Debt Collection Law Practice
§ 1.1Client and Claim Information
When a new matter is received, the attorney should open a case file, assign a file number, and complete as much of the client information sheet as possible. The client information sheet, form 1-1 in this chapter, should be the top item in the case file or otherwise placed where it can be referred to easily. Client information may also be kept in a computer database or file management system, which may be particularly helpful if the client refers multiple matters to the attorney.
Form 1-1 has blanks for the most important or recurring information about the case. As the case progresses, more information, such as the date of judgment, may be entered.
§ 1.2:1Informing Client of Grievance Process
Attorneys practicing law in Texas must provide notice to clients of the existence of the grievance process by one of four means: making available at the attorney’s place of business brochures printed by the State Bar of Texas describing the grievance process; posting a sign prominently in the attorney’s place of business describing the grievance process; including the grievance process information in the written contract for services with the client; or providing the information with the bill for services. Tex. Gov’t Code § 81.079(b). This information is included in the contingent fee agreement, form 1-2 in this chapter.
The Supreme Court of Texas and the Texas Court of Criminal Appeals adopted “The Texas Lawyer’s Creed—A Mandate for Professionalism” in 1989. The Texas Lawyer’s Creed, along with additional information regarding its adoption, is available at www.legalethicstexas.com. For a provision of the Creed to be enforceable by the courts, the courts must act pursuant to their inherent powers or existing rules, because the Texas Lawyer’s Creed is not binding law, but a recommended code of conduct. The Creed does not create new duties and obligations enforceable by the courts beyond those existing as a result of (1) the courts’ inherent powers and (2) the rules already in existence. PNS Stores v. Rivera, 379 S.W.3d 267, 276–77 (Tex. 2012).
The Texas Lawyer’s Creed sets forth an aspirational code of conduct for lawyers when engaging with (1) the legal system; (2) the client; (3) other attorneys, including opposing counsel; and (4) the judiciary. Standing alone, it cannot serve as a basis for sanctions, civil liability, or litigation. “These standards are not a set of rules that lawyers can use and abuse to incite ancillary litigation or arguments over whether or not they have been observed.” The Texas Lawyer’s Creed—A Mandate for Professionalism, reprinted in Texas Rules of Court—State 735 (West 2018). See also PNS Stores, 379 S.W.3d at 277 (Tex. 2012); Continental Carbon Co. v. Sea-Land Services, Inc., 27 S.W.3d 184, 189 (Tex. App.—Dallas 2000, pet. denied) (citing Byas v. State, 906 S.W.2d 86, 87 (Tex. App.—Fort Worth 1995, pet. ref’d)).
The Texas Lawyer’s Oath requires an attorney practicing law in Texas to—
1.support the U.S. and Texas constitutions;
2.“honestly demean oneself in the practice of law”;
3.discharge the attorney’s duty to the attorney’s client; and
4.“conduct oneself with integrity and civility in dealing and communicating with the court and all parties.”
The oath must be endorsed on the attorney’s license, subscribed by the attorney, and attested by the officer administering the oath. Tex. Gov’t Code § 82.037(b). Tex. Gov’t Code §§ 602.002–.005 set out a list of persons who may administer the oath. A copy of the oath is available at www.texasbar.com.
§ 1.2:4Duty to Report Ethical Violation; Peer Assistance Program Alternative
The Texas Lawyer’s Creed states that a lawyer must “abide by the Texas Disciplinary Rules of Professional Conduct,” and “professionalism requires more than merely avoiding the violation of laws and rules.” The Texas Lawyer’s Creed—A Mandate for Professionalism, reprinted in Texas Rules of Court—State 735 (West 2018).
Rule 8.03 of the Texas Disciplinary Rules of Professional Conduct requires attorneys to make a report when a substantial question arises about another lawyer’s “honesty, trustworthiness or fitness.”
8.03 Reporting Professional Misconduct
(a)Except as permitted in paragraphs (c) or (d), a lawyer having knowledge that another lawyer has committed a violation of applicable rules of professional conduct that raises a substantial question as to that lawyer’s honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate disciplinary authority.
