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Advisory Opinion 49

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State Disciplinary Board
Advisory Opinion No. 49
July 26, 1985

Lawyer's Use of a Lay Collection Agency to Collect Overdue Accounts for Legal Services

Pursuant to the provisions of Rule 4-223 of the Rules and Regulations for the Organization and Government of the State Bar of Georgia (219 Ga. 873, as amended), the State Disciplinary Board of the State Bar of Georgia, after a proper request for such, renders its opinion concerning the proper interpretation of the code of Professional Responsibility of the State Bar of Georgia.

Facts: Lawyer L has represented a number of clients whose cases have been completed. The fees in these cases have not been fully paid. Lawyer L has on a monthly basis submitted bills to the clients requesting payment. After thirty (30) days, Lawyer L has sent a letter demanding that immediate payment be made or that arrangements for weekly payments be made. There is no effort to pay in full or to make payments by Client C.

When the account is sixty (60) days old, Lawyer L desires to turn the unpaid bill of Client C over to a commercial collection agency for collection of the account on a contingency fee basis. The commercial collection agency will be calling the client and demanding payment and failing voluntary payment, will employ Georgia counsel at their expenses to file a lawsuit to collect the account. The fee is 45% for accounts less than or equal to 120 days delinquent and 50% for accounts over 120 days delinquent.

Question Presented: May Lawyer L ethically retain the collection agency on the terms stated?

Opinion: The aspirational guidance of EC 2-23 suggest that "[a] lawyer should be zealous in his efforts to avoid controversies over fees with clients and should attempt to resolve amicably any differences on the subject." Referral to a collection agency, however, much like filing suit against one's client, is a measure of last resort and should be undertaken only after the lawyer is sure that all reasonable alternatives have been pursued, including an offer by the lawyer to voluntarily submit the matter to the Fee Arbitration Program sponsored by the State Bar. See Part IV--Arbitration of Fee Disputes--Rules and Regulations for the Organization and Government of the State Bar of Georgia. Unfortunately, the good faith efforts of an attorney are not always successful, and, this Board recognizes that on occasion, a client will absolutely refuse to pay an attorney's bill despite all reasonable attempts at compromise. Under such circumstances, its would appear to be unfair to deprive an attorney of a lawful means available to other professions and businesses through which compensation properly earned can be collected. While the Board is of the opinion that the proposed arrangement is ethically permissible, discussion of certain additional considerations is required.

Since a client's non-payment often stems from a belief that the lawyer's bill is excessive, a lawyer should first, before referral, satisfy himself that the unpaid bill is reasonable. In this regard, the guidelines of DR 2-106 are most instructive and should be carefully considered by the lawyer. It should also be pointed out that although it appears from these facts that Lawyer L has made a reasonable attempt to collect these overdue fees through his personal efforts before referral, an arbitrary deadline of 60 days past due may not, in all cases be appropriate. In reaching a decision of whether or not referral is appropriate, a lawyer should individually consider each case and not apply an arbitrary deadline for the sake of administrative efficiency. Where it is clear, however, the the client's refusal is due to willful indifference and not to an inability to pay or to circumstances beyond the client's control, and the lawyer is satisfied that the non-payment constitutes, in essence, a fraud or gross imposition by the client, then referral to a reputable collection agency is proper.

While Standard 28(b)(4) of Bar Rule 4-102 permits a lawyer to reveal "confidences and secrets necessary to establish or collect his fee", a lawyer should exercise this option with considerable caution. Specifically, Lawyer L should reveal to the collection agency only such minimal background information about the client as is absolutely necessary for the agency to properly perform its job. Additionally, just as with any of his employees, the lawyer needs to exercise reasonable care to insure that the agency employees disclose only such client confidences or secrets as are permitted under Standard 28 since a failure in this regard subjects the lawyer to potential disbarment under Standard 29 of Bar Rule 4-102.

Finally, brief clarification of a possible problem with fee splitting is necessary. With certain inapplicable exceptions, Standard 26 prohibits a lawyer from sharing legal fees with a non-lawyer. While the fees sought to be collected on behalf of Lawyer L by the collection agency represent legal fees earned by the lawyer, the fees have already been completely earned when referred and the collection agency has not participated in the actual earning of the fees in violation of the prohibition against a lawyer aiding the unauthorized practice of law. See Standard 24. Accordingly, the Board is of the opinion that under the given facts, the fees referred to the collection agency are more in the nature of accounts receivable, the splitting of which Standard 26 is not intended to prevent.

The Board finds support for its conclusion that provided the foregoing considerations are satisfied, the conduct in question is ethically proper in similar opinions issued by the following jurisdictions:

Opinion 82-24 of the Committee on Ethics of the Maryland Bar Association (1982);

Opinion 82-2 of the Ethics Committee of the State Bar of Arizona (1982);

Opinion 81-3 of the Ethics Committee of the Florida Bar (1981);

Opinion No. 225 of the Oregon State Bar (1972);

Opinion No. 20 of the Colorado Bar Association (1961).

1 Ga. L. 1946, p. 171 (Ga. Code Ann. §§ 9-306 through 9-411). 2 Ga. Code Ann § 26-1704 recodified as O.C.G.A. § 16-9-20.

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