If a client's contract with a debtor sets attorney fees at 20% of the debt, and the lawyer collects that percentage directly from the debtor via garnishment, can the client then demand the lawyer turn that fee over too, on the theory the lawyer's real deal with the client was an hourly rate?

Currency note

This opinion was issued in 1981, before Tennessee's adoption of the 2003 Rules of Professional Conduct, which replaced the former Code of Professional Responsibility. 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 Treat this page as historical context, not current guidance.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.

Plain-English summary

The Board addressed a dispute between an attorney and client over attorney fees. It began by noting that fee disputes are generally beyond the scope of ethical review because they are legal, not ethical, questions, but ethics can be implicated when fees are excessive, illegal, or improperly divided with another.

The facts were that an attorney was contacted to collect a sum certain on a breach-of-contract claim and quoted an hourly rate. Later, another official of the client company told him the underlying contract between the client and its debtor actually called for a 20% attorney fee, and that he was to collect the account and get his fee from the debtor. Suit was filed, and process, garnishments, and attachments were issued. To secure release of the attachments and garnishments, the debtor agreed to pay both the full debt and the full contractual attorney-fee percentage. The attorney remitted the full account amount collected to the client but kept the fee amount collected, telling the client his fee had been collected directly from the debtor. The client then demanded, on top of what was remitted, the fee amount as well, asserting the real fee arrangement with the client was hourly.

The Board declined to resolve whether the fee arrangement was percentage-based or hourly, treating that as a legal rather than ethical question. It focused instead on the disposition of the fund collected as attorney's fee under the contract. It reasoned that if a court had awarded the percentage fee under the contract based on the attorney's representation, any use of those funds other than as the attorney's own compensation would have misrepresented the situation to the court, implicating Disciplinary Rule 7-102(a)(5) and (7); but because court process (not a court-awarded fee judgment) was used to effect the settlement and fee collection, the Board found those disciplinary rules did not apply here. It did apply Disciplinary Rule 3-102, which prohibits an attorney from dividing his fee with a layman: since the attorney collected the sum certain as his fee under the contract, dividing that fee with a layman, including his own client, would violate the rule. The Board treated as separately permissible the attorney's agreement to credit the client for some uncollected late charges by deducting that amount from the collected fee. The opinion was expressly limited to its facts and to the disposition of the contractual attorney's fee fund.

Common questions

Q: If I collect my contractual percentage fee directly from the opposing debtor via garnishment, must I still turn it over to my client if the client says our real deal was hourly?

A: No, according to this opinion. It holds "if the attorney collected a sum certain as his attorney fee, pursuant to the contract, it would be a violation of such disciplinary rules for him to divide his fee with a layman, including his client."

Q: Is crediting the client for separately owed amounts, like late charges, the same as splitting the fee?

A: No, the Board treated that as different. It found permissible the attorney's agreement to remit an amount for uncollected late charges "deducting it from the collected attorney fee."

Q: Does it matter whether the fee was awarded by a court judgment versus collected through settlement under court process?

A: Yes, that distinction mattered to the Board's analysis of misrepresentation to the court. It reasoned a court-awarded percentage fee, if diverted from attorney compensation, would misrepresent the earlier representation to the court, but concluded "court process was utilized to effectuate settlement and the collection of the attorney fees in question, and, thus, we feel that such disciplinary rules do not apply" to that scenario.

Background and rules framework

The opinion applied Disciplinary Rule 3-102 (division of fees with a non-lawyer) and considered, without ultimately applying, Disciplinary Rule 7-102(a)(5) and (7) (misrepresentation to a tribunal) of the Tennessee Code of Professional Responsibility. The modern correlates are Model Rule 5.4 (fee division with non-lawyers) and Model Rule 3.3 (candor toward the tribunal), noted here as navigational cross-references rather than rules the opinion itself applied.

Citations and references

Rules of Professional Conduct:

• DR 3-102 (division of fees with a layman) and DR 7-102(a)(5) and (7) (misrepresentation to a tribunal), Tennessee Code of Professional Responsibility
• Model Rule 5.4 (professional independence; fee division) and Model Rule 3.3 (candor toward the tribunal), modern correlates

See also

No sibling opinions yet indexed.

Source

• Landing page: https://www.tbpr.org/ethic_opinions/81-f-6

Original opinion text

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

81-F-6 - Fee Dispute with Client

BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE

FORMAL ETHICS OPINION 81-F-6

The Board has been called upon to issue a formal ethical opinion on a situation of conflict between an attorney and client regarding attorney fees. Generally, fee disputes are beyond the scope of consideration in ethical matters because they are questions of law not ethics; however, ethics may be involved when attorney fees are excessive, illegal or improperly divided with another.

The question presented is both a legal and an ethical one. The facts appear to be that the attorney was contacted to collect a sum certain on breach of contract and cited an hourly rate for services. Later, the attorney was contacted by another official of the client company and advised that the contract provided for a 20% attorney fee and he was to collect the account and get his fee from the debtor.

Suit was filed, process issued, and garnishments and attachments were levied. The debtor, in order to secure a release of attachments and garnishments, agreed to pay the full amount of the debt claimed due and also the full percentage called for in the contract as attorney fees. The attorney remitted the entire amount of the account collected, but retained the full amount collected as attorney fee, and advised the client that his fee had been collected directly from the debtor. At this point, the client demanded, in addition to that remitted, the payment of the amount which had been collected as attorney fee, stating that the legal services would be compensated at an hourly rate.

The Board does not feel it should consider the question of whether the attorney fees were paid on a percentage or per diem basis; however, the disposition of the fund collected as attorney fee pursuant to the contract, can be an ethical matter. Had the court awarded the percentage attorney fee in accordance with the contract, upon representation of Plaintiff's attorney, any other disposition of such "attorney fees" so collected, other than as attorney's compensation, would have been a misrepresentation to the court and in contravention of Section DR 7-102(a)(5) and (7). Court process was utilized to effectuate settlement and the collection of the attorney fees in question, and, thus, we feel that such disciplinary rules do not apply. Further, DR 3-102 prohibits an attorney from dividing his fee with a layman.

It is the opinion of this Board that if the attorney collected a sum certain as his attorney fee, pursuant to the contract, it would be a violation of such disciplinary rules for him to divide his fee with a layman, including his client. In this instance, however, the client claimed there were some uncollected late charges due him and the attorney had agreed to remit such amount, deducting it from the collected attorney fee. This we deem to be permissible.

This opinion is restricted solely to the facts of this case, and the disposition of the funds collected as attorney fee pursuant to the terms of the contract between the debtor and the creditor.

This 12th day of May , 1981.

ETHICS COMMITTEE:

F. Evans Harvill

Joseph G. Cummings, Sr.

John R. Rucker

APPROVED AND ADOPTED BY THE BOARD