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.