Opinion ID: 1646975
Heading Depth: 1
Heading Rank: 2

Heading: Does a course of conduct whereby a collection agency takes assignments of accounts for collection, furnishes an attorney, brings suit in its own name, and then pursuant to a prior agreement deducts from the proceeds, costs, and a fixed percentage as its fee and remits the balance to the creditor, constitute the unauthorized practice of law.

Text: One of the techniques regularly used by Bonded in acquiring standing to sue is to secure an assignment from the creditor. The pleadings of the defendants reveal that, after dunning efforts have proved unsuccessful, they advise the creditor that the account cannot be collected except by starting a lawsuit. The creditor is then advised that the collection agency will accept an assignment of the account for collection. An assignment for collection is taken and an agreement is reached that proceeds of the lawsuit will be charged first with the costs of the action, and the remainder then divided between the creditor and the agency in accordance with an agreed percentage. Bonded commences actions in its own name, using duly licensed attorneys to prosecute the action. The attorney hired by Bonded prepares all legal documents and files all necessary papers in court. Appearances are made only through attorneys. The attorney general takes the position this constitutes the unauthorized practice of law. The appellants acknowledge that there is no lawyer-client relationship between the creditor and the attorney, but contend that this is irrelevant because case law since the time of Wooliscroft v. Norton (1862), 15 Wis. 217 (), has recognized that an assignee of an account for collection is the real party in interest and may sue on an assignment. This no doubt is the law, but the appellants then conclude that, since the assignment confers standing to sue, it also confers the status of client upon the assignee, thus permitting a proper lawyer-client relationship to spring up between the collection agency and its lawyer. The last conclusion is a non sequitur, for the purpose of the real-party-in-interest statute [1] is procedural only. Clark, Code Pleading (2d ed., hornbook series 1947), p. 160, sec. 22, defines the real party in interest is he who by substantive law has the right of action. The purpose of the real-party-in-interest statute is to prevent a multiplicity of suits, to make sure that a defendant can assert his defenses when sued upon an assigned claim, to assure that a judgment will completely settle the claim, and to make it possible to discharge the debt by paying the assignee with no vestigial right of action remaining in the assignor. To test whether a party is the real party in interest, it is necessary to look to the effect of litigation in which the person claiming to be the real party in interest appears. In ascertaining whether the plaintiff is the real party in interest, the primary and fundamental test to be applied is whether the prosecution of the action will save the defendant from further harassment or vexation at the hands of other claimants to the same demand. If the defendant is not cut off from any just defense, offset, or counterclaim against the demand and a judgment in behalf of the party suing will fully protect him when discharged, then is his concern at an end. 2 Bancroft, Code Practice and Remedies, p. 1094, sec. 749. An assignee for collection meets that test. In Pomeroy, Code Remedies (5th ed.), p. 106, sec. 70, it was said: Analogous to the subject discussed in the preceding paragraph is the question whether an assignee, to whom a thing in action has been transferred by an assignment which is absolute in its terms, so as to vest in him the entire legal title, but which, by means of a contemporaneous and collateral agreement, is, in fact, rendered conditional or partial, is the real party in interest. It is now settled by a great preponderance of authority, although there is some conflict, that if the assignment, whether written or verbal, of anything in action is absolute in its terms, so that by virtue thereof the entire apparent legal title vests in the assignee, any contemporaneous collateral agreement by virtue of which he is to receive a part only of the proceeds, `and is to account to the assignor or other person for the residue, or even is to thus account for the whole proceeds, or by virtue of which the absolute transfer is made conditional upon the fact of recovery, or by which his title is in any other similar manner partial or conditional' does not render him any the less the real party in interest; he is entitled to sue in his own name, whatever collateral arrangements have been made between him and the assignor respecting the proceeds. The debtor is completely protected by the assignment, and cannot be exposed to a second action brought by any of the parties, either the assignor or other, to whom the assignee is bound to account. This is the settled doctrine in most of the States. It is apparent that the principal motivation for the conclusion that the assignee for collection is the real party in interest was concern for the procedural reform of our court system to avoid endless lawsuits. It is also apparent that the drafters of the code sought to protect debtors from endless harassment. For procedural purposes an assignee of a claim for collection is, indeed, the real party in interest, but his interest is a limited one. The assignment confers upon him only a naked legal title, but the beneficial or equitable interest remains in the assignor. 