(b)Except as permitted in paragraphs (c) or (d), a lawyer having knowledge that a judge has committed a violation of applicable rules of judicial conduct that raises a substantial question as to the judge’s fitness for office shall inform the appropriate authority.
(c)A lawyer having knowledge or suspecting that another lawyer or judge whose conduct the lawyer is required to report pursuant to paragraphs (a) or (b) of this Rule is impaired by chemical dependency on alcohol or drugs or by mental illness may report that person to an approved peer assistance program rather than to an appropriate disciplinary authority. If a lawyer elects that option, the lawyers report to the approved peer assistance program shall disclose any disciplinary violations that the reporting lawyer would otherwise have to disclose to the authorities referred to in paragraphs (a) and (b).
(d)This rule does not require disclosure of knowledge or information otherwise protected as confidential information:
(1)by Rule 1.05 or
(2)by any statutory or regulatory provisions applicable to the counseling activities of the approved peer assistance program.
(e)A lawyer who has been convicted or placed on probation, with or without an adjudication of guilt, by any court for barratry, any felony, or for a misdemeanor involving theft, embezzlement, or fraudulent or reckless misappropriation of money or other property—including a conviction or sentence of probation for attempt, conspiracy, or solicitation—must notify the chief disciplinary counsel within 30 days of the date of the order or judgment. The notice must include a copy of the order or judgment.
(f)A lawyer who has been disciplined by the attorney-regulatory agency of another jurisdiction, or by a federal court or federal agency, must notify the chief disciplinary counsel within 30 days of the date of the order or judgment. The notice must include a copy of the order or judgment. For purposes of this paragraph, “discipline” by a federal court or federal agency means a public reprimand, suspension, or disbarment; the term does not include a letter of “warning” or “admonishment” or a similar advisory by a federal court or federal agency.
Tex. Disciplinary Rules Prof’l Conduct R. 8.03, reprinted in Tex. Gov’t Code, tit. 2, subtit. G, app. A (Tex. State Bar R. art. X, § 9) (emphasis added). The rule and the alternative method of reporting under rule 8.03(c) reflect the values of the Texas Lawyer’s Creed; rule 8.03(c) allows attorneys to help each other without involving the disciplinary process.
§ 1.2:5Texas Lawyer’s Assistance Program
The only approved peer assistance program to which lawyers may make reports under rule 8.03(c) is the Texas Lawyer’s Assistance Program (TLAP). See Tex. Health & Safety Code § 467.001(1)(A); Board of Directors Meeting Minutes, Jan. 20–21, 1989, State Bar of Texas. TLAP is available to lawyers, judges, and law students twenty-four hours a day, seven days a week, at 1-800-343-TLAP (8527). Information about attorney wellness and other related information is also available on TLAP’s website, www.tlaphelps.org. If a lawyer is required to report under rule 8.03(a), that is, if he has knowledge “or suspects” another lawyer is “impaired by chemical dependency on alcohol or drugs or by mental illness,” the report may instead be made to TLAP and discharges the concerned lawyer’s duty to report. See Tex. Health & Safety Code § 467.005(b); Tex. Disciplinary Rules Prof’l Conduct R. 8.03(c). “Mental illness” encompasses Alzheimer’s disease, dementia, and other cognitive disorders. American Psychiatric Association, Diagnostic and Statistical Manual of Mental Disorders 591 (5th ed. 2013).
Calling TLAP about a fellow lawyer in need is a way to help an attorney with a problem without getting that attorney into disciplinary trouble. The confidentiality of TLAP participants’ information is ensured under Tex. Health & Safety Code § 467.007 and by TLAP policy. All communications by any person with the program (including staff, committee members, and volunteers) and all records received or maintained by the program are strictly protected from disclosure. TLAP does not report lawyers to disciplinary authorities. While the majority of calls to TLAP are self-referrals, referrals may also come from partners, associates, office staff, judges, court personnel, clients, family members, and friends. TLAP is respectful and discreet in its efforts to help impaired lawyers who are referred, and TLAP never discloses the identity of a caller trying to get help for another attorney. Furthermore, the Health and Safety Code provides that any person who “in good faith reports information or takes action in connection with a peer assistance program is immune from civil liability for reporting the information or taking the action.” Tex. Health & Safety Code § 467.008.
