A lot of people starting judgment enforcement businesses ask me if they are legal in North Carolina. Unfortunately, I can't necessarily tell them that they are. On one hand, I have yet to find a statute or case that specifically prohibits it. But then again, I haven't researched the question in great depth.
What I have found is that other states are quite clear in their opposition to judgment collection businesses. These businesses are often started as "home-based" businesses, and they sound like a great idea. The owner starts the business and gets people who hold court judgments to "assign" the judgment to them on a "future pay" basis -- that is, the collector becomes the legal holder of the judgment, then executes a side agreement with the original judgment holder to pay them a percentage of whatever they ultimately collect.
Courts have found this practice to either be a disguised way of "practicing law without a license" or operating an unregistered debt collection business (typically a debt collection company needs a special license and must be bonded).
For example, our neighbor to the south -- South Carolina -– expressly forbids these arrangements. See Roberts v Laconey (2007). Iowa holds similarly. In Iowa Supreme Court Comm’n on Unauthorized Practice of Law v. A-1 Assocs, Ltd., 623 N.W.2d 803 (2001) the Supreme Court of Iowa concluded that an instrument similar to the “Notice of Assignment and Assignment of Judgment” used by the Respondent (a judgment collection company) was not in fact an assignment of a judgment, but was an agreement for collection services such as a lawyer would perform. The court noted that if the instrument truly had been an assignment, then the assignee could have attempted to collect the judgment without engaging in the practice of law. The court went on to state “A-1’s claimed status as a bona fide assignee is defeated under this record, however, because the assignment – though absolute in form – is, in fact, a transfer intended primarily to secure payment for services rendered. (citation omitted). This is demonstrated by the fact that A-1 pays nothing for the purported ‘assignment.’ . . . Courts throughout the country have condemned this practice as an attempt by collection agencies to accomplish indirectly what the law otherwise prohibits.” (citation omitted). 623 N.W.2d at 808. The court concluded that A-1 Associated, Ltd. had engaged in the unauthorized practice of law. “So long as A-1 is not representing its own legal interests . . ., but the legal interests of others, it is engaging – without license or other authorization – in the practice of law.” 623 N.W.2d at 808-09.
In State ex rel. State Bar of Wisconsin v. Bonded Collections, Inc., 36 Wis.2d 643, 154 N.W.2d 250 (1967), the Supreme Court of Wisconsin considered the following issue: “Does a course of conduct whereby a collection agency takes assignments of accounts for collection, . . ., brings suit in its own name, and then pursuant to a prior agreement deducts from the proceeds, costs, and a fixed percentage as its fee and remits the balance to the creditor, constitute the unauthorized practice of law?” 154 N.W.2d at 253-54. In concluding that it does, the court stated “[i]t is sheer hypocrisy to conclude that the percentage retained by the collection agency represents its equity or ownership share of the claim. It is its fee or charge for professional services rendered.” 154 N.W.2d at 256. The Wisconsin court also noted that “[t]he collection agency by going into court representing itself as the client perpetrates a fraud on the court.” Id.
Another state where I found a case on this was New Mexico. In State ex rel. Norvell v. Credit Bureau of Albuquerque, Inc., 85 N.M. 521, 514 P.2d 40, 49 (1973) it was held that assignments procured by a credit bureau were not truly taken to acquire title and ownership, but to facilitate delivery of legal services for consideration constitute unauthorized practice of law. In West Virginia State ex rel. Frieson v. Isner, 168 W.Va.758, 285 S.E.2d 641, 651-52 (1981) cites numerous cases to support the conclusion that an assignment taken solely to maintain suit on a creditor’s claim is a "sham" perpetrated on the court to enable the unauthorized practice of law.
So if you are tempted to start one of these businesses, wherever you are, please take heed of this information and consult with an attorney first to find out whether or not this practice is legal in your state. For those in North Carolina who contact me on a regular basis, unfortunately I do not have an answer for you. I suspect that North Carolina would probably go along with the other states, but you never know. Again, as far as I know, the Court of Appeals has not addressed the issue, but I must emphasize that my research on this question is far from complete.
I ran across the link below. It's an unauthorized practice of law case in Ohio where the activities described in this article were deemed not to be unauthorized practice of law. They were not bothered by future pay, nor were they bothered by the fact that the purchase agreement stipulated that the judgment would be assigned back to the original judgment creditor if the assignee failed to collect the judgment.
http://www.sconet.state.oh.us/Boards/UPL/reports/03_05.pdf
Posted by: June Copeland | 04/14/2010 at 07:26 PM
Here's an Ohio case where it was not considered Unauthorized Practice of Law
http://www.sconet.state.oh.us/Boards/UPL/reports/03_05.pdf
Posted by: June Copeland | 04/24/2010 at 09:24 PM