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                                         130 N.J.L.J. 658
                                        February 24, 1992

                                        1 N.J.L. 269
                                        March 2, 1992


Appointed by the New Jersey Supreme Court


Attorney With Large Collection
Practice Entering Into Agreements
Whereby Client Waives Accrued
Interest Generally, or in Exchange
for a Reduction in the Contingent
Fee Ordinarily Charged

    The Inquirer is a partner in a law firm which concentrates its practice in collection services and attendant litigation. Most of its clients are large financial and regional retailers, banking institutions, utilities and other companies engaged in businesses wherein credit is extended to their customers.
    The Inquirer informs us that the firm's average collections are approximately $9 million per year and that they deposit more than 70,000 checks and money orders annually. They institute approximately 20,000 lawsuits, most of which are in Special Civil Part of Superior Court. As a result of these lawsuits, there are executions and orders typical of collection practice.
    The firm's fees are contingent upon its collecting funds. These are remitted to clients not less often than monthly and, in connection with larger clients, as frequently as once a week.
    The practice in remitting is usually established by agreement with the financial officers of the client firm. The Inquirer assures us that the firm's practices conform to the Rules of Professional Conduct. In order to ensure continued compliance, he requests answers to the following three questions:
    1.    May a client in a written fee agreement with an attorney agree to waive interest earned, if any, on client's Trust monies recovered or held by the attorney for or on the client's behalf in a non-IOLTA interest bearing General Attorney Trust Account? The result of this practice would be that the attorney would receive the benefit of any such interest.

    2.    May the attorney and the client agree that the client will waive interest in exchange for a reduction in the contingent fee that the attorney would otherwise charge the client?

    3.    May an attorney invest client's Trust funds that are held in a General Attorney Trust Account overnight with a federally insured financial institution in "Repo Agreements" that are collateralized by U.S. Treasury Bills, or by equally secure governmentally backed collateral?
    The answer to all three inquiries is in the affirmative. Given the representation by the Inquirer that all of these actions are with the knowledge and consent of the clients, they are ethically acceptable.
    In our Opinion 326, 99 N.J.L.J. 298 (1976), we outlined the parameters of lawyers investing trust funds. We said that such investments must be secure and be made in governmentally backed accounts. While REPO Agreements were not referred to in Opinion 326, and not all of those proposed by Inquirer would qualify, U.S. Treasury Bills or other governmentally backed collateral would provide the kind of security demanded by said Opinion.

    Obviously, since the Inquirer is dealing with very sophisticated clients, there can be no objection to the conduct referred to providing there is consent by the clients after full disclosure.
    In closing, we call the Inquirer's attention to R. 1:21- 6(b)(3) which requires attorneys to maintain copies of retainer and compensation agreements with clients. The agreements with clients referred to in Questions 1 and 2 should be in writing and available for inspection as required by said Rule.

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