November 28, 1974
Interest on Attorneys' Fees
This inquiry asks the propriety of a notice on the reverse of
debit notes, stating that interest will be charged from original
billing date on accounts unpaid more than thirty days. The
particular notice proposes to refer to Federal Reserve Regulation
Z, and the "Truth in Lending" law and proposes to charge interest
at l 1/2% per month for a total of 18% per year. The inquirer
reports that he has received debit notes of similar nature from
foreign associates who he believes operate under a code of ethics.
Generally, the authorities hold that an attorney is not
entitled to interest on an unliquidated demand for compensation. 7
C.J.S. 191-c at 1092. Citing the A.B.A. Comm. on Professional
Ethics, Informal Decision C 741 (1964), it is stated in Wise, Legal
Ethics 241 (2d ed. 1970):
They have decided that a lawyer should not state on his billhead that interest will be charged on unpaid balances after 30 days. If a lawyer takes a note for a fee, the note may bear legal interest, but the client must have a penalty-free right of pre-payment.
References to state bar opinions are found in Maru, 1970 Supplement to the Digest of Bar Association Ethics Opinions, American Bar Foundation: The New York State Bar Committee held it to be generally improper to charge interest, but that interest may be added in a judgment for fees due. Opinion 87, 40 N.Y.S.B.J. 607 (1968). Digest, supra, 6966. The Florida committee held that a note given for a portion of an unpaid fee may bear lawful interest comparable to that charged by a lending institution. Opinion 68-61, 44 Fla.B.J. 406 (1970), Digest, supra, 6573. The Washington committee held it to be demeaning to the profession to insist on
payment of interest on open account balances; but, that absent coercion or discount, a note may be taken for reasonable interest. Opinion 143, 24 Wash.S.B.N. 10 (1970), Digest, supra, 7313.
Since the Maru & Clough compilation, the Committee on Professional Ethics of the Illinois State Bar Association has considered the interest question in its Opinion 380 (1972). The Illinois committee there held it improper to charge a client interest on past due fees regardless of whether the attorney and client have agreed upon the fee. Citing the A.B.A. Comm. on Professional Ethics, Informal Decision C 741 (1964), and its Opinion 151 (1936), it referred to former Canons of Professional Ethics, Canon 12 for the general elements in fixing fees and to Ethical Consideration 2-23, which urges a lawyer to avoid controversies over fees. And compare, Opinion 347 (1971), of the Illinois committee where it applied E.C. 2-23 to the question of when an attorney may sue a client for a fee. In its Opinion 380, supra, the Illinois committee observed that it did "not ... hold improper, payment of an agreed fee by the giving of an interest bearing note for the client's convenience."
Disciplinary Rule 2-106 sets out the standards in setting fees. The attorney should reach a clear agreement with the client as to the basis of fee charges to be made. If at all possible, it
should be reduced to writing. Ethical Consideration 2-19, American Bar Association, Code of Professional Responsibility (1969). In this effort the time for billing and payment should be discussed. Where matters are to extend over a long period of time, the parties should plan on how bills are to be rendered and paid. A lawyer should realize that prospective clients may have had little experience in dealing with lawyers' fees. E.C. 2-19, supra. Full explanation is necessary. And, if a substantial delay in payment is likely, then a fair rate of interest must be agreed upon. It should not exceed the legal rate. In asking for interest the attorney should bear in mind the considerations stated in the Preamble Code of Professional Responsibility, American Bar Association (1969). Respect for the client and confidence in the lawyer compel exercise of the highest possible degree of ethical conduct. The lawyer's conscience is his guide. And, every effort should be made to work out an amicable resolution of any differences that may arise. The practice of law is part of the administration of justice. Devices of the retail trade such as monthly interest at 1 1/2% just do not belong in the practice. Compare N.Y. County Lawyers Ass'n., Committee on Professional Ethics, Opinion 601 (1972), where it was held that an attorney may not join a master charge plan for financing his legal fees. Any practice that ignores the personal professional relationship of attorney and client, and substitutes the customs of commerce reduces the respect and confidence of the bar and so is disapproved.
Tested by these principles, it is this Committee's opinion that it is improper for an attorney to demand interest on delinquent accounts. Where his fee agreement initially contemplates
delay in payment, he may seek the agreement of the client to pay interest within legal limits. Where the convenience of the client is served and there is no coercion or over-reaching, an attorney may accept a client's note with reasonable interest for the payment of a past due bill.