State ex rel. Porter v. Alabama Ass'n of Credit Executives

• Citation: 338 So.2d 812
• Parties: STATE of Alabama on the relation of Irvine C. PORTER, Chairman of the Unauthorized Practice of Law Committee of the Alabama State Bar, and Irvine C. Porter, Individually, v. ALABAMA ASSOCIATION OF CREDIT EXECUTIVES, a corporation. SC 1496.
• Decision Date: 16 July 1976
• Court: Supreme Court of Alabama

Page 812

338 So.2d 812

STATE of Alabama on the relation of Irvine C. PORTER, Chairman of the Unauthorized Practice of Law Committee of the Alabama State Bar, and Irvine C. Porter, Individually, v. ALABAMA ASSOCIATION OF CREDIT EXECUTIVES, a corporation.

SC 1496.

Supreme Court of Alabama.

July 16, 1976.

As Modified on Denial Of Rehearing Sept. 10, 1976.

Marvin Cherner, Birmingham, for appellants.

Charles Cleveland, Birmingham, for appellee.

Drayton T. Scott, Birmingham, for Commercial Law League of America and the National Assn. of Credit Management, amicus curiae.

MADDOX, Justice.

This is a 'quo warranto' proceeding brought in the name of the State of Alabama on the relation of Irvine C. Porter, the Chairman of the Unauthorized Practice of Law Committee of the Alabama State Bar Association. The jury found that by virtue of its collection business, the Association is engaged in the unauthorized practice of law. The trial judge ordered the Association to refrain from certain activities but allowed it to continue collecting 'undisputed and uncontested delinquent accounts.' Both parties appealed.

The Association is an organization of approximately 700 businesses in Alabama which extends credit to other businesses. It has five offices and is engaged in business throughout the state. It provides its members with credit reports, a pre-collection service, and a collection service. A member can obtain a credit report on a customer or potential customer for a fee ranging between $3 and $5.25. The report is limited to the actual experience other Association members have had in obtaining payment from the person or entity whose credit standing is being reported.

The pre-collection service consists of two form letters the Association sends the debtor. The first letter seeks to have the debtor make payment directly to the creditor. If payment is not made within 15 days, the second letter is sent. When this service is used, the member is charged a fee but the account is not considered as placed with the Association for collection.

Upon filling out a form, a member can turn an account over to the Association for collection. If payment is made after one letter, and within ten days, there is no charge to the member. If not, the Association mails a series of form letters and in some cases, makes telephone calls to the debtor. If the Association cannot collect the amount, an employee calls the member and asks what he wants done with the account. If the member wants to turn the account over to an attorney, but does not have one, the Association will send the account to one of the attorneys who is a member of the Association. When the Association forwards the account to an attorney, it uses a form letter setting forth the suggested fee to be charged by the attorney and advises the attorney that the creditor has authorized remittance of the amount collected to be made to the Association. The Association charges a 'follow-up fee' equal to 5% Of the total amount collected by the attorney.

Based upon the jury's determination that the Association was engaged in the unauthorized practice of law, Judge Haley entered the following order:

'IT IS FURTHER ORDERED AND ADJUDGED by the Court that the defendant, Alabama Association of Credit Executives, and every officer, agent or employee of said corporation, be and is hereby required to cease and desist, and in the future to refrain from doing itself or assisting any other person, either directly or indirectly, in doing any of the following:

'1. By letter, telephone or other means of communication, make any threat to any person, either expressed or implied, that a legal action or process of any kind whatsoever will be brought or contemplated in order to recover from such person or have such person pay any debts or other obligations owed by such person or claimed to be owed by such person to any other person, firm or corporation;

'2. Employ on behalf of any other person, any attorney to represent such person or receive on behalf of any person, any recoveries or collections of any such accounts or other obligations made by any attorneys for such other person;

'3. Accept employment from any attorney to recover or attempt to recover any amounts owed by any person to any other person '4. Employ any other person, firm or corporation for the purpose of collecting or attempting to collect in an unauthorized manner, any obligation or debt owed by any person to any other person;

'5. Undertake to settle, adjust, compromise or collect any amount due from any person whenever any dispute or question shall arise with respect to such indebtedness.

'The defendant may collect undisputed and uncontested delinquent accounts so long as its efforts in so doing do not transgress the other provisions of this Order.' (Emphasis added.)

On appeal to this Court, Porter contends that the italicized portion of the trial court's judgment should have been deleted and the Association should have been restrained from directly or indirectly engaging in the collection of defaulted accounts.

The Association, in its cross-appeal, challenges the remaining portions of Judge Haley's order.

The first question we will address is the issue raised by Porter: Does the mere collection of undisputed and uncontested delinquent accounts for another by one who is not a licensed attorney constitute the unauthorized practice of law in Alabama? Judge Haley ruled that such activity does not constitute the practice of law. We agree.

The controlling statute is Title 46, Code of Alabama 1940, § 42 (Recomp.1958). It provides in pertinent part:

'Who may practice as attorneys.--Only such persons as are regularly licensed have authority to practice law. For the purposes of this article, the practice of law is defined as follows: Whoever, . . . (d) as a vocation, enforces, secures, settles, adjusts or compromises defaulted, controverted or disputed accounts, claims or demands between persons with neither of whom he is in privity or in the relation of employer and employee in the ordinary sense; is practicing law. . . .'

Porter contends that by passing this statute, the Legislature intended to prohibit the out-of-court collection of defaulted accounts on behalf of creditors by those not licensed to practice law. We do not think so.

We believe the Legislature intended to insure that laymen would not serve others in a representative capacity in areas requiring the skill and judgment of a licensed attorney. The words used by the Legislature were '. . . enforces, secures, settles, adjusts or compromises controverted or disputed accounts . . .' Had the Legislature intended to prohibit collecting, it could have so stated.

Our ruling is consistent with the rule followed in other jurisdictions. The rule is stated in the annotation, Operations of Collection Agency as Unauthorized Practice of Law, 27 A.L.R.3d 1152, 1156, as follows:

'It appears to be well settled that a collection agency in making a peaceful collection of a claim or in making a friendly adjustment of a bill without resort to a court of law does not engage in the unauthorized practice of law. In other words, the operation of a collection agency by and in itself does not constitute the practice of law.'

As to Porter's...