Can a West Virginia lawyer take collection cases forwarded by a collection agency that has authority from the creditor to hire counsel and file suit?

Plain-English summary

The inquiry described an arrangement in which a creditor refers delinquent accounts to a collection agency; when an account cannot be collected without suit, the agency (which has written authorization from the creditor to hire an attorney to sue on the creditor's behalf) forwards the matter to an attorney, who files suit on a contingency fee basis and has no proprietary interest in, and is not an employee of, the agency. The lawyer asked whether an ethical problem existed.

The Committee answered by adopting the "Statement of Principles" governing attorney-agency relations embodied in ABA Formal Opinion No. 294 (June 21, 1958), which it said answered the question. Those principles provide that an attorney's compensation in handling commercial claims is a matter of contract between the attorney and the creditor, and that an attorney may receive a claim from a lay forwarder acting as the creditor's agent where the creditor expressly authorizes it, provided there is compliance in fact and in spirit with Canons 34, 35, and 47.

The principles set out minimum conditions: the lay forwarder may be paid by the creditor for its non-legal services, separate from the legal services of the receiving attorney; the attorney collecting claims with or without suit is engaged in the practice of law and any compensation earned is a fee for legal services; no division of fees for legal services is proper except with another lawyer based on a division of service or responsibility; the receiving attorney shall not share his fee for legal services with a lay agency; and when a lay forwarder forwards a claim, the direct attorney-client relationship exists between the attorney and the creditor, and the forwarder shall not interpose itself as an intermediary to control the activities of the attorney.

The Committee concluded that the attorney may accept collections from the collection agency acting at the request of and with the authority of the creditor, and represent the creditor in effecting collections, provided that (1) there is no division of fees between the attorney and the collection agency, and (2) the forwarding agency does not interpose itself as an intermediary to control the activities of the attorney on behalf of the creditor.

Currency note

This opinion was issued in 1979 and applied the Canons of Professional Ethics (Canons 34, 35, and 47) and ABA Formal Opinion 294 (1958). It predates West Virginia's adoption of the Rules of Professional Conduct, effective January 1, 1989, and later rule revisions, including the comprehensive 2015 amendments. 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 the lawyer take cases the collection agency forwarded?

A: Yes. The opinion concluded the lawyer may accept collections from the agency when it acts at the request of and with the authority of the creditor, and may represent the creditor in effecting collections.

Q: Could the lawyer share the legal fee with the collection agency?

A: No. The principles the Committee adopted state that no division of fees for legal services is proper except with another lawyer, and that the receiving attorney shall not share his fee for legal services with a lay agency.

Q: Could the agency direct how the lawyer handled the case?

A: No. The opinion conditioned approval on the forwarding agency not interposing itself as an intermediary to control the activities of the attorney; the direct attorney-client relationship runs between the attorney and the creditor.

Q: Whom did the lawyer actually represent in this arrangement?

A: The creditor. The opinion stated that when the lay forwarder forwards a claim, the direct relationship of attorney and client exists between the attorney and the creditor.

Background and rules framework

The opinion rested on the Canons of Professional Ethics as applied in ABA Formal Opinion 294 (1958): Canon 34 (division of fees), Canon 35 (intermediaries between lawyer and client), and Canon 47 (aiding the unauthorized practice of law). The Committee adopted the ABA's "Statement of Principles" on attorney-agency relations as the governing standard, allowing a lawyer to take agency-forwarded creditor claims while barring fee splitting with the agency and barring the agency from controlling the representation.

Citations and references

Rules of Professional Conduct (Canons of Professional Ethics, as cited):

• Canon 34 (division of fees)
• Canon 35 (intermediaries; a lawyer's relation to the client should be personal)
• Canon 47 (aiding the unauthorized practice of law)

Other opinions cited:

• ABA Formal Opinion No. 294 (June 21, 1958) (Statement of Principles governing attorney-collection agency relations)

See also

• WVSB Ethics Op. 80-1: Referral of overdue accounts to a collection agency
• WVSB Ethics Op. 2006-01: Referral fee from a financial services provider
• WVSB Ethics Op. 2018-01: Attorney-client matching services

Source

• Landing page: https://wvodc.org/Legal-Ethics-Opinion
• Original PDF: https://storage.googleapis.com/msgsndr/Rgd68xOkcVdteTsBkf6O/media/66a7ea7e519e28643e8fd1bb.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

THE WEST VIRGINIA STATE BAR
COMMITTEE ON LEGAL ETHICS

LEGAL ETHICS INQUIRY 79-6
February 14, 1979

I have your letter of January 12, 1979, in which you asked whether an "ethical question" exists with respect to the following:

Creditor [c] refers delinquent accounts for collection to collection agency [a]. Later, one or more accounts become uncollectable without the filing of a lawsuit. Collection agency [a] has written authorization from creditor [c] to hire an attorney to file suit in the creditor's behalf. Accordingly, collection agency [a] refers the delinquent accounts to an attorney and suit is filed. The attorney has no proprietary interest in the collection agency and is not an employee of the collection agency. The attorney works on a contingency fee basis.

The Committee on Professional Ethics of the American Bar Association, after a discussion with representatives of The West Virginia State Bar during which a so-called "Statement of Principles" governing attorney-agency relations was formulated, embodies those principles in Formal Opinion No. 294, dated June 21, 1958. Those principles, which answer your question, are as follows:

1. The compensation of an attorney in the handling of commercial claims is a matter of contract between the attorney and the creditor, and any schedule of rates now in force or hereafter adopted is not mandatory and is but a recommendation.

2. The receiving by an attorney of a claim from a lay forwarder as agent of a creditor is approved where this is expressly authorized by the creditor, provided there is compliance in fact and in spirit with Canons 34, 35 and 47.

The following minimal conditions are requisite to compliance with Canons 34 and 35:

(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 therefor 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.

(b) The attorney in the collecting of claims with or without suit is engaged in the practice of law, and his conduct must conform to the requirements of the Canons of Professional Ethics; and any compensation earned by the attorney in his commercial practice, whether denominated "collection commission" or "suit fee," is a fee for legal services.

(c) No division of fees for legal services is proper, except with another lawyer based upon a division of service or responsibility.

(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 law forwarder which are separate and apart from the services performed by the receiving attorney.

(e) When the lay forwarder, as agent for the creditor, forwards a claim to an attorney, the direct relationship of attorney and client shall then exist between the attorney and the creditor, and the forwarder shall not interpose itself as an intermediary to control the activities of the attorney.

3. Neither the Statement of Principles superseded hereby nor the foregoing Opinion was or is intended to diminish the requirements of Canons 34, 35 and 47.

4. Questions as to what, in any given situation, constitutes the unauthorized practice of law, within the purview of Canon 47, are within the jurisdiction of the Standing Committee on Unauthorized Practice of Law of this Association and are not intended to be covered hereby.

It would seem, therefore, that the attorney may accept collections from the collection agency acting at the request of and with the authority of the creditor and represent the creditor in effecting collections provided that (1) there is no division of fees between the attorney and the collection agency, and (2) the forwarding agency does not interpose itself as an intermediary to control the activities of the attorney on behalf of the creditor.