Can an attorney who takes default judgments on accounts referred by a collection agency be paid a flat hourly rate by the agency, with collected attorney's fees routed through the agency's trust account?
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This page answers the general question as of 1985. Ezel answers yours: whether it's allowed on your facts, under the current rules of professional conduct in your state, with citations.
Plain-English summary
The inquiry described a collection company, principally handling consumer debts including hospital, medical, and utility bills, that referred uncollectible accounts to an attorney once it had verified the debtor's employment or assets. The collection company prepared the civil warrant for filing in General Sessions Court, listing the creditor (not the collection agency) as plaintiff and the attorney as plaintiff's attorney; the attorney appeared and took default judgments, contacting the creditor-client directly only on contested matters. The collection agency paid the attorney a flat hourly rate, and any attorney's-fee awards were collected by the agency, deposited in a separate trust account, and remitted to the attorney monthly in full; the agency also handled garnishment and follow-up on most accounts, referring problem accounts directly to the attorney.
The opinion stated the governing principle that a lawyer's professional services should not be controlled or exploited by any lay agency, personal or corporate, that intervenes between the lawyer and client, and that a lawyer should avoid relations that direct the lawyer's duties by or in the interest of an intermediary, keeping the relationship to the client personal and the responsibility direct. Applying that principle, the opinion found no impropriety in the attorney maintaining an attorney-client relationship with the creditor through the collection agency, where the agency acts as the creditor-client's agent in referring the matter. But the opinion applied Disciplinary Rule 3-102, which prohibits a lawyer from dividing a legal fee with a non-lawyer, and Disciplinary Rule 5-107(A)(1), which prohibits a lawyer from accepting compensation for legal services from anyone other than the client, concluding the attorney must not share or divide the attorney's fee with the collection agency. The opinion declined to resolve whether the collection agency's own activities constitute the unauthorized practice of law, noting that question was not necessary to decide the fee-sharing issue, and pointed to Tennessee Formal Ethics Opinion 83-F-44(a) for the general framework on whether specific non-lawyer services constitute the practice of law.
Currency note
This opinion was issued in 1985, before Tennessee's adoption of the 2003 Rules of Professional Conduct, which replaced the former Code of Professional Responsibility. 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 attorney handle a creditor's debt-collection lawsuits through a collection agency without ever speaking directly to the creditor?
A: Yes, on these facts. The opinion found no impropriety in the attorney maintaining the attorney-client relationship with the creditor through the collection agency, since the agency acts as the creditor's agent.
Q: Can the attorney share the collected attorney's fees with the collection agency that referred the accounts?
A: No. Disciplinary Rule 3-102 prohibits dividing a legal fee with a non-lawyer, and DR 5-107(A)(1) prohibits accepting compensation for legal services from anyone other than the client; the opinion held the attorney must not share the fee with the collection agency.
Q: Does the opinion decide whether the collection agency itself is engaged in the unauthorized practice of law?
A: No. The opinion expressly declined to reach that question, since the fee-sharing analysis resolved the inquiry, and pointed to Formal Ethics Opinion 83-F-44(a) for the general framework on non-lawyer services and the practice of law.
Background and rules framework
The opinion applied Disciplinary Rule 3-102 (no fee division with a non-lawyer) and Disciplinary Rule 5-107(A)(1) (no compensation for legal services from a non-client) of the Code of Professional Responsibility. The modern correlates are Model Rule 5.4 (professional independence of a lawyer; fee-sharing with nonlawyers) and Model Rule 1.8 (conflict-of-interest rules including third-party compensation), cited here as navigational cross-references rather than rules the opinion itself applied.
Citations and references
Other opinions cited:
- Tennessee Formal Ethics Opinion 83-F-44(a), framework for whether non-lawyer services constitute the practice of law
See also
- AL Ethics Op. 1993-20: Rule 5.4 Prohibits Fee-Splitting With Non-Lawyer, but Lawyer May Pay a Non-Lawyer for Services Rendered to the Lawyer
- Tenn. Ethics Op. 84-F-81: Fee Sharing With a Collection Agency (the original opinion this one refines on the agency's ongoing agent role)
Source
- Landing page: https://www.tbpr.org/ethic_opinions/85-f-81a
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
85-F-81(a) - Fee sharing with collection agency
BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME COURT OF TENNESSEE
FORMAL ETHICS OPINION 85-F-81(a)
Inquiry is made concerning the propriety of an attorney arranging to assist a collection agency in collection of delinquent accounts in a manner where the creditor has no contact with the attorney.
The collection company engages in the practice of collecting delinquent accounts, principally consumer debts. The collection company is incorporated and actively seeks new accounts for collection through advertising and personal contacts. A large volume of the accounts are hospital, medical or utility bills.
The typical procedure for the handling of an account is that the creditor turns the account over to the collection agency. The collection agency goes through its normal procedures of notice, followed by telephone calls and additional notices, in an attempt to collect the account. If the account proves to be uncollectible and the collection agency has verified employment or assets, or both, then the collector recommends suit. After suit is recommended, a check is made by the collection company to make sure that the collection company does not already have a judgment against the particular debtor, that the debtor has not filed bankruptcy, or if there is some other reason why suit should not be brought. At this point, a civil warrant is prepared by the collection company for filing in General Sessions Court. The civil warrant will list the attorney as the Plaintiff's attorney. The Plaintiff is the creditor and not the collection agency. The attorney appears on behalf of his client in the General Sessions Court and takes a default judgment. On contested matters, he contacts the client and arranges the handling of a suit. Unless the matter is contested, the creditor/client has no contact with the attorney.
The collection agency pays the attorney a flat hourly rate for his services. Any awards of attorney's fees are collected by the collection agency, placed in a separate trust account and remitted monthly to the attorney in full. The garnishment and follow-up procedures on the collection of most accounts are handled by the collection agency. On any accounts where there are any problems, they are referred directly to the attorney.
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 tend to direct the performance of his duties by or in the interest of any intermediary. A lawyer's relation to his client should be personal and the responsibility should be direct to the client.
When a collection matter is referred by a collection agency, there is no impropriety in an attorney maintaining an attorney-client relationship with the creditor through the collection agency in instances wherein the collection agency is acting as agent of the client-creditor.
Disciplinary Rule 3-102 prohibits a lawyer from dividing a legal fee with a non-lawyer and Disciplinary Rule 5-107(A)(1) prohibits a lawyer from accepting compensation for his legal services from one other than his client. Therefore, the attorney must not share or divide his attorney fee with the collection agency.
The matters of unauthorized practice of law by the non-lawyer collection agency are not determined herein since the above matters are determinative of the entire matter. For a discussion of whether certain specific services by a non-lawyer constitute the practice of law or performance of legal services, see Tennessee Formal Ethics Opinion 83-F-44(a).
This 4th day of March, 1985.
ETHICS COMMITTEE:
O. B. Hofstetter, Jr., Chairman
Jerry Colley
William R. Willis
APPROVED AND ADOPTED BY THE BOARD
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