What are a government agency lawyer's ethical duties when advising collection staff about debts that may be unenforceable or collection methods that may be unfair?

Plain-English summary

A lawyer employed by a federal agency as legal advisor to a field office, which administered federal loan insurance and collected loans in default, asked how far he could ethically participate in collection activity when he had good reason to believe a debt was wholly or partly unenforceable, or that the employer's collection methods might be unfair or misleading. The committee discussed the inquiry at length and essentially adopted an enclosed memorandum prepared by the assigned committee member.

The throughline of the adopted analysis was RPC 2.1: the lawyer's role was advisor to the client, the agency, so the duty was to advise the client candidly about the facts and the law. That included advising that a statute of limitations is an affirmative defense which must be pled and proved, and which bars a judgment without erasing a just and due debt, and that debtors might have offset or other rights. The committee treated the lawyer's obligations as running to the client, not to the debtor.

The memorandum drew an ethical line at advising conduct the law did not permit. Where an administrative-offset statute was enforceable, the lawyer could advise staff that they "may" seek a debtor's signature on a repayment agreement. But where seizing a tax refund would not be lawful, threatening it could amount to extortion under the cited RCW provisions, and it would be unethical to advise that the threat was a permissible collection activity. Where a debt was barred not merely as a defense but as a matter of substantive right (an anti-deficiency statute), the lawyer should advise the staff to cease collection, offer refunds, and search for similar cases.

On withdrawal, the memorandum read RPC 1.15 to require the lawyer to withdraw if continuing would violate the rules, and to permit withdrawal where the client persisted in conduct the lawyer reasonably believed criminal or fraudulent or insisted on an objective the lawyer found repugnant or imprudent, carried out so as not to prejudice the client. On the one question the memorandum had not addressed (Question 1.D), the committee added that the lawyer could advise the collection staff that if the debtor agreed to repay the debt under the circumstances, there would be nothing improper in accepting the funds.

Currency note

This opinion was issued in 1986, before the 2006 revisions to the Washington Rules of Professional Conduct. The rules it interprets were later renumbered and amended; in particular, the declining-or-terminating-representation provisions then in RPC 1.15 correspond to Model Rule 1.16. 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 government lawyer advise collection staff to pursue a debt barred by the statute of limitations?

A: Per the opinion, where an administrative-offset statute was enforceable, the lawyer could advise staff that they "may" seek the debtor's signature on a repayment agreement, because the time-barred debt remained just and due even though a judgment could not be obtained.

Q: Can the lawyer advise threatening to seize a debtor's tax refund?

A: Not if the seizure would be unlawful. The adopted analysis was that threatening an action that could not lawfully be undertaken could amount to extortion under the cited RCW provisions, so it would be unethical to advise that the threat was a permissible collection activity.

Q: What must the lawyer do when a debt is unenforceable as a matter of substantive right, not just a defense?

A: Per the opinion, the lawyer should advise the staff to cease collection, offer refunds of amounts already collected, and make periodic searches to find and correct similar cases.

Q: Does the agency lawyer owe candor to the debtor or to the agency?

A: The opinion treated the lawyer as an advisor whose duty ran to the client, the agency; the lawyer was to advise the client candidly about the parties' rights and responsibilities but was generally not obligated to disclose to the debtor, and agency confidences were protected by RPC 1.6.

Q: When could the lawyer withdraw?

A: The adopted memorandum read RPC 1.15 to require withdrawal if continuing would violate the rules, and to permit withdrawal where the client persisted in conduct the lawyer reasonably believed criminal or fraudulent, carried out so as not to prejudice the client's rights and interests.

Background and rules framework

The opinion interprets several Washington Rules of Professional Conduct as they stood in 1986: RPC 2.1 (advisor; independent professional judgment and candid advice, corresponding to Model Rule 2.1), RPC 3.1 (meritorious claims, Model Rule 3.1), RPC 4.1 (truthfulness in statements to third persons, Model Rule 4.1), RPC 4.2 (communication with a represented person, Model Rule 4.2), RPC 4.4 (respect for the rights of third persons, Model Rule 4.4), RPC 1.6 (confidentiality, Model Rule 1.6), and RPC 1.15, which then governed declining or terminating representation, corresponding to Model Rule 1.16. The committee adopted a member's memorandum applying these rules to six debt-collection fact patterns, and it also drew on the older WSBA Opinions No. 26 (1953) and No. 58 (1959).

