Can a firm ask a foreclosure court for attorney fees based on a percentage of the debt when its actual contract with the client is a smaller flat fee?

Plain-English summary

The inquiry asked whether a firm may request attorney fees at default foreclosure hearings based on a percentage of the total debt, even though the firm's contract rate with its clients is a flat fee for a lesser amount. The committee noted that Rule 3.3 requires a lawyer to disclose facts that are material and that would enable the tribunal to make an informed decision, but that the question of which facts are material is a legal question on which the committee will not opine.

In a foreclosure action, as in any matter, the award of attorney fees and costs is within the court's purview; South Carolina law sets the factors to consider, and the court may inquire as to additional factors it considers material. Lawyers must comply fully with Rule 3.3 when responding to the court's inquiries. The committee concluded that if an attorney petitions the court for fees that are more than the client is obligated to pay under the contract of representation, the terms of the engagement between lawyer and client must be disclosed to the court in order to comply with Rule 3.3. The committee added a note that this does not prevent the attorney from making such an application, nor is it intended to preclude the court's ability to award fees based on the terms and conditions of the contract that is the subject matter of the controversy.

In practice

The opinion holds that, under South Carolina Rule 3.3, a firm that petitions a foreclosure court for attorney fees exceeding what the client is obligated to pay under the flat-fee engagement must disclose the engagement terms to the court, because Rule 3.3 requires disclosing material facts that enable an informed decision. The opinion does not bar the fee application itself and does not limit the court's authority to award fees based on the contract at issue. The opinion expressly declines to decide which facts are material, treating that as a legal question outside the committee's role.

Common questions

Q: Can a firm ask a foreclosure court for a percentage-of-debt fee when its client contract is a smaller flat fee?

A: It may apply, with disclosure. The committee said the firm is not prevented from making the application, but if it seeks more than the client is obligated to pay under the contract, Rule 3.3 requires disclosing the engagement terms to the court.

Q: Does the committee decide whether the flat-fee arrangement is a "material" fact?

A: No. The committee said which facts are material is a legal question on which it will not opine, while reiterating that Rule 3.3 governs disclosure of material facts.

Q: Does this stop the court from awarding fees under the contract?

A: No. The committee noted its opinion is not intended to preclude the court's ability to award fees based on the terms and conditions of the contract that is the subject matter of the controversy.

Background and rules framework

The opinion interprets South Carolina Rule 3.3 (candor toward the tribunal), which corresponds to Model Rule 3.3, in the context of a fee petition at a foreclosure hearing. The analysis turns on the duty to disclose material facts to the court, while leaving the legal question of materiality to the court.

Citations and references

Rules of Professional Conduct:

• MR 3.3 / SC Rule 3.3 (candor toward the tribunal; disclosure of material facts)

See also

• SC Bar Ethics Op. 13-01: Reporting an Altered Document
• SC Bar Ethics Op. 11-06: Charging a Closing Payoff Handling Fee

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-13-07/
• Original PDF: https://www.scbar.org/media/cjzeroeu/13-07.pdf

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 13-07

Question Presented:

May a firm request attorney fees at default foreclosure hearings based upon a percentage of the total debt, despite the fact that the firm’s contract rate with its clients is a flat fee for a lesser amount?

Summary:

Rule 3.3 provides that a lawyer must disclose facts that are material and that would enable the tribunal to make an informed decision. The question of which facts are material is a legal question, and therefore a question upon which the Committee will not opine.

Opinion:

In a foreclosure action, as in any matter before the tribunal, the determination of an award of attorney’s fees and costs is within the purview of the Court. South Carolina law sets forth the factors to be considered in determining a fee award and a court may also inquire as to additional factors it considers material to the matter. Lawyers must comply fully with Rule 3.3 when responding to inquiries of the Court. If an attorney petitions the court for fees which are more than the client is obligated to pay under the contract of representation, the terms of the engagement between the lawyer and client must be disclosed to the court in order to comply with Rule 3.3.

NOTE: This does not prevent the attorney from making such an application, nor is it intended to be preclusive of the court’s ability to award fees based upon the terms and conditions of the contract which is the subject matter of the controversy.