Can a salaried in-house bank lawyer seek court-awarded attorney fees in collection and foreclosure suits, and may the bank keep more than the lawyer's cost?

Plain-English summary

A full-time salaried staff attorney for a bank asked whether she could include a claim for reasonable attorney fees in the bank's mortgage foreclosure and promissory-note collection suits, where the loan documents contained standard attorney-fee provisions and the courts in her district routinely awarded such fees. She received a fixed salary that did not vary with fees awarded; the bank kept 100 percent of the fees collected; the fee was computed as a percentage (10 percent) of the balance due under the notes; and in most cases, especially defaults, the awarded fee exceeded what her time or an outside lawyer's time would cost at a reasonable hourly rate, though she kept time records.

The opinion concluded that, had the attorney not been on salary, there would be no problem. It noted that the documents' language ("placed in the hands of an attorney for collection") raised a question whether they implied turning the matter over to an outside independent attorney, and suggested rewording for clarity, particularly because the fee provisions were contractual forms created by the more powerful party, the bank. Ethically, the opinion concluded the attorney had to point out to the court that she was exclusively on salary, so the court could take that into account in setting the fees awarded.

The opinion concluded it would be improper for the bank to collect more in "reasonable attorneys fees" than could be shown to be the reasonable portion of the attorney's salary applicable to the case plus directly applicable overhead, and that it was improper for the bank to "make a profit" through the contractual fee provision. It cited Rule 3-102, under which a lawyer shall not share legal fees with a nonlawyer, and stated that under New Mexico law a court should not routinely award a contractually stated percentage as reasonable fees but should determine reasonable fees from the usual factors (time spent, hourly rates, ability, skill, experience, the nature of the controversy, the amount involved, importance, and benefits derived), citing Roger v. Kemp Lumber Co., Exchange Bank of Dallas v. Tuttle, and Elsea v. Broome Furniture Co. The Committee noted it found little other guidance and offered its opinion based on the members' professional views.

Currency note

This opinion was issued in 1984, when New Mexico lawyers were governed by the former New Mexico Code of Professional Responsibility, which the State Bar later replaced with the Rules of Professional Conduct; it also predates the State Bar of New Mexico's November 3, 2008 revisions to those Rules (the New Mexico adoption of the ABA Ethics 2000 changes). The Disciplinary Rules it cites are no longer in force. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Could a salaried in-house bank lawyer seek court-awarded attorney fees?

A: The opinion concluded she could, but had to disclose to the court that she was exclusively on salary so the court could take that into account in setting the fees.

Q: Could the bank keep court-awarded fees that exceeded the lawyer's cost?

A: No. The opinion concluded it would be improper for the bank to collect more than the reasonable portion of the attorney's salary applicable to the case plus directly applicable overhead, and improper for the bank to make a profit through the contractual fee provision.

Q: Did fee-sharing rules apply?

A: Yes. The opinion cited Rule 3-102, under which a lawyer shall not share legal fees with a nonlawyer, in concluding the bank could not profit on the awarded fees beyond the lawyer's cost.

Q: How should the court set the fee?

A: The opinion concluded that under New Mexico law a court should not routinely award the contractual percentage, but should determine reasonable fees from the usual factors, including time spent, hourly rates, skill, experience, the amount involved, and the benefits derived.

Background and rules framework

The opinion interpreted Rule 3-102 of the former New Mexico Code of Professional Responsibility (a lawyer shall not share legal fees with a nonlawyer), applied to a salaried in-house lawyer seeking court-awarded fees that the employer would keep. It drew the reasonable-fee factors from New Mexico case law, including Roger v. Kemp Lumber Co., Exchange Bank of Dallas v. Tuttle, and Elsea v. Broome Furniture Co.

Citations and references

Rules of Professional Conduct (former Code):

• Model Code DR 3-102 / NM Code Rule 3-102 (sharing legal fees with a nonlawyer)

Cases:

• Roger v. Kemp Lumber Co., 18 N.M. 300, 137 P. 586 (1913).
• Exchange Bank of Dallas v. Tuttle, 5 N.M. 427, 23 P. 241 (1890).
• Elsea v. Broome Furniture Co., 47 N.M. 356, 143 P.2d 572 (1944).

