Collection Agencies and the Unauthorized Practice of Law: the Divorce of Function from Form in Alco Collections, Inc. v. Poirier, 680 So. 2d 735 (la. Ct. App. 1996)

• Publication year: 2021

77 Nebraska L. Rev. 365. Collection Agencies and the Unauthorized Practice of Law: The Divorce of Function from Form in Alco Collections, Inc. v. Poirier, 680 So. 2d 735 (La. Ct. App. 1996)

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Note

Collection Agencies and the Unauthorized Practice of Law: The Divorce of Function from Form in Alco Collections, Inc. v. Poirier, 680 So. 2d 735 (La. Ct. App. 1996)

TABLE OF CONTENTS

I. Introduction .......................................... 365
A. An Historical Overview ............................. 365
B. Justifications for Rules Against the Unauthorized
Practice of Law .................................... 368
II. Background ............................................ 372
A. The Assignment Theory in UPL Cases ................. 374
B. The Agency Theory in UPL Cases ..................... 379
III. Analysis .............................................. 381
A. The Marriage of Logic and Function in DeBenedictis
v. Hagen ........................................... 382
B. Trustees and Assignees for Collection: Unlikely
Bedfellows? ........................................ 386
C. Form Following Function: Collection Agencies and
the Unauthorized Practice of Law in Nebraska ....... 388
IV. Conclusion ............................................ 394

I. INTRODUCTION

A. An Historical Overview

As the American legal system has developed, the courts, attorneys, and bar associations have worked vigorously to demarcate the practice of law,(fn1) to limit the practice of law to those with the requisite qualifications, (fn2) and to penalize the unauthorized practice of law (UPL) by

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those who lack the necessary education and training.(fn3) The first legislation restricting the practice of law was enacted in the 1640s and was meant to regulate the activities of all "attorneys" who had not been trained as barristers in England, which, practically speaking, applied to nearly all of the early practitioners.(fn4) The first real campaign against UPL was launched in the mid-eighteenth century by the members of fledgling bar associations (fn5) "seeking to disassociate [themselves] from the untrained practitioners with whom they had previously shared both the practice of law and the title 'attorney.' . . ."(fn6) In an attempt to suppress the activities of untrained practitioners, the bar associations established standards governing an attorney's education and training as well as requirements for admission to practice in the courts.(fn7)

In the century following the Revolutionary War, most of the efforts to regulate the practice of law were abandoned. The legal profession experienced a decentralization and deprofessionalization which reopened the courts to scores of untrained laymen.(fn8) The pendulum, however, continued to swing. Around 1870, the bar associations reemerged with greater organization and influence than ever before and gradually reestablished control over the admission to law practice. (fn9) Although one of their goals was to lessen perceived "overcrowd-

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ing at the bar,"(fn10) competition from within was not the only catalyst for their efforts.

Beginning in the mid- to late-1800s, competition for "law business" (fn11) by nonlawyers triggered (fn12) what one scholar has called "the modern unauthorized practice movement."(fn13) The primary source of lay competition and, therefore, the primary source of concern, was not the individual nonlawyer but the business corporation.(fn14) Indeed, "the business corporation posed a threat to lawyers both because corporate business tended to develop legal needs that lawyers seemed not yet able to meet, and because corporations had, or could develop, the capacity to compete effectively with lawyers in providing traditional kinds of legal services."(fn15) It is no coincidence, then, that the first significant wave of legislation and litigation against UPL closely followed the rise of the corporation.(fn16) While the bar associations were unsuccessful in entirely preventing lay competitors from engaging in law business, the spread of broadly-drafted UPL legislation ensured that the activities of nonlawyers would be strictly restrained and regulated.(fn17)

A body of statutory and common law prohibiting UPL developed during the mid-eighteenth and early-nineteenth centuries to pave the way for the explosion of litigation which occurred from 1920 to 1960. (fn18) Beginning in 1920, bar associations intensified their efforts against unlicensed practitioners, this time targeting business corporations. They opposed the corporate "menaces" through the combined strength of four hundred standing committees on UPL, which were actively in-

