Can a lawyer take a creditor's collection suit through a collection agency the creditor authorized to hire counsel on its behalf?

Plain-English summary

The committee considered whether an attorney may accept employment through a collection agency to file suit for a creditor, under an agency agreement in which the creditor authorized the agency to employ an attorney on its behalf. The committee answered yes, within the framework of established ABA principles.

The committee traced the attorney-collection agency relationship to a 1954 ABA "Statement of Principles," embodied in ABA Formal Opinion 294, which held that an attorney may accept a commercial claim from a lay forwarder acting at the creditor's request and represent the creditor in collection, provided there is no division of fees and the forwarder does not interpose itself to control the attorney. The committee reproduced the minimal conditions: the lay forwarder may be paid by the creditor for non-legal services separately from the attorney; the attorney is practicing law and his compensation is a legal fee; no fee may be divided with a layman (only with a lawyer who shares the work or responsibility); the attorney may not share a fee with the forwarder, though the forwarder may bill the creditor for non-legal services; and once the claim is forwarded, a direct attorney-client relationship exists between attorney and creditor, with the forwarder not controlling the attorney.

The committee explained these rules give practical effect to Canon 34 (then DR 3-102, fee division with laymen) and Canon 35 (then DR 5-107(B), no intermediary between lawyer and client). Citing ABA Informal Opinions 327 and 328, it noted that a creditor may designate a collection agency as its agent to employ an attorney on prescribed terms, so long as the attorney represents the creditor and not the bureau and the bureau gets no part of the fee; that the agency may suggest a lawyer's name where authorized, if the lawyer did not solicit the work; that the lawyer has a duty to get in direct touch with the creditor unless the creditor authorized the agency to handle the correspondence; and that the attorney may deduct his fee and remit the balance to the creditor unless the creditor authorized the agency to receive the net. Within that framework the committee found no ethical conflict.

Currency note

This opinion was issued in 1974 under Kentucky's former Code of Professional Responsibility (in effect 1971 to 1990), before the Kentucky Bar Association's 1990 adoption of the Rules of Professional Conduct (SCR 3.130) and the substantial 2009 revisions to those rules. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer take a collection suit forwarded by a collection agency?

A: Yes. The committee held, following ABA Formal Opinion 294, that a lawyer may accept a commercial claim from a lay forwarder acting at the creditor's request, provided there is no fee division and the forwarder does not control the attorney.

Q: Can the lawyer share his fee with the collection agency?

A: No. The committee held no fee may be divided with a layman; the agency may be paid by the creditor for non-legal services, but it may not receive any part of the legal fee.

Q: Who is the lawyer's client, the creditor or the agency?

A: The creditor. The committee held that once the claim is forwarded, a direct attorney-client relationship exists between the attorney and the creditor, and the agency may not control the attorney's activities.

Q: Can the collection agency suggest which lawyer to hire?

A: Yes, where authorized. Per ABA Informal Opinion 327, the committee noted the agency may suggest a lawyer's name so long as the lawyer did not solicit the employment.

Background and rules framework

The opinion applied DR 3-102 (no division of legal fees with a layman, from former Canon 34) and DR 5-107(B) (no lay intermediary controlling the lawyer, from former Canon 35) of the former Code of Professional Responsibility, as elaborated by the ABA's Statement of Principles on the attorney-collection agency relationship. The modern analogs are Model Rule 5.4 (professional independence and fee sharing with nonlawyers) and Model Rule 1.8(f) (compensation from one other than the client).

Citations and references

Rules of Professional Conduct:

• DR 3-102 (no division of legal fees with a layman); modern analog Model Rule 5.4(a)
• DR 5-107(B) (no lay intermediary controlling the lawyer); modern analogs Model Rules 5.4(c) and 1.8(f)

Other opinions cited:

• ABA Formal Opinion 294 (June 21, 1958) (an attorney may take a claim from a lay forwarder if no fee division and no forwarder control)
• ABA Informal Opinion 327 (a creditor may authorize an agency to employ an attorney; the agency may suggest a name if the work is unsolicited)
• ABA Informal Opinion 328 (the lawyer's duty to deal directly with the creditor and the handling of remittances)

