Opinion #62. Attorney Remitting Percentage of Collection Fee to Collection Agency

Issued by the Professional Ethics Commission

Date Issued: November 5, 1985

Question

Many collection agencies work with specific attorneys, and refer difficult collection cases to those attorneys for collection, with the client’s prior permission. Typically, a collection agency will provide in its contract with the client that if it collects the debt, a 40% commission will be retained. However, if the debt goes to an attorney for collection, the commission will be 50%. This higher commission is established with the knowledge that the attorney to whom the debt would be referred charges, for example, a 33% commission. Upon a debt being referred to an attorney by a collection agency on behalf of a client 32 M.R.S.A. § 576 requires the collection agency to bow out, the collection agency is expressly prohibited from interfering in the attorney‑client relationship that then exists between the attorney and the client. Specifically, the law requires the collection agency to conduct itself at all times in a manner consistent with the true relationship of attorney and client that then exists between the attorney and the creditor.

Assume the debt in question is $100. If the attorney collects it all, he is entitled to keep $33. Because the attorney has a working relationship with the collection agency, however, and knows that the contract the collection agency had with his client provided for a 50% commission if referred to an attorney, the attorney will sometimes remit only $50 to the client and pay the remaining $17 to the collection agency. Is this practice of splitting the legal fees with a non‑lawyer in violation of Rule 3.3(e)?

Discussion

Maine Bar Rule 3.3(e) provides that, with certain exceptions not applicable to this inquiry, lawyers “shall not share legal fees with a nonlawyer.” The Reporter’s Notes indicate that “the rule supports Rule 3.2(a),” which rule basically prohibits the unauthorized practice of law. Rule 3.3(e) is a direct descendant from the Code of Professional Responsibility’s Disciplinary Rule 3‑102. Ethical Consideration 3‑8 under the Code stated that “[s]ince a lawyer should not aid or encourage a layman to practice law, he should not practice law in association with a layman or otherwise share legal fees with a layman.”

American Bar Association Formal Opinion No. 180 recognized that there is a factual distinction between “sharing legal fees” and “sharing commissions,” between forwarder (collection agency) and receiver (attorney). The difference is whether or not the lay forwarder is being compensated for additional services (not of a legal nature) performed by it. If so, the Opinion held, then there is no violation of the proscription against sharing fees with non‑lawyers.

Similarly ABA Formal Opinion 294 stated in part that:

(a) It is recognized that the lay forwarder in performing a non‑legal service separate and apart from the legal services rendered by the receiving attorney, is entitled to be paid therefore by the creditor upon the basis of the service rendered by the forwarder, separate and apart from the legal services rendered by the receiving attorney.


(d) The receiving attorney shall not under any guise or form share his fee for legal services with a lay agency, personal or corporate, without prejudice, however, to the right of the lay forwarder to charge and collect from the creditor proper compensation for non‑legal services rendered by the lay forwarder which are separate and apart from the services performed by the receiving attorney.

See also, ABA Informal Opinion 735.

We see nothing inherently improper with the attorney deducting from the proceeds collected not only his fees but also the commission earned by the collection agency. The difficulty with any such situation comes in distinguishing whether there is in fact merely a payment to the collection agency of its independently earned commission or if the payment represents a “kickback” of part of the attorney’s fee. It is this latter possibility which the Bar Rules prohibit.[1]

In the example hypothesized, however, it is clear that the lawyer’s true “legal fee” is the lawyer’s own $33 which is not split with anyone. The $17 which the lawyer forwards to the collection agency is merely its commission authorized by the client.[2] So long as this distinction is kept clear we see no violation of Bar Rules 3.3(e).


Footnotes

[1] 32 M.R.S.A. § 576 also prohibits collection agencies from “[demanding] or [obtaining] in any manner a share of the compensation for services performed by a lawyer in collecting a claim.”

[2] Although the facts presented do not make the point explicit, we assume that the client has specifically authorized the attorney to forward its percentage fee directly to the collection agency.


Enduring Ethics Opinion