State Bar Association
Committee on Professional Ethics
Opinion 1004 (4/1/14)
Obligations Regarding Excessive Fee of Counter-Party’s Attorney
Digest: Where a
contract provides that one party pay the counter-party’s attorney’s fee and
that fee is excessive, the attorney for the first party is not ethically
prohibited from participating in the transaction. Whether the attorney has an obligation to
report the excessive fee of another attorney depends on the circumstances.
The inquirer’s client is entering into a
commercial loan with a bank, and one of the standard terms of the loan is that
the borrower pay the bank’s attorney’s fee.
The inquirer characterizes the contemplated transaction as “standard
with some nuances.” He states that the
nuances will not require a great deal of extra drafting beyond the boiler plate
document. The inquirer believes that the
bank attorney’s proposed fee is “at least double the normal fee” charged for
this type of transaction. He asked the
bank’s attorney to reduce his fee, but that attorney refused.
Assuming that an attorney’s fee – to be paid by
the counter-party – is excessive, can the counter-party's lawyer continue to
participate in representing his client in this transaction and must that lawyer
report the conduct of the fee-charging attorney?
As the question of whether the bank's attorney's
fee is excessive does not involve the inquirer's own conduct, we are not in a
position to resolve that issue. It is
worth noting, however, that Rule 1.5(a) sets forth the ethical standard
governing the amount of legal fees that can be reasonably charged. It provides that
A lawyer shall not make an agreement for, charge, or collect an excessive or
illegal fee or expense. A fee is
excessive when, after a review of the facts, a reasonable lawyer would be left
with a definite and firm conviction that the
is excessive. The factors to be
considered in determining whether a fee is excessive may include the following:
time and labor required, the novelty and difficulty of the questions involved,
and the skill requisite to perform the legal service properly;
likelihood, if apparent or made known to the client, that the acceptance of the
particular employment will preclude other employment by the lawyer;
fee customarily charged in the locality for similar legal services;
amount involved and the results obtained;
time limitations imposed by the client or by circumstances;
nature and length of the professional relationship with the client;
experience, reputation and ability of the lawyer or lawyers performing the
the fee is fixed or contingent.
Cmt.  to Rule 1.5 observes that the factors
specified in paragraphs (a)(1) through (a)(8) are not exclusive and that each
factor will not always be relevant.
While it has been noted that factor (a)(3)(“the fee customarily charged
in the locality for similar legal services”) is an important factor, see Simon's
New York Rules of Professional Conduct Annotated, 2013 Edition, p. 131, it has
also been noted that factor (a)(7) ("the experience, reputation and
ability of the lawyer or lawyers performing the services") is usually “the
most important factor.” Id. at
We further note that the fact that the fee
sought by the bank’s attorney is roughly double the fee often charged for
similar transactions does not render the fee per se excessive. A high fee is not necessarily an excessive
fee. That is because the excessiveness
determination requires a consideration of all the relevant factors. For example, we know nothing about “the
experience, reputation and ability of the lawyer” performing the services (see
Rule 1.5(a)(7)), a critical factor.
And the inquirer acknowledges that the prospective transaction does
involve “some nuances”; Rule 1.5(a)(1) indicates that the “novelty and
difficulty of the questions involved” is relevant to the appropriateness of the
fee. An experienced attorney handling a
difficult nuance has more leeway to charge a higher fee.
Even if the fee is excessive, the inquirer can
still ethically participate in the transaction.
While Rule 8.4(a) prohibits an attorney from assisting or inducing
another to violate the Rules of Professional Conduct, the inquirer did not
provide any such assistance or inducement.
In Opinion 809, this Committee concluded that a lawyer did not aid in
the unauthorized practice of law (as then prohibited by DR 3-101(A) of the Code
of Professional Responsibility) where the lawyer, to carry out the
representation of one client in a transaction, dealt with a non-lawyer who had
been engaged by the client’s counter-party.
We reasoned that the inquiring lawyer had not caused or encouraged the
counter-party’s representational situation and was merely continuing to
represent his own client in the transaction.
The same logic applies to the present inquirer. He did not cause or encourage the
counter-party’s lawyer to charge a potentially excessive fee. On the contrary, he attempted to negotiate a
Moreover, even if the fee is excessive, the
inquirer does not necessarily have to report the conduct of the bank's
attorney. That is because attorneys need
not report all ethical violations of which they become aware. Instead, Rule 8.3, which governs the
reporting of professional misconduct, provides, in relevant part, that “(a) A
lawyer who knows that another lawyer has committed a violation of the Rules of
Professional Conduct that raises a substantial question as to that lawyer’s
honesty, trustworthiness or fitness as a lawyer shall report such knowledge
to a tribunal or other authority empowered to investigate or act upon such
violation" (emphasis added). Cf.
Cmt.  to Rule 8.4 ("Many kinds of illegal conduct reflect adversely
on fitness to practice law. Illegal
conduct involving violence, dishonesty, fraud, breach of trust, or serious
interference with the administration of justice is illustrative of conduct that
reflects adversely on fitness to practice law.
A pattern of repeated offenses, even ones of minor significance when
considered separately, can indicate indifference to legal obligation"). Thus, even if the inquirer concludes that the
bank's attorney's fee is excessive, he is only obligated to report the conduct
of the bank attorney if he concludes, under all the circumstances, that the
setting of the fee reflects adversely on that attorney's fitness to practice
law or involves dishonesty.
7. Where a contract provides that one party pay the counter-party’s
attorney’s fee and that fee is excessive, the attorney for the first party is
not ethically prohibited from participating in the transaction. Whether the attorney has an obligation to
report the excessive fee of another attorney depends on the circumstances
course, if the inquirer believes that the bank's attorney's fee is excessive,
he is permitted to report the bank's attorney.