Adopted January 23, 1973

INQUIRY

The committee has received an inquiry asking an opinion as to the propriety of an attorney representing collection agencies. It is asserted in the inquiry that given the complex state of our economy, the recent reform of collection agency practices, and the need for such services, the profession should undertake such representation.

OPINION

The committee fully agrees that small businessmen are entitled to representation in the collection of debts; however, the committee must conclude that it is unprofessional for an attorney to represent a collection agency unless the agency is itself a party to the suit. Of course, if the agency is acting in its own right or is defending itself against a suit, it is perfectly acceptable to provide such representation.

When a collection agency takes a bona fide assignment of an account, without recourse, it then becomes the owner of the account. In such circumstances the agency, of course, may then be represented by counsel in the enforcement of its rights.

In cases in which the attorney represents the agency when the agency is acting in behalf of a creditor other than the agency itself, the committee holds such representation to be unprofessional. We reaffirm the position taken in Advisory Opinion No. 251, adopted by the Board of Governors on September 14, 1967.

Representation of a collection agency under such circumstances violates the provisions of both Canons 3 and 5 of the Code of Professional Responsibility.

Ethical Consideration 3_8 provides: “Since a lawyer should not aid or encourage a layman to practice law, he should not practice law in association with a layman or otherwise share legal fees with a layman. …”

Ethical Consideration 5_21 provides: “The obligation of a lawyer to exercise professional judgment fully on behalf of his client requires that he disregard the desires of others that might impair his free judgment. The desires of a third person will seldom adversely affect a lawyer unless that person is in a position to exert strong economic, political or social pressures on the lawyer. These influences are often subtle, and a lawyer must be alert to their existence. A lawyer subjected to outside pressures should make full disclosure of them to his client; and if he or his client believes that the effectiveness of his representation has been or will be impaired thereby, the lawyer should take proper steps to withdraw from representation of his client.”

Further, Ethical Consideration 5_23 states: “A person or organization that pays or furnishes lawyers to represent others possesses a potential power to exert strong pressures against the independent judgment of those lawyers. Some employers may be interested in furthering their own economic, political or social goals without regard to the professional responsibility of the lawyer to the individual client. Others may be far more concerned with establishment or extension of legal principles than in the immediate protection of the rights of the lawyer’s individual client. On some occasions, decisions on priority work may be made by the employer rather than the lawyer with the result that prosecution of work already undertaken for clients is postponed to their detriment. Similarly, an employer may seek, consciously or unconsciously, to further its own economic interests through the actions of the lawyers employed by it. Since a lawyer must always be free to exercise his professional judgment without regard to the interests or motives of a third person, the lawyer who is employed by one to represent another must constantly guard against erosion of his professional freedom.”

Adopted In general, collection agencies operate on the basis of a contingent fee collected by the agency. An attorney representing the agency rather than the creditor directly, is paid by the agency. The agency, to continue its operations, must make a profit on its services, including those for which it engages an attorney. This arrangement clearly constitutes a division of fees between the attorney and the collection agency in violation of the Code which expressly forbids a division of fees with non-attorneys. It is conceivable that the attorney might bill the client directly and that the client-creditor would pay nothing to the agency, but this situation is highly unlikely because it would severely reduce the profits of the agency.

Even if direct payment of fees were arranged, the representation of the agency would still violate Canon 5. An attorney may not work through intermediaries. The legal profession derives the respect which it enjoys and deserves in large part from the nature of the close relationship of trust and understanding which exists in the lawyer-client relationship. An attorney must represent the creditor directly and receive his directions solely from the creditor. No agency can be allowed to intervene between the lawyer and the client. The sole responsibility for representing and serving the creditor must be that of the attorney alone and it cannot be shared with any third party.

If the lawyer were paid for his services directly by the creditor with no profit on the transaction for the collection agency and if the relationship between the attorney and the creditor were direct and exclusive, there would be little or no commercial reason for the collection agency to become involved. The likelihood that such an arrangement could exist is highly remote and would actually constitute representation of a creditor by an attorney and not representation of a collection agency.

After reconsideration of the matter, the Committee holds that the Code of Professional Responsibility requires our reaffirmance of Opinion No. 251.