Rutgers School of Law, OAL case ACPE093

89 N.J.L.J. 248
April 21, 1966

ADVISORY COMMITTEE ON PROFESSIONAL ETHICS

Appointed by the New Jersey Supreme Court

OPINION 93

Legal Fees Charged by Municipality

    An attorney has inquired (1) whether a municipality may set, demand and receive legal fees from a purchaser of its property, and (2) whether it is proper for a municipal attorney to allow the municipality to set, demand and receive legal fees for legal services he has rendered. The inquiry indicates that the municipality pays its attorney a flat annual salary for performing all the legal work of the municipality. Included in the duties of the attorney are the preparation of resolutions for the sale of municipal property and the preparation of deeds, notices for advertisements, etc. The advertisements state that the purchaser shall pay the purchase price, cost of advertising, and "legal fees" in the case of private sales and "legal expenses" in the case of public sales, and the charge is always a flat sum of $125. In all cases the money is paid directly to the municipality and deposited in the municipal treasury.
    It is not within the province of this Committee to determine the legal propriety of acts of laymen or corporations - public or private. It is appropriate, however, to consider the questions presented here to the extent the participation of an attorney is involved.
    As we understand the facts presented, it is clear that the only legal services being rendered are those to the municipality. This is not the type of case where a corporate seller is soliciting
or attempting to dictate what lawyer shall represent a purchaser.
    First, a preliminary issue is presented as to whether an attorney may ever properly act where his principal - the seller - is to his knowledge requiring the purchaser to pay the seller a sum to cover legal fees of the attorney for services rendered to the seller. As we have previously stated, such practice is entirely proper where the services are actually rendered and where the attorney has fixed the amount of his fee in a manner consistent with Canons of Professional Ethics, Canon 12; N.J. Advisory Committee on Professional Ethics, Opinion 27, 87 N.J.L.J. 97 (1964).
    On the facts presented here, however, it does not appear that the $125 charge represents a fee fixed by the attorney based on services actually rendered, or that it is to reimburse the municipality for a fee so incurred. In such circumstances, the charge for "legal expenses" or "legal fees" is improper and an attorney cannot ethically participate in such an arrangement. We see no valid basis for an exception predicated on the ground that the client involved is a municipality. The lawyer's duty and obligation is the same regardless of whether his client is an individual or a public or private corporation.
    The basic rule is well stated in Drinker, Legal Ethics 182 (1953) as follows:

             The only situations in which a lawyer may properly permit a client to receive and retain fees paid by others on account of his legal services are when such payments are to reimburse the client in whole or in part for the client's legal expenses actually incurred in the specific matter for which they are paid.

See also Drinker, supra, p. 183, quoting ABA Committee on Professional Ethics and Grievances, Opinion 8 (1925).
    Another example of the rule is found in Ass'n. of the Bar, City of N.Y., Committee on Professional Ethics, Opinion 353 (1956), involving a case where a bank had inserted in its notes a provision that where the note is placed with an attorney for collection there would be charged a 10 percent attorney's fee. The committee held that an attorney may not accept employment to collect such notes unless his arrangements with the bank were such that under all circumstances the total of all fees so collected by the bank was paid over in full to the attorney. In commenting on this case, Drinker stated, supra, at p. 183:
             If the bank retained these fees, however, it was in effect hiring a lawyer to perform legal services for which it was paid, in violation of Canon 47.

    Another example of the rule is found in the Decisions by the ABA Committee, No. 369 (1957 ABA Com. Opinions, p. 647), which reads as follows:
             A lawyer devoting his entire time to one client for an agreed salary may not ethically turn over to the client, to be applied by it as a setoff to the expense of maintaining its legal department, the premiums paid to him by a title company insuring real estate on which, under the lawyer's supervision, his client acquired mortgages.

Although upon the facts presented in the present inquiry it might be argued that the payment of the $125 to the municipality is in effect a payment to help defray its expense in paying the annual flat salary of the municipal attorney, this would not make the procedure proper, as is indicated in the foregoing opinion of the Committee of the American Bar Association.

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