Can a company that uses its own salaried in-house lawyer to foreclose mortgages claim part of that lawyer's salary as a recoverable legal fee from the borrower?

Plain-English summary

A full-time salaried lawyer was employed by a thrift institution that proposed to use him as its attorney in mortgage foreclosure actions and to claim, as additional indebtedness of the mortgagor, the portion of his salary attributable to his work on each foreclosure. The committee was asked to assume the court, told the attorney was a full-time salaried employee, would approve both the propriety and the amount of the fee. The question was whether this amounted to sharing legal fees with a non-lawyer in violation of Rule 3-102.

The committee acknowledged a tension. On one view, because the institution pays the lawyer's salary regardless, any allowed amount is kept by the institution rather than passed on to the lawyer, which could be seen as fee sharing with a layman. On the other view, a client represented by outside counsel could claim those fees and incur no net legal cost, so it ought to be able to accomplish the same through a salaried lawyer.

The committee concluded there was no actual fee sharing, because the lawyer never becomes entitled to the fee; the institution merely claims reimbursement for part of the compensation it pays the attorney, limited to the portion of salary attributable to the foreclosure work. It distinguished National Treasury Employees Union v. U.S. Department of Treasury, which held that a union could recover attorneys' fees only equal to its costs, not the market value of its in-house attorney's services, because recovering market value would involve unethical fee splitting (Rule 3-102) and let the union engage in unauthorized practice (Rule 3-101). Assuming, as asked, that the fee statute covers part of the in-house lawyer's salary, the committee did not regard the arrangement as unethical.

Currency note

This opinion was issued in 1982, under the former Illinois Code of Professional Responsibility and before Illinois adopted the 2010 Rules of Professional Conduct. The ISBA Board of Governors affirmed the opinion in January 2010 as generally consistent with the 2010 Rules (Rules 5.4 and 5.5(a)), while cautioning that the specific standards referenced may differ from the 2010 Rules. 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 Treat this page as historical context, not current guidance.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 or requirement mentioned here.

Common questions

Q: Can a company recover its in-house lawyer's salary as a fee in litigation?

A: The opinion concluded it is not improper, at least for a foreclosure, to claim the portion of the salaried in-house lawyer's salary attributable to that work, assuming the court approves the propriety and amount.

Q: Isn't that fee sharing with a non-lawyer?

A: No. The committee found no actual fee sharing because the lawyer never becomes entitled to the fee; the institution claims reimbursement for part of the salary it already pays, not a share passed to the lawyer.

Q: How did the committee treat the federal NTEU decision?

A: Per the opinion, it distinguished National Treasury Employees Union: recovering the market value of an in-house lawyer's services would be unethical fee splitting, but recovering only the salary portion attributable to the work is different.

Background and rules framework

The opinion applied former Illinois Code Rule 3-102 (dividing legal fees with a non-lawyer) and Rule 3-101 (unauthorized practice), distinguishing National Treasury Employees Union v. U.S. Department of Treasury. The Board's 2010 affirmation maps the analysis to current Illinois Rules of Professional Conduct 5.4 (professional independence and fee sharing with non-lawyers) and 5.5(a) (unauthorized practice), corresponding to ABA Model Rules 5.4 and 5.5.

Citations and references

Rules of Professional Conduct:

• Illinois Code Rules 3-101, 3-102 (applied in the opinion)
• Illinois RPC 5.4, 5.5(a) (2010 equivalents per the Board's affirmation)
• MR 5.4 (fee sharing with non-lawyers); MR 5.5 (unauthorized practice)

Cases:

• National Treasury Employees Union v. U.S. Department of Treasury, 656 F.2d 848 (D.C. Cir. 1981) (recovery of in-house attorney fees limited to cost, not market value)

See also

• ISBA Ethics Op. 776: "Of Counsel" and Referral Fees
• ISBA Ethics Op. 03-06: Fee Share to Former Partner
• ISBA Ethics Op. 01-05: Paying Nonlawyers for Referrals

Source

• Landing page: https://www.isba.org/ethics/opinions/768