Ethics Counsel

Ethics Opinion No. 53

Adopted May 26, 1933

The Board of Governors is in receipt of the following inquiry:

“There is an association or an individual who carries the following ad in the daily newspapers, which reads:

‘Are you burdened with debts and money worries? Our plan secures relief.

……… Adjustment Company, Inc.’

Persons who owe several store accounts and other debts, answer the above ad and go to the place of business designated in the advertisement, where they are told if they will give the concern a list of all of their creditors and agree to pay them a fee on all of their debts, that the concern will adjust their debts with their creditors and make an arrangement so the debtor can pay one check to the Adjustment Company and the Adjustment Company will prorate it among the creditors.

After such agreement is made with the debtor, without notice to the creditors, the Adjustment Company takes an assignment of the debtor’s wages in some cases, and in some cases they do not take an assignment of the debtor’s wages. Where an assignment is taken, it is filed with the employer and the employer sends the pay check to the Adjustment Company. The Adjustment Company deducts its fee and then pays back to the debtor a certain portion of his check for his own expenses and distributes the balance among the debtor’s creditors.

The Adjustment Company gives the creditors no opportunity to decide whether they want the claim handled in that manner, and notifies the creditors if they do not want the money in that manner, that they will have to wait until all of the rest of the debts are paid.

Q. Is not the plan outlined practicing law?

Q. If it is practicing law, would it not be unethical for an attorney to represent such a concern that gets its business through newspaper advertisements?”

In response:

Both questions are answered in the affirmative.

In Advisory opinion No. 11, the practice of law as used in Sections 46 and 48 of The State Bar Act is defined. The language of the court in Re Duncan, 83 S.C. 186, 65 S.E. 210, 24 L.R.A.,N.S., 750, is used in discussing what constitutes practicing law, wherein it is stated “it embraces the preparation of legal instruments of all kinds, and, in general, all advice to clients, and all action taken for them in matters connected with the law.”

Undoubtedly the “adjustment company” advises or counsels its “client” or the person on whose behalf it undertakes or proposes to adjust existing indebtedness just what it proposes to do. This service not only constitutes giving advice and counsel as to secular law, but is direct practice of law in that it contemplates or undertakes to compromise or adjust debts of another for which a fee is charged.

Attention is also called to the following cases in which the business engaged in by corporations was held to constitute the practice of law. In re Cooperative Law Co., 198 N.Y. 479, 92 N.E. 15, 32 L.R.A.,N.S., 55; In re Associated Lawyers Co., 134 App.Div. 350, 119 N.Y.S. 77; Buxton v. Lietz, Mun.Ct., 136 N.Y.S. 829; Meisel & Co. v. National Jewelers Board of Trade, 90 Misc. 19, 152 N.Y.S. 913.

A lawyer who handles the business of such an adjustment company, is in effect, a partner in soliciting business, and is aiding a lay agency in the practice of law. Meguire v. Corwine, 101 U.S. 108, 25 L.Ed. 899; Alpers v. Hunt, 86 Cal. 78, 24 P. 846, 9 L.R.A. 483; Midland Credit Adjustment Co. v. Donnelley, 219 Ill.App. 271; People ex rel. v. Jadrich, 320 Ill. 344, 151 N.E. 241; Holland v. Sheehan, 108 Minn. 362, 122 N.W. 1, 23 L.R.A.,N.S., 510; Langdon v. Conlin, 67 Neb. 243, 93 N.W. 389, 60 L.R.A. 429; In re Shay, 133 App.Div. 547, 118 N.Y.S. 146; 196 N.Y. 530, 89 N.E. 1112; In re Newman, 172 App.Div. 173, 158 N.Y.S. 375; Matter of Clark, 108 App.Div, 150, 95 N.Y.S. 388; 184 N.Y. 222, 77 N.E. 1.