Untitled California Attorney General Opinion ( 1992 )

TO BE PUBLISHED IN THE OFFICIAL REPORTS
OFFICE OF THE ATTORNEY GENERAL
State of California
DANIEL E. LUNGREN
Attorney General
______________________________________
OPINION :
: No. 91-702
of :
: May 13, 1992
DANIEL E. LUNGREN :
Attorney General :
:
ANTHONY S. DaVIGO :
Deputy Attorney General :
:
______________________________________________________________________________
THE HONORABLE TERRY B. FRIEDMAN, MEMBER OF THE CALIFORNIA
STATE ASSEMBLY, has requested an opinion on the following question:
May the Community Law Center, an agency which charges reduced fees for legal
services rendered primarily to low income clients, incorporate as a nonprofit public benefit
corporation?
CONCLUSION
The Community Law Center, an agency which charges reduced fees for legal services
rendered primarily to low income clients, may not incorporate as a nonprofit public benefit
corporation.
ANALYSIS
The Community Law Center in Oakland, California ("Center"), is a private
organization which provides legal services primarily in the area of family law to poor and lower-
income clients who do not have access to other legal services. It employs five attorneys and four
legal assistants and charges $10 to $135 per hour depending upon the client's income and number
of dependents. The fees collected constitute the primary source of funding for the Center.
The Center is not incorporated under the Professional Corporation Act (Corp. Code,
§§ 13400-13410),1 is not registered with the State Bar of California (Bus. & Prof. Code, § 6160),
and is not licensed to practice law. The question presented is whether the Center may incorporate
as a nonprofit public benefit corporation. We conclude that it may not.
1
All section references hereafter are to the Corporations Code unless otherwise specified.
1. 91-702
Under the Nonprofit Public Benefit Corporation Law (§§ 5110-6910), the activities
and affairs of a nonprofit public benefit corporation are conducted under the direction of a board of
directors (§ 5210). Section 5111 provides:
"Subject to any other provisions of law of this state applying to the particular
class of corporation or line of activity, a corporation may be formed under this part
for any public or charitable purposes."
"Other provisions of law" apply to the incorporation of organizations engaged in
rendering professional services. With respect to the practice of law, section 6160 of the Business
and Professions Code, part of the State Bar Act (Bus. & Prof. Code, §§ 6000-6228), provides:
"A law corporation is a corporation which is registered with the State Bar of
California and has a currently effective certificate of registration from the State Bar
pursuant to the Professional Corporation Act . . . and this article. Subject to all
applicable statutes, rules and regulations, such law corporation is entitled to practice
law. With respect to a law corporation the governmental agency referred to in the
Professional Corporation Act is the State Bar."
A professional corporation under the provisions of the Professional Corporation Act
must have a certificate of registration issued by a governmental agency regulating the profession.
(§§ 13401, subd. (b); 13404.) The salient feature of a professional corporation generally (§§ 13401,
subd. (c), 13401.5, 13403, 13405) and of a law corporation specifically (§ 13403; Bus. & Prof.
Code, § 6165) is the required professionally licensed status of its directors, shareholders, officers,
and employees.
The fact that the Center is not incorporated under the Professional Corporation Act
does not end our inquiry. That legislative scheme is inapplicable if a corporation may render
professional services under some other legal authority. Subdivision (a) of section 13402 states:
"This part shall not apply to any corporation now in existence or hereafter
organized which may lawfully render professional services other than pursuant to
this part, nor shall anything herein contained alter or affect any right or privilege,
whether under any existing or future provision of the Business and Professions Code
or otherwise, in terms permitting or not prohibiting performance of professional
services through the use of any form of corporation permitted by the General
Corporation Law."
Accordingly, may the Center engage in the practice of law in a corporate form other than pursuant
to the Professional Corporation Act?
Except as provided in section 6160 of the Business and Professions Code,
corporations are generally not authorized to engage in the practice of law. In People v. Merchants
Protective Corp. (1922) 189 Cal. 531, 537-538, the court explained:
"This brings us to the final question, which is as to whether such a
corporation thus organized, thus employing attorneys as its agents and
representatives, and thus dispensing legal advice, counsel, information and services
of the sort usually and generally furnished by regularly admitted and licensed
attorneys and counselors to their clients in the practice of their profession, is engaged
in the practice of law. The authorities, which are practically unanimous, furnish but
one answer to this question and that answer is well-expressed in the case of State ex
2. 91-702
rel. Lundin v. Merchants Protective Assn., supra, wherein the supreme court of
Washington, quoting from Ruling Case Law, says: ``The practice of the law is not
a business that is open to a commercial corporation. "Since, as has been seen, the
practice of the law is not a lawful business except for members of the bar who have
complied with all the conditions required by statute and the rules of the court, and
as these conditions cannot be performed by a corporation it follows that the practice
of law is not a lawful business for a corporation to engage in. As it cannot practice
law directly it cannot do so indirectly by employing competent lawyers to practice
for it, as that would be an evasion which the law will not tolerate."' [Citations.]"
