The Florida Bar
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.
(July 1, 1987)
(July 1, 1987)
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?
1. 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.