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                                            163 N.J.L.J. 221
                                            January 15, 2001

                                            10 N.J.L. 151
                                            January 22, 2001

COMMITTEE ON THE UNAUTHORIZED PRACTICE OF LAW

Appointed by the New Jersey Supreme Court

OPINION 36

Providing Debt Resolution Services to Litigants

    This Opinion addresses the business of providing “debt resolution” services to litigants for consideration. More specifically, the practice under scrutiny here involves non-lawyer business entities which, on behalf of debtor-defendants, negotiate settlements with creditor- plaintiffs after the commencement of a lawsuit. Because the debtor may require advice regarding the legality of the claims pending against it and the remedies available under state or federal law, this Committee finds that the practice of providing such services constitutes the unauthorized practice of law. Moreover, this Committee also concludes that the conduct involved here may violate New Jersey criminal proscriptions against engaging in the business of “debt adjustment.” N.J.S.A. 2C:21-19(f).
    The issue of debt resolution services has recently been brought to the attention of the Committee in response to the activities of several business entities located in the State of New Jersey which provide such services to debtors named as defendants in litigation. In connection with a recent investigation conducted by this Committee, three pieces of correspondence on the letterhead of ABC Co. (hereinafter referred to as “ABC Co.” or the “Business”) were submitted for consideration.See footnote 1 1 The first letter, dated April 8, 1998, is apparently a solicitation from ABC Co. to a potential “client.” It states in pertinent part as follows:
        I am contacting you regarding a lawsuit that is currently pending against your company. My firm can probably help you settle this case out of court while reducing the amount you owe dramatically.

        [ABC Co.] specialize[s] in debt resolution for businesses. We can take this lawsuit (and any other past-due or disputed debt that your company may owe) and negotiate a settlement - often saving you thousands of dollars.

        ... We are only paid upon working out suitable settlements.

        A brief telephone conversation will allow us to review your case and discuss your settlement possibilities. Due to the court- mandated deadline, it is important that you call immediately. (Emphasis in original).

    The other letters provided to this Committee for review are drafted by ABC Co. on behalf of a retained debtor-client. A court docket number is referenced. The docket number and other statements in the correspondence clearly evidence the fact that the communications take place in the context of pending litigation. In a letter to the creditor's attorney dated August 4, 1998, ABC Co. details the “cash flow crisis” facing its client and then goes on to plead that the goods and services provided by the creditor were faulty in a number of respects. An offer to compromise the debt is communicated in order to “avoid litigation.” In a reference to the time imposed under the Court Rules for service of a responsive pleading, a letter dated August 25, 1998 by ABC Co. to the creditor's attorney states: “I was disappointed to learn that you are refusing to offer my client an extension of the 35-day response time.” This last piece of correspondence contains the following disclaimer at the foot of the page: “[ABC Co.] is not a law firm. No legal advice can or will be given.”
    The specific issue to be resolved by this Committee is whether the activities described above constitute the unauthorized practice of law. The first step in this process is to determine whether debt resolution services provided on behalf of a defendant in a pending lawsuit deviate “from permissible business and professional activities into the realm of the practice of law.” Opinion 35, 157 N.J.L.J. 118 (1999). Unlike other cases that have come before this Committee involving non-litigious fields, such as drafting legal documents, the activities involved here can a fortiori be categorized as the practice of law. From its correspondence, it is apparent that the Business has undertaken the role of advocate in the context of pending litigation. It has reviewed the complaint, evaluated the claims levied against its client, and commenced a dialogue with counsel for the plaintiff in an effort to compromise the claims. Indeed, it has done everything a lawyer might do under similar circumstances except enter an appearance in court.
    In order for the Business to effectively meet its duty as advocate, “legal knowledge, training, skill and ability are required.” Stack v. P.G. Garage, Inc., 7 N.J. 118, 120-21 (1951). For example, in order to properly advise the client, analysis must be made to determine whether the complaint has been properly served and filed, whether the claim is timely or barred by the statute of limitations, whether there is some jurisdictional shortcoming that might render the action futile and whether any substantive defenses are available. These, and other inquiries, are properly made by an attorney trained and skilled in the practice of law. While experienced lay persons might be able to perform some of these same functions, the threshold question here is whether the activity falls within the practice of law. This Committee finds that it does.
    This conclusion is supported by previous judicial determinations concerning the constitutionality of laws regulating the business of “debt adjusters.” In American Budget Corp. v. Furman, 67 N.J. Super. 134 (Ch. Div.), aff'd per curiam 36 N.J. 129 (1961), suit was brought by a company engaged in the business of debt adjusting challenging a former New Jersey statute prohibiting the practice, with certain exceptions. The former statute defined a “debt adjuster,” in part, as a person who:
        acts or offers to act for consideration as an intermediary between a debtor and his creditors for the purpose of settling, compounding, or in anywise, altering the terms of payment of any debts of the debtor ... .

