84-F-67 - Vacated*


*Vacated by the Board of Professional Responsibility on September 11, 2015 due to changes in the law or rules.


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.


G. Wilson Horde
T. Maxfield Bahner
Charles T. Herndon, III