OPINION 417
April 1984

Question Presented

  1. May an attorney represent a collection agency and share in the fees paid to the collection agency by the creditor?
  2. May an attorney own a share of a collection agency if the attorney's client also owns a share of the agency? May the attorney continue to accept employment by the agency or its creditor clients?

Discussion

As to Question One, the Texas Code of Professional Responsibility does not prohibit an attorney from accepting employment by a collection agency provided several conditions are met.

First, any amounts charged the creditor for legal services rendered must not be divided in any way with the collection agency. Such a division of fees with a non-lawyer is expressly prohibited by DR 3-102(A). There is no exception made in that Disciplinary Rule for the collection agency. Therefore, all amounts charged to the creditor by the agency for legal services must be passed on to the attorney. The agency merely functions as a conduit with regard to these fees.

Second, in accordance with DR 5-107(B), the attorney cannot permit the agency to regulate or direct the attorney's performance of legal services on behalf of the client creditor.

Third, if the attorney is compensated by the agency in its own behalf, or if the agency is obligated to compensate the attorney regardless of whether payment is received from the creditor, the attorney would then be aiding a non-lawyer in the unauthorized practice of law. The agency, in effect, would be accepting compensation from the creditor for the rendering of legal services. The attorney's participation in such an instance would therefore violate DR 3-101(A).

A similar conclusion concerning this same question was reached in ABA Informal Opinion 735 (May 19, 1964). The present Texas Code of Professional Responsibility is substantially in agreement with the Canons on which that opinion relies.

As to Question Two, Texas Ethics Opinion 92 (November, 1953) expressly permits the attorney to participate in the collection agency. The agency is a legitimate business activity; nothing in the present Code of Professional Responsibility would alter this conclusion.

Nevertheless, the situation is more complicated when the attorney's client also owns a share in the same agency. DR 5-104(A) prohibits an attorney from entering into a business transaction with the client if the attorney and the client would have differing interests therein or if the client expects the attorney to exercise his professional judgment therein for the protection of the client. The interests involved here would not necessarily be differing, yet there may be some expectation that the attorney will act to protect the client in the conduct of the business. In such a situation, EC 5-3 suggests that there be full disclosure by the attorney and the consent of the client. Therefore, the attorney should discuss the situation with the client, in light of DR 5-104(A), and then participate in the business only with the client's consent.

Regarding the attorney's continued employment by the agency once he is financially interested in the agency, such continued employment would be ethically impermissible. ABA Formal Opinion 225 (July 12, 1941)

prohibits such an attorney from accepting employment through the agency as attorney for the creditor, if the agency solicits the collecting of claims (such solicitation is presumed here). DR 2-103(E) prohibits an attorney from knowingly assisting an organization that recommends, furnishes, or pays for legal services to promote the use of his services. The collection agency would be such an organization; the attorney, as co-owner of the organization, would be "assisting" it. It therefore remains unethical for an attorney with a financial interest in a collection agency to accept employment from or through that agency.

Conclusion

An attorney may accept employment from a collection agency provided: 1) he received all fees paid to the agency by the creditor for legal services rendered by the attorney; 2) he does not permit the agency to direct or interfere with his representation of the creditor; and 3) he acts as attorney for the creditor rather than the agency.

An attorney may have a financial interest in a collection agency. If a client also has an interest in the agency, the attorney should disclose the possible ramifications of both the attorney and client having an interest in the same concern, and should then participate only with the client's consent. Once the attorney has a financial interest in the agency, he may no longer accept employment by or through the agency. (6-0).