Approximately half of all assistance provided by TLAP is given to attorneys suffering from anxiety, depression, or burnout. Additionally, TLAP helps lawyers, law students, and judges suffering problems such as prescription and other drug use, eating disorders, gambling addictions, cognitive impairment, codependency, and many other serious issues.
Once a lawyer, law student, or judge is connected to TLAP, the resources that can be provided directly to that person include—
1.direct peer support from TLAP staff attorneys;
2.self-help information;
3.connection to a trained peer support attorney who has overcome the particular problem at hand and who has signed a confidentiality agreement;
4.information about attorney-only support groups such as Lawyers Concerned for Lawyers (weekly meetings for alcohol, drug, depression, and other issues) and monthly Wellness Groups (professional speakers on various wellness topics in a lecture format), which take place in major cities across the state;
5.referrals to lawyer-friendly and experienced therapists, medical professionals, and treatment centers; and
6.assistance with financial resources needed to get help, such as the Sheeran-Crowley Memorial Trust, which is available to help attorneys in financial need with the costs of mental-health or substance abuse care.
A detailed discussion of conflicts of interest is beyond the scope of this manual. Attorneys should incorporate a conflicts check in the processing of matters they are engaged to handle. See Tex. Disciplinary Rules Prof’l Conduct R. 1.06, 1.09.
See section 1.15 below regarding representation of multiple clients with claims against the same debtor.
§ 1.3:2Going into Business with Clients
See Tex. Disciplinary Rules Prof’l Conduct R. 1.08 regarding restrictions and disclosures that must be made before going into business with a client.
When a file is opened, the attorney should calendar the statute of limitations date to ensure that suits and domestications will be timely filed and judgments and judgment liens will be kept alive. A detailed discussion on statutes of limitation can be found in part III. in chapter 17 of this manual. A detailed discussion on keeping the judgment and the judgment lien alive can be found in section 27.8 in this manual.
As the attorney works the file, a reminder should be calendared for its next retrieval date. Even if the next step will not occur until a response is received from the client, an entry should be made to ensure that the file will be reviewed regularly.
The attorney who does not use a reminder system or calendar important dates is inviting a malpractice claim. Many attorneys use computer programs as primary or backup reminder systems. Several dedicated programs have been created specifically for attorneys’ docket control needs, and other calendar programs or personal information managers serve much the same purpose. Regardless of the system used, a backup system should be put in place to minimize the possibility of human or computer error.
An attorney must hold all funds and other property belonging to clients, such as retainers and funds for paying court costs, separate from the attorney’s own property. Tex. Disciplinary Rules Prof’l Conduct R. 1.15(a). These funds must be kept in a separate account designated as a “trust” or “escrow” account, making sure to comply with the applicable rules governing Interest on Lawyers Trust Accounts programs under article XI of the State Bar Rules, otherwise known as IOLTA. The terms IOLTA account and trust account are not synonymous, as an IOLTA account is a type of trust account. When funds belonging to separate beneficiaries will be held for a short period or if the funds are nominal in amount, the lawyer should use an IOLTA trust account. An IOLTA account pools funds from various beneficiaries to earn interest on behalf of the Texas Access to Justice Foundation to fund legal services for the poor.
Funds that belong in a trust account are (1) all funds for unearned and advanced fees; (2) funds which are owned entirely by the client or partially by the client and the lawyer; (3) funds held for the benefit of the client; and (4) funds held for the benefit of third parties. Examples of unearned fees include (1) advance deposit or retainer for lawyer’s fees incurred on an hourly basis; (2) unearned flat fees; and (3) undistributed settlement proceeds. See Tex. Comm. on Prof’l Ethics, Op. 611 (2011); Cluck v. Commission for Lawyer Discipline, 214 S.W.3d 736 (Tex. App.—Austin 2007, no pet.).
The attorney must promptly notify the client of the receipt of any funds for the client, must promptly deliver to the client any funds to which the client is entitled, and must, on request by the client, promptly render a full accounting of the funds. Tex. Disciplinary Rules Prof’l Conduct R. 1.15(b). The attorney must keep complete records of the account funds and preserve the records for five years after termination of the representation. Tex. Disciplinary Rules Prof’l Conduct R. 1.15(a).
