Can a law firm take collection cases referred to it by a credit bureau that one of the firm's partners co-owns?

Plain-English summary

A law firm handling collection work asked whether it could take collection accounts connected to the XYZ Credit Bureau, where one of the firm's partners co-owned the bureau and took part in its management. The bureau, authorized by creditors to engage an attorney to sue after other collection means were exhausted, might refer matters to the firm directly, or creditors who had used the bureau might come to the firm, or creditors might pick the firm from a list the bureau maintained.

The Disciplinary Commission concluded the firm may not represent collection clients referred to it by the credit bureau in which a firm member holds an interest, whether the clients are referred directly or after the bureau first attempts collection. Disclosure of the partner's interest in the bureau and client consent do not remedy the solicitation problem the arrangement presents. The firm may, however, handle a matter the bureau previously worked if the creditor selects the firm from a list maintained by the bureau, provided the bureau in no way recommends the firm and the list contains enough firms to offer the client a meaningful choice.

The opinion explained that a lawyer may simultaneously practice law and run another business, and may refer his own clients to that business with full disclosure of his interest, but the converse is not true: the lawyer's non-legal business cannot refer customers to the lawyer, because doing so would circumvent the rules against direct in-person solicitation (the non-legal business is not itself barred from soliciting). It applied temporary DR 2-103, which barred a lawyer from soliciting or causing to be solicited professional employment where a significant motive is the lawyer's pecuniary gain, with "solicit" including in-person or telephone contact.

Currency note

This opinion was issued in 1987, under the former Alabama Code of Professional Responsibility (temporary DR 2-103) and before the Alabama State Bar's January 1, 1991 adoption of the Rules of Professional Conduct and the 2002 Ethics 2000 revisions to the ABA Model Rules. Solicitation is now governed by Rule 7.3, and a lawyer's law-related (ancillary) business by Rule 5.7. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a firm accept collection cases referred by a credit bureau a partner co-owns?

A: Per the opinion, no. The firm may not represent clients referred to it by a credit bureau in which a firm member holds an interest, whether the referral is direct or after the bureau first tries to collect.

Q: Does disclosing the partner's ownership and getting client consent fix the problem?

A: The opinion concluded it does not. Disclosure and consent do not obviate the solicitation danger, because the lawyer's non-legal business cannot funnel clients to the lawyer.

Q: Is there any way the firm can take bureau-connected matters?

A: Per the opinion, yes, if the creditor independently selects the firm from a list maintained by the bureau, provided the bureau makes no recommendation and the list has enough firms to give the client a meaningful choice.

Background and rules framework

The opinion interpreted temporary DR 2-103 of the former Alabama Code of Professional Responsibility, which prohibited a lawyer from soliciting or causing to be solicited professional employment where a significant motive was the lawyer's pecuniary gain (with "solicit" including in-person or telephone contact). Solicitation is now governed by Rule 7.3 and a lawyer's ancillary business by Rule 5.7.

Citations and references

Rules of Professional Conduct:

• Former Ala. Code of Prof. Resp. temporary DR 2-103 (no solicitation for pecuniary gain); now Model Rule 7.3
• Concept of a lawyer's law-related business now addressed by Model Rule 5.7

Other opinions cited:

• RO-86-15, RO-87-105, RO-87-31, RO-86-101 (a lawyer may engage in another business)
• RO-87-161 (dual professions; non-legal business may not refer to the law practice)

See also

• AL Ethics Op. 1987-161: dual professions, attorney and real-estate broker
• AL Ethics Op. 1990-85: selling a collections practice's files to a collection agency
• AL Ethics Op. 1994-03: a lawyer representing a collections agency pursuing child support

Source

• Landing page: https://www.alabar.org/office-of-general-counsel/formal-opinions/1987-158/
• Original PDF: https://www.alabar.org/assets/2019/02/RO-87-158.pdf

Original opinion text

ETHICS OPINION

RO-87-158

Referrals from credit bureau partially owned by attorney.

QUESTION:

"I am requesting an opinion as to whether or not this firm is prohibited by the canons of ethics or otherwise from handling collection accounts under the following facts:

1. This firm handles collection matters on a daily basis for many different clients.

2. The XYZ Credit Bureau on occasions has need of legal assistance in order to collect certain accounts which have been referred to it for collection. The XYZ Credit Bureau has been authorized by the creditors to authorize an attorney to file suit after other means of collecting the debt are exhausted.

3. Mr. John Doe, Jr., of this firm is connected with the XYZ Credit Bureau as a partner in the partnership which owns the Credit Bureau. He also takes part in management decisions regarding the operation of the XYZ Credit Bureau.

Considering the above, please respond to the following inquiries:

A. May this firm handle collection matters for third parties referred to it directly by the XYZ Credit Bureau?

B. May this firm handle collection matters directly referred to it from creditors who have previously used the Credit Bureau to attempt to collect the debt?

C. May this firm handle collection matters which the Credit Bureau previously tried to collect if the creditor selected this firm from a list maintained by the Credit Bureau of attorneys who handle collection matters?

D. Does it affect your answer to any of the above questions that the creditor/client is aware that John Doe, Jr. is a member of this firm and a partner in the Credit Bureau?

If your answer to any of the above is in the negative, please cite the particular canon or other prohibition against such."

ANSWER:

Your law firm may not represent collection clients referred to it by a credit bureau in which a member of your firm maintains an interest. This is so whether the third parties are referred directly to your firm by the credit bureau or whether the credit bureau first attempts to collect the debt on behalf of the clients. Disclosure to the clients of the law partner's interest in the credit bureau does not remedy the solicitation problems presented by this arrangement. Your firm may handle collection matters handled by the credit bureau if the creditor selects your firm from a list of firms maintained by the credit bureau, provided that the bureau in no way recommends your employment and further provided that the list contains a sufficient number of firms to offer the client a meaningful choice of attorneys.

DISCUSSION:

It is well established that an attorney can simultaneously engage in the practice of law and in another business or profession. The Disciplinary Commission has issued ethics opinions permitting attorneys to engage in such varied professions as insurance sales, medicine, private investigation, engineering, mortgage brokerage, and others. See, e.g., RO-86-15, RO-87-105, RO-87-31, and RO-86-101. An attorney whose client is in need of services offered by the attorney's other business may ethically refer those clients to that business if full disclosure is made of the attorney's interest in the business. However, the converse is not true. The attorney's non-legal business cannot ethically refer customers to the attorney. To do so would circumvent the rules against direct in-person solicitation, as the attorney's non-legal business is not prohibited from directly soliciting customers. See RO-87-161. Temporary DR 2-103, provides that:

"A lawyer may not solicit nor cause to be solicited on his behalf professional employment from a prospective client, when a significant motive for the lawyer's doing so is the lawyer's pecuniary gain. The term 'solicit' includes contact in-person or by telephone.

Accordingly, your law firm cannot handle matters referred to it by the credit bureau in which one of your partners maintains an interest. This is so whether the credit bureau has attempted to collect the debts or not. Disclosure of the attorney's interest in the credit bureau and consent by the client would not obviate the dangers of solicitation and would therefore not avoid this prohibition. However, your firm may handle matters for clients of the credit bureau if those clients select your firm independently from a list maintained by the bureau without any sort of recommendation from the bureau. The list must contain a sufficient number of attorneys to permit the client a meaningful choice.

HLW/vf

2/3/88