Title: State Ex Rel. Porter v. ALA. ASS'N OF CREDIT EX.
Citation: 338 So. 2d 812
Docket Number: N/A
State: Alabama
Issuer: Alabama Supreme Court
Date: September 10, 1976

338 So. 2d 812 (1976)
STATE of Alabama on the relation of Irvine C. PORTER, Chairman of the Unauthorized Practice of Law Committee of the Alabama State Bar, and Irvine C. Porter, Individually,
v.
ALABAMA ASSOCIATION OF CREDIT EXECUTIVES, a corporation.
SC 1496.

Supreme Court of Alabama.
July 16, 1976.
As Modified on Denial Of Rehearing September 10, 1976.
Marvin Cherner, Birmingham, for appellants.
Charles Cleveland, Birmingham, for appellee.
*813 Drayton T. Scott, Birmingham, for Commercial Law League of America and the National Assn. of Credit Management, amicus curiae.
MADDOX, Justice.
This is a "quo warranto" proceeding brought in the name of the State of Alabama on the relation of Irvine C. Porter, the Chairman of the Unauthorized Practice of Law Committee of the Alabama State Bar Association. The jury found that by virtue of its collection business, the Association is engaged in the unauthorized practice of law. The trial judge ordered the Association to refrain from certain activities but allowed it to continue collecting "undisputed and uncontested delinquent accounts." Both parties appealed.
The Association is an organization of approximately 700 businesses in Alabama which extends credit to other businesses. It has five offices and is engaged in business throughout the state. It provides its members with credit reports, a pre-collection service, and a collection service. A member can obtain a credit report on a customer or potential customer for a fee ranging between $3 and $5.25. The report is limited to the actual experience other Association members have had in obtaining payment from the person or entity whose credit standing is being reported.
The pre-collection service consists of two form letters the Association sends the debtor. The first letter seeks to have the debtor make payment directly to the creditor. If payment is not made within 15 days, the second letter is sent. When this service is used, the member is charged a fee but the account is not considered as placed with the Association for collection.
Upon filling out a form, a member can turn an account over to the Association for collection. If payment is made after one letter, and within ten days, there is no charge to the member. If not, the Association mails a series of form letters and in some cases, makes telephone calls to the debtor. If the Association cannot collect the amount, an employee calls the member and asks what he wants done with the account. If the member wants to turn the account over to an attorney, but does not have one, the Association will send the account to one of the attorneys who is a member of the Association. When the Association forwards the account to an attorney, it uses a form letter setting forth the suggested fee to be charged by the attorney and advises the attorney that the creditor has authorized remittance of the amount collected to be made to the Association. The Association charges a "follow-up fee" equal to 5% of the total amount collected by the attorney.
Based upon the jury's determination that the Association was engaged in the unauthorized practice of law, Judge Haley entered the following order:
On appeal to this Court, Porter contends that the italicized portion of the trial court's judgment should have been deleted and the Association should have been restrained from directly or indirectly engaging in the collection of defaulted accounts.
The Association, in its cross-appeal, challenges the remaining portions of Judge Haley's order.
The first question we will address is the issue raised by Porter: Does the mere collection of undisputed and uncontested delinquent accounts for another by one who is not a licensed attorney constitute the unauthorized practice of law in Alabama? Judge Haley ruled that such activity does not constitute the practice of law. We agree.
The controlling statute is Title 46, Code of Alabama 1940, § 42 (Recomp.1958). It provides in pertinent part:
Porter contends that by passing this statute, the Legislature intended to prohibit the out-of-court collection of defaulted accounts on behalf of creditors by those not licensed to practice law. We do not think so.
We believe the Legislature intended to insure that laymen would not serve others in a representative capacity in areas requiring the skill and judgment of a licensed attorney. The words used by the Legislature were ". . . enforces, secures, settles, adjusts or compromises controverted or disputed accounts . . ." Had the Legislature intended to prohibit collecting, it could have so stated.