§ 1.5:2Debtor’s Payments on Account
An integral part of a collections practice is receiving and accounting for payments received from debtors. These funds must be placed in the attorney’s IOLTA account when received, the debtor’s account must be promptly credited for the payment, and the funds must be disbursed (both to the attorney for fees earned and to the client) as soon as practicable after the funds clear. The engagement agreement may include the method and manner of disbursement and the attorney’s authority to receive payments on the client’s behalf. An authorization agreement is at form 1-3 in this chapter. A record of the debtor’s payments is at form 1-4. See also chapter 4 in this manual.
§ 1.6Taxation of Debt Collection Services
Generally, legal services to collect debts are exempt from sales tax. Tex. Att’y Gen. Op. No. JM-823 (1987); see also Texas Comptroller of Public Accounts Private Letter Ruling 9301L1222F05. (See https://comptroller.texas.gov/taxes/letters-rulings/ for information on the binding effect of Private Letter Rulings.)
However, debt collection services performed by nonattorneys such as collection agencies are subject to collecting sales tax. See Tex. Tax Code § 151.0036(a); 34 Tex. Admin. Code § 3.354. Tax is due on the total charge for debt collection activity when the last known address of the debtor in the creditor’s records, at the time the account is placed for collection, is located in Texas; and the creditor for whom the debt is collected is located in Texas or is engaged in business in Texas, as provided in Tex. Tax Code § 151.107, at the time debt is referred for collection. 34 Tex. Admin. Code § 3.354(b)(1). The term debt collection service does not include the collection of court-ordered child support or medical child support or the collection of current credit and real estate accounts. Tex. Tax Code § 151.0036(b); see also 34 Tex. Admin. Code § 3.354(d). “A current credit or real estate transaction is one that has not exceeded the later of the due date of the payment or the date on which a penalty or other contractual sanction attaches.” 34 Tex. Admin. Code § 3.354(b)(2). Fees for dishonored checks are taxable, while late charges are considered additional interest and not debt collection charges. 34 Tex. Admin. Code § 3.354(b)(2), (b)(3).
§ 1.7Bonding of Attorneys and Nonattorney Employees
Debt collectors in Texas must be bonded, and an attorney or the attorney’s employees may be “debt collectors” for bonding purposes. Because the amount of bond is nominal and given the continued attempts by consumer advocates and attorneys to expand the reach of the federal Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692–1692p, and Texas Debt Collection Practices Act, Tex. Fin. Code §§ 392.001–.404, the attorney is encouraged to obtain and file a bond with the Texas secretary of state. See section 2.32:4 in this manual for a more detailed discussion.
[Sections 1.8 through 1.10 are reserved for expansion.]
§ 1.11Engagement and Fee Agreement
The attorney-client relationship can begin with or without a formal fee agreement between the parties. The agreement may be express or implied from the conduct of the parties. See Valls v. Johanson & Fairless, LLP, 314 S.W.3d 624, 633–34 (Tex. App.—Houston [14th Dist.] 2010, no pet.). Before any legal work is performed, the attorney’s communications and actions should make it clear that no representation has begun until the parties have executed an engagement agreement. See the fee agreement included as form 1-2 in this chapter and the recommended agreement provisions in section 1.19:2 below.
Even if no relationship has begun, the attorney may still have fiduciary duties, such as from having received confidential documents in the evaluation of the case.
An attorney must keep the client reasonably informed of the status of a matter, promptly comply with reasonable requests for information, and explain matters to the extent reasonably necessary to permit the client to make informed decisions regarding representation. Tex. Disciplinary Rules Prof’l Conduct R. 1.03. Keeping the client informed typically consists of—
1.providing the client with copies of all pleadings, motions, and correspondence;
2.informing the client in writing of actions the attorney is taking; and
3.if the engagement agreement is for an hourly fee, providing regular invoices, itemized with the actions taken by the law firm.
A forwarder is an agent for a creditor-client who refers claims to attorneys for collection. A forwarder may be another attorney, a collection agency, a credit bureau, a credit insurance company, or any other entity that acts on behalf of the creditor in the referral of claims for collection. The forwarding contract should specify, at least, the agreed fee to be paid as the attorney’s compensation for effecting collection.
