Assignee of Judgment Sharing Collected Funds with Assignor
163 N.J.L.J. 221
January 15, 2001
10 N.J.L. 201
January 29, 2001
Appointed by the New Jersey Supreme Court
Assignee of Judgment Sharing
Collected Funds with Assignor
The issue considered in this Opinion is whether an individual or entity not licensed to practice law in this State may engage in the commercial practice of obtaining an assignment of judgment from a judgment creditor, collecting monies from the judgment debtor and then sharing the proceeds with the original judgment creditor.
Under this arrangement, the collector does not purport to act on behalf of the original judgment creditor, because any action taken in that capacity would unambiguously constitute the unauthorized practice of law. In order to avoid the appearance of acting on behalf of a client, the collector takes an assignment of the judgment from the creditor and becomes the legal owner of the right to collect the judgment. The assignment, however, does not operate as an outright purchase transferring ownership of the judgment in exchange for a sum certain. Rather, the assignment provides that if the assignee's collection efforts are successful, the assignee will receive a fixed percentage of the amount collected and the former judgment creditor will receive the balance. Depending upon the terms of the contract, the judgment creditor's percentage may be payable before or after deduction of expenses, and the assignee may or may not have discretion to settle for less than the face value of the judgment. Despite variations, the terms of these assignments closely track the terms of typical fee agreements between collection attorneys and their clients.
Pursuant to Art. VI, 2, 3 of the New Jersey Constitution of 1947, the Supreme Court has exclusive and plenary jurisdiction to regulate the practice of law. The Court's power over the practice of law is complete and includes the power to permit the practice of law and prohibit its unauthorized practice. In re Opin. No. 26 of the Committee on Unauth. Pract., 139 N.J. 323, 326 (1995). The practice of law by an individual or entity not licensed to do so is unauthorized and proscribed by R. 1:21-1(a).See footnote 1 1
One who seeks to collect a judgment makes use of the courts and thus engages in activity which entails specialized knowledge and ability and constitutes a litigious practice. As such, the activity would plainly constitute the practice of law. New Jersey State Bar Ass'n v. Northern New Jersey Mortgage Associates, 32 N.J. 430, 437 (1960) and Stack v. P.G. Garage, Inc., 7 N.J. 118, 120-121 (1951). The crucial inquiry is whether the device of assignment operates to effectively insulate the assignee's activity from the practice of law. There is no question but that an assignment of judgment is expressly permitted under N.J.S.A. 2A:25-1. Nor do there appear to be any restrictions upon the terms of such an assignment. Clearly, an individual may make use of the judicial system to collect debts and judgments on a pro se basis. If such an arrangement is valid on a casual or incidental basis, may its practice on a regular basis nonetheless constitute the unauthorized practice of law?
The ultimate touchstone in the analysis of whether an activity constitutes the unauthorized practice of law is the public interest . In re Opinion 33, 160 N.J. 63, 78-79 (1999); In re Opin. No. 26 of the Committee on Unauth. Pract., supra, 139 N.J. at 327. The touchstone has relevance to the present question in at least two respects. First, where the public interest is concerned, as it is here, with the enforceability of a contractual obligation, equitable considerations are paramount. One of those considerations is that equity looks to the substance rather than the form. Fidelis Factors Corp. v. P. Lane Hatchery, Ltd., 47 N.J. Super. 132, 138 (App. Div. 1957); Applestein v. United Board & Carton Corp., 60 N.J. Super. 333, 348 (Ch. Div. 1960), aff'd o.b., 33 N.J. 72 (1960). It appears immaterial for purposes of understanding the practice that under one set of documents the collector is acting on behalf of the creditor and under another set of documents he is acting on behalf of himself. To hold that nomenclature is the controlling factor in this case would be to exalt form over substance and, in effect, permit an unlicensed individual or entity to practice law.
Second, it is clear that there will be a continuing risk to the public if the practice under review is left unregulated. The original judgment creditor's reasonable expectation of payment could readily be drained away through unwarranted deduction of the assignee's expenses, through bad faith exercise of the right to compromise, or through incompetence on the part of the assignee. There is little probability that the assignee would be held accountable in any given instance because the stakes in any one case are generally too small. Moreover, even if the assignee were to be pursued civilly in one instance, he or she would likely be free from constraint in the vast majority of cases. Unlike an attorney, the assignee is not concerned about licensure or discipline.
Finally, there is a very real possibility that the original judgment creditor may lose touch with the assignee and never know if or when the judgment has been collected. An attorney, however, would have the ethical obligation to keep the client informed about the status of a matter, RPC 1.4(a), and, upon receiving funds in which the client has an interest, promptly notify the client that the funds have been received, RPC 1.15(b). The widespread utilization of the assignment device by unregulated judgment collectors has every probability of posing a substantial risk of danger to judgment creditors, particularly those creditors who are relatively unsophisticated or possess relatively small judgments.
For the foregoing reasons, it is the Committee's opinion that the practices described above constitute the unauthorized practice of law and are, therefore, prohibited.
The New Jersey State Legislature has also provided for the criminal prosecution of the unauthorized practice of law. N.J.S.A. 2C:21-22 authorizes prosecution of the unauthorized practice of law as either a disorderly persons offense or a crime of the fourth degree.