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Matter of Advisory Committee on Professional Ethics Docket No. 22-956/13/1996
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
In the Matter of Advisory Committee on Professional Ethics Docket No. 22-95 (A-121-95)
Argued March 11, 1996 -- Decided June 13, 1996
PER CURIAM
The Advisory Committee on Professional Ethics (ACPE) is a Supreme Court committee that receives inquiries from members of the bar and renders opinions on issues arising out of the Rules of Professional Conduct. In April 1995, the ACPE received such a request from the New Jersey State Bar Association, the Bar of the Special Civil Part, and the Commercial Collection Agency Section of the Commercial Law League of America (CLL). The inquirers wanted the ACPE's opinion on whether attorneys who concentrate on collections law practice may endorse checks they receive in their clients' names and deduct the attorney's contingent fee without the clients' express consent after full disclosure in each matter.
The ACPE applied a prior Supreme Court case involving Opinion 635 of the ACPE and a joint opinion of the ACPE and the Committee on Attorney Advertising to the question presented. As a result, the ACPE concluded that collections attorneys could not process and cash checks without the express consent of their clients.
The Supreme Court granted the inquirers' petition for review of the decision of the ACPE.
HELD: Under the extraordinary circumstances presented, lawyers or law firms that concentrate in debt collections may, at the request of an institutional client-creditor, use the power of attorney to endorse the client-creditor's name to drafts from debtors and may deduct their contingent fees for individual matters without the prior approval of the client-creditor.
1. RPC 1.15(c) says that a lawyer holding property in which another person claims an interest must keep that property separate until there is an accounting and a separation of interests. Prior decisions of the Supreme Court and its committees have made it clear that RPC 1.15(c) obliges an attorney to inform his or her client of the settlement or other resolution of the client's matter, the amount of the settlement or judgment, and the amount of the fee to be deducted by the attorney. (pp. 2-3)
2. Debt collection is a very large business. Companies will often retain law firms that concentrate in collections litigation to handle delinquent accounts. Most commonly, such attorneys operate on a contingent fee basis. Institutional clients will dictate the collection arrangements by drafting the retainer letter. Such letters typically authorize the law firms to endorse payment orders that list the client as payee. In addition, the clients generally authorize the law firms in advance to deduct the attorneys' contingent fees before disclosing the amount of fluids received or the precise amount of the fees earned. Most law firms remit payments to their clients once a month. A single check is sent with a list of all the debtors covered by the payment. (pp. 3-7)
3. In its prior decisions restricting the use of an attorney's power to endorse his or her client's name to a check, the Court noted that there might be "extraordinary circumstances" that would justify the use of such a power of attorney. The ACPE justifiably concluded in this case that it was bound by the Court's prior decisions. (pp. 7-12)
4. A persuasive case has been made by institutional client-creditors to have the Cou
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