Every forwarder has very specific operating procedures. These procedures can range from one page to more than thirty pages. Most operating procedures discuss reporting, remittances, fees, and what happens when certain events occur such as bankruptcy, death, or a request to close the account. Before accepting files, the attorney should review these procedures to ensure understanding and that agreeing to the requirements is ethical. Failure to object or to advise inability or unwillingness to abide by a term could be a breach of fiduciary duty and possibly subject the attorney to disciplinary action.
§ 1.14Authority to Sue or Take Other Action
Unless the engagement agreement provides otherwise, mere employment of an attorney to collect a claim does not confer authority to sue, and mere forwarding of a claim for collection does not warrant commencement of a suit. An attorney should not file suit unless there is specific authority from the creditor or forwarder to do so. See form 1-5 in this chapter, which is a letter recommending suit but stating that no action will be taken without authorization.
§ 1.15Multiple Clients with Claims Against Same Debtor
Occasionally an attorney will receive claims against one debtor from more than one client. An attorney may represent multiple clients if the attorney reasonably believes the representation of each client will not be materially affected and if each affected or potentially affected client consents to the representation after full disclosure of the existence, nature, implications, and possible adverse consequences of the common representation and the advantages and disadvantages involved, if any. Tex. Disciplinary Rules Prof’l Conduct R. 1.06(c).
A lawyer owes a duty of loyalty to every client; therefore, a potential conflict generally arises when one law firm represents multiple parties in a single lawsuit, for example, a class of plaintiffs, or when one law firm represents two parties in a single action where the funds are insufficient to satisfy both parties. Tex. Disciplinary Rules Prof’l Conduct R. 1.06(b) & cmt. 1. A potential conflict could arise in a debt collection scenario if the defendant were to attempt to settle multiple lawsuits with one settlement offer, thus forcing the firm’s clients to vie for the funds. While the clients’ interests in such a scenario are not directly adverse, the comments to rule 1.06 suggest that the lawyer analyze the situation from the client’s point of view. See, e.g., Tex. Disciplinary Rules Prof’l Conduct R. 1.06 cmt. 6. This requires a two-step analysis. First, the attorney should determine whether representation of multiple creditors against the single defendant will materially affect the firm’s representation of any of the creditor-clients. If representation will materially affect the firm’s representation, then the firm should decline representation. If the firm determines that representation will not materially affect the firm’s representation of the creditors, then the firm should obtain client consent to representation. Tex. Comm. on Prof’l Ethics, Op. 641 (2014).
Practice Note: As a practical matter, many clients will consider multiple representation a benefit and an advantage, since the firm will have gained knowledge regarding the debtor through discovery in the other matters.
It is permissible for a creditor’s attorney to represent several creditors against a single debtor in separate lawsuits as long as the clients are fully informed of the potential for a conflict to arise in the future, and the clients consent. Disclosure and consent are not formalities. The disclosure and consent need not necessarily be in writing, but it would be prudent for the attorney to provide potential dual clients with at least a written summary of the considerations disclosed. Tex. Disciplinary Rules Prof’l Conduct R. 1.06 cmt. 8. The more limited the debtor’s resources become, the more likely that the representation will give rise to an actual conflict of interest if each creditor cannot be made whole. The attorney has the immediate duty, on receipt of a second or subsequent claim against the same debtor, to fully inform the creditor or forwarder of all facts or to return the second or subsequent claim with a full explanation.
§ 1.16When to Recommend Not Filing Suit
The attorney may consider recommending not filing suit if—
1.the debtor cannot be located;
2.the debtor has not responded to demands for payment, and the amount involved is too small to justify filing suit;
3.the debtor’s assets would not be sufficient to satisfy or substantially contribute toward satisfaction of a judgment;
4.the debtor disputes the claim and alleges a plausible affirmative defense or counterclaim, and the time and expense involved in handling a contested suit on his claim cannot be justified; or
5.an investigation indicates that many claims against the debtor have been handled by local attorneys without successful settlement or that some judgments have been obtained with little or no satisfaction.