Citations and references

Rules of Professional Conduct:

• Washington RPC 2.1 (advisor), corresponding to Model Rule 2.1.
• Washington RPC 3.1 (meritorious claims), corresponding to Model Rule 3.1.
• Washington RPC 4.1 (truthfulness to third persons), corresponding to Model Rule 4.1.
• Washington RPC 4.2 (communication with a represented person), corresponding to Model Rule 4.2.
• Washington RPC 4.4 (respect for the rights of third persons), corresponding to Model Rule 4.4.
• Washington RPC 1.6 (confidentiality), corresponding to Model Rule 1.6.
• Washington RPC 1.15 (declining or terminating representation, as then numbered), corresponding to Model Rule 1.16.

Statutes:

• 31 U.S.C. § 3716 (administrative offset against a federal income tax refund).
• RCW 9A.04.110 and RCW 9A.56.130 (extortion).
• UCC §§ 9-504 and 9-507 (RCW 62A.9-507) (secured party's resale notice duties and the debtor's right to recover for noncompliance).
• CR 8 and FRCP 8 (pleading affirmative defenses).

Other opinions cited:

• WSBA Opinion No. 26 (August 1953): a lawyer should restrain a client from wrongdoing and withdraw if the client persists.
• WSBA Opinion No. 58 (December 1959): a lawyer confronted with a client who refuses a lawful duty must advise the client and withdraw if the client persists.

See also

• WSBA Ethics Op. 1002: a city attorney serving on a civic body adverse to the city
• WSBA Ethics Op. 1020: a prosecutor's advice to witnesses and defense interview access
• WSBA Ethics Op. 954: a lawyer unable to locate a client and withdrawal

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=166

Original opinion text

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

Advisory Opinion: 1055
Year Issued: 1986
RPC(s): RPC 1.6; 1.15; 2.1; 3.1; 4.1; 4.2; 4.4
Subject: Duties of attorney employed as legal advisor to federal agency field office which administers federal loan insurance and loans in default

The Committee discussed your inquiry at some length, and in particular reviewed the memorandum prepared by the Committee member to whom this matter was assigned. The Committee essentially adopted that memorandum, which is enclosed. The Committee noted that the memorandum did not address Question 1.D., but was of the opinion that the lawyer could advise the collection staff that if the debtor agreed to repay the debt under the circumstances, there would be nothing improper in accepting the funds.

INQUIRY OF WSBA Member:

RE: Duties of Attorney employed by a federal agency and assigned as legal advisor only to an agency field office which administers federal loan insurance and loans in default.

The general statement of the issue(s) presented is: "To what extent can a WSBA attorney ethically participate in collection activity when he has good reason to believe that (1) a debt is wholly or partially unenforceable, or (2) his employer’s collection methods may be unfair or misleading?"

Case No. 1: Debtor on a loan in default agrees to pay debt, apparently because of the agency’s threat to seize the debtor’s next federal income tax refund pursuant to the 10-year right of administrative off-set (31 USC S 3716), even though suit upon the debt would be barred under the applicable statute of limitations.

(1.) Rules of Professional Conduct:

(a.) RPC 2.1 states:

"In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client’s situation."

(b.) RPC 3.1 states:

"A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis for doing so that is not frivolous, which includes a good faith argument for an extension, modi-fication or reversal of existing law." (Remainder omitted].

(c.) RPC 4.1 states:

"In the course of representing a client a lawyer shall not knowingly:

"(a) Make a false statement of material fact or law to a third person; or "(b) Fail to disclose a material fact to a third person when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6."

(2.) Prior Opinions:

(a.) Opinion No. 26 (August, 1953). Indicates under the old cannons of ethics that a lawyer should use his best efforts to restrain and prevent his client from doing those things which the lawyer himself ought not to do and in the event the client persists in any such wrongdoing, the lawyer should terminate the relationship.

