Bar Rules

Formal Advisory Opinion No. 88-2

Ethics & Discipline / Advisory Opinions / Formal Advisory Opinions / Formal Advisory Opinion No. 88-2

State Bar of Georgia
Issued by the Supreme Court of Georgia
On November 10, 1988
Formal Advisory Opinion No. 88-2

For references to Standard of Conduct 26, please see Rule 5.4(a).

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Ethical Propriety of an Attorney-Employee Sharing Attorney's Fees With a Lay Organization-Employer.

It is ethically permissible for an attorney-employee to collect attorney's fees on a note or loan which fees accrue to the benefit of the attorney's employer, where the attorney's fees are regarded as stipulated liquidated damages under Georgia law.

Correspondent asks if it is ethically permissible for an attorney to collect attorney's fees which would accrue to the benefit of the attorney's employer, a lay organization, in the following situation: A bank employs a full time, licensed, attorney to handle collections, foreclosures and bankruptcies. Contracts signed by the bank's customers provide for 15 percent of the unpaid balance as attorney's fees if the loan goes into default and has to be collected by or through an attorney.

Standard No. 26 provides, in part, that "a lawyer or law firm shall not share legal fees with a nonlawyer. . . ."

The policy behind this prohibition against fee sharing between a lawyer and a layman is the preservation of a lawyer's independent professional judgment. It is feared that laymen, or lay organizations, sharing a financial interest in the representation and not being under professional obligations, may influence the attorney's judgment against the client's welfare.

The conduct in question here is not in violation of this policy. The lay organization, with whom the fees are shared, is the client. No influence on independent professional judgment contrary to the interests of the client is present. This situation is clearly distinguishable from the numerous advisory opinions and cases prohibiting fee sharing with a nonlawyer other than the client. Curran v. Department of the Treasury, 805 F.2d 1406 (1986); National Treasury Employees Union v. United States, 656 F.2d 848 (1981).1

The Committee concludes that fee sharing with the employer bank is not prohibited under Standard No. 26. The Committee also notes that the conduct described by correspondent is not fee sharing in the sense of that term in Standard No. 26. In correspondent's situation, statutory attorney's fees are regarded as stipulated liquidated damages for collection costs, belonging to the client. The attorney is then free to contract with the client for the agreed upon fee or any other fee.2 Rylee v. Bank of Statham, 7 Ga. App. 489 (1918).

The requirements of O.C.G.A. § 13-1-11, that collection efforts must be made "by and through an attorney" in order to enforce this statutory attorney's fees provision, have been met. See, United States v. Allen, 699 F.2d 1117 (1983); In re East Side Investors, 694 F.2d 242 (11th Cir. 1982); In re Village Apartment Associates, 9 B.R. 211 (Bkrtcy. N.D. Ga. 1981).


1 See, also, MASSACHUSETTS BAR OPINION 84-1 (1984).
2 See, also ABA FORMAL OPINION NO 157.

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