March 23, 1994
A lawyer may charge a contingent fee in collecting child support arrearages where the divorce case has been completed.
A lawyer operating a nonlaw business is not restricted in setting fees for services by ethics rules applicable to legal fees and legal services.
A lawyer/collections agent may not solicit legal employment in person or by telephone from a current or former collections customer unless the customer is also a current or former law client of the lawyer.
References: MRPC 1.2(b), 1.5(c) and (d), 1.7(b), 1.8(a), 5.5, 7.3; RI-28, RI-127, RI-135, RI-190; MCR 8.121(E) and (F).
A lawyer plans to own and operate a collection agency limited to the collection of child support arrearages. At the request of customers, the agency will attempt to locate non-custodial parents and encourage them to pay past due child support. The support will be paid directly to the Friend of the Court per court order or to the designated recipient. Customers will be asked to pay a minimal application fee and a percentage from any amount actually collected. The lawyer asks:
- If the business is conducted by the lawyer, is an attorney-client relationship formed between the lawyer and customers?
- If the business is conducted by the lawyer, does MRPC 1.5(d) prohibit the fee arrangement?
- May the lawyer draft documents and appear for customers in court actions if necessary?
Whether the proposed business constitutes a "law practice" or a "nonlaw business" is based upon facts and law beyond the scope of this Committee's jurisdiction. It is up to the inquirer, not this Committee, to determine whether a law practice will be formed which offers child support collection services, or whether a nonlaw collection business will be formed which will not offer legal services. Clearly, unless the organization is a law firm, legal services may not be offered or rendered. See, for example, MRPC 5.5; MCL 450.681. Once the inquirer has determined whether the business is to be a law practice or a nonlaw business, all communications regarding the nature of the business and the services available must comply with MRPC 7.1.
If the business is a law practice, then a lawyer/client relationship would be formed when custodial parents seek assistance and ethics rules apply. MRPC 1.5(d) states:
"A lawyer shall not enter into an arrangement for, charge, or collect a contingent fee in a domestic relations matter or in a criminal matter."
Although there is no commentary or ethics opinions defining "domestic relations matter," we note that the predecessor to MRPC 1.5(d), MCPR DR 2-106(C), prohibited contingent fees in "divorce" cases, and we therefore conclude that the Michigan Supreme Court, in adopting the language of MRPC 1.5(d) intended to broaden the prohibition. In RI-28 the Committee opined that a lawyer may charge a contingent fee to collect past due alimony, since the purposes of prohibiting contingent fees in domestic relations cases would not be subverted where the divorce case has been completed. Similarly, a lawyer may charge a contingent fee in an action to set aside the property settlement portion of a divorce decree previously entered based upon the fraud of the client's spouse, RI-127. This result is consistent with MCR 8.121(E), which states:
"An attorney must advise a client, before entering into a contingent fee arrangement, that attorneys may be employed under other fee arrangements in which the attorney is compensated for the reasonable value of the services performed, such as on an hourly or per diem basis. The method of compensation used by an individual attorney remains the attorney's option, and this rule does not require an attorney to accept compensation in a manner other than that chosen by the attorney."
Thus, a lawyer may charge a contingent fee in collecting child support arrearages where the divorce case has been completed. The arrangement must be in writing pursuant to MRPC 1.5(c) and MCR 8.121(F).
Do the same restrictions apply if the lawyer is operating a nonlaw business for the collection of past due child support? If the business does not offer legal services, the restrictions of MRPC 1.5 do not apply since there are no "clients," and a "lawyer" is not entering into the payment arrangement.
Pursuant to MRPC 1.2(b), a lawyer and client may limit the objectives of the representation. Pursuant to MRPC 1.4, a lawyer must provide the client with sufficient information for the client to make informed decisions about the representation. If the lawyer and client have initially limited the representation to collections, and the lawyer and client later agree to expand the representation to court proceedings, the lawyer may continue to represent the client on the expanded matters as long as other ethics rules are followed, e.g., conflicts of interest, confidentiality.
If the inquirer is operating a nonlaw business and determines that a customer needs legal assistance, the inquirer may not deliver those legal services directly to the customer as a service of the nonlaw business without violating regulations concerning the unauthorized practice of law. If the lawyer maintained a separate law practice while operating the nonlaw business, the lawyer might be able to represent a customer of the lawyer's nonlaw business, as long as the provisions of MRPC 1.7(b), 1.8(a) and 7.3 are followed. See RI-135, a lawyer/insurance agent may not solicit legal employment in person or by telephone from a current or former insurance customer unless the insurance customer is also a current or former law client of the lawyer; RI-190, a lawyer may accept referrals from a nonlaw business owned by the lawyer, provided that the lawyer's interest in the nonlaw business is disclosed to the client, the legal services are not part of the contract with the nonlaw business, and the lawyer exercises independent professional judgment regarding whether to represent the customer and what legal services the customer should have, without being influenced by whatever the nonlaw business has recommended to the customer.