(b.) Opinion No. 58 (December, 1959). Under the prior cannons of ethics, this opinion advises that a lawyer confronted with a client who refuses to do his lawful duty or do his duty in a lawful manner, while obligated to preserve the confidences of his client, must advise the client to fulfill his obligations and in the event the client persists in the failure, the lawyer should withdraw from the matter, otherwise, at some point the lawyer becomes in pan delicto with his client.

Question. (A.) May the attorney, with good reason to believe the debt cannot be enforced by litigation, properly advise office staff to proceed with obtaining the debtors S signature [on a written agreement to repay the debt]?

Analysis: Under the provisions of RPC 2.1, it may be inappropriate for the lawyer to advise the staff to proceed with obtaining the debtor’s signature. The lawyer should candidly advise the client regarding the status of the law, including the fact that the statute of limitations is an affirmative defense which must be pled and proved in any litigation. CR 8 and FRCP 8. The fact that the Statute of Limitations has run does not negate the fact that the debt is just and due but only bars the creditor from obtaining a judgment to collect same.

Assuming that the federal statute allowing for administrative offset against the federal income tax refund is enforceable in this circumstance, the debtor may very well agree to repay the debt according to some acceptable terms in consideration for the Government’s agreement to refrain from seizing the debtor’s next income tax refund. Accordingly, there would be no violation of the Rules of Professional Conduct if the lawyer advised the office staff that it "may" proceed to obtain the debtor’s signature on the written repayment agreement.

Question. (B.) If the attorney cannot give such advice, can the attorney say, in substance, "I must withdraw from any involvement", or should his advice also be to the effect that, "office staff should not attempt any further action and should notify the debtor that the matter is closed"? More generally, in any collection matter in which an attorney feels obligated to withdraw, is it sufficient to say "I withdraw" or is there the added duty to advise the client to refrain from further collection attempts?

Analysis. See response to question "A." above. In addition, see RPC 1.15 which requires a lawyer to withdraw from representation of a client if the representation would result in a violation of the Rules of Professional Conduct or other law and permits withdrawal, unless otherwise ordered by a tribunal, if "...the client persists in a course of action involving the lawyer’s services which the lawyer reasonably believes is criminal or fraudulent", or the "... client insists upon pursuing an objective that the lawyer considers repugnant or imprudent". In connection with such withdrawal, RPC 1.15 requires the lawyer to withdraw in such manner that will not prejudice his client’s rights and interests.

With respect to the above question, where the attorney feels obliged to withdraw, pursuant to RPC 2.1, the lawyer should state, clearly, the reasons for the withdrawal as well as the legal rights and responsibilities of the client in connection with the proposed action, including such "moral, economic, social and political factors" as the lawyer deems relevant.

Question. (C.) Is the foregoing hypothetical altered significantly, from an ethics standpoint, by a letter in the file from the debtor, to the effect: "I know for a fact that this debt is legally unenforceable because of the statute of limitations. A legal aid attorney reviewed my case and told me so. I make too much money for legal aid to represent me, but I can’t afford to hire an attorney. I’m only going to sign a repayment agreement to save my tax refund. Legal aid also told me you can’t seize my refund, but the whole thing could be tied up for months and I can’t afford the delay. I feel like I’m being coerced."

Analysis. It would appear that no additional advice is required. The debtor has obviously had the advice of counsel. Although the debtor claims that the legal aid attorney indicated that the government could not seize the refund, we are assuming that federal law would permit same. As the use of an official governmental office to obtain property under threat of an action which could not lawfully be undertaken, could amount to extortion under RCW 9A.04.llo(25)(h) and RCW 9A.56.l30, if seizure of the tax refund is not lawful, it would be unethical to advise that threat thereof is a permissible collection activity.

Case No. 2: Debtor refuses to pay the agency as assignee of a private lender a deficiency remaining after repossession and resale of collateral (consumer goods) undertaken by a private lender pursuant to the Uniform Commercial Code Article 9. There is a disputed issue of fact regarding alleged lender assurances that there would be no further liability upon voluntary surrender of the collateral, which allegations are unsupported by any matters in the file assigned to the federal agency. The resale was undertaken without prior notice to the debtor and resulted in a sale price equal to 25% of the loan balance which was approximately half what the local agency staff believes the collateral should have been sold for.

