Can an in-house lawyer for a company send debt-collection letters on letterhead implying he is outside counsel, and what fee is reasonable?

Plain-English summary

An attorney licensed in South Carolina worked as a financial analyst for a major grocery chain and had no active legal practice. The chain asked him to help collect dishonored checks by sending a letter on attorney letterhead to those whose dishonored checks remained outstanding after 30 days, with no litigation contemplated beyond the letter; check-collection-department employees would screen calls about the letter. The attorney anticipated the letterhead would give the impression he was independent, outside counsel rather than an employee, and proposed $15,000 to $20,000 per year for the use of his name and responding to some calls. He asked whether the letterhead use was ethical and whether the fee was reasonable.

The committee said the proposed letterhead, designed to create the false impression that the matter had been referred to an attorney outside the grocery chain, violates Rule 7.1 (false or misleading communications) as incorporated into Rule 7.5(a) (a lawyer shall not use a firm name, letterhead, or designation that violates Rule 7.1). It noted the collection activities raised questions under the Fair Debt Collection Practices Act and the South Carolina Consumer Protection Code, on which it offered no opinion but cautioned the attorney to review, observing his duties under Rule 1.2 to advise the employer of legal limitations and not assist illegal conduct. If the chain is willing to have the attorney use his name with his correct address and affiliation, there would be no violation of Rules 7.1 and 7.5; but to the extent the check-collection employees engage in activities that could be construed as the practice of law (drafting legal documents, instituting, negotiating, or settling lawsuits), Rule 5.5 could be violated unless those non-lawyers have the supervision contemplated by Rule 5.3. Finally, if the letterhead is non-misleading and the employees' activities do not constitute unauthorized practice, the proposed fee may be evaluated for reasonableness under Rule 1.5(a)'s factors; the amounts involved and results obtained (1.5(a)(4)) could support a fee, but the committee stressed that the factors are conjunctive and a large recovery does not justify a large fee where little time or skill was required.

Currency note

This opinion was issued in 1991, before the South Carolina Bar's adoption of the 2005 revisions to the 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 an in-house lawyer use letterhead implying he is outside counsel to collect the employer's debts?

A: The committee said no; letterhead designed to falsely suggest the matter went to outside counsel violates Rule 7.1 as incorporated into Rule 7.5.

Q: Can the letterhead be used at all?

A: The committee said yes, if the attorney uses his name with his correct address and affiliation, so the communication is not misleading.

Q: What are the limits on the collection-department employees and the fee?

A: The committee said the employees must not engage in the unauthorized practice of law absent Rule 5.3 supervision, and the proposed fee must be reasonable under all of Rule 1.5(a)'s factors, not justified by the recovery alone.

Background and rules framework

The opinion interprets Rule 7.1 (false or misleading communications), Rule 7.5 (firm names and letterheads), Rule 5.5 (unauthorized practice) with Rule 5.3 (supervision of non-lawyers), and Rule 1.5 (reasonableness of fees), each corresponding to the like-numbered Model Rule, and references Rule 1.2's duties on advising about legal limits. The committee made the letterhead's accuracy and the non-lawyers' supervision the key conditions.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 7.1 / Model Rule 7.1: a communication must not be false or misleading.
• South Carolina RPC 7.5(a) / Model Rule 7.5: a lawyer shall not use a letterhead that violates Rule 7.1.
• South Carolina RPC 5.5 / Model Rule 5.5: a lawyer shall not assist a non-lawyer in the unauthorized practice of law.
• South Carolina RPC 1.5(a) / Model Rule 1.5: a fee must be reasonable under the listed factors.

See also

• SC Bar Ethics Op. 91-27: Advertising a "Workers Compensation Legal Clinic"
• SC Bar Ethics Op. 91-21: Law Firm as a Title Insurance Agency

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-91-18/

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 91-18

An attorney licensed in South Carolina works as a financial analyst for a major grocery chain. At present he does not have an active legal practice. He has been approached by an officer of the grocery chain to assist them in collecting dishonored checks by sending a letter on attorney letterhead to those having dishonored checks that remain outstanding after 30 days. It is not anticipated that he would handle any litigation with respect to the dishonored checks beyond sending this letter. Similar letters have been quite successful in the past and in a year this activity is anticipated to generate $930,000 for the grocery chain. The attorney would be assisted by employees in the check collection department in screening telephone calls concerning his letter. The attorney anticipates that the letterhead would give the impression that he was acting as independent, outside counsel rather than being an employee of the grocery chain. The attorney proposes to ask for $15,000 to $20,000 per year in additional compensation for the use of his name and for responding to some of the calls from those receiving these letters.