See also

• KBA Ethics Op. E-90: Computerized Collection Letters
• KBA Ethics Op. E-89: Athlete-Agent Corporation
• KBA Ethics Op. E-123: Lawyer Part-Time Claims Adjusting

Source

• Landing page: https://kybar.org/For-Members/Rules-Ethics-Information/Ethics-Opinions
• Original PDF: https://kybar.org/Portals/0/Admin/Ethics%20Opinions/KBA_E-093.pdf

Original opinion text

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

KENTUCKY BAR ASSOCIATION
Ethics Opinion KBA E-93
Issued: March 1974

This opinion was decided under the Code of Professional Responsibility, which was in effect from 1971 to 1990. Lawyers should consult the current version of the Rules of Professional Conduct and Comments, SCR 3.130 (available at http://www.kybar.org), before relying on this opinion.

Question:

May an attorney ethically be employed by a collection agency to represent a creditor in the filing of suit on a claim under an agency agreement executed by the creditor authorizing the collection agency to employ an attorney in its behalf?

Answer:

Yes.

References:

DR 3-102, 5-107(B)

OPINION

An attorney inquires whether he may ethically accept employment through a collection agency to file suit on behalf of a creditor under an agency agreement executed by the creditor authorizing the collection agency to employ an attorney in its behalf.

The proper relationship between attorneys and collection agencies has received considerable attention because of the possibility of ethical conflict and abuse. In 1954 the Committee on Professional Ethics of the American Bar Association formulated a "Statement of Principles" governing the attorney-collection agency relationship. These principles were later embodied in ABA Formal Opinion 294 (dated June 21, 1958), where it was held that an attorney may accept a commercial claim from a lay forwarder acting at the request of the creditor and represent the creditor in effecting collection, provided (1) there is no division of fees and (2) the forwarder does not interpose itself as an intermediary to control the activities of the attorney. The following were said to be minimal conditions in the handling of claims by attorney and agency:

(1) The lay forwarder may receive payment from the creditor for non-legal services, separate and apart from the services rendered by the attorney.

(2) In performing any phase of collection work, the attorney is practicing law, and his compensation is a legal fee.

(3) No division of fees with a layman is proper. Legal fees may be divided only with another lawyer who shares the work or responsibility.

(4) The attorney may not share a fee with the law forwarder, but the latter may collect directly from the creditor for non-legal services.

(5) Once a claim is forwarded to the attorney, the direct relation of attorney and client shall exist between the attorney and creditor, and the law forwarder shall not control the attorney's activities.

These rules were an attempt to give practical application to Canon 34 (now DR 3-102), relating to the division of fees with laymen, and Canon 35 (now DR 5-107(B)), forbidding injection of an intermediary between lawyer and client. Relying on these principles, the ABA Committee has said in ABA Informal Opinion 327 that there is no reason why a collection agency may not be properly designated by a creditor as his agent to employ an attorney on prescribed terms, so long as it is remembered that the attorney is representing the creditor and not the credit bureau and provided the bureau receives no portion of the lawyer's fee. It was also said to be proper, where authorized, for the collection agent to suggest a lawyer's name, so long as employment is unsolicited by the lawyer. Once a collection agency authorized to do so has retained a lawyer, the Committee has ruled (ABA Informal Opinion 328) that the lawyer has a duty to get in direct touch with the creditor, unless the creditor specifically authorizes the agency to conduct the correspondence and arrangement with the attorney as the creditor's agent. After collection of the account, said the Committee, the attorney may properly deduct the agreed fee and remit the balance directly to the creditor unless the latter has specifically authorized the agency to receive the net remittance, from which it could then deduct its agreed compensation.

The Ethics Committee has reviewed and fully subscribes to the principles discussed in the opinions of the ABA. Within the framework of these rules, we find no ethical conflict in the contemplated representation.

Note to Reader

This ethics opinion has been formally adopted by the Board of Governors of the Kentucky Bar Association under the provisions of Kentucky Supreme Court Rule 3.530 (or its predecessor rule). The Rule provides that formal opinions are advisory only.