Question. (A.) Can the attorney ethically advise filing suit for the entire deficiency amount?

Analysis: In addition to the Rules of Professional Conduct cited above, reference is made to Section 9-507 of the Uniform Commercial Code (RCW 62A.9-507) which provides the debtor with the right to recover from the secured party any loss caused by a failure to comply with the provisions of Part 5 of Article 9 of the Uniform Commercial Code. Said provision goes on and states:

"If the collateral is consumer goods, the debtor has a right to recover in any event an amount not less than the credit service charge plus 10% of the principal amount of the debt or the time price differential plus 10% of the cash price."

Before the attorney can ethically advise his client to file suit for the entire deficiency amount, some investigation should be made with regard to the debtor’s allegations that the private lender made assurances that there would be no deficiency upon voluntary surrender. RPC 3.1. Assuming that the private lender disputes making such assurances, the lawyer can ethically advise filing of a suit for a deficiency. However, since Section 9-504 requires notice prior to the sale, which, according to the comments to the Uniform Commercial Code must be calculated so that the debtor will have sufficient time to take appropriate steps to protect the debtor’s interest, it appears that Part 5 of Article 9 was violated and the debtor would be entitled to recover the minimum amount, whether or not the debtor is entitled to any other offset which might be proved. For purposes of the ethical analysis, it might be argued that the matter of "offset", given the statutory language in terms of "right to recover" should be plead as an affirmative defense and that suit could be commenced for the entire amount. However, the lawyer should probably advise the filing of suit less the penalty amount, since there appears to be no basis in fact or law for a good faith argument that the penalty provisions do not apply.

Question. (B.) Can the attorney ethically advise the local staff to continue sending dun letters? The typical letter will state that the deficiency amount is a just debt.

Analysis. Assuming that there is a good faith dispute concerning the issue of the lender’s assurances made in connection with the voluntary surrender of the collateral, and assuming that any dun letters reflect the deduction for the penalty referenced in "A." above, the lawyer may advise the local staff that it "may" continue sending dun letters. In connection therewith, we are assuming pursuant to RPC 2.1 that the lawyer has properly advised the agency concerning the factual investigation of the case and applicable law.

Question. (C.) Is question "B." dependent on the debtor’s awareness of rights?

Analysis. In connection with the answers to the previous questions, it has been assumed that the suit or dun letters will advise the debtor of the "mandatory" offset (although the statute is worded in terms of the debtor’s "right to recover"). If not and if suit or dun is issued for the full amount, PC 4.1(a) coupled with Opinion No. 26 suggest that the attorney advise the agency to properly inform the debtor.

Question. (D.) Assume that, for whatever reason, the debt is legally unenforceable. Can the attorney meet ethical standards by advising local staff in this manner? "You can’t tell the debtor that this debt must be paid as a legal obligation. You can, however, tell the debtor that the fact is that credit was obtained at government expense, and that the deficiency amount should be repaid".

Analysis. If one assumes that it is unethical to advise the debtor to repay the debt because it is "a legal obligation" there may be some question about a United States government agency telling a debtor that the amount of the deficiency "should be repaid" since it may very well imply the same thing coming from an official government source. Moreover, if the reasons why the debt is legally unenforceable are material to further efforts to collect the debt, it may be unethical to advise the creditor to proceed. However, as a general proposition, it would appear that there is nothing unethical about advising the client that he may request repayment of the loan unless such request would violate the provisions of an applicable statute, regulation, or judicial or governmental order.

Case No. 3: State law provides that no deficiency liability exists in the case of resale of certain repossessed consumer goods unless the lender (including the federal agency as assignee) brings suit within a certain period of time. In this case, the time limitation is not a matter of defense but rather a matter of substantive right. Due to inevitable delays, collec-tion files periodically fail to reach the local agency within the required time and the agency attorney has advised the local staff that loans in this category should be written off as uncollectible. Nevertheless, because of the mechanics of the system, collection letters have been sent in many cases and debtors have begun to make payments as a result.

Question. (A.) Suppose the attorney learns that a debtor is repaying in these circumstances. Is the attorney ethically obligated to advise that collection cease, or even that refunds be made of previously collected amounts? Should he advise the local staff to make periodic searches to uncover and correct additional cases of this kind?