See also

• NM Ethics Op. 2021-001: Fee Splitting With No Services
• NM Ethics Op. 2013-01: Contingent Fees and Interest on Costs

Source

• Landing page: https://www.sbnm.org/Leadership/Committees/Ethics-Advisory-Committee/Ethics-Advisory-Opinions
• Original PDF: https://www.sbnm.org/Portals/NMBAR/AboutUs/committees/Ethics/1984/1984-6.pdf

Original opinion text

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

Advisory Opinion 1984-6
An attorney has requested an opinion from the Advisory Opinions Committee concerning the propriety of an award for attorneys fees for her services in collection suits on behalf of her client, a bank, where she is a full-time salaried employee of the bank. The courts in her District have routinely allowed such attorneys fees awards. The attorney's letter reads as follows:
"I am writing to ask you your opinion concerning the assessment of certain attorneys fees.
My situation is this: I am presently staff attorney for the . . . Bank . . . . In that capacity, I handle the bank's mortgage foreclosure proceedings and Complaints on Promissory Notes. Both the bank's mortgages and promissory note documents contain the standard povisions (sic) regarding the assessment of reasonable attorneys fees in the event the same are placed in the hands of an attorney for collection.
As a matter of routine, I have been including in the prayer for relief on such proceedings a claim for reasonable attorneys fees. The courts in the . . . Judicial District have routinely awarded such fees. Given that I am on salary at the bank, I was concerned as to any possible ethical violations that might be raised. At this time, no one has raised the issue, but it is one that I would like an opinion on.
I was wondering if you would be kind enough to give me your opinion. If you have any questions concerning this matter, I would be happy to talk with you about them."
The attorney has provided the following additional information related to her question: the attorney is a full-time salaried employee of the bank and receives no compensation other than her salary, which is fixed, and which does not vary in any way depending upon attorneys fees awarded in collections and foreclosures; her employer, the bank, gets 100 percent of the "reasonable attorneys fees" collected through the foreclosures and collection actions; the fee is uniformly computed by the percentage of the balance due based upon the provisions in the promissory notes providing for 10 percent attorneys fees; the attorney states that in a substantial majority of the cases (usually where the defendant defaults) the awarded fee is more than what would be her attorney's fee or would be an outside attorney's fee if based upon a reasonable hourly rate times the amount of time the attorney spent on the case; the attorney does, however, keep time records.
Clearly, if the attorney was not on salary, there would be no problem. A question could be raised whether the language of the bank's promissory notes and mortgages necessarily imply a turning over of the documents to an outside independent attorney for collections ("Placed in the hands of an attorney for collection"). While this language is not necessarily inapplicable to in-house counsel, rewording these documents would probably provide greater clarity and would provide better support for the bank's position.
This is especially true because these attorneys fee provisions in promissory notes and mortgages are contractual agreements between parties using forms created by the more powerful of the parties, the bank.
Ethically, the attorney must point out to the court when requesting attorneys fees that the attorney is exclusively on salary by the bank so that the court would be informed and could take that fact into consideration in setting the fees to be awarded.
It would appear to be unethical and improper for the bank to collect any more for "reasonable attorneys fees" in such collections than could be demonstrated to be the reasonable portion of the attorney's salary applicable to the case plus directly applicable overhead. It appears to be improper for the bank to "make a profit" through the contractual fee provision.
The New Mexico Code of Provisional Responsibility provides at Rule 3-102 that a lawyer shall not share legal fees with a nonlawyer. Further, it appears to be the law of New Mexico that a court should not routinely award a contractually stated percentage of the balance of a promissory note as the awarded "reasonable attorneys fees." The court should actually determine what are reasonable attorneys fees based upon the usual factors of time spent, usual hourly rates, ability, the attorney's standing in the professional community, skill, experience of the attorney, the nature and character of the controversy, the amount involved, the importance of the litigation and the benefits derived from the litigation. See Roger vs. Kemp Lumber Company, 18 N.M. 300; 137 P. 586 241 (1913); Exchange Bank of Dallas vs. Tuttle, 5 N.M. 427; 23 P. 241 (1890); Elsea vs. Broome Furniture Company, 47 N.M. 356; 143 P.2d 572 (1944).
The committee has researched this question to find guidance in the common law, statutes and treatises. However, except as cited above, the committee has not been able to find any further guidance and can only offer its opinion based upon the personal professional views of the committee members.