(See also, Paradise v. Nowlin (1948) 86 Cal.App.2d 897; Pacific Employers Ins. Co. v. Carpenter
(1935) 10 Cal.App.2d 592, 595; People v. California Protective Corp. (1926) 76 Cal.App. 354.)
In 55 Ops.Cal.Atty.Gen. 39 (1972), we described three narrow "exceptions" to this
rule for nonprofit associations assisting in the provision of legal services. The first category was for
legal aid societies operating as "private, non-profit associations which perform a public service by
giving legal advice or assistance . . . to persons unable to afford private counsel . . . normally
supported by voluntary contributions and . . . generally under the auspices of the local bar
association . . . [and] recently . . . federally funded in part . . . ." (Id. at pp. 42-43; see 36
Ops.Cal.Atty.Gen. 314 (1960).)
The second category concerned "the employment of attorneys by benevolent
associations to represent their members in matters of general and common interest." (55
Ops.Cal.Atty.Gen. at p. 43.) In Brotherhood of Railroad Trainmen v. Virginia State Bar (1964) 377
U.S. 1, 7, the United States Supreme Court ruled that for union members "to associate together to
help one another to preserve and enforce rights granted them under federal laws cannot be
condemned as a threat to legal ethics." (See also United Mine Workers of America etc. v. Illinois
State Bar Association (1967) 389 U.S. 217.)
The third category described in our 1972 opinion were organizations similar to the
NAACP "which are established and operated for the purpose of preserving constitutional and legal
rights" (55 Ops.Cal.Atty.Gen. at p. 46) and in which "litigation is not a technique of solving private
differences . . . [but] a form of political expression" (NAACP v. Button (1963) 371 U.S. 415, 429).
Here, the Center does not, according to its fee schedule, provide free services to
anyone. It is a fee-for-service organization, the primary support for which is derived directly from
the fees charged. The Center is not a membership organization with members sharing unique
common interests providing the focus of the services rendered. On the contrary, its services are
available to a large segment of the general public.2 Finally, the Center is not engaged in any form
of political expression in terms of advocating the unique legal or constitutional interests of the poor.
Instead, it is engaged in a general law practice, primarily in the family law field.
While the Center may provide high quality services in exchange for reduced fees to
persons of substandard economic means, the question is whether such activity provides a basis for
2
In this regard, we are not advised and the Center's fee schedule does not suggest that there is a
maximum income level which would disqualify an applicant willing to pay the maximum fee for
services rendered.
3. 91-702
exemption from the requirements of licensure under the State Bar Act and the Professional
Corporation Act. In 39 Ops.Cal.Atty.Gen. 155, 156-157 (1962), we gave two reasons for the
hesitancy to sanction the unlicensed corporate practice of the professions:
"The first is that professional persons are licensed by the state to practice
their profession. This licensing results only after an examination by the state insures
professional competence. Professional responsibility is also maintained in that the
privilege of practice may be suspended or revoked as a sanction for illegal or
improper conduct. Inherent in this system is personal qualification, personal
responsibility and personal sanction. Certification of persons to practice in a
corporate or other business form does not carry out the objective sought by
regulation and is not permitted for those professional persons who must have a
special license in all cases to practice their profession. [Citations.]
". . . . . . . . . . . . . . . . . . . . .
"The second . . . is the relationship between the practitioner and those whom
he serves. [Citation.] In the normal profession, the practitioner serves a client or
patient. The relationship is said to be that of trust and confidence. The interposition
of a corporate entity between them is said to destroy this relationship. [Citations.]"
The exemption from licensure may not be extended to a nonprofit corporation which
employs attorneys providing general legal services to clients who comprise a major segment of
society, and which charges and collects the attendant fees for such services. By so concluding, we
avoid the task of determining what fee structures or income levels would warrant exemption and
which would not. (Cf. 62 Ops.Cal.Atty.Gen. 317, 320 (1979); 58 Ops.Cal.Atty.Gen. 755, 760
(1975).)
Accordingly, it is concluded that the Center, an agency which charges reduced fees
for legal services rendered primarily to low income clients, may not incorporate for the practice of
law as a nonprofit public benefit corporation.3
*****
3
We expressly do not consider whether the Center is lawfully engaged in providing services as
an unincorporated association or whether the services rendered to private clients would otherwise
qualify as those of a nonprofit public benefit corporation.
4. 91-702