April 22, 2014

Lessons in Professional Responsibility Compliance

Donald Maurice

This article explores certain recent developments in the laws, regulations, cases, and proceedings relating to the supervision of non-lawyers by debt collection attorneys. The supervision of non-lawyers by debt collection attorneys is one of the most difficult responsibilities they routinely undertake.

The purpose of this article is not to single-out attorneys who engage in debt collection for criticism. Attorneys engaged in debt collection are among the most regulated of all legal practice groups. Collecting consumer debt subjects a lawyer to the Fair Debt Collection Practices Act (FDCPA). If a law firm provides information to credit reporting agencies, it becomes subject to the Fair Credit Reporting Act. Is it accepting electronic payments? The Electronic Funds Transfer Act and its Regulation E covers how those payments are made. Even the Consumer Financial Protection Bureau argues, though not persuasively, that it has the authority to supervise attorneys engaged in debt collection litigation; a position that relies on a flawed analysis of Heintz v. Jenkins, 514 U.S. 291 (1995).

Aside from these federal laws and regulations, an extensive body of state and local debt collection regulations also impacts the practice of debt collection. Many of these federal and state laws allow debtors to assert private rights of action (with mandatory awards of attorney’s fees and costs) against debt collection attorneys, resulting in many debt collection attorneys being sued by the very persons they are retained to pursue. In addition, debt collection law firms are routinely audited by their clients.

One positive result of all this scrutiny is that attorneys who practice debt collection are among the most “compliance-aware” attorneys today. The sheer volume of state and federal regulation long ago led many collection law firms to implement compliance management systems to avoid unlawful collection practices. Some firms have gone as far as to secure ISO 9001:2008 certifications for their compliance management systems, an international standard indicating very high compliance management protocols.

Attorneys engaged in debt collection, like all lawyers, are also regulated by codes of professional conduct. But what sets them apart is that they have extraordinary experience integrating state and federal laws with their professional responsibility requirements to create compliance management systems governing a law firm practice – something not regularly seen in other practice areas.

This article outlines recent developments in professional responsibility requirements for the supervision of non-lawyers, thus providing debt collection attorneys yet another tool to enhance their integration of professional responsibility into their compliance management systems.

A Lot of Non-Lawyers Means a Lot of Supervision

Twenty-five years ago, it was not unusual for a law firm to have three non-lawyers for every lawyer in the firm. The trend has been to reduce that ratio, and many firms that have lessened and even reversed the ratio. With advancements in office technology and the growing use of outsourced services, some law firms now have three to five lawyers being assisted by one non-lawyer employee.

Debt collection law firms have taken advantage of technology too, but their ratio of lawyers to non-lawyers continues to be much larger than all but a few practice areas. One New Jersey debt collection lawyer was found to be supervising 50 non-lawyers, though this is likely not the norm. (In re Hecker, New Jersey Disciplinary Review Board, 09-372 (August 9, 2010).)

The high ratio of non-lawyers reflects the nature and structure of some debt collection practices. One example is discussed in the American Bar Association Informal Ethics Opinion 1368 “Mass Mailing of Form Collection Letters” (July 15, 1976), which examined an attorney’s proposal to send, on a monthly basis, approximately 5,000 collection letters.

The proposed practice considered in the informal ethics opinion consisted of three forms of letters. The initial letter made a “courteous, but firm” demand for payment. The second letter, which was a follow-up to the first letter, warned that because the account had not been paid, the client might authorize wage garnishments or property levies. The third letter referred to the first two letters and provided that “if the debtor does not comply, the creditor ‘may exercise rights against you under the law’. . . .” Each letter directed the recipient to contact the client to make payment, not to contact the attorney’s office, and advised that their files had not been “turned over for collection.” The attorney would have direct supervision over the preparation and sending of the letters, but would not review any account to determine its validity. Rather, the attorney proposed to rely on his client’s “written certification” that the debts were “justly due.”

Not only did the attorney propose not to review each account, he would not even maintain a file containing his client’s account records. The informal ethics opinion concluded that “the large number of letters contemplated” and the fact that they would be mass-produced form letters “do not in and of themselves render the proposal improper.” The informal ethics opinion did not find the proposed letter practice “per se unethical,” but expressed “concern” that if the attorney relied solely on the client’s certification that the debts were due and did not maintain a direct relationship with the client, supervise the work delegated to his non-attorney staff, and have “complete professional responsibility for the work product,” professional conduct violations could occur.

Although not discussed in the informal opinion at length, the monthly sending of 5,000 letters and addressing responses to them is more than one attorney can handle. Employing non-lawyer assistants, and sometimes many, is expected under such circumstances. But for each non-lawyer assisting the practice, there is an increase in the attorney’s supervision responsibilities.