N.J.S.A. 2A:99A-1(a). In upholding the constitutionality of the statute, the court observed that “[i]t is plain by now that in their activities debt adjusters may encroach upon the practice of law.” American Budget Corp. v. Furman, supra, 67 N.J. Super. at 143.
    Moreover, the Supreme Court of the United States, in reviewing a similar Kansas statute, conclusively determined that the business of debt adjusting involves the practice of law. In Ferguson v. Skrupa, 372 U.S. 726, 732 (1963), the Court opined that:

        The business of debt adjusting gives rise to a relationship of trust in which the debt adjuster will, in a situation of insolvency, be marshaling assets in the manner of a proceeding in bankruptcy. The debt adjuster's client may need advice as to the legality of the various claims against him, remedies existing under state laws governing debtor-creditor relationships, or provisions of the Bankruptcy Act _ advice which a nonlawyer cannot lawfully give him.

See also In re Pilini, 173 A.2d 828, 831 (Vt. 1961) (individual involved in “debt pooling” service and who attempted to handle litigation on behalf of debtor found to be engaged in the practice of law); Home Budget Service, Inc. v. Boston Bar Ass'n, 139 N.E.2d 387, 390 (Mass. 1957) (actions of corporations involved in the practice of “debt pooling” amount to the practice of law).
    Having thus determined that the conduct presently under review constitutes the practice of law, it next becomes necessary to resolve the issue of whether such activity falls within the general proscription against the unauthorized practice of law. “A technical finding that a person is engaged in the practice of law will not necessarily result in a holding that his actions amount to unauthorized practice of law if strict adherence to such a thesis is not in the public interest.” Opinion 14, 98 N.J.L.J. 399 (1975), quoting Appell v. Reiner, 43 N.J. 313, 316 (1964). Where the public interest is best served by permitting nonlawyers to engage in some limited aspects of the practice of law, our Supreme Court has the power to authorize such activity. See, e.g., New Jersey State Bar Ass'n v. New Jersey Ass'n of Realtor Boards, 94 N.J. 449 (1983) (permitting real estate licensees to prepare certain types of residential real estate sales contracts).
    In this case, however, this Committee can identify no legitimate public interest that would be served by excluding the business of for profit debt resolution services from the general proscription against the unauthorized practice of law. Especially where, as here, the conduct under scrutiny involves rendering legal advice to litigants. Even the most experienced lay person may not appreciate the significance of legally relevant facts that could impact the debtor's rights in a court of law. Moreover, in the event that the debt resolution business fails in its effort to conclude a settlement with the creditor, the debtor may be prejudiced in defending the lawsuit. Little time may be left to retain a lawyer to timely file an Answer or otherwise prepare a defense to the action. Or, worse yet, the debt resolution business might concede a claim, which upon review by a competent attorney, might be found defensible.
    In considering the public interest, this Committee is also mindful of the Legislature's pronounced policy against most forms of debt adjusting. In criminalizing this behavior, the Legislature understood the potential abuses that may be visited upon debtors by unscrupulous and otherwise unregulated debt adjusters. N.J.S.A, 2C:21-19(f). As the Chancery Division noted long ago, “the Legislature could have concluded that while some debt adjusters performed a commendable service, many others committed frauds and abuses... .” American Budget Corp. v. Furman, supra, 67 N.J. Super. at 141. Accordingly, the Legislature's bar against debt adjusting (with certain regulatory exceptions not pertinent here, N.J.A.C. 3:25-1.1 et seq.) solidifies this Committee's conclusion that the public interest would not be served by permitting the conduct of the commercial debt resolution services under scrutiny here, and that such services constitute the unauthorized practice of law.
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Footnote: 1     1

     Pursuant to R. 1:22-3(c), the identity of the business involved shall not, insofar as is practicable, be identified. Accordingly, “ABC Co.” is a fictitious name only.

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