Can lawyers form and own a collection corporation, run by non-lawyers, to collect delinquent accounts owed to lawyers?

Plain-English summary

The inquiry asked whether forming and operating a corporation to collect delinquent accounts owed to lawyers would violate any Canon, where the stock would be owned principally by lawyers, a majority of the directors would be lawyers, but the active management would be conducted by non-lawyers.

All members except one thought it ethical for an attorney to form such a corporation and own stock in it (7-1). The dissenting member reasoned that the corporation must necessarily solicit business to exist, so an attorney would be doing by indirection what he could not do directly, in violation of Texas Canon 24.

The members split on the rest. Of the eight, three thought it unethical to be a director, otherwise participate in management, or represent the corporation in court; two thought it proper to be a director but not to represent the corporation in court; one thought it proper to represent the corporation in court but not to manage it; one thought it unethical to be connected with such a corporation in any way (citing Texas Ethics Opinions 92 and 119 and American Bar Ethics Committee Opinion 225); and one thought the corporation ethical in all respects, contending any solicitation would be by the corporate entity and that there was no purchase of an interest in the subject matter of litigation in violation of American Canon 10.

Currency note

This opinion was issued in 1957, under the former Texas Canons of Ethics, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. 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 Treat this page as historical context, not current guidance.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: Could a lawyer form and own stock in a collection corporation for lawyers' accounts?

A: Yes, in the majority's view. All but one member found forming such a corporation and owning stock in it ethical (7-1).

Q: Could a lawyer also direct, manage, or represent that corporation in court?

A: The Committee did not reach a single answer. Members split on each of those roles, ranging from one who thought any connection unethical to one who thought the corporation ethical in all respects.

Q: What was the dissent's concern about merely forming it?

A: The dissenting member thought the corporation must solicit business to survive, so a lawyer-owner would be doing by indirection what Canon 24 forbids directly.

Background and rules framework

The opinion interprets former Texas Canon 24 (advertising and solicitation), with members also invoking American Canon 10 (acquiring an interest in the subject matter of litigation). The modern analogs include ABA Model Rule 5.4 (a lawyer's professional independence and dealings with nonlawyer-run entities) and Model Rule 7.3 (solicitation).

Citations and references

Rules of Professional Conduct:

• MR 5.4 (professional independence of a lawyer), as a modern analog
• MR 7.3 (solicitation), as a modern analog
• Texas Canon 24 (advertising and solicitation)
• American (ABA) Canon 10 (interest in the subject matter of litigation), invoked by some members

Other opinions cited:

• Texas Ethics Opinions 92 and 119; American Bar Ethics Committee Opinion 225

See also

• TX Ethics Op. 153: Paying Laymen to Collect Taxes
• TX Ethics Op. 160: Lending Letterhead for Collections
• TX Ethics Op. 196: Lawyer-Owned Abstract Company

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-149/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_149.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

QUESTION PRESENTED

Would there be a violation of any Canon of Ethics involved in the formation and operation of a corporation formed for the purpose of collecting delinquent accounts owed to lawyers, and the stock of which corporation would be owned principally by lawyers, and a majority of whose directors would be lawyers, but the active management of which corporation would be conducted by non-lawyers?

18 Baylor L. Rev. 258 (1966)

SOLICITATION - COLLECTING DELINQUENT ACCOUNTS
It is not improper to form and operate a corporation for the purpose of collecting delinquent accounts owed to lawyers even though the company's stock would be owned principally by lawyers and its board of directors would consist mainly of lawyers.

Canon 24.

All members except one thought it would be ethical for an attorney to form such a corporation and to own stock in same. That dissenting member thought such a corporation must necessarily solicit business in order to exist and that therefore an attorney would be doing by indirection what he could not do directly and would be in violation of Texas Canon 24. (7-1)

Three of the present eight members thought it would be unethical to be a director or otherwise participate in the management of such a corporation or to represent it in court; two members thought it proper to be a director but not to represent the corporation in court, one member thought it proper to represent the corporation in court but not to participate in its management; one member thought it unethical for a practicing attorney to be connected with such a corporation in any way (citing Opinions 92 and 119 of the Texas Ethics Committee and Opinion 225 of the American Bar Ethics Committee); and one member though such a corporation ethical in all respects, contending any solicitation of business would be by the corporate entity, and that there was no purchase of an interest in the subject matter of litigation the attorney was conducting in violation of American Canon 10 as contended by those members who considered the representation of such corporation in Court to be unethical.

Tex. Comm. On Professional Ethics, Op. 149 (1957)