Reassessment in the future of any of these considerations may be warranted as long as limitations are not imminent.
§ 1.17Declining Representation
Attorneys decline to represent clients for a variety of reasons, including conflict with a current or former client, a claim that is barred or close to being barred by limitations, or failure to provide sufficient documentation to prosecute the claim. An attorney declining the matter must clearly state in writing that he is doing so and must take all reasonable steps to mitigate the consequences to the client. This typically takes the form of a letter to the client advising that the client may want to consult other attorneys and, if appropriate, that the failure to take action may result in the claim’s being barred by limitations.
§ 1.18Withdrawal from Representation
§ 1.18:1When Withdrawal Is Necessary
An attorney will occasionally find it desirable or even mandatory to withdraw from representing a client. This occurs most frequently if the client will not cooperate with the attorney in furnishing information or responding to inquiries. Withdrawal from employment is permitted in several circumstances, including if a client insists on pursuing an objective that the attorney considers repugnant or imprudent or with which the attorney has fundamental disagreement, or if the client fails substantially to fulfill an obligation to the attorney regarding the attorney’s services, including an obligation to pay the attorney’s fee as agreed, and has been given reasonable warning that the attorney will withdraw unless the obligation is fulfilled. Tex. Disciplinary Rules Prof’l Conduct R. 1.16(b)(4), (b)(5).
§ 1.18:2If Matter Is in Litigation
An attorney seeking to withdraw from pending litigation must file a written motion showing good cause for the withdrawal. If another attorney is to be substituted, the motion must state—
1.the name, address, telephone number, fax number (if any), and State Bar number of the substitute attorney if determined;
2.that the party approves the substitution; and
3.that the withdrawal is not sought for delay only.
If another attorney is not being substituted, the motion must state—
1.that a copy of the motion has been delivered to the party;
2.that the party has been notified in writing of his right to object to the motion;
3.whether the party consents to the motion;
4.the party’s last known address and other contact information; and
5.all pending settings and deadlines.
If the motion is granted, the withdrawing attorney must immediately notify the party in writing of any additional settings or deadlines of which the attorney has knowledge at the time of withdrawal and of which he has not already notified the party. The court may impose further conditions. Notice to the party must be given either in person or by certified and regular mail sent to the party’s last known address. Tex. R. Civ. P. 10.
An attorney who withdraws from employment should give reasonable notice to the client, allowing time for employment of other counsel; surrender papers and property to which the client is entitled; and refund any advance payment of a fee that has not been earned. The attorney may keep papers relating to the client to the extent permitted by law only if the client will not be prejudiced as a result. Tex. Disciplinary Rules Prof’l Conduct R. 1.16(d).
§ 1.18:4Attorney’s Fees After Wrongful Discharge
An attorney who is wrongfully discharged by the client should be able to recover a fee either under the client contract or under a quantum meruit theory. See Mandell & Wright v. Thomas, 441 S.W.2d 841, 847 (Tex. 1969); Diaz v. Attorney General, 827 S.W.2d 19, 22–23 (Tex. App.—Corpus Christi–Edinburg 1992, no writ). However, this rule “assumes an enforceable fee contract, and it is the plaintiff’s burden to establish the existence of a valid contract.” Tillery & Tillery v. Zurich Insurance Co., 54 S.W.3d 356, 360 (Tex. App.—Dallas 2001, pet. denied).
§ 1.19Attorney’s Engagement Agreements with Client
An engagement agreement calling for a contingency fee must be in writing to be enforceable and must state the method by which the fee will be determined; the percentage or percentages that will accrue to the attorney if there is a differentiation in the percentages in the event of settlement, trial, or appeal; the litigation and other expenses that will be deducted from the recovery; and whether such expenses will be deducted before or after the contingency fee is calculated. Tex. Disciplinary Rules Prof’l Conduct R. 1.04(d). At the conclusion of the contingent fee matter, the attorney must provide the client with a written statement describing the outcome of the matter and showing the remittance to the client and the method of its determination if there is a recovery. Tex. Disciplinary Rules Prof’l Conduct R. 1.04(d).