Analysis. Giving a broad interpretation to RPC 2.1 and 4.1(a) in conjunction with Opinion No. 26, the lawyer should probably advise the local staff to cease collections, offer refunds and to make the periodic searches to uncover and correct additional cases of this kind.

Question. (B.) If the attorney has no particular obligation under question "A.", assume the debtor makes several payments, even writing to the office and saying "I know I should pay this", payments then cease. Can the attorney then ethically advise suit be brought for the amount unpaid?

Analysis. Unless the debtor knowingly and intentionally reaffirmed the debt in some manner as to make it legally collectible, the answer would be no under Rules 2.1 and 3.1.

Question. (C.) In the same situation, suppose the debtor, after making several payments, secures legal advice. The debtor’s attorney writes the agency attorney, demanding that collection efforts cease because of the referenced State statute. Can the agency attorney ethically respond in any of the following ways?

(1.) I am only an advisor to local staff and it is to them that you must direct your complaint.

Analysis. Yes, if that is, indeed, the nature of the relationship. However, under RPC 2.1, the attorney should advise the agency, candidly, regarding the facts and law as they pertain.

(2.) If your client was imprudent enough to resume payments, we are not obligated to consider it as anything other than a reaffirmation.

Analysis. If, under the applicable law, this position may be asserted without violating RPC 4.1(a), yes. However, assuming that the debt was in effect terminated, under the substantive provisions of the statute referenced, rather than merely barred, it would seem that there is no basis for establishing a legally enforceable "reaffirmation" and such a statement would violate the provisions of RPC 4.1(a).

(3.) I understand your complaint, but the local staff feel that your client should keep on paying.

Analysis. Same as "(1.)" above.

Question. (D.) Suppose the debtor agrees to pay, but the agency attorney learns of this agreement before the debtor actually signs anything or makes any payment. This situation is similar to the expired statute of limitations example, but with this difference: Expired statute may be a defense to litigation, while the anti—deficiency statute says flatly that no liability exists when the time frames have expired. Is the attorney ethi-cally obligated to advise that collection cease?

Analysis. Yes, see prior analysis. (Case 3(A)).

Question. (E.) Agency headquarters has it’s own legal staff, and the field attorney is not expected to advise headquarters. Is the agency attorney, nevertheless, ethically obligated to advise agency headquarters of the anti-deficiency statute, so that head-quarters computer should not automatically dun debtors in these circumstances?

Analysis. The answer may turn on evaluating who is the "client". In any event, if headquarters has it’s own attorney, the advice, if given, should probably be given to the legal staff for headquarters so as to avoid any concern about the application of RPC 4.2. Frankly, the issue of government lawyers, employed by the government, advising different agencies within the govern-ment which may or may not be advised by other lawyers, presents some issues unique to public practice to which RPC 4.2 maybe inapplicable. Assuming that the lawyer failed to give any such advice to the legal staff or agency headquarters, it is difficult to believe that a violation of the rules of professional conduct would have occurred, provided the local staff is properly advised regarding follow up actions.

Case No. 4: The attorney for the local agency field office learns that the agency has sent computer written dun letters to the debtor which misstate the law in two particulars and demand that the debtor make satisfactory arrangements with the local field office for payment of the debt.

Question. (A.) Is the agency attorney, presented with what he believes are misstatements of law, but in whose publication neither he nor the local staff took part, ethically required to attempt to correct matters?

Analysis. If the local staff is the attorney’s client, the attorney probably has a duty to advise the local staff concerning the misstatements of law and their obligations with regard thereto. As a practical matter, under RPC 2.1, the attorney should probably advise the attorneys for the headquarter staff in like manner. If the attorney is required to advise the local agency on steps to be taken in connection with such collection letters, with regard to the debtor, the attorney may be obligated under RPC 4.1 and 2.1 to advise the local agency to correctly state the law for the debtor. (Opinion No. 26).

Question. (B.) In the same situation, suppose the debt is legally unenforceable. After the letter in question is sent, the debtor begins to make payments, and this fact comes to the attention of the attorney. Is he ethically obligated to advise any corrective act ion?