Active Supervision of Non-attorneys

ABA Model Rule 5.3 requires lawyers having “managerial authority” in a law firm to “make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance” that non-lawyers’ conduct will be “compatible” with the lawyer’s professional obligations. ABA Model Rule 5.1 requires lawyers with supervisory authority over other lawyers within a firm to have made “reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers” conform to the Rules of Professional Conduct. The absence of such procedures, alone, can be a basis for discipline. (Matter of Miller, 178 Ariz. 257, 872 P.2d 661 (1994).)

A recent opinion from New York’s Appellate Division, Second Department, concerning the conduct of a debt collection law firm provides an example of the harm that may result from less than robust supervision of attorneys and non-attorney staff. (In the Matter of Cohen & Slamowitz, LLP, et al., 2014 NY Slip Op. 00994 (App. Div. 2nd Dep’t Feb. 13, 2014).) Four charges were made against the collection law firm and its principal attorney stemming from multiple matters, all involving debt collection. The facts outlined in the opinion noted instances where the wrong person was sued and, in some cases, the debt was previously satisfied. Another grievance concerned a satisfaction of judgment that had not been timely filed.

Following a disciplinary hearing in 2011, a special referee dismissed three of the four charges. The special referee sustained a charge of engaging “in a pattern and practice of conduct prejudicial to the administration of justice” by collecting debts “without conducting a reasonable and proper search to verify the identity and property of alleged debtors, and the validity of the alleged debts.”

As is the typical case in most disciplinary proceedings, the matter was sent to a court to confirm or disaffirm the hearing’s findings. The result was not good for the collection lawyer as all charges were sustained by the Appellate Division. And, it appears the failure to have proper controls to supervise attorneys and non-attorneys was at the core of the Appellate Division’s reasoning.

The facts reported in the opinion indicate that information contained in several of the files should have alerted the lawyer that the wrong person was being pursued. What appears to have troubled the Appellate Division panel was that the conduct occurred despite the existence of contrary information contained in the attorney’s files.

It does not appear that the principal attorney personally handled any of the matters that were the basis for discipline. But the opinion largely faults the principal attorney for the conduct even if he lacked personal knowledge of the transgressions. The attorney received a public censure.

Inadequate Supervision and Assisting Non-Attorneys in UPL

When non-lawyer assistants are not properly supervised, their activities may extend beyond the bounds of what a non-lawyer is permitted to do, and their actions can be construed as exercising judgment reserved to lawyers. When a managerial lawyer fails to implement reasonable procedures to ensure ethically compatible conduct by his her non-lawyer assistants, the lawyer may also run afoul of ABA Model Rule 5.5 titled, Unauthorized Practice of Law; Multijurisdictional Practice of Law. ABA Model Rule 5.5(a) provides “A lawyer shall not practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction, or assist another in doing so.” A failure to supervise non-lawyer assistants can result in a lawyer having assisted his or her non-lawyer assistants in performing services that are only authorized for licensed attorneys.

Examples of conduct which run afoul of conduct rules modeled after ABA Model Rule 5.5 are non-lawyer assistants accepting cases, providing legal advice, or making legal decisions. (See, for example, Attorney Grievance Comm'n v. Hallmon, 343 Md. at 397; In re Opinion No. 24, 128 N.J. 114, 123 (1992); In re Jackman, 165 N.J. 580, 586–87 (2000).) Some jurisdictions have issued opinions stating that a non-lawyer may not routinely generate and send demand letters with an attorney’s name and facsimile signature, absent the attorney’s approval. Doing so not only violates ABA Model Rule 5.5 but also Model Rule 8.4 (misconduct). (Phila. Eth. Opinion 90-24 (December 1990).) Others have opined that non-lawyers may not draft legal documents or institute, negotiate, or settle lawsuits without the proper supervision of a lawyer. (S.C. Bar Ethics Adv. Op. # 91-18.) New Jersey prohibits non-lawyer assistants to send correspondence to a firm’s clients, opposing counsel, or courts unless the communication (1) is permitted by the supervising attorney, (2) the supervising attorney is “aware of the exact nature of the correspondence,” and (3) the supervising attorney is “satisfied that it is non-substantive and does not cross the line into the unauthorized practice of law.” (N.J. Advisory Comm. on Professional Ethics, Op. 720 (Mar. 23, 2011); N.J. Comm. on the Unauthorized Practice of Law, Op. 46 (Mar 23, 2011).)

