Can a lawyer be a director of a company that buys up judgments at a discount and then has the lawyer's firm collect them?
Apply this to your situation
This page answers the general question as of 1977. Ezel answers yours: whether it's allowed on your facts, under the current New York Rules of Professional Conduct, with citations.
Plain-English summary
The committee was asked whether a lawyer may be a director of a corporation established to solicit and purchase assignments of judgments at a discount when it is intended that his law firm be retained to collect the judgments. It answered no.
Without passing on questions of law, the committee noted that Sections 488 and 489 of the Judiciary Law address aspects of the arrangement and generally prohibit attorneys, directly or through a corporate entity, from purchasing choses in action with the intent and purpose of causing suit to be brought on them. But even assuming the arrangement's legality for the sake of discussion, the committee found it improper for a lawyer to direct a corporation engaged in soliciting and buying judgments when his firm is intended to bring the collection proceedings.
The committee explained that a lawyer engaged in another occupation may not use it as a cloak for improper solicitation or as a means of obtaining legal work (N.Y. State 206 (1970)), and that it makes no ethical difference whether the solicitation is by the lawyer personally or through a corporation of which he is a director (N.Y. County 324 (1934)). It pointed to N.Y. State 423 (1975), which held it improper for a professional legal corporation to merge with a corporate collection agency, quoting ABA 225 (1941) that a practicing lawyer cannot participate in the collection activities or management of an agency that solicits the collection of claims, and that to do so he must withdraw from the practice of law (DR 2-103(C); EC 2-8). The question was answered in the negative.
Currency note
This opinion was issued in 1977, before New York replaced the Code of Professional Responsibility with the Rules of Professional Conduct in 2009 (solicitation is now governed by Rule 7.3, law-related or ancillary businesses by Rule 5.7, and misconduct generally by Rule 8.4). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.
Common questions
Q: Can a lawyer own or direct a business that channels legal work to his own firm?
A: Under this opinion, not where the business is used to solicit legal work. The committee held it improper for a lawyer to direct a judgment-buying corporation that feeds collection work to his firm.
Q: Does using a corporation instead of soliciting personally make a difference?
A: No. The committee held it makes no ethical difference whether the solicitation is by the lawyer personally or through a corporation of which he is a director.
Q: What did the committee say a lawyer must do to run such a collection business?
A: Quoting ABA 225 (1941), the committee said a lawyer who wants to participate in the collection activities or management of an agency that solicits claims must withdraw from the practice of law and stop holding himself out as a lawyer.
Background and rules framework
The opinion applies DR 2-103(C) and EC 2-8 (limits on a lawyer's use of another occupation to obtain legal business), against the backdrop of Judiciary Law Sections 488 and 489 on purchasing claims for the purpose of suit. The current Model Rule analogues are Rule 7.3 (solicitation of clients), Rule 5.7 (responsibilities regarding law-related services), and Rule 8.4 (misconduct).
Citations and references
Rules of Professional Conduct:
- MR 7.3 (solicitation of clients)
- MR 5.7 (responsibilities regarding law-related services)
- MR 8.4 (misconduct)
- NY EC 2-8; DR 2-103(C)
Statutes:
- N.Y. Judiciary Law Sections 488 and 489 (purchase of claims with intent to sue)
Other opinions cited:
- N.Y. State 423 (1975): improper for a legal corporation to merge with a collection agency
- N.Y. State 206 (1970): no using another occupation as a cloak for solicitation
- ABA 225 (1941): a lawyer in collection-agency management must leave practice
See also
- NY State Bar Op. 467: Accepting repeated referrals from a real estate broker
- NY State Bar Op. 493: A lawyer sharing space with a real estate brokerage
Source
- Landing page: https://nysba.org/opinion-465/
Get today's answer for your situation
You just read a 1977 opinion on this question. Ezel checks the current New York Rules of Professional Conduct and answers your specific situation, with citations.
Opens in Ezel Pro. Every answer cites the rules it relies on.