georgia

On November 10, 1988

Formal Advisory Opinion No. 88-2

For references to Standard of Conduct 26, please see Rule 5.4(a) .

For an explanation regarding the addition of headnotes to the opinion, click here .

Ethical Propriety of an Attorney-Employee Sharing Attorney's Fees With a Lay Organization-Employer.

It is ethically permissible for an attorney-employee to collect attorney's fees on a note or loan which fees accrue to the benefit of the attorney's employer, where the attorney's fees are regarded as stipulated liquidated damages under Georgia law.

Correspondent asks if it is ethically permissible for an attorney to collect attorney's fees which would accrue to the benefit of the attorney's employer, a lay organization, in the following situation: A bank employs a full time, licensed, attorney to handle collections, foreclosures and bankruptcies. Contracts signed by the bank's customers provide for 15 percent of the unpaid balance as attorney's fees if the loan goes into default and has to be collected by or through an attorney.

Standard No. 26 provides, in part, that "a lawyer or law firm shall not share legal fees with a nonlawyer. . . ."

The policy behind this prohibition against fee sharing between a lawyer and a layman is the preservation of a lawyer's independent professional judgment. It is feared that laymen, or lay organizations, sharing a financial interest in the representation and not being under professional obligations, may influence the attorney's judgment against the client's welfare.

The conduct in question here is not in violation of this policy. The lay organization, with whom the fees are shared, is the client. No influence on independent professional judgment contrary to the interests of the client is present. This situation is clearly distinguishable from the numerous advisory opinions and cases prohibiting fee sharing with a nonlawyer other than the client. Curran v. Department of the Treasury , 805 F.2d 1406 (1986); National Treasury Employees Union v. United States , 656 F.2d 848 (1981). 1

The Committee concludes that fee sharing with the employer bank is not prohibited under Standard No. 26. The Committee also notes that the conduct described by correspondent is not fee sharing in the sense of that term in Standard No. 26. In correspondent's situation, statutory attorney's fees are regarded as stipulated liquidated damages for collection costs, belonging to the client. The attorney is then free to contract with the client for the agreed upon fee or any other fee. 2 Rylee v. Bank of Statham , 7 Ga. App. 489 (1918).

The requirements of O.C.G.A. § 13-1-11, that collection efforts must be made "by and through an attorney "in order to enforce this statutory attorney's fees provision, have been met. See, United States v. Allen , 699 F.2d 1117 (1983); In re East Side Investors , 694 F.2d 242 (11th Cir. 1982); In re Village Apartment Associates , 9 B.R. 211 (Bkrtcy. N.D. Ga. 1981).

1 See, also, MASSACHUSETTS BAR OPINION 84-1 (1984).

2 See, also ABA FORMAL OPINION NO 157.