Supervision Responsibilities of Local Counsel

A twist on ABA Model Rules 5.3 and 5.5 occurs when it is applied to local attorneys who are assisting lawyers not licensed in their jurisdiction. As in other practice areas, collection attorneys often act as “local counsel” for other lawyers. Often, the lawyer’s they are assisting are not licensed in their jurisdiction. When acting as local counsel, attorneys should be mindful that their role is to supervise the unlicensed attorneys who have engaged them. Failed supervision here can have grave consequences for both local counsel and outside counsel.

In In re Wood, 408 B.R. 841, 852–853 (Bankr. D. Kan. 2009), a Kansas federal bankruptcy court admonished an attorney for filing deficient pleadings prepared by attorneys not licensed in Kansas and not admitted pro hac vice. Those deficient pleadings adversely impacted his client’s bankruptcy case. The court found that in these circumstances, the local attorney must still retain responsibility for the conduct of the legal work, particularly where he or she files the pleadings prepared by the unlicensed, outside counsel, under his or her own name. The local attorney failed to exercise any professional judgment in handling the case and did not supervise the work of the outside, unlicensed counsel. As a result, the court determined that the local counsel was assisting non-attorneys (the outside counsel) in the unauthorized practice of law. The court also found that outside counsel, by preparing bankruptcy pleadings without the supervision of local counsel, had engaged in the unauthorized practice of law.

Both local counsel and the firms that retain them should note a decision from a New Jersey federal court which criticized the practice of “a consumer protection law firm that has represented thousands of consumers to date and relies solely on the fee-shifting provision of the [Fair Debt Collection Practices Act (15 U.S.C. §§ 1681, et seq.)] to be paid." (Bilazzo v. Portfolio Recovery Assocs., LLC, 2012 U.S. Dist. LEXIS 89094, 29–30 (D.N.J. June 25, 2012).) That court found that attorneys not admitted in New Jersey who were retained by a New Jersey resident, conducted the resident’s initial interview and directed the course of the litigation, independent of the participation or supervision of local counsel, “failed to engage in such a reasonable course of professional conduct.”

Avoid Ethics Pitfalls by Conducting Periodic Procedures Reviews

Debt collection attorneys, particularly those engaged in consumer debt collection, likely already have developed “procedures reasonably adapted to avoid . . . error[s]” of FDCPA compliance. However, Model Rules 5.1 and 5.3 require procedures governing other areas of attorney conduct that are not always “consumer facing.” For example, attorneys have faced disciplinary proceedings for having no procedures in place to protect against misappropriation of trust funds. Another example would be not having procedures to protect client confidences (Model Rule 1.6).

Discipline is not typically imposed simply because non-attorneys or supervised attorneys erred — but if the supervising attorneys had no or inadequate procedures to ensure conformance with professional conduct, then discipline will likely follow. Reported opinions often demonstrate that “red flags” were present which should have alerted the lawyer if not to the problem itself, then to the potential presence of a transgression. For example, in the New York case discussed above, the attorney’s files contained evidence that the wrong persons were being pursued for debts; an evident problem. But, what really troubles a disciplinary authority is when, despite red flags, the problem is not detected and corrected.

In order for the procedures and mechanisms used to supervise attorneys and non-lawyer assistants to be “measures giving reasonable assurance” of compatible conduct, managerial lawyers should take into consideration the nature of the work being performed, the amount of work to which supervised lawyers and non-lawyers are lending assistance, and their experience.

Steps that Managerial Lawyers Should Take

  • Consider who is performing file reviews and their skill and experience in understanding litigation practices, credit instruments, and the operation of the debt collection practice. Managerial attorneys should consider whether these non-lawyer assistants are being asked to perform work that constitutes the practice of law, and whether procedures exists through which issues can be discussed with and considered by attorneys and supervising attorneys. One particular area to focus on is how the firm handles disputes between the consumer and the client.
  • A law firm should create a compliance group that periodically reviews firm practices and examines compliance with its procedures by attorneys and non-attorneys alike.
  • When errors are identified, the law firm should not only move promptly to remedy them, but also determine what led to the errors and consider the implementation of safeguards to avoid future recurrences.
  • Law firms should also consider retaining an inside or outside designated ethics counsel who is prepared to assist the firm in developing procedures and training or addressing practice questions and ethics grievances. A September 18, 2013, consent order between JP Morgan Chase and the Office of the Comptroller of the Currency identified compliance with attorney ethics as one of the areas needing improvement in that bank’s use of in-house and outside collection attorneys.


There is no single solution for all law firms. Procedures must be tailored to the particular operations of each firm and the skills of the supervised persons. Although mistakes may be inevitable, undertaking continuing and conscientious reviews and assessments of the practice’s compliance with its professional responsibilities may help to mitigate or avoid disciplinary actions.






Donald Maurice

Donald S. Maurice is president of Maurice & Needleman, P.C., whose attorneys specialize in all areas of creditors’ rights and financial services litigation and compliance.