Can a salaried FDIC staff attorney request a court-awarded attorney's fee, under a promissory note's fee clause, that exceeds the FDIC's actual salary and legal expense costs of collection?
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This page answers the general question as of 1984. Ezel answers yours: whether it's allowed on your facts, under the current rules of professional conduct in your state, with citations.
Currency note
Vacated. The Board of Professional Responsibility vacated Formal Ethics Opinion 84-F-67 on September 11, 2015 due to changes in the law or rules. This opinion was also issued in 1984, before Tennessee's adoption of the 2003 Rules of Professional Conduct, which replaced the former Code of Professional Responsibility. A vacated opinion has no continuing force and is not the Board's current guidance. It is reproduced and summarized here only as a historical research record. Do not rely on it as current; verify the current rules on fees under RPC 1.5 before acting.
Plain-English summary
A salaried staff attorney for the Federal Deposit Insurance Corporation, acting in its capacity as receiver and liquidator of closed banks, asked whether the FDIC could request reimbursement from third-party debtors, under the attorney's fee clause of a promissory note, for legal services its full-time salaried staff attorneys spent collecting delinquent notes. The staff attorneys were paid a fixed annual salary independent of case outcomes and kept detailed time records on each matter.
The opinion identified the relevant Code provisions as DR 2-106 (excessive fees), DR 2-107 (division of fees among attorneys), DR 3-102 (dividing fees with non-lawyers), and DR 5-107 (accepting compensation for legal services from a non-client without informed client consent). It cited American Bar Association Formal Opinion 157 for the principle that an attorney cannot divide or share with a client the court-awarded attorney's fee from an action on a promissory note's stipulated-fee clause, and it applied Tennessee Formal Ethics Opinion 81-F-6, which had addressed an attorney who discovered, after taking an hourly-rate engagement, that the contract at issue provided for a percentage attorney fee on default and recovery. Quoting that opinion, "[h]ad 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 an attorney's compensation, would have been a misrepresentation to the court and in contravention of... DR 7-102(A)(5) and (7)," and "DR 3-102 prohibits an attorney from dividing his fee with a layman." Applying that reasoning to the FDIC's salaried staff attorneys, the opinion concluded the staff attorney "is ethically prohibited from requesting or permitting the court to award a fee in excess of the amount necessary to reimburse the FDIC for the actual salary and legal expenses paid in obtaining the judgment on the note."
Common questions
Q: Can an FDIC staff attorney collect a note-stipulated attorney's fee beyond the FDIC's actual salary and expense costs?
A: No. The opinion holds the attorney "is ethically prohibited from requesting or permitting the court to award a fee in excess of the amount necessary to reimburse the FDIC for the actual salary and legal expenses paid in obtaining the judgment on the note."
Q: Why would collecting the full contractual fee be improper here?
A: The opinion reasons by analogy to Tennessee Formal Ethics Opinion 81-F-6: collecting a court-awarded contractual fee beyond the attorney's actual compensation, without proper disposition, would misrepresent the fee's purpose to the court in violation of DR 7-102(A)(5) and (7), and would effectively divide a legal fee with a non-attorney in violation of DR 3-102.
Q: What Code provisions govern attorney's fees collected under a note's fee clause by salaried government counsel?
A: The opinion identifies DR 2-106 (excessive fees), DR 2-107 (division of fees among attorneys), DR 3-102 (dividing fees with non-lawyers), and DR 5-107 (accepting compensation from a non-client without informed client consent) as the governing framework, along with ABA Formal Opinion 157.
Background and rules framework
The opinion applied Disciplinary Rules 2-106, 2-107, 3-102, and 5-107 of the Code of Professional Responsibility, together with DR 7-102(A)(5) and (7) (candor to the tribunal) as construed in Tennessee Formal Ethics Opinion 81-F-6. The modern correlates are Model Rule 1.5 (fees) and Model Rule 5.4 (fee division and professional independence), cited here as navigational cross-references rather than rules the opinion itself applied; this opinion has since been vacated, so current RPC 1.5 controls.
Citations and references
Other opinions cited:
- ABA Formal Opinion 157, an attorney cannot divide or share with a client a court-awarded attorney's fee from a promissory note's stipulated-fee clause
- Tennessee Formal Ethics Opinion 81-F-6, proper disposition of a court-awarded contractual attorney's fee exceeding the attorney's actual compensation
See also
No sibling opinions yet indexed.
Source
- Landing page: https://www.tbpr.org/ethic_opinions/84-f-67
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
84-F-67 - Vacated*
*Vacated by the Board of Professional Responsibility on September 11, 2015 due to changes in the law or rules.
FORMAL ETHICS OPINION 84-F-67
Inquiry is made by the FDIC salaried staff attorney as to the propriety of requesting reimbursement from third party debtors, pursuant to the terms of a promissory note, for legal services expended in the collection of delinquent promissory notes owned and held by FDIC.
The Federal Deposit Insurance Corporation, pursuant to its appointment as receiver and liquidator of closed banks, has become owner and holder of delinquent promissory notes. The notes provide for the payment of certain attorneys' fees by the defaulting debtor in event of collection by an attorney. The FDIC has filed suits to collect the delinquent notes. In many instances, the suits have been filed by FDIC's salaried full-time staff attorneys. The staff attorneys are paid a fixed annual salary independent of the outcome of any legal matter. Detailed time records are kept by the staff attorneys concerning the time spent on each legal matter.
Matters relating to attorneys' fees are contractual in nature and usually matters involving trust, principal-agent and contract law. The attorney is ethically bound to follow the law in dealing with matters of law. The attorney is further obligated to comply with the Code of Professional Responsibility regarding excessive attorney fees (DR 2-106), division of fees among attorneys (DR 2-107), dividing legal fees with non-lawyers (DR 3-102), and when accepting compensation for legal services from a non-client without the informed consent of the client (DR 5-107).
American Bar Association Formal Opinion 157 states that an attorney cannot divide or share with his client the amount awarded by the court as attorney's fees resulting from an action on a promissory note containing a stipulated amount for attorney's fees.
Tennessee Formal Ethics Opinion 81-F-6 addresses the matter wherein an attorney contracted on an hourly rate to seek a recovery on a breach of contract and later discovered that the contract in question provided for a percentage attorney fee in event of default and recovery. The opinion states:
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 an attorney's compensation, would have been a misrepresentation to the court and in contravention of ...DR 7-102(A)(5) and (7). ... Further, DR 3-102 prohibits an attorney from dividing his fee with a layman.
In this instance, the FDIC staff attorney, when requesting the court to award attorney's fees on a defaulted note providing for such fees, the attorney is ethically prohibited from requesting or permitting the court to award a fee in excess of the amount necessary to reimburse the FDIC for the actual salary and legal expenses paid in obtaining the judgment on the note.
This 13th day of March, 1984.
ETHICS COMMITTEE:
G. Wilson Horde
T. Maxfield Bahner
Charles T. Herndon, III
APPROVED AND ADOPTED BY THE BOARD
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