§ 1.19:2Engagement Agreement Provisions
Suggested provisions for fee agreements include the following:
1.Scope of Representation
A lawyer may limit the scope, objectives, and general methods of the representation if the client consents after consultation. Tex. Disciplinary Rules Prof’l Conduct R. 1.02(b). Consequently, a practitioner should consider describing what events are covered by the representation. For example, the practitioner might want to consider a statement requiring a subsequent written agreement should the debtor seek affirmative relief, file for bankruptcy, assert a counterclaim, or seek an appeal if the matter is initially placed for collection on a contingency.
Similarly, clarifying exactly who and what the attorney will pursue on behalf of the client could prevent misunderstandings when a judgment is obtained. Identifying the debtor and the account or amount owed reduces any ambiguity that the judgment was not obtained as requested.
Finally, the attorney might also want to clarify whether any other services are contemplated, such as repossession, foreclosure, postjudgment remedies, and keeping the judgment lien.
2.Expenses and Court Costs
The engagement agreement should include how expenses and court costs will be treated. If expenses and court costs are to be advanced by the attorney, the agreement should specify the method for approval, if any, and terms of repayment. Many collection attorneys who handle matters on a contingency require creditors to advance costs and expenses and typically include a statement to that effect.
3.Security Interest
Tex. Comm. on Prof’l Ethics, Op. 610 (2011), finds that Tex. Disciplinary Rules Prof’l Conduct R. 1.08 prohibits an attorney from acquiring a lien on the subject matter of litigation. Opinions by the Professional Ethics Committee are not binding on the supreme court. Tex. Gov’t Code § 81.092. Opinion 610 fails to recognize several instances in courts recognizing security interests in contingent fee contracts. See Dow Chemical Co. v. Benton, 357 S.W.2d 565 (Tex. 1962); United States v. Betancourt, No. CRIM. B-03-090-S1, 2005 WL 3348908 (S.D. Tex. Dec. 8, 2005); Norem v. Norem, No. 3:07-CV-0051-BF(G), 2008 WL 2245821 (N.D. Tex. June 2, 2008); Tex. Comm. on Prof’l Ethics, Op. 449 (1987).
4.No Express Warranties, Representations, Promises, or Guarantees
5.Retention of Client Files
Other than Texas Disciplinary Rule of Professional Conduct 1.14(a), which requires IOLTA records to be preserved for five years after the representation ends, there is no rule that mandates how long an attorney must keep a closed file. The only guidance Texas lawyers have is Tex. Comm. on Prof’l Ethics, Op. 627 (2013), which provides that a lawyer has a continuing duty of confidentiality that prohibits disposing of a file in a matter that could give an unauthorized person access to the file. The opinion also provides that a lawyer must preserve the file if destroying it would jeopardize the client’s interest. Instead of providing a bright line, the opinion permits an attorney to destroy closed files when the “circumstances, including the passage of time, the nature of the files, and the absence of client instructions to the contrary, justify a reasonable conclusion that destruction of the file is not likely to harm material interests of the client concerned, provided that reasonable steps (such as a brief visual review of physical files) have been taken to avoid destruction of items of client property, such as currency, bonds and original deeds, that might be included in the files to be destroyed.” Because no bright line exists, practitioners should state their file retention policies in their retainer and termination letters.
6.Arbitration
An agreement in an attorney engagement contract to submit disputes to arbitration is enforce able, including disputes over fees and attorney malpractice claims. See Royston, Rayzor, Vickery & Williams, LLP v. Lopez, 467 S.W.3d 494 (Tex. 2015) (enforcing agreement to arbitrate attorney malpractice claims); Porter & Clements v. Stone, 935 S.W.2d 217, 220–22 (Tex. App.—Houston [1st Dist.] 1996, no writ) (dispute over fees). This manual makes no recommendation about whether an arbitration clause should be included in the contract and encourages practitioners to read the cases regarding arbitration carefully and to consult with their malpractice carriers to ensure the inclusion of an arbitration clause does not void coverage under the terms of the policy. An alternative to arbitration may be to include that your contract is subject to mediation.
A form for a contingent fee contract for a collections matter is at form 1-2 in this chapter.
A more comprehensive discussion of attorney’s engagement agreements is beyond the scope of this manual.