84-F-81 - Fee sharing with Collection agency

FORMAL ETHICS OPINION 84-F-81


Inquiry is made concerning the propriety of an attorney arranging to assist
a collection agency in collection of delinquent accounts in a manner where
the creditor has no contact with the attorney.


The collection company engages in the practice of collecting delinquent accounts,
principally consumer debts. The collection company is incorporated and actively seeks
new accounts for collection through advertising and personal contacts. A large volume of
the accounts are hospital, medical or utility bills.
The typical procedure for the handling of an account is that the creditor turns the account
over to the collection agency. The collection agency goes through its normal procedures
of notice, followed by telephone calls and additional notices, in an attempt to collect the
account. If the account proves to be uncollectible and the collection agency has verified
employment or assets, or both, then the collector recommends suit. After suit is
recommended, a check is made by the collection company to make sure that the
collection company does not already have a judgment against the particular debtor, that
the debtor has not filed bankruptcy, or if there is some other reason why suit should not
be brought. At this point, a civil warrant is prepared by the collection company for filing
in General Sessions Court. The civil warrant will list the attorney as the Plaintiff's
attorney. The Plaintiff is the creditor and not the collection agency. The attorney appears
on behalf of his client in the General Sessions Court and takes a default judgment. On
contested matters, he contacts the client and arranges the handling of a suit. Unless the
matter is contested, the creditor/client has no contact with the attorney.
The collection agency pays the attorney a flat hourly rate for his services. Any awards of
attorney's fees are collected by the collection agency, placed in a separate trust account
and remitted monthly to the attorney in full. The garnishment and follow-up procedures
on the collection of most accounts are handled by the collection agency. On any accounts
where there are any problems, they are referred directly to the attorney.
The professional services of a lawyer should not be controlled or exploited by any lay
agency, personal or corporate, which intervenes between client and lawyer. A lawyer's
responsibilities and qualifications are individual. He should avoid all relations which
tend to direct the performance of his duties by or in the interest of any intermediary. A
lawyer's relation to his client should be personal and
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the responsibility should be direct to the client.
When the law firm handles a collection matter referred by the agency, the attorney must
immediately establish a direct attorney-client relationship with the creditor and the
collection agency must have no further interest or activity in the matter.
Disciplinary Rule 3-102 prohibits a lawyer from dividing a legal fee with a non-lawyer
and Disciplinary Rule 5-107(A)(1) prohibits a lawyer from accepting compensation for
his legal services from one other than his client. Therefore, the attorney must not share or
divide his attorney fee with the collection agency.
The matters of unauthorized practice of law by the non-lawyer collection agency are not
determined herein since the above matters are determinative of the entire matter. For a
discussion of whether certain specific services by a non-lawyer constitute the practice of
law or performance of legal services, see Tennessee Formal Ethics Opinion 83-F-44(a).
This 17th day of October , 1984.
ETHICS COMMITTEE:
O. B. Hofstetter, Jr., Chairman
Jerry Colley
William R. Willis
APPROVED AND ADOPTED BY THE BOARD