Can a lawyer take collections work from a child-support collection agency that keeps a percentage of what is collected, and represent the custodial parent the agency refers?

Plain-English summary

A collection agency (the "Acme Collection Group") was under contract with custodial parents to collect child-support arrearages from non-custodial parents, keeping roughly 25% of what it collected. The agency approached a law firm to be its lawyer, agreeing to negotiate a separate fee agreement for the firm's legal services and possibly to pay a retainer. The firm asked whether it could represent the agency as the direct agent of the custodial parent, and whether it could bring litigation on behalf of the agency and/or the custodial parent to recover the arrearage.

The Disciplinary Commission answered that the firm may represent the agency as the direct agent for the custodial parent, and, assuming an attorney-client employment agreement exists, may institute litigation on behalf of the agency and/or the custodial parent to recover the arrearage. The opinion framed the two real concerns as the possibility of solicitation and the opportunity to divide a fee with a nonlawyer. Under Rule 5.4(a), a lawyer or law firm shall not share legal fees with a nonlawyer; the Comment expresses the traditional limits that protect the lawyer's professional independence. Because the firm's fee would be negotiated with and paid by the agency as the client, the firm could handle the assigned accounts as it would for any collections client, with the agency compensating it for services rendered rather than receiving a referral fee.

The opinion stressed the loyalty principle: if the firm truly represents the custodial parent, the agency may not control the firm's actions in a way that conflicts with the parent's best interests, and any such interference would violate the Rule. On solicitation, the Commission concluded it would be impermissible to compensate the agency for referring matters, because that would be payment to a third party for referrals, a form of solicitation barred by Rule 7.3. The agency could not serve as a solicitation agent to obtain custodial parents as clients, since the lawyer is prohibited from doing such solicitation directly. The opinion concluded the lawyer may not, from any source, compensate a nonlawyer for soliciting or referring clients, and may not divide an attorney's fee with any nonlawyer involved in the collection process.

Currency note

This opinion was issued in 1994, before the 2002 Ethics 2000 revisions to the ABA Model Rules of Professional Conduct and Alabama's subsequent amendments to its Rules of Professional Conduct. 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 lawyer represent a collection agency that keeps a percentage of child-support arrearages it collects?

A: Per the opinion, yes; the firm may represent the agency as the direct agent of the custodial parent and may institute litigation for the agency and/or the parent, assuming an attorney-client agreement exists.

Q: Can the lawyer be paid by the agency rather than the custodial parent?

A: Yes. The opinion concluded the agency may compensate the lawyer for services rendered to it, so long as that payment is for legal services and not a referral fee.

Q: Can the lawyer pay the agency for sending it custodial-parent clients?

A: No. The opinion concluded the lawyer may not, from any source, compensate a nonlawyer for soliciting or referring clients; doing so would be an impermissible form of solicitation under Rule 7.3.

Q: Can the lawyer split the legal fee with the agency?

A: No. The opinion concluded the lawyer may not divide an attorney's fee with any nonlawyer involved in the collection process, citing Rule 5.4(a).

Background and rules framework

The opinion interprets Rule 5.4(a) of the Alabama Rules of Professional Conduct (Model Rule 5.4, professional independence of a lawyer; prohibition on sharing legal fees with a nonlawyer) and Rule 7.3 (Model Rule 7.3, direct contact with prospective clients; the bar on solicitation for pecuniary gain). The Commission applied both to a fee arrangement in which a nonlawyer collection agency was the paying client and a potential referral source for the custodial parents.

Citations and references

Rules of Professional Conduct:

• Model Rule 5.4 / Ala. R. Prof. C. 5.4(a) (no sharing of legal fees with a nonlawyer)
• Model Rule 7.3 / Ala. R. Prof. C. 7.3 (direct contact with prospective clients; solicitation for pecuniary gain)

See also

• AL Ethics Op. 1992-13: fee splitting with a nonlawyer
• AL Ethics Op. 1993-20: Rule 5.4 fee-splitting prohibition

Source

• Landing page: https://www.alabar.org/office-of-general-counsel/formal-opinions/1994-03/
• Original PDF: https://www.alabar.org/assets/2019/02/RO-94-03.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