Our ruling is consistent with the rule followed in other jurisdictions. The rule is stated in the annotation, Operations of Collection Agency as Unauthorized Practice of Law, 27 A.L.R.3d 1152, 1156, as follows:
As stated above, the Association challenged the remaining provisions of Judge Haley's order. We will treat each section in his order seriatim.
Judge Haley properly prohibited the Association from threatening debtors that legal action would be brought or contemplated if the debt was not paid. As stated in In re Lyon, 301 Mass. 30, 16 N.E.2d 74, 76 (1938):
*815 The next question is whether the Association can forward accounts from its members to attorneys. The trial judge enjoined this practice. We modify his prohibition of this activity.
In State ex rel. Porter v. Dun &amp; Bradstreet, Inc., 352 F. Supp. 1226 (N.D.Ala. 1972) aff'd mem., 472 F.2d 1049 (5th Cir. 1973), the Court found that it was not an unauthorized practice of law for a collection agency to forward a claim to an attorney the agency selected at the request of the creditor, since in that case, it was established that once the agency forwarded the claim, it gave no advice to the attorney and exercised no control over the attorney. The agency did not receive a share of the attorney's fee. We believe Dun &amp; Bradstreet states the general rule.
Collection agencies can forward a creditor's accounts to an attorney for collection so long as the creditor gives the agency such authority in writing and the attorney-client relationship is established between the creditor and the attorney. The American Bar Association Committee on Unauthorized Practice of Law adopted a Statement of Principles relating to collection agencies on May 4, 1937. It provides in pertinent part:
The following amendment was added February 18, 1968:
We recognize that if not done properly, forwarding accounts can create a conflict of interests, but if an agency or person adheres to the statement of principles quoted above, any potential conflict of interests will be eliminated and a possible public *816 interest served. In fact, allowing collection agencies to forward accounts has been said to be in the public interest. In an opinion of the American Bar Association Standing Committee on the Unauthorized Practice of Law, the following view was expressed:
We hold, therefore, that a collection agency can forward accounts to attorneys, if it follows the guidelines we have set out in this opinion.
The agency challenged the prohibition against its accepting employment "from any attorney to recover amounts owed by any person to any other person."
We construe this provision as preventing attorneys from using the agency to assist in collecting accounts which they have accepted for collection. It is not to be viewed as prohibiting an attorney from using a collection agency to recover his own personal debts. Otherwise, the prohibition is valid.
The agency further contends generally that to the extent that its activities constitute the practice of law, these activities are protected under the Constitution. The Association cites the following cases: NAACP v. Button, 371 U.S. 415, 83 S. Ct. 328, 9 L. Ed. 2d 405 (1963); Broth, of RR Trainmen v. Virginia, 377 U.S. 1, 84 S. Ct. 1113, 12 L. Ed. 2d 89 (1964); United Mine Workers of America v. Illinois State Bar Asso., 389 U.S. 217, 88 S. Ct. 353, 19 L. Ed. 2d 426 (1967). We believe these cases are distinguishable from the case at bar.
Having examined each of the agency's specification of error on cross-appeal, we find none, except as noted. The cause is affirmed, in part, and reversed, in part, with instructions that the order be modified to conform to the holding made herein.
AFFIRMED, IN PART; REVERSED, IN PART; AND REMANDED, WITH DIRECTIONS.
HEFLIN, C.J., and JONES, SHORES and BEATTY, JJ., concur.
On original deliverance we said: "We believe Dun &amp; Bradstreet states the general rule, which we adopt, and which would prohibit the 5% "follow-up fee." That sentence has been amended in the original opinion to read as follows: "We believe Dun &amp; Bradstreet states the general rule."
OPINION MODIFIED: APPLICATION FOR REHEARING OVERRULED.
HEFLIN, C.J., and JONES, SHORES and BEATTY, JJ., concur.