Reliable Collection Agency, Ltd. v. Cole

• Decision Date: 24 August 1978
• Docket Number: No. 6356,6356
• Citation: 59 Haw. 503,584 P.2d 107
• Parties: , 7 A.L.R.4th 1136 RELIABLE COLLECTION AGENCY, LIMITED, a Hawaiian Corporation, Plaintiff and Counterdefendant-Appellee, v. David C. COLE and Margaret Cole, Defendants and Counterclaimants-Appellants.
• Court: Hawaii Supreme Court

Page 107

584 P.2d 107

59 Haw. 503, 7 A.L.R.4th 1136

RELIABLE COLLECTION AGENCY, LIMITED, a Hawaiian Corporation, Plaintiff and Counterdefendant-Appellee, v. David C. COLE and Margaret Cole, Defendants and Counterclaimants-Appellants.

No. 6356.

Supreme Court of Hawai'i.

Aug. 24, 1978.

Syllabus by the Court

1. Factors relevant in determining whether a criminal statute creates a private claim for damages in favor of a person injured by the proscribed conduct are (1) whether the plaintiff is one of the class for whose especial benefit the statute was enacted, (2) whether there is legislative intent to create or deny such a remedy and (3) whether such a remedy is consistent with the underlying purposes of the legislative scheme.

2. A statute which prohibits the unauthorized practice of law does not create a private right to damages or to declaratory or injunctive relief in favor of persons not recipients of unlawful services, where the statute provides for enforcement by public officers and discloses a legislative purpose to obtain uniformity in enforcement procedures.

3. No private right of action exists to enforce restraints upon unauthorized practice of law pursuant to the inherent power of the court to regulate the practice of law, in the absence of a personal interest which will be measurably affected by the outcome of the case.

4. Where conduct alleged to constitute unauthorized practice of law occurred outside the presence of the court, in the absence of any impairment or jeopardy of a private interest such conduct may not be asserted in defense of a debt collection proceeding.

John H. Ishihara, Honolulu (Legal Aid Society of Hawaii, of counsel), for defendants and counterclaimants-appellants.

James M. Sattler, Honolulu, for plaintiff and counterdefendant-appellee.

Before RICHARDSON, C. J., and KOBAYASHI, OGATA, MENOR and KIDWELL, JJ.

KIDWELL, Justice.

The plaintiff, Reliable Collection Agency, Inc. ("Reliable"), a Hawaii corporation licensed to engage in the business of debt collection, brought this action as an assignee of debts owed by the defendants ("the Coles") to two third parties not joined in the present action, Kapiolani Hospital and City Mill Co., Ltd. The Coles asserted as an affirmative defense that Reliable was engaged in the unauthorized practice of law by virtue of the debt collection practices it employed in the present action, and counterclaimed for damages and declaratory and injunctive relief based on such unauthorized practice of law.

This case is before us on an interlocutory appeal, allowed by the circuit court, from an order granting to Reliable a partial summary judgment which struck the Coles' affirmative defense and denied the Coles' cross-motion for partial summary judgment on their counterclaim. We affirm.

I

The Coles contend that Reliable was engaged in the unauthorized practice of law in that its activities impermissibly involved Reliable in the control of legal proceedings brought in the interest of its customers, put Reliable in an intermediary position between the creditors in whose interest claims were being prosecuted and the attorneys who actually appeared in court to present those claims, and placed Reliable in a primary attorney-client relationship with the attorneys who actually appeared to represent the interests of Reliable's customers. The facts which the Coles contend disclose the unauthorized practice of law by Reliable, and which the Coles seek to establish as the ground of their affirmative defense and counterclaim, may be summarized as follows:

Reliable is engaged in the business of soliciting accounts for collection, and engages in collection efforts on behalf of its customers through nonlegal procedures as well as legal proceedings. Reliable charges contingent fees for nonlitigation collection services. If collection cannot be effected through non-litigation methods and Reliable determines that legal action is appropriate, Reliable procures assignments of the debts so that it can proceed to litigation. Creditors know that Reliable will go to court to collect debts if necessary, and are regularly informed that Reliable has facilities to provide the services of attorneys. Reliable recommends a certain law firm to its customers, and has a fee arrangement with this firm. When Reliable obtains assignments of debts, it gives no value in exchange, but promises to use its skills to seek collection through legal process. It charges a contingent fee of 50% Of the amount recovered after its advances are deducted. Reliable assists in the preparation of legal papers, instructs the attorney when to appear in court, and generally handles all communications with its customers except for a brief meeting between the original creditor and the attorney shortly before trial. Reliable also has authority to vacate defaults and settle for installment payments without consulting its customers.

