LEO: Collections - Billing Methods LE Op. 1025
Collections - Billing Methods.
January 21, 1988
Given some recent Fourth Circuit Court of Appeals opinions, it has become
necessary for some larger banks to refer civil collections to Attorney A
so that A might pursue the account debtors in the county in which they
presently reside. So far all of the cases have involved obtaining
deficiency judgments for amounts which remain due on account after the
bank has foreclosed upon its collateral and giving all proper credits to
that account debtor.
All of the notes forwarded to A's attention contain provisions permitting
the bank to recover its cost in collection, and an attorney's fee of 25
percent of the unpaid balance. Accordingly, when the account and affidavit
is forwarded to A's attention, it bears a calculation of the 25 percent
attorney's fee having already been figured upon the outstanding account
These accounts are sent down to obtain a deficiency judgment with the
express direction that after obtaining the judgment, a copy of the
abstract is to be docketed in the circuit court and the file is to be
returned to the bank's central office, and that no further legal action be
taken toward the collection of the judgment obtained.
Having already obtained judgment on the account balance due, as well as
the 25 percent attorney's fee calculated upon the account balance due, if
A were to proceed with attempts to collect the amount of judgment, then A
would be entitled to the 25 percent attorney's fees of all amounts
collected. However, because these accounts are being sent down with the
specific directive that no action be taken to collect the amount of the
judgment, and that the file be sent back to the central office, the
billing of the file becomes a problem that can be handled in one of three
ways. Attorney A submitted three billing procedures for the Committee's
1. Attorney A would charge a "flat rate" for obtaining and docketing
judgment. The file would be returned to the central office for collection
by a nonattorney. After payment of A's "flat rate," all other sums would
be retained by the banking association and not be paid by any other
licensed, practicing attorney.
The Committee believes that this billing method would violate DR:3-101(
2. This method would involve a "running account." A would obtain judgment,
including attorney's fees of 25 percent of the unpaid balance, and then
return the file to the central office for collection by a nonattorney.
Each sixth month, 25 percent of the successful collections would be
forwarded to A.
The Committee opines that this second billing procedure does not violate
any provisions of the Code of Professional Responsibility.
3. The last billing procedure would be one whereby the contractual
provision providing attorney's fees of 25 percent of the unpaid balance
would be disregarded. Instead, the court would be asked to enter judgment
for an amount equal to a flat rate to be charged each file. Should the
bank decide it wishes A to also collect the judgment, a separate fee
arrangement would be made.
The Committee opines that nothing within the Code of Professional
Responsibility would prohibit billing procedure number three.
As to the judgments which A has already obtained, the Committee believes
that the only mentioned billing method that would comply with the Code of
Professional Responsibility and also be feasible under the circumstance,
would be the second billing method.
Committee Opinion January 21, 1988
For clarification of this opinion, see LE Op. 1161.