ETHICS OPINION 220
NUMBER 220 1924
Question. It is the general practice for attorneys to receive commercial collections from collection agencies, and to the account so received, there is usually attached a schedule of rates as follows: “Fees net to attorney, 10 percent on the first $300,” etc.
Undoubtedly the forwarding agency retains from the account remitted to it by the attorney an additional fee. In the opinion of the Committee does the collection of claims which are thus forwarded constitute the splitting of fees with the collection agency so as to render the acceptance of such claims improper professional conduct?
Answer. The Committee does not construe the question as implying that the lawyer shares his compensation for his services with the agency, nor that the lawyer agrees to pay the expenses of the collection, nor as dealing with improper methods of solicitation, nor with improper practices, which are not necessarily implied in the question. The Committee has heretofore in its answers to questions (especially 47, 121 136, 137, and 147) indicated precautions which it deems appropriate to prevent improper arrangements between lawyers and collection agencies that give the collection agency undue control over the lawyer or otherwise enable it to conduct the practice of law with his aid, or enable the lawyer to accomplish indirectly through the agency what he could not himself with propriety do. It does not appear from the question that any of these improper practices are any part of the contemplated arrangement between the lawyer and the agency. The mere fact that the agency is to be compensated as stated, does not in the opinion of the Committee constitute the splitting of professional fees nor render the acceptance of such claims Improper professional conduct.
In so answering, the Committee is not to be understood as modifying its views that the lawyer should consider that the creditor, and not the agency, is his client, and that his professional duty and relationship and responsibility is to the client and not to the agency, and that the agency is the agent of the client and not the principal nor the representative of the lawyer. Heretofore in its answer in Opinion 125, which indicated that the agency solicited the claim upon a contingent basis of 10 percent, and having failed in its own efforts then forwarded it to the attorney on a 7 percent net basis, the Committee under the specific circumstances there suggested, without giving categorical answers to the inquiries then made, disapproved the practices then suggested (which varied somewhat from that involved in the present inquiry), upon the ground that the receipt of the employment by the lawyer from the intermediary tends to destroy the lawyer’s sense of direct responsibility to his client the creditor, and the fixing of the compensation by the agency enables it to exploit the lawyer’s professional services for its own profit.
And, in its answer in Opinion 147, where it was one of the elements of the question that the agency recommended the employment of the lawyer, but made no charge for its own services and received no part of his fee the Committee, while not disapproving the recommendation of a lawyer by the agency when requested by its patron to do so, but without its solicitation, still deprecated the regular and habitual recommendation of the lawyer, as not differing in quality from any other organized solicitation of professional employment.
Subsequently with the concurrence of the Committee of the Association on the Unlawful Practice of the Law and with approval of the Board of Directors, this Committee said of collection agencies:
The Committee is fed to distinguish lawful trade organizations from collection agencies, in that trade organizations are a cooperative effort to unite the activities of those having a common object, in which all are alike interested, and in which they are uniting through the Association in employing legal services for the common end. In the opinion of the Committee the employment of a lawyer to promote this common interest as above indicated contains no element of inherent professional impropriety.
But, as usually conducted, a collection agency exists for its own profit, is an independent contractor, does not exist for cooperative purposes, and solicits business for its own ends, though it doubtless promotes the interests of its customers or it could not exist. When in behalf of a customer it acts as his agent and transmits a claim or employs a lawyer, such employment, in the interest or on behalf of its customer, is not, in the opinion of the Committee inherently improper, provided it is free from divided allegiance or inconsistent obligation, and provided it is not permitted to deprive the lawyer of the untrammeled relation of fidelity to the customer, which is of the essence of professional duty. Since the interests of the collection agency, unlike those of the trade organization, are not identical with the interests of those whom it undertakes to represent, its solicitation of business if for its own ends; while it may properly employ a lawyer as its own adviser, and to represent it, in the opinion of the Committee, the employment by it in its own behalf, of a lawyer to represent its customers, is the exploitation of his services for its profit, as an intermediary between client and attorney; and this the Committee has always regarded as not professionally proper (whether or not prohibited by statute); for the reason that the exploitation of the office of the lawyer for the profit of another is an abuse of its functions, the solicitation of business for the common advantage of the agency and the lawyer is solicitation for the lawyer, and the obligation to the agency should not be permitted to supersede or interfere with the primary obligation to its customer.
The same principles which apply to the conduct of the lawyer for the trade organization of course apply to the conduct of the lawyer for the collection agency.
The Committee does not construe the present questions as implying employment which it there reprehended, but rather as directly within the category which it then stated that it did not regard as inherently improper.
The opportunities for a violation of what the Committee regards as proper professional conduct, which arise from the relations between collection agencies and lawyers, are such, that in answering questions involving such relations it has necessarily drawn fine distinctions, always having in mind, however, the following matters to be avoided in such relations, for reasons which it has regarded as fundamentally sound and not merely arbitrary or purely conventional:
The division with the lay agency of fees for the lawyer’s services. See Opinion 47, II, III, IV; Opinion 136.
The charge by the agency for the lawyer’s service. See Opinion 47, II (b); Opinion 74.
The guaranty by the agency of the lawyer’s honesty or efficiency. See Opinion 47, II(c).
The solicitation by the agency of the employment of its attorney. See Opinion 47, II, IV (a).
Compensation of the agency by the lawyer for its solicitation of claims for him. See Opinion 47. IV (c).
Furnishing such compensation in disguise by the lawyer charging its patrons less than his other clients for similar services, in order that it may be paid. See Opinion 74.
A partnership between the lawyer and the agency involving the rendition of legal services by him. See Opinion 98.
The receipt by the lawyer of compensation from the agency as its employee, for his professional services to its patrons, See Opinion 121.
The offer of the lawyer’s services by the agency to its patrons. See Opinion 136.
The practice of law by the agency. See Opinion 136.
The use of an officer of the agency as a cloak to enable the lawyer to do what he could not otherwise properly do. See Opinion 137.
The habitual recommendation of the lawyer by the agency, so as to amount to systematic solicitation for him. See Opinion 147.
The Committee sees no reason to modify any of these views, and it does not regard its categorical answer above given, as inconsistent therewith, it recognizes that a properly conducted collection agency, not only has a legitimate right to exist, but that it is a useful aid to the mercantile community.