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Ethics Opinion

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RI-335

April 12, 2005

SYLLABUS

    The fact and content of unpaid bills is a "confidence or secret" of a client under MRPC 1.6. A lawyer may reveal only the fact and amount of an unpaid bill to a credit reporting agency and only (i) with the prior written consent of the client, such as in a signed engagement letter with clear and unambiguous language, (ii) after securing a final judgment of a sum certain or (iii) if the unpaid invoice has become a matter of public record.

    References: MRPC 1.6(b), (c)(5) & (d); & Comments; The Fair Credit Reporting Act (15 U.S.C. 1681 et seq.); Alaska Ethics Op. 86-3; Arizona Op. 94-11(9/19/94); Florida Ethics Op. 90-2(1991); Kentucky Opinion E­379 (6/6/95); Missouri Opinion 970016 (undated); New Hampshire Ethics Op. 1987­8/8(1988); New Mexico Ethics Op. 1988-7(1988); New York State Ethics Op. 684 (1996).

TEXT

An opinion was requested as to the propriety of reporting clients failing to pay their legal bills to credit reporting agencies, either with or without the client's consent.

ISSUES

  1. Under what circumstances, if any, may a lawyer in Michigan ethically report nonpaying clients to a credit-reporting agency without violating the Michigan Rules of Professional Conduct ("MRPC")?
  2. Does a lawyer have a duty to supervise third parties retained for collection purposes who might make such reports to a credit agency indirectly?
  3. Do confidentiality obligations still apply if the firm no longer performs services because of non-payment by the client?

ANALYSIS & DISCUSSION

A lawyer is under a general duty to maintain the confidentiality of client information under the MRPC.

MRPC 1.6 (b) state:

    "(b) Except when permitted under paragraph (c), a lawyer shall not knowingly:

      (1) reveal a confidence or secret of a client;
      (2)  use a confidence or secret of a client to the disadvantage of the client; or
      (3) use a confidence or secret of a client for the advantage of the lawyer or of a third person, unless the client consents after full disclosure."

The Comment to Rule 1.6 state in part:

    "A fundamental principle in the client-lawyer relationship is that the lawyer maintain confidentiality of information relating to the representation . . . .

    "The principle of confidentiality is given effect in two related bodies of law, the client-lawyer privilege (which includes the work-product doctrine) in the law of evidence and the rule of confidentiality established in professional ethics . . . . The rule of client-lawyer confidentiality applies in situations other than those where evidence is sought from the lawyer through compulsion of laws. The confidentiality rule applies to confidences and secrets as defined in the rule. A lawyer may not disclose such information except as authorized or required by the Rules of Professional Conduct or other law . . . ."

The threshold question is whether an unpaid legal bill constitutes a "client secret" which must be kept confidential. After much discussion, the Committee determined that unpaid legal bills do constitute a client secret for two principal reasons.  First, an unpaid bill may reveal a client's financial condition and credit worthiness. Second, it reveals that the client needed a lawyer and if the services are described in detail, could reveal specific problem areas affecting the client.

There is no Michigan precedent on this question, but most other states considering this issue have also ruled that unpaid bills are a client secret and attorneys may not report such bills to credit agencies except under limited circumstances (Alaska, Arizona, Florida, Kentucky, New Hampshire, New Mexico and New York). Most other jurisdictions require that even when reporting is allowed, it must only be for undisputed sums or with express client consent. Missouri allows disclosure without consent but limits the information to what is necessary to collect debt. Florida allows reporting only for former clients.

In Michigan, there are limited exceptions to the requirement of maintaining the confidentiality of client information. One of these exceptions is for purposes of collecting a fee and/or defending against a malpractice action (MRPC 1.6(c)).

MRPC Rule 1.6(c)(5) state:

    "(c) A lawyer may reveal:

      (5) confidences or secrets necessary to establish or collect a fee, or to defend the lawyer or the lawyer's employees or associates against an accusation of wrongful conduct."

Comments:

"Dispute Concerning Lawyer's Conduct

    . . . A lawyer entitled to a fee is permitted by paragraph (c)(5) to prove the services rendered in an action to collect it . . . ."

An issue arises whether reporting to a credit agency falls within this exception because the mere reporting of an unpaid invoice does not establish the validity or amount of a fee or collect a fee. The threat of reporting may affect clients concerned about their credit rating, but actually establishing a sum certain requires either a client's agreement on the amount owed or a final judgment. Absent the client's voluntary payment, actual collection of a fee requires other remedies, such as liens, garnishments, or a sheriff's seizure and sale.

Once either (i) the client has consented in clear and unambiguous language such as a signed written retainer agreement, (ii) the invoice has been reduced to an undisputed sum certain in a final judgment or (iii) the unpaid invoice has become a matter of public record, such as a court docket, the Committee concludes reporting unpaid legal bills to a credit reporting agency is permissible. There comes a time when ". . . the beneficiary of a fiduciary relationship may not exploit it to the detriment of the fiduciary." (Comment to MRPC 1.6(c)).

Even when permissible, disclosure to a credit-reporting agency is not without limits. Under Rule 1.6(c), the Comments stress ". . . the lawyer must make every effort practicable to avoid unnecessary disclosure of information relating to a representation, to limit disclosure to those having the need to know it, and to obtain protective orders or make other arrangements minimizing the risk of disclosure." The Fair Credit Reporting Act (15 U.S.C. 1681 et seq.) places limits governing all creditors reporting information to credit agencies. In short, a lawyer should disclose only as much as is required for the purposes of the exception and not to be the "last link," which discloses other protected information.

Reports of unpaid legal bills are best limited to the name and address of the client, the amount of fees owed, the age of the account and a general statement that it is for legal services rendered, without-going into the detail of what those services were in a manner to avoid disclosing protected information.

Lawyers cannot skirt these rules indirectly by retaining a collection agency or other third party, who then reports the nonpaying client to a credit-reporting agency. MRPC 1.6 (d) makes it clear that a lawyer is responsible for ". . . others whose services are utilized by the lawyer from disclosing or using confidences or secrets of a client."

Lawyers also cannot terminate a client relationship due to nonpayment and then disclose unpaid legal bills to a credit reporting agency because that person is a "former client." Termination of the client relationship does not in itself allow an attorney to terminate the ethical duties owed to that client. (MRPC 1.9 and the Comment to Rule 1.6.)

CONCLUSION

The content and fact of unpaid legal bills are deemed to be confidential client information. A lawyer may only report the fact and amount of an unpaid invoice to a credit reporting agency when:

  1. A clear and unambiguous written consent has been freely signed by the client prior to any reporting specifically stating that the lawyer has the right to report nonpayment to a credit agency;
  2. A final judgment or arbitration award in the lawyer's favor with a sum certain has been issued from which no further appeal is allowed; or
  3. The unpaid invoice has become a matter of public record.
 
     

 

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