UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.
Ethics Advisory Opinion 91-18
An attorney licensed in South Carolina works as a financial analyst for a major grocery chain. At present he does not have an active legal practice. He has been approached by an officer of the grocery chain to assist them in collecting dishonored checks by sending a letter on attorney letterhead to those having dishonored checks that remain outstanding after 30 days. It is not anticipated that he would handle any litigation with respect to the dishonored checks beyond sending this letter. Similar letters have been quite successful in the past and in a year this activity is anticipated to generate $930,000 for the grocery chain. The attorney would be assisted by employees in the check collection department in screening telephone calls concerning his letter. The attorney anticipates that the letterhead would give the impression that he was acting as independent, outside counsel rather than being an employee of the grocery chain. The attorney proposes to ask for $15,000 to $20,000 per year in additional compensation for the use of his name and for responding to some of the calls from those receiving these letters.
Questions:
A. Is the use of this letterhead by an attorney who is an employee of the company ethical?
B. Would a proposed fee of between $15,000 and $20,000 per year be reasonable?
Summary:
The proposed use of the letterhead that would imply that the attorney is independent outside counsel is a violation of Rule 7.1 and Rule 7.5 of the Rules of Professional Conduct. The activities proposed for the employees of the check collecting department of the grocery chain may violate Rule 5.4(c) and Rule 5.5(b). If the activities could be conducted in an ethical manner, the fee proposed should be considered in light of the amount of funds involved and the standards set forth in Rule of Professional Conduct 1.5.
Opinion:
Rule 7.1 states:
" A lawyer should not make a false or misleading communication about the lawyer or the lawyer services. A communication is false or misleading if:
a) Contains a material misrepresentation of fact or law, or omits a fact necessary to make a statement considered as a whole not materially misleading." This section is incorporated into Rule 7.5 and is applied to the use of letterheads. Section 7.5(a) provides "a lawyer shall not use a firm name, letterhead, or other professional designation that violate Rule 7.1." The clear purpose of the letterhead proposed by the facts in this case is to create a false impression that the matter has been referred to an attorney outside of the grocery chain for legal action. From the amounts collected in the past it appears that sending such letters is quite material in obtaining recoveries.
The type of collection activities proposed also raised questions with respect to the Fair Debt Collection Practices Act and the South Carolina Consumer Protection Code. This committee does not provide legal opinions on issues outside of the Rules of Professional Conduct and offers no opinion on these issues, but cautions that the attorney should fully review these statutes prior to allowing his name to be used. Under Rule 1.2(e) the attorney would have a responsibility to inform his employer concerning any relevant legal limitations on its conduct and under Rule 1.2(d) may not assist in any illegal behavior.
If the grocery chain is willing to have the attorney utilize his name and his correct address and affiliation, there would be no violation of Rule 7.1 and 7.5. However, to the extent that the employees working in the check collecting department were involved in activities that could be construed as the practice of law, a violation of Rule 5.5 could result. Caution should be exercised if these individuals are involved in drafting legal documents, instituting, negotiating, and settling lawsuits or other work which would constitute the unauthorized practice of law in the applicable jurisdiction. Rule 5.5 of the Rules of Professional Conduct states:
"a lawyer shall not ... assist a person who is not a member of the bar in the performance of activity that constitutes the unauthorized practice of law." Unless the assistants involved in such activities have the type of professional supervision contemplated by Rule 5.3, including the assurance that the conduct of the non-lawyer assistants is "compatible with the professional obligation of a lawyer", the attorney could be involved in a violation. This rule does not bar the attorney from providing professional advice or instruction to those non-lawyers which would assist them in the furtherance of their work.
If the letterhead is presented in a non-misleading fashion and activities of the check collection department do not violate the rules against the unauthorized practice of law, the fee proposed of $15,000 to $20,000 per year could be evaluated in light of the Rules of Professional Conduct for reasonableness. Rule 1.5(a) sets out a number of factors to be considered in terms of the reasonableness of the fee. Supporting such a fee would be Rule 1.5(a)(4) which factors in "(t)he amounts involved and the results obtained." The attorney should insure that his/her involvement would also comply with Rule 1.5(a)(1) which states: "A lawyer's fee shall be reasonable. The factors to be considered in determining the reasonableness of a fee include the following: (1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal services properly." The facts indicate that the attorney would be in some instances dealing by telephone with parties concerning these checks in addition to the company utilizing his name. Given the amount of funds involved, this level of activities could justify a fee; however, the attorney should review the situation in light of all eight factors set out in Rule 1.5. Rule 1.5 lists these factors conjunctively so the fee must be considered in light of all of them. For example, an activity which results in a large recovery does not necessarily justify a large fee if it required little or no investment of time or skill by the lawyer.