I have my own solo practice. A friend of mine wants to become a debt collection business (he's purchasing debt, getting the license and the bond). He's asked me to be his litigator on cases that he needs to collect from. He's offering me 50% of whatever is recovered - I obviously do not need to assist in purchasing the debt. He's already got an LLC set up. Is it ok for me to go 50/50 with him under the LLC, sign an operating agreement, hence becoming "Partners" in a sort of legal business? Or should I just have him sign my usual attorney-client engagement letter and have matters pursue as such?
Thanks all in advance.
THANK YOU TO ALL THAT HAVE ANSWERED!
Adam A StudnickiPersonal Injury LawyerScottsdale, AZ ·
I don't practice in NY so am not familiar with your ethical rules, but the question that jumps out is whether you'd be sharing fees with a non-lawyer and whether that is permissible. Doing business with a client is another one, although at least in AZ that can be addressed via proper disclosures.
Dear New York Lawyer:
I answered your partner's question; and from what I inferred your partner did not have a clue about the business of debt collection.
Unlike your lay partner your law license is on the line should any disciplinary body determine there is a violation of professional responsibility. I would engage in a discussion with my professional liability insurance team and with the local bar associations, for instance New York County Lawyers Association.
You need read only a few federal court decisions smashing landlord attorneys for acting as debt collectors when simply initiating summary nonpayment proceedings to get a feel for the danger involved in being an attorney for a debt collection company where you have an ownership interest.
I am almost certain that the Canons of Ethics prevent an attorney qua attorney from partnering with a lay person, especially in this type of business. As far as the fee is concerned, I don't believe there is a rule against your taking 50 per cent. However, I recommend an a retainer agreement with the LLC which sets forth the parties' duties and rights and the fee to be paid you for work done. The Judiciary law contains the Canons of Ethics and the Disciplinary Rules. You should check those.
I concur on not becoming a partner with a nonlawyer. Pose your question to the NYSBA professional ethics committee at [email protected] I have found that to be the very best avenue for ethics opinions. There is also a searchable database of opinions as well.
Keep things separate and simple. The most straight-forward way to do this is to have the LLC a client of your firm and execute a contingency fee agreement. You don't want to be a member of the LLC, that creates all kinds of liability issues, tax issues, employment issues, and potential ethical issues.
As a practical matter, make sure your fee agreement is clear about how funds will be handled. From a business perspective, you want to keep control of the funds (in your client trust account) and then automatically deduct your fee at the same time as you make a disbursement to the client. Also, you may want to stipulate that any funds collected will be held for 91 days prior to disbursement. Reason being, there is a high risk that the debtors will file bankruptcy at some point, and funds collected within 90 days of filing the BK are considered preferential payments, and subject to disgorgement back to the BK trustee and/or debtor.
