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Syllabus
A lawyer who owns an interest in a collection agency and participates in its management may not conduct a law practice in the same offices as the collection agency.
A lawyer who owns an interest in a collection agency and handles its claims in court may not conduct a law practice in the same offices as the collection agency.
Facts
A lawyer has a financial interest in a corporation operating as a collection agency. He maintains a general law practice in the same offices as the corporation, which are located on the ground floor at the corner of a busy intersection in a large city. On the store-front windows appears the name "X Collection Agency," and underneath appears "John Doe, Attorney at Law." The corporation solicits business by various types of advertising and personal contact, taking delinquent accounts by assignment and endeavoring to collect them on a contingent-fee basis. Mr. Doe manages the collection business on behalf of the corporation. The corporation sends out collection letters on the attorney's letterhead. If it becomes necessary to sue on an account, Mr. Doe acts as attorney for the corporation, files the action, and represents the corporation in court.
Opinion
In the opinion of the Committee, Mr. Doe is in violation of the Canons of Professional Ethics.
Opinion 225 of the Committee on Professional Ethics of the American Bar Association is directly in point. There the question before the Committee was in three parts: first, where the lawyer participated in the management of the collection agency, but an outside lawyer was employed to handle claims in court; second, where the lawyer did not participate in the management, but did handle the claims in court; and third, where the lawyer did neither of these things, but did own an interest in the collection agency.
The ABA Committee was of the opinion that there was nothing improper about a lawyer's owning an interest in a collection agency, as in any other business, provided "the name of the lawyer is neither included in the name of the agency, placed on its stationery, nor included in its advertisements, and nothing is done to create the impression that the agency enjoys the benefit of the lawyer's advice and professional responsibility." But the ABA Committee held that in either of the first two instances, that is, where a practicing lawyer owns an interest in a collection agency and also participates in its management or handles its claims in court, the lawyer's conduct is unethical. The ABA Committee based its opinion on Canon 27, which prohibits solicitation of professional employment, but intimated that Canon 35 and Canon 47 might also be involved.
Your Committee agrees with the ABA Committee and holds that the conduct of Mr. Doe violates Canon 27. The collection agency would inevitably operate as a feeder for Mr. Doe's law practice. On this point, Opinion 57 of the ABA Committee is instructive. It states, in part:
It is not necessarily improper for an attorney to engage in a business; but impropriety arises when the business is of such a nature or is conducted in such a manner as to be inconsistent with the lawyer's duties as a member of the Bar. Such an inconsistency arises when the business is one that will readily lend itself as a means for procuring professional employment for him, is such that it can be used as a cloak for indirect solicitation on his behalf, or is of a nature that, if handled by a lawyer, would be regarded as the practice of law. To avoid such inconsistencies it is always desirable and usually necessary that the lawyer keep any business in which he is engaged entirely separate and apart from his practice of the law and he must, in any event, conduct it with due observance of the standards of conduct required of him as a lawyer. [See, also, In Re Rothman, 12 N.J. 528, 97 A.2d 621, 1953.]
The Committee is also of the opinion that Canon 35 is violated. The applicable language of this Canon is as follows:
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 direct the performance of his duties by or in the interest of such intermediary. A lawyer's relation to his client should be personal, and the responsibility should be direct to the client. . . .
Where a lawyer offices in the same quarters as a collection agency which he owns, manages, or has an interest in, and the functions and activities of the lawyer and the agency are so intermingled as in the above case, it is difficult to ascertain who is the lawyer's client. If the creditors who turn over the accounts for collection are his clients, clearly the corporation is an intervening agent in direct violation of the Canon. If the corporation is the client, the Canon is still violated, since the collection letters (and inevitably other collection procedures and advice of a legal or semi-legal nature) are handled and controlled at least in part by the corporation and its lay personnel. See ABA Opinion No. 68.
1995 Addendum
This Opinion was based upon the Canons of Professional Ethics, the predecessor to the Code of Professional Responsibility. The Colorado Rules of Professional Conduct became effective on January 1, 1993, replacing the Code of Professional Responsibility. While the language of the Rules is somewhat different from the Code and the Canons, the Ethics Committee considers this Opinion to continue to provide guidance to attorneys in this area. Attorneys are cautioned to review The Colorado Code of Professional Responsibility (found in the Colorado Ethics Handbook), to update the research contained in this Opinion and to conduct any independent research necessary.
Relevant provisions of the Colorado Rules of Professional Conduct, which should be examined together with this Opinion, are Rule 1.6 (regarding confidentiality); Rules 1.7(b), 1.8(a) and (f) (regarding conflicts of interest); Rule 2.1 (requiring a lawyer to use independent judgment); and Rules 7.1 through 7.3 (regarding communications concerning a lawyer's services, advertising and direct contact with prospective clients).
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