6 C. J. S., Assignments, p. 1151, sec. 94. Thus, the beneficial owner of the chose in action is not the collection agency but the creditor. It is most inappropriate for the defendants to gain procedural standing to sue by complying with the what is somewhat inappropriately in this context known as the real-party-in-interest statute and then assert that because the assignee is the real party in interest in the procedural sense it stands in all respects in the shoes of the creditor. This is not the fact. The true client, the party whose right of action is at stake in the lawsuit, remains the creditor. A similar contention was disposed of in Bay Bar Asso. v. Finance System, Inc. (1956), 345 Mich. 434, 438, 76 N. W. 2d 23: ... the real party in interest statute was enacted to protect a defendant from being harassed repeatedly by a multiplicity of suits for the same cause of action, but that when a defendant's rights are fully protected in the litigation and judgment against him therein will stand as a conclusive adjudication of the rights in controversy and a bar to any further suit by another party, the purpose of the statute has been served. We held, accordingly, that because the plaintiff in Kearns had an assignment such that satisfaction of a judgment obtained thereon by him would discharge the defendant from his obligation to the assignor, plaintiff was the real party in interest within the meaning and for the purpose of the statute and, hence, could maintain his suit against any objection by defendant on that score. To hold, however, that a plaintiff meets the test of the real party in interest statute is a far cry from holding that, in bringing such suit, he is not engaging in the unauthorized practice of law in violation of CL 1948, sec. 601.61 (Stat. Ann. sec. 27.81); CL 1948, sec. 450.681 (Stat. Ann. sec. 21.311). (Emphasis supplied.) The defendants admit, when they acknowledge the proceed-splitting arrangement, that the creditor retains an interest in the subject matter of the lawsuit. The fact is that it retains the entire interest in the amount due subject to the percentage of the amount collected that the collection agency claims as its costs and fees. It is sheer hypocrisy to conclude that the percentage retained by the collection agency represents its equity or ownership share of the claim. It is its fee or charge for professional services rendered. Under these circumstances the property right of the creditor is directly affected and his recovery is dependent upon the litigation undertaken. There is no doubt that the client whose interests must be served and represented in the suit for collection under a normal and lawful lawyer-client relationship is the creditor. Thus we have a situation where the defendants, La Belle, the individual, and Bonded Collections, Inc., the corporation, advise the creditor when to start a lawsuit. Upon taking a limited assignment the defendants hire an attorney who, at their direction, commences suit. The direction of lawsuit, defendants admit, is vested in them not in the creditor who is the true client. If the suit is successful, the collection agency pockets a fee for services rendered. We conclude that habitual conduct of this nature for a fee constitutes the practice of law. It is apparent that Bonded and its officers intervene between the true client and usurp his position in the management of the suit, and usurp the position of the lawyer in advising the client that suit is appropriate. By so doing, the collection agent sells the creditor the services of a lawyer, whom it controls and directs. Though the cause asserted is in fact the creditor's, there is privity only between the lawyer and the collection agency. The collection agency by going into court representing itself as the client perpetrates a fraud on the court. The vice of this procedure is that the collection agent, ostensibly as the client when he is not, directs the services of a lawyer. Moreover, the duty and allegiance of the lawyer is thus diverted and owed, as a result of this arrangement, not to the true client, the creditor, but to the intervening corporation to whom he owes his employment fee. When one who is not the actual client, but on the strength of an assignment for collection purports to act as such, advises the true creditor of the necessity for suit and also directs an attorney in the initiation, conduct, and termination of a lawsuit he is practicing law. He is offering in the market the services of an attorney to the creditor and he is furnishing legal services when he is not authorized by law to do so. When this is done in the usual and habitual course of business, as it is concededly done by the defendants La Belle and Bonded Collections, Inc., it constitutes the unauthorized practice of law. Bump v. District Court (1942), 232 Iowa 623, 5 N. W. 2d 914; Bump v. Barnett (1944), 235 Iowa 308, 16 N. W. 2d 579; and Bay Bar Asso. v. Finance System, Inc. (1956), 345 Mich. 434, 76 N. W. 2d 23. The following well-reasoned paragraph from Nelson v. Smith (1944), 107 Utah 382, 394, 154 Pac. 2d 634, 157 A. L. R. 512, makes it clear that our concern in this case is not with the conduct of an attorney who may be hired but is with the unauthorized practice of law by La Belle and the corporation. The fact that the defendants in some instances employ a regularly licensed attorney to prepare necessary legal papers and conduct the trial of a suit does not make their conduct legal. One cannot do through an employee or an agent that which he cannot do by himself. If the attorney is in fact the agent or employee of the lay agency, his acts are the acts of his principal or master. When an attorney represents an individual or corporation, he acts as a servant or agent. Since he acts for others in a representative capacity, doing those things which are customarily done by an attorney, he practices law within the meaning of Section 6-0-24. The same conduct on the part of laymen would likewise be the practice of law, and since said layman would be unlicensed, such practice would be illegal. The prohibition against the practice of law by a layman contained in Section 6-0-24 applies alike to the practice by a layman directly and in person and to the indirect practice through an agent or employee. It is immaterial that said layman may select duly licensed attorneys as his agents or employees through whom he practices law. If the attorney be in fact the agent or employee of a layman, his act is that of the layman (his principal). Such principal would be engaging in the illegal practice of law if he through such an agent rendered legal services to a third party for compensation and as a regular and customary business practice. In the case of In re Disbarment of George H. Otterness (1930), 181 Minn. 254, 257, 232 N. W. 318, 73 A. L. R. 1319, a similar question was raised and the court concluded: But neither a corporation nor a layman not admitted to practice can practice law nor indirectly practice law by hiring a licensed attorney to practice law for others for the benefit or profit of such hirer. For this bank to employ defendant to conduct law business generally for others for the benefit and profit of the bank amounted to the unlawful practice of law by the bank .... Admittedly the parties to this litigation are correct when they advert to the ethical considerations that are raised by these practices. Those considerations, however, are peripheral to the issues in the case before the court.