Questions:
A. Is the use of this letterhead by an attorney who is an employee of the company ethical?
B. Would a proposed fee of between $15,000 and $20,000 per year be reasonable?

Summary:
The proposed use of the letterhead that would imply that the attorney is independent outside counsel is a violation of Rule 7.1 and Rule 7.5 of the Rules of Professional Conduct. The activities proposed for the employees of the check collecting department of the grocery chain may violate Rule 5.4(c) and Rule 5.5(b). If the activities could be conducted in an ethical manner, the fee proposed should be considered in light of the amount of funds involved and the standards set forth in Rule of Professional Conduct 1.5.

Opinion:
Rule 7.1 states:

" A lawyer should not make a false or misleading communication about the lawyer or the lawyer services. A communication is false or misleading if:

a) Contains a material misrepresentation of fact or law, or omits a fact necessary to make a statement considered as a whole not materially misleading." This section is incorporated into Rule 7.5 and is applied to the use of letterheads. Section 7.5(a) provides "a lawyer shall not use a firm name, letterhead, or other professional designation that violate Rule 7.1." The clear purpose of the letterhead proposed by the facts in this case is to create a false impression that the matter has been referred to an attorney outside of the grocery chain for legal action. From the amounts collected in the past it appears that sending such letters is quite material in obtaining recoveries.

The type of collection activities proposed also raised questions with respect to the Fair Debt Collection Practices Act and the South Carolina Consumer Protection Code. This committee does not provide legal opinions on issues outside of the Rules of Professional Conduct and offers no opinion on these issues, but cautions that the attorney should fully review these statutes prior to allowing his name to be used. Under Rule 1.2(e) the attorney would have a responsibility to inform his employer concerning any relevant legal limitations on its conduct and under Rule 1.2(d) may not assist in any illegal behavior.

If the grocery chain is willing to have the attorney utilize his name and his correct address and affiliation, there would be no violation of Rule 7.1 and 7.5. However, to the extent that the employees working in the check collecting department were involved in activities that could be construed as the practice of law, a violation of Rule 5.5 could result. Caution should be exercised if these individuals are involved in drafting legal documents, instituting, negotiating, and settling lawsuits or other work which would constitute the unauthorized practice of law in the applicable jurisdiction. Rule 5.5 of the Rules of Professional Conduct states:

"a lawyer shall not ... assist a person who is not a member of the bar in the performance of activity that constitutes the unauthorized practice of law." Unless the assistants involved in such activities have the type of professional supervision contemplated by Rule 5.3, including the assurance that the conduct of the non-lawyer assistants is "compatible with the professional obligation of a lawyer", the attorney could be involved in a violation. This rule does not bar the attorney from providing professional advice or instruction to those non-lawyers which would assist them in the furtherance of their work.

If the letterhead is presented in a non-misleading fashion and activities of the check collection department do not violate the rules against the unauthorized practice of law, the fee proposed of $15,000 to $20,000 per year could be evaluated in light of the Rules of Professional Conduct for reasonableness. Rule 1.5(a) sets out a number of factors to be considered in terms of the reasonableness of the fee. Supporting such a fee would be Rule 1.5(a)(4) which factors in "(t)he amounts involved and the results obtained." The attorney should insure that his/her involvement would also comply with Rule 1.5(a)(1) which states: "A lawyer's fee shall be reasonable. The factors to be considered in determining the reasonableness of a fee include the following: (1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal services properly." The facts indicate that the attorney would be in some instances dealing by telephone with parties concerning these checks in addition to the company utilizing his name. Given the amount of funds involved, this level of activities could justify a fee; however, the attorney should review the situation in light of all eight factors set out in Rule 1.5. Rule 1.5 lists these factors conjunctively so the fee must be considered in light of all of them. For example, an activity which results in a large recovery does not necessarily justify a large fee if it required little or no investment of time or skill by the lawyer.