Ethics Docket No. 1995-14

MARYLAND STATE BAR ASSOCIATION, INC.

COMMITTEE ON ETHICS

ETHICS DOCKET NO. 1995-14

Attorneys; Ancillary Business-Roles in Collection Agency of stockholder, employee, or independent counsel

You inquire as to the propriety of the following scenarios in relation to the Maryland Rules of Professional Conduct.

1. Can an attorney own a collection agency, as the only stockholder, and simultaneously do legal work for the customers of the agency as an independent attorney. The attorney would not take a legal fee for the work down and his only means of compensation would be through his ownership of the corporate stock of the collection agency.

2. Can an attorney own a collection agency, as the only stockholder, and collect a fee for services rendered to the customers of the agency, as an independent attorney.

3. Can an attorney own a collection agency, as the only stockholder, and simultaneously be an employee of the agency who is paid a salary by the agency for services rendered, collect legal fees as part of judgments against debtors to the agency's customers (if legally able to do so), and then forfeit fees to the agency.

All the above scenarios have a common basis of the lawyer owning, as sole stockholder, a business entity which provides collection services. It is outside the scope of this Committee to determine whether those services amount to the practice of law or are non-legal services. This Committee is concerned that lawyers or law firms may attempt to circumvent the application of the Rules of Professional Conduct by the creation of an entity to do what the lawyer would be prohibited from doing directly.

It is not unethical, per se, for a lawyer to own or promote business, whether law related or not. However, this Committee has on many occasions highlighted ethics issues commonly arising in such situations. Those ethical issues include:

1.   risk of compromise of the lawyer's independent judgment,

2.   conflicts of interest,

3.   client confusion as to whether a professional, bound by ethical considerations, is serving a client,

4.   potential loss of confidentiality,

5.   compelling legal clients to use the business,

6.   impermissible feeding of the law practice by customers of the business.

In this regard, the Committee commends the attached extensive treatment of those considerations in Ethics Docket 92-13.

Also this Committee alerts you to the dictates of Rule 5.3 which imposes responsibilities regarding non-lawyer assistants.

Regarding the first scenario, the lawyer owing the collection agency and providing ""free legal services: for the collection agency's customers would violate Rule 1.5 and Rule 7.2{c} by ""donating"" the legal services to the customer for the obvious purpose of ""feeding"" the collection agency. Additionally, although you state the lawyer is not charging a fee we believe that a fee is ultimately received by the lawyer in the form of profits.

In the second scenario, this Committee finds nothing unethical ""per se"" when that lawyer collects fees for services to customers of the agency he owns, however, the ethical issues initially discussed relating to an ancillary law-related practice would have to be considered.

The third scenario would be as violative of Rule 1.5 and 7.2 {c} as the first scenario. Additionally, by ""forfeiting"" the legal fees collected as part of the judgment, the attorney would be violating Rule 5.4{a} by sharing a legal fee with the non-lawyer agency.