March 31, 1989
It is unethical for a lawyer to participate in a referral plan where a collection agency solicits cases, determines when they are sent to the lawyer, selects the lawyer, advances litigation costs, and thereafter serves as intermediary between the lawyer and the creditor-client.
A lawyer may not contract with a collection agency to provide services on a percentage basis when the creditor-client is not advised lawyer services may be obtained on other than a contingency basis.
References: MRPC 1.6, 5.4(c); MCR 8.121(E); RI-17; C-54; CI-1139.
A lawyer asks about the propriety of a proposed relationship between the lawyer and a private, for profit, collection agency. The collection agency solicits accounts from local businesses and attempts to collect such accounts. If the collection process is unsuccessful, the accounts are referred to the lawyer selected by the collection agency. Referral materials simultaneously provided by the collection agency to the lawyer include the creditor's written authorization to sue (obtained by the collection agency), the creditor's file documents, and litigation expenses advanced to the lawyer by the collection agency.
The lawyer would commence suit in the name of the creditor-client. During litigation, the collection agency serves as intermediary between the lawyer and the creditor-client. If there is a recovery, the lawyer deducts a percentage as an attorney fee and forwards the balance to the creditor-client.
In certain limited circumstances, a lawyer may permit a lay organization to recommend the lawyer's employment to the organization's clients. CI-1139. However, under the proposed arrangement, the availability of the lawyer to the collection agency's clients may become an inducement to creditors to use that particular agency. A lawyer may not ethically accept employment by or through a lay intermediary knowing that the intermediary expects a profit from the lawyer's services. C-54.
MRPC 5.4(c) states:
"A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services."
Although the lawyer in the proposed arrangement is first contacted by the collection agency, the lawyer's actual client is the creditor. As long as the professional judgment of the lawyer is not abridged by the collection agency, and the client is free to use any lawyer of choice, referral of collection cases is not unethical. In this inquiry, the collection agency does far more than merely refer the collection account. The agency selects the lawyer, solicits written authorization to sue, advances the lawyer's litigation expenses, and continues to serve as intermediary between the lawyer and the creditor-client.
The collection agency's role as intermediary between lawyer and client continues the agency's involvement in each creditor-client's file. The agency's role as intermediary, coupled with its payment of the lawyer's litigation expenses, may result in the lawyer unethically disclosing to the agency the status of the client's case as it proceeds. When the lawyer receives a file, the lawyers duty to protect the confidences of the creditor-client should exclude use of the collection agency as an intermediary.
A further negative aspect of the proposed arrangement lies in the method by which the lawyer's fee is determined. In RI-17, the Committee opined that a marketing arrangement where participating lawyers are contractually obligated to accept cases on a contingency fee basis violates MCR 8.121(E). That court rule prohibits a lawyer from entering into a contingency fee arrangement without first advising the client a lawyer's services may be procured under other alternative fee arrangements. In the inquiry, there is no provision for the lawyer to advise the creditor-client.
In summary, the involvement of the collection agency in each creditor-client's file tends to interfere with the independent professional judgment of the lawyer and also tends to impair the ethical obligation of a lawyer to hold inviolate confidential information of the creditor-client. Moreover, the proposed method for determining the lawyer's fee fails to afford a client the opportunity for obtaining service on other than a contingency fee basis. Accordingly, the lawyer's participation in the arrangement as proposed would be ethically improper.