The Coles do not contend that the interposition of Reliable in the debt collection process has increased the liability to which they are subject by reason of their failure to satisfy their valid obligations, and nothing in the record before us would appear to support such a contention.

In the view we take of this case, it will not be necessary for us to consider whether the facts presented to the trial court disclosed that Reliable was engaged in the unauthorized practice of law. The threshold questions, upon which we affirm the partial summary judgment, are whether the Coles may assert the alleged illegality as a ground for a damage claim or for declaratory or injunctive relief and whether the alleged illegality affected the Coles' liability in this action for the debts claimed by Reliable. These questions are somewhat interdependent.

II

The practice of law by others than those "licensed or authorized so to do by an appropriate court, agency, or office or by a statute of the State or of the United States" is prohibited by HRS § 605-14. The attorney general or any bar association in this State is authorized to maintain an action for violation of this prohibition. HRS § 605-15.1. Remedies for such violations include declaratory and injunctive relief as well as criminal sanctions. However, the statute expressly reserves to this court its inherent and statutory powers to deal with this subject. HRS § 605-16.

In enacting § 605-15.1 to give standing to the attorney general or any bar association to maintain actions with respect to the unauthorized practice of law, the legislature stated expressly that it was not its purpose to infringe upon the power of any court to prevent the unauthorized practice of law. Sec. 1, Act 45, Sess.L.1975. Rule-making power with respect to process, practice, procedure and appeals is expressly granted to this court by Article V, Section 6 of the Hawaii Constitution. What conduct constitutes the practice of law is not defined by statute or rule of court.

We approach the question of the Coles' right to assert Reliable's alleged illegal conduct, as a ground for their claims for damages and for declaratory and injunctive relief, upon the assumption that the alleged conduct which has been summarized would if proved constitute unauthorized practice of law which is prohibited by § 605-14. But more must appear to make this conduct actionable at the suit of the Coles.

In Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), a federal criminal statute prohibited corporations from making expenditures in connection with federal elections. The Court held, in an action brought by a stockholder seeking damages on behalf of the corporation, that corporate directors were not liable for spending corporate funds in violation of the statute. Factors which are relevant in determining whether a criminal statute creates a private claim for damages were enumerated as follows:

"In determining whether a private remedy is implicit in a statute not expressly providing one, several factors are relevant. First, is the plaintiff 'one of the class for whose Especial benefit the statute was enacted; . . . that is, does the statute create a . . . right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? . . . Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? . . . " 422 U.S. at 78, 95 S.Ct. at 2088.

The Court viewed the statute as directed against the corrupting influence of corporate wealth upon national elections and not against violations of their fiduciary obligations on the part of corporate directors. Accordingly, the statute was held not to create a right of damages on behalf of the corporation.

In Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 97 S.Ct. 926, 51 L.Ed.2d 124 (1977), the Court dealt with a claim that a corporation's violation of federal securities regulations had prevented the plaintiff from acquiring sufficient shares to obtain control of the corporation. There was no claim that the plaintiff had paid an excessive price for the shares which it had acquired. It was held, on the basis of the rule of Cort v. Ash, supra, that no claim for damages had been made out, since the regulations were directed at the protection of purchasers against price manipulation and were not concerned with corporate control.

Nothing in the legislative history of § 605-14 suggests that the statute was enacted for the especial benefit of persons whose relationship with the proscribed practices is as tangential as the Coles'. Legislative committee reports express a primary objective to enable proceedings with respect to the unauthorized practice of law to be brought in the circuit courts pursuant to a statutory prohibition rather than solely in this court pursuant to its inherent powers. The evil sought to be averted by requiring practitioners to be licensed is described in a way which makes...