Ethics Opinion

Opinion No. 84-1

January 1984

Summary: A charge by a bank to a mortgagor of a fee for legal services rendered to the bank by its staff attorney that exceeds the cost to it of those services involves a prohibited sharing of legal fees with a non-lawyer. The basis of any charge should be disclosed. Whether such a charge also involves the bank in the unauthorized practice of law is beyond the jurisdiction of the Committee on Professional Ethics.

Facts: An inquiry has been made on behalf of a staff attorney for a bank asking whether it is proper for the staff attorney to participate in the following arrangement. The staff attorney works full time for a bank that currently hires outside counsel to represent it in residential mortgage closings and is reimbursed by mortgagors for its attorneys' fees in connection with such closings. The bank proposes to have its staff attorney represent it in such closings. It intends to charge the mortgagor as part of the closing costs an amount equal to or less than the fee that would normally be charged by outside counsel but greater than the bank's own cost for the services of the staff attorney. Payment of the fee by the mortgagor would be made directly to the bank, and the staff attorney's salary would be independent of such fees. We assume that it is clear to all parties that the staff attorney would be representing only the bank.

Discussion: A charge that exceeds the bank's costs raises the problem of whether the fee arrangement constitutes a violation of DR 3-102 (A) which, with three exceptions not applicable here, provides that "[a] lawyer or law firm shall not share legal fees with a non-lawyer."
EC 3-8 further provides:
Since a lawyer should not aid or encourage a layman to practice law, he should not practice law in association with a layman or otherwise share legal fees with a layman. This does not mean, however, that the pecuniary value of the interest of a deceased lawyer in his firm or practice may not be paid to his estate or specified persons such as his widow or heirs. In like manner, profit-sharing retirement plans of a lawyer or law firm which include non-lawyer office employees are not improper. These limited exceptions to the rule against sharing legal fees with laymen are permissible since they do not aid or encourage laymen to practice law.
The committee noted a potential violation in a similar case in Opinion No. 77-8. In that case, a lawyer employed full time by a bank in its trust department asked whether he could bring suit on behalf of the bank in collection cases and bill the bank for such services at the rate customarily charged by outside counsel, with such fees then being the major determinant of his salary. The committee noted but did not attempt to decide the legal question whether the bank could charge the delinquent debtor for legal collection services of such a full-time employee. Even assuming such charges were legal, however, the committee pointed out that the bank could not demand of the debtor any greater legal fees than the actual cost to the bank of that proportion of the time of its full-time employee (including office overhead) which is properly allocable to the collection work. If (the bank) makes a profit on the collection work done for it by its lawyer-employee, by using any surplus over actual cost to reduce the compensation paid for the Trust Department services of the lawyer-employee, the lawyer will in effect be sharing the legal fee collected from the delinquent debtor with the bank, a non-lawyer, in violation of DR 3-102(A).
Attention is also directed to Opinion No. 83-9, where an in-house lawyer working full time for a corporation wished to provide legal services to a corporation affiliated with the corporation that employed her. The attorney's services were to be billed to the affiliate through the employing corporation. The committee advised that "[a] pro rata share of the cost of an attorney's services may be allocated to the affiliated corporation, but an attorney's fees separately charged may not be paid to the corporation."
Just as in the two cases summarized the committee warned that it would be unethical fee-splitting for a non-lawyer employer of an attorney to bill a third party more for that attorney's services than the actual cost of such services to the employer, so we must now advise that the proposed arrangement would likewise constitute an ethical violation if the bank charged the mortgagor more for the staff attorney's services than the actual, pro rata cost to the bank of those services, including overhead.
The proposal also raises problems under Canon 1 relating to the potential for misleading the mortgagor as to the basis for the bank's charges for the services rendered by the staff attorney to the bank. Without more, charging the mortgagor for the bank's legal fees would or may imply that the basis of the charge is the bank's cost for those services. In the usual situation where attorneys not employed by the bank perform the bank's legal services, the bank charges the mortgagor its cost for those services. The basis of the bank's charge to the mortgagor should be made clear so as not to "[e]ngage in conduct involving dishonesty, fraud, deceit, or misrepresentation in violation of DR 1-102(A)(4). The committee expresses no opinion as to whether disclosure would be required by G.L. c.93A or other substantive laws.
Finally, the inquiry raises the issue of whether such a charge by the bank constitutes unauthorized practice of law by the bank and therefore assistance in unauthorized practice by the staff attorney in violation of DR 3-101(A). Because this committee is not authorized to give advice whether particular conduct constitutes the unauthorized practice of law, we do not respond to this issue in this opinion.

Permission to publish granted by the Board of Delegates, 1984. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.