Can a lawyer be engaged by a commercial collection agency to sue the debtors of the agency's customers?

Plain-English summary

The Committee was asked whether an attorney may be engaged by a commercial collection agency to institute suit against the debtors of the agency's customers. Adopting an opinion of the New York County Lawyers Association (modified only to substitute New Jersey statutory citations), the Committee answered no.

The Committee reasoned that the engagement would necessarily involve the direction of the attorney's duties by, or in the interests of, an intermediary, violating Canon 35, which bars a lawyer from allowing his professional services to be controlled or exploited by a lay agency that intervenes between client and lawyer. The arrangement would also violate Canon 27, which forbids procuring business by indirection through "touters." The opinion added that where the collection agency's activities amount to the practice of law, an attorney lending his services would violate Canon 47 (aiding the unauthorized practice of law). It declined to opine on whether the agency's own activities violated N.J.S. 2A:170-78, 2A:170-83(b), and 2A:170-84.

The inquiry posed five variations (the agency operated by the attorney, by his wife, by his parent, sharing the attorney's office, or at a separate address). The Committee answered each of the five questions in the negative, noting that a close family relationship between the attorney and the agency's principals would only add to the impropriety by lessening the appearance of the attorney's independence.

Currency note

This opinion was issued in February 1964, before New Jersey's September 13, 1971 adoption of the Disciplinary Rules (Code of Professional Responsibility), and well before the 1984 Rules of Professional Conduct and all later revisions. It applied Canons 27, 35, and 47 of the former Canons of Professional Ethics. The questions of lay control of a lawyer's services and aiding the unauthorized practice of law are now addressed by RPC 5.4 and RPC 5.5. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.

Common questions

Q: Could a lawyer take an engagement from a commercial collection agency to sue the customers' debtors?

A: No. The Committee concluded it was improper because the engagement would let a lay intermediary direct the performance of the lawyer's duties, violating Canon 35.

Q: Did it matter whether the agency was run by the lawyer's spouse or parent, or shared the lawyer's office?

A: No. The Committee answered all five variations in the negative, and observed that a close family tie to the agency's principals only worsened the problem by reducing the appearance of the lawyer's independence.

Q: Did the opinion address whether the collection agency was practicing law unlawfully?

A: It expressed no opinion on whether the cited statutes were violated, but held that to the extent the agency's activities amounted to the unauthorized practice of law, the attorney would violate Canon 47 by lending his services.

Background and rules framework

The opinion applied Canon 27 (no procuring business by indirection), Canon 35 (no lay control or exploitation of a lawyer's services by an intervening intermediary), and Canon 47 (no aiding the unauthorized practice of law) of the former Canons of Professional Ethics. Those concerns now map to RPC 5.4 (professional independence of a lawyer) and RPC 5.5 (unauthorized practice of law).

Citations and references

Rules of Professional Conduct (as in effect at the time):

• Canon of Professional Ethics 27 (procuring business by indirection)
• Canon of Professional Ethics 35 (intermediaries between client and lawyer)
• Canon of Professional Ethics 47 (aiding unauthorized practice of law)

Statutes:

• N.J.S. 2A:170-78, 2A:170-83(b), 2A:170-84 (activities of collection agencies amounting to the practice of law)

Other opinions cited:

• N.Y. County Lawyers Ass'n, Committee on Professional Ethics opinion (86 N.J.L.J. 136, Mar. 7, 1963): adopted and modified by the Committee
• ABA Committee on Professional Ethics, Opinion 294 (1958)
• ABA Standing Committee on Unauthorized Practice, Statement of Principles in Reference to Collection Agencies (1937)

See also

• NJ ACPE Op. 338: Engagement by a Collection Agency to Sue Debtors
• NJ ACPE Op. 175: Credit-Card Collection Plan for Attorneys
• NJ ACPE Op. 259: Client Use of Lawyer Stationery for Collection Letters

Source

• Landing page: https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp17-1.html

Original opinion text

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

87 N.J.L.J. 113
February 20, 1964

OPINION 17

Collection Agencies

Inquiry has been made as to whether it is improper for an attorney to be engaged by a commercial collection agency for the purpose of instituting suit against debtors of the customers of such agency.

This inquiry closely parallels a question posed to the New York County Lawyers Association's Ethics Committee, whose opinion on said inquiry was published in the New Jersey Law Journal of March 7, 1963 (86 N.J.L.J. 136). This Committee approves of and herewith adopts the opinion of that Committee, modified merely to substitute appropriate New Jersey statutory citations in lieu of those of New York contained therein.

This opinion as modified reads as follows:

QUESTION:

It would be appreciated if you would furnish me with your opinion concerning whether an attorney's association with a commercial collection agency constitutes professional and thus ethical practice.

The principals of the collection agency will not advertise the fact that any particular attorney will represent them but will attempt to solicit business under a business name indicating the nature of the business and will attempt to collect sums due to their clients without legal aid.

1. May an attorney be so engaged as outlined above?
2. Would the arrangement as outlined above be ethical practice if the collection agency were operated by the wife of the attorney?
3. Would the arrangement as outlined above be considered ethical practice if the commercial collection agency were operated by the parent of the attorney?
4. Would the arrangement as outlined above be permissible if both the attorney's office and the collection agency's office were at the same address?
5. Would the arrangement as outlined above be permissible if the attorney's office and the collection agency's office were in different locations?

ANSWER:

In our opinion it would be improper for an attorney to be engaged by a commercial collection agency to institute suit against debtors of the customers of the agency. The engagement would necessarily involve the direction of the performance of the attorney's duties by or in the interests of an intermediary. As such it would clearly violate Canon 35 which provides that:

The professional services of a lawyer should not be controlled or exploited by any lay agency, personal or corporate, which intervenes between client and lawyer. A lawyer's responsibilities and qualifications are individual. He should avoid all relations which direct the performance of his duties by or in the interests of such intermediary. A lawyer's relation to his client should be personal and the responsibility should be direct to the client.

The contemplated practice as outlined in the question would also violate Canon 27 which declares it improper for an attorney to procure business by indirection through touters of any kind.

We express no opinion with respect to the application of [N.J.S. 2A:170-78, 2A:170-83(b), and 2A:-170-84] to the contemplated activities of the collection agency. These sections prohibit activities of collection agencies which amount to the practice of law.

However, to the extent that these sections may be violated, the attorney, in accepting the engagement as outlined, would be acting in violation of Canon 47, which provides that:

No lawyer shall permit his professional services, or his name, to be used in aid of, or to make possible, the unauthorized practice of law by any lay agency, personal or corporate.

The circumstances that the attorney here is closely related to the principals in the collection agency would seem to furnish a further instance of contemplated unprofessional conduct since it might operate to lessen the appearance of independence of the attorney from such principals.

Our answer, therefore, to each of the five numbered questions is in the negative.

Accordingly, this Committee is of the opinion that it would be improper for an attorney to be engaged by a commercial collection agency for the purpose of instituting suit against debtors of the customers of such agency.

Note: As a result of this Committee's conferences with the Chairman of the New Jersey State Bar Association's Section on Commercial Law, the attention of the Bar is directed to:

Exhibit B, Statement of Principles in Reference to Collection Agencies, issued May 4, 1937 by the American Bar Association's Standing Committee on Unauthorized Practice of the Law and representatives of collection agencies (62 American Bar Association Reports 786 (1937));

and to:

A.B.A., Committee on Professional Ethics, Opinion 294 (1958).

Proper ethical principles governing attorney and collection agency relations are set forth in the aforesaid Statement of Principles and Opinion.