ETHICS OPINION

RO-94-03

Lawyer representing collections agency in pursuing child support arrearage for custodial parents must guard against fee-splitting with nonlawyer and possible solicitation by agency of prospective clients

QUESTION:

"Facts: Client, the Acme Collection Group as agent for the custodial parent, contacts law firm seeking representation. Client explains that the Acme Collection Group is under contract with the custodial parent to collect child support from the non-custodial parent which is currently in arrearage. The custodial parent and Acme Collection Group agree that the agency will receive twenty-five percent (25%) or some similar amount of the amount collected for Acme Collection Group's services. Client agrees to negotiate with law firm a separate contract and fee agreement for the firm's future representation and legal services for the Acme Collection Group. As an aside, the client may or may not pay a yearly or monthly retainer to the firm.

The client requests that the law firm begin channels of action to recover the arrearage amount. Such action could ultimately include litigation which would include the custodial parent and potentially the client as a party plaintiff.

Issue: Can the firm represent the client as the client is the direct agent for the custodial parent?

Issue: Can the firm institute litigation on behalf of the client and/or the custodial parent to recover the amount in arrearage?"

ANSWER ONE:

The firm may represent the client (Acme) as the client is the direct agent for the custodial parent.

ANSWER TWO:

The firm, assuming the existence of an attorney-client employment agreement, may institute litigation on behalf of the client and/or the custodial parent to recover the amount of child support arrearage.

DISCUSSION:

The two main concerns in addressing the issues posed in your inquiry deal with the possibility of solicitation and the opportunity for there to be a division of an attorney's fee with a nonlawyer.

Rule 5.4(a) of the Alabama Rules of Professional Conduct, states as follows:

"Rule 5.4 Professional Independence of a Lawyer

(a) A lawyer or law firm shall not share legal fees with a nonlawyer ...."

As noted in the Comment to this rule, its provisions express the traditional limitations on sharing fees. These limitations are to protect the lawyer's professional independence of judgment. Where someone other than the client pays the lawyer's fee or salary or recommends employment of a lawyer, that arrangement does not modify the lawyer's obligation to the client.

In the situation described in your question, your fee will be negotiated with and paid by Acme which you have stated is your client. Consequently, if the true client relationship is between you and Acme you can handle the accounts assigned to Acme just as any other collections agency. Acme would then be allowed to compensate you for services rendered to Acme rather than receiving a referral fee for possible soliciting and referring to you the custodial parent which is impermissible.

For the purposes of this opinion, we make no determination regarding the validity of the custodial parent employing you as their "agent" for collection of child support or whether for litigation purposes, the true client would be the custodial parent or Acme.

In view of the possible assignment of the claim of child support arrearage by the custodial parent to Acme, suit might possibly be required to be brought on behalf of the custodial parent. Barring some form of solicitation, you could likewise represent the custodial parent, even though your fee is paid by Acme, in pursuing whatever legal means are available to them for collection of the child support arrearage.

Finally, some consideration should be given to the loyalty concept which is the underlying basis for the Rules of Professional Conduct. If you truly represent the custodial parent rather than Acme, then Acme should not have any control over your actions so as to conflict with your pursuing remedies which are in the best interests of the custodial parent. Again, your loyalty would lie with the custodial parent, and any interference with your actions or attempts to control same by Acme would be a violation of the Rule.

With regard to solicitation, it would be impermissible for you to compensate Acme for referral of these matters to you as such could be deemed payment to a third party for referral of cases to you, in other words, a form of solicitation.

Rule 7.3, Alabama Rules of Professional Conduct, states as follows:

"Rule 7.3 Direct Contact with Prospective Clients

A lawyer may not solicit or 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."

Therefore, Acme could not merely serve as a solicitation agent for you in obtaining custodial parents as clients since you would be prohibited from doing this type of solicitation yourself.

In conclusion, you may not under any circumstances compensate, from any source, a nonlawyer for soliciting or referring clients to you. Further, you may not divide an attorney's fee with any nonlawyer involved in the collection process. Your loyalty would lie to that party with whom you have an attorney-client relationship and due consideration should be given to specifically defining such a relationship to ensure that all parties understand the role of each in this process.

RWN/vf

2/22/94