Analysis. The lawyer should advise the client to consider corrective action under RPC 2.1.

Case No. 5: Local staff have a handbook covering collection procedures which includes various forms of dun letters, two of which deal with contacting a debtor’s employer. Such employer contacts are prohibited by State statute, but there is an exemp-tion for government debt collectors. Assume that, in fact, no State or federal laws would be violated by sending these letters.

Question. (A.)Is the agency attorney ethically required to advise local staff against sending collection letters calculated to cause embarrassment?

Analysis. RPC 4.4 states:

"In representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass, delay, or burden a third person, or use methods of obtaining evidence that violate the legal rights of such a person."

In this context, since it is legally permissible to contact the debtor’s employer, a specific exemption being provided under State law, and assuming that the purpose is to attempt to collect a just debt rather than merely embarrass the debtor-employee, the lawyer need not advise the local staff against sending the collection letter.

Question. (B.)Is the attorney ethically obligated to refrain from any personal involvement in a decision to send such letters?

Analysis. While there may be circumstances in which the lawyer may advise the client to do that which the lawyer cannot, Opinion No. 26, cited above, suggests that that is generally not the case. However, since the statute appears to permit the sending of such a letter, and since the letter is assumed to have a substantial purpose other than to embarrass the debtor (even though embarrassment is perhaps an acknowledged incident or purpose, as well), there appears to be no ethical reason why the attorney may not participate in the decision to send the letter.

Case No. 6: Suppose that three debts are clearly enforceable, but that just as clearly the debtors are entitled to partial offsets. In Case 1, there is an obvious offset of $500.00. In Case 2 there is an unliquidated amount, but one that can be approximated. In Case 3, there is an unliquidated amount that cannot be determined short of litigation. Assume that the files do not reflect any awareness by the debtors of offset rights, and the cases are referred to the agency attorney on issues unrelated to offset.

Question. (A.) Is the attorney obligated to advise local staff to take action in Cases 1 and 2? That is, to make a $500.00 credit in Case 1 and compute an approximate credit in Case 2?

Analysis. Under RPC 2.1, 4.1 and Opinion No. 26, the attorney is probably obligated to advise local staff to at least advise the debtor of the rights of offset and the material facts applicable thereto. With respect to Case 1, the attorney should probably advise the local staff to advise the debtor that the offset will be automatically applied and in Case #2, that the amount has been approximated for purposes of application or that it will be a matter for court determination if the debtor wishes to contest the matter.

Question. (B.) In Case 3, can the attorney properly advise the staff to continue collection efforts for the full amount? Is there any obligation to bring the matter of offset rights to the debtor’s attention? If there is no obligation to tell a debtor "you have a right to offset", is there any obligation to see to it that the debtor is placed in a position to obtain the facts? (For example, in the next collection letter, should the debtor be advised that he/she is entitled to copies of documents in the file?)

Analysis. Again, the attorney’s duties are to the client and he should advise in all candor what the client’s respective rights and responsibilities are. In dealing with governmental agencies, the agency power and authority is circumscribed by the statute or statutes which create and empower them. Accordingly, there may be some requirement that the governmental agency, itself, deal with citizens and debtors with extra candor in these matters. However, the attorney’s obligation is merely to advise the client with regard to same, since the attorney acts as an advisor only. Agency secrets or confidences (if these qualify) are protected by RPC 1.6. In all likelihood there is nothing confidential about the subject information but the attorney is not under a duty to disclose it to the debtor.

Question. (C.) In Case 1, suppose agency headquarters sends the letter threatening seizure of tax refunds, and that any seizure would be on the basis of the entire debt, without regard to offsets. The debtor has a right to challenge the validity or amount of the seizure. Is the agency attorney ethically responsible to see to it that agency headquarters, or even the debtor, is notified of this liquidated offset amount?

Analysis. Again, the agency attorney is obligated to advise his client with candor but probably not the debtor. Moreover, if the agency headquarters is represented by separate counsel, the agency attorneys communication with regard thereto should either be through the local staff or the headquarter’s attorneys. It is difficult to see what violation of the RPC would result from the attorney’s failure to notify the headquarter’s attorneys.