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volved in local campaigns to encourage attorneys to aid in the unauthorized practice battle.(fn19)
B. Justifications for Rules Against the Unauthorized
Practice of Law

As the body of law against UPL emerged and evolved, proponents of the regulations offered four primary justifications for rules against UPL: protecting clients and the public from harm, preventing harm to the legal system, providing a framework for regulating attorneys, and maintaining control over the legal system.(fn20)

Protecting clients from harm involves two areas of concern. First, UPL rules are meant to prevent clients from being harmed by the incompetence of untrained practitioners. One who has not been admitted to practice law is generally regarded as more likely to cause harm when he attempts to represent another person or to aid him in legal matters than one who has received formal education and training in the law.(fn21) The second area of concern is one that many courts cite, particularly in the context of collection agency activities. Proponents of UPL rules argue that clients are more likely to suffer harm when licensed attorneys perform legal services for a business corporation

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because the attorney's loyalties are divided between the client and the corporation, and the corporation controls the attorney's professional judgment.(fn22) For example, numerous courts have found that when an attorney is retained by a collection agency, the true client is not the collection agency but the creditor. Consequently, if conflicts of interest arise between the creditor and the collection agency, the attorney's loyalties will be impermissibly divided between the true client-the creditor-and the collection agency that pays his fee.(fn23)

The attorney-client relationship . . .'cannot exist between an

attorney employed by a corporation to practice law for it, and a

client of the corporation. . . . There would be neither contract nor

privity between him and the client, and he would not owe even the duty

of counsel to the actual litigant.'(fn24)

In this kind of situation, the collection agency is regarded as an intermediary which has placed itself between the attorney and the creditor and, by that act, has committed two wrongs. First, it "absorb[s] and destroy[s] the relation of direct personal confidences and responsibility which ought to exist between attorney and client."(fn25) Second, the collection agency holds itself out as providing legal services to the clients and makes a profit on the attorney's services.(fn26)

The second main justification for rules against UPL is that they protect the legal system itself from the incompetence and unregulated conduct of laymen. "It is thought that nonlawyers, because they are ignorant of law and unskilled in legal matters, would clog the courts with unfounded claims and defenses; . . . create litigation and confusion with ineffective deeds, wills, and other legal instruments; and generally throw the legal system into chaos."(fn27)

The third justification for rules against UPL arises out of the desire to protect the legal system. In order to protect the legal system, a framework for regulating attorney conduct must exist. In most states, attorneys are required to comply with certain ethical and practical

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rules of conduct, usually established and enforced by the state bar association or the courts. If nonlawyers have not been admitted to the bar or admitted to practice in the courts, they are subject neither to the regulations and restrictions which govern attorney conduct, nor to discipline by the courts.(fn28) Without UPL rules, then, there is no way to control nonlawyer conduct because there is no incentive to abide by the rules governing licensed attorneys.(fn29)

The final justification for rules against UPL is that these rules protect the profession from unrestrained competition.(fn30) Of course, this reason is rarely articulated by either attorneys or the courts, except to deny that it exists. One court rejected the implication that either the legal profession or the courts were motivated by self-interest in enforcing UPL rules. In its interpretation of the plaintiff's original petition, which claimed that the suit was "on behalf of plaintiffs as practicing attorneys and of others similarly situated,"(fn31) the court found that

[t]he allegation, properly interpreted is proper. It does not mean

that the purpose is to protect lawyers from unwanted competition. It

refers rather to the duty, as well as the right, of attorneys to

preserve the integrity of their profession, in the interest not merely

of its members but of the public generally, against assaults from

without as well as from unfaithfulness within. The performance of this

duty is frequently made especially difficult because the motives back

of such performances are so easily misunderstood or

misrepresented.(fn32)

History suggests, however, that attorneys' private interests were openly acknowledged during the emergence of the bars. This forth-rightness, however, began to disappear around the turn of the century. (fn33) That these private...