84-F-81 - Fee sharing with Collection agency




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 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.


O. B. Hofstetter, Jr., Chairman
Jerry Colley
William R. Willis