Ethics Opinions

 
NASSAU COUNTY BAR ASSOCIATION
COMMITTEE ON PROFESSIONAL ETHICS
Archive of Ethics Opinions
Opinion No.: 1995-3
Topics: Formation of a Corporation by an Attorney and Real Estate Broker; Sharing of Legal Fees with a Non-Lawyer.
Digest: A lawyer who actively renders services may not form a corporation with a real estate broker for the purpose of filing residential tax certiorari cases; a lawyer may not practice law in affiliation with a non-lawyer; a lawyer may not share legal fees with a non-lawyer; a lawyer may, however, be a passive investor in a corporation which files residential tax certiorari cases where Services are provided only by the agents and employees of the corporation.
Code Provisions: DR3-102(A)
DR3-103(A)
DR5-107(C)
DR7 102(A)(8)
Canon 3; EC3-1, EC3-2, EC3-3, EC3-.4, EC3-5, EC3-8
Canon 5; ECS-21, ECS-24
Facts Presented: Inquiring counsel wishes to form a corporation for the purpose of filing residential tax certiorari cases. The attorney intends to be an active participant in the corporation, and actually engage in the performance of services.
Inquiry: May an attorney and a real estate broker form a corporation to file residential tax certiorari cases?
Determination: An attorney and a real estate broker may not form a corporation for the purpose of filing residential tax certiorari cases, where the attorney intends to actively render services or hold himself out as such. There would be no such prohibition, however, where the lawyer is merely a passive investor in the corporation, with the services to be provided only by non-lawyer agents or employees of the corporation.
Analysis: Disciplinary Rule 3 -102 (A) prohibits a lawyer or law firm from sharing legal fees with a non-lawyer, and Disciplinary Rule 3-103(A) prohibits a lawyer from forming a partnership with a non-lawyer if any of the activities of the partnership consist of the practice of law. Furthermore, Disciplinary Rule 5-107 (C) precludes a lawyer from practicing with or in the form of a professional corporation or association authorized to practice law if a non-lawyer owns any interest in the corporation, is a corporate director or officer thereof, or otherwise has the right to direct or control the professional judgment of the lawyer.

 

The policy rationale underlying these Disciplinary Rules focuses upon the protection of the public and is premised upon the concern that legal services should be performed for clients only by duly licensed attorneys who have been determined to possess the requisite legal training and moral character, and who are governed by the high ethical standards of the legal profession. Canon 3, ECs 3-1 through 3-5. Canon 5, furthermore, generally mandates that a lawyer maintain the ability to exercise independent professional judgment on behalf of his clients and adhere to the ethical requirements of the legal profession as set forth in the Code of Professional Responsibility. Specifically, EC5-24 recommends that, in order to preserve professional independence, a lawyer should not practice with or in the form of a professional legal corporation - even though the corporate form is permitted by law- if any of its directors, officers or stockholders is a non-lawyer. See, also, EC5-21. In essence, attorneys are prohibited from practicing law in any form of association in which a non-lawyer might be in a position to control or influence the attorneys' performance of legal services. EC3-8.

 

With the above Disciplinary Rules and Ethical Considerations in mind, we must now evaluate whether the proposed conduct constitutes the practice of law. DRs3-101, 3-103; EC3-5. Clearly, pursuant to RPTL, Article 7, Title 1-A which sets forth the small claims assessment review procedure, representation of petitioning parties by non-lawyers is permitted. See, Cipollone v. City of White Plains, 181 A.D.2d 887, 581 N.Y.S. 2d-421 (2d Depit 1992). In so holding the Second Department in Cipollone noted that "[t]he informal nature of the hearing, the specialized nature of the expertise required, and the clear authorization in the statute for non-attorney preparation of the initiating pet:ition, all support this conclusion." Id. at 422. The question, however, remains as to whether the tax certiorari proceeding to review real property tax assessments constitutes the practice of law, if performed by an attorney or an entity in which the attorney is a principal or shareholder or partner.

 

While this Committee has not yet passed upon the specific question at hand, the New York State Bar Association Committee on Professional Ethics has determined that a lawyer may not affiliate with a real estate broker in the representation of homeowners in proceedings to obtain a review of real estate taxes. Opinion No. 662 (3-15-94) ; Opinion No. 644 (4-1-93). While it is unclear from the inquiry presented, precisely what the contemplated filing of residential tax certiorari cases involves, the New York State Bar Association Committee on Professional Ethics has considered the matter generally and has held:

 

We have no difficulty in concluding that... a lawyer representing homeowners in judicial or administrative proceedings challenging real estate taxes ... constitutes the practice of law. When a lawyer represents a client in a litigation or quasi-litigation proceeding, the lawyer is practicing law whether or not a non-lawyer is legally permitted to perform the same function. Opinion No. 662 (3-15-94).

 

Implicit in the State Bar Association's opinion is a finding that a judicial or administrative proceeding in which real estate taxes are challenged is equivalent to a "litigation or quasi-litigation proceeding," with which we are in agreement. Further support for this is the nature of the proceeding itself, which is established by the chief administrator of the courts, pursuant to § 730, Title 1-A of Article 7, which Article is entitled "Judicial Review". The process set forth therein encompasses many of the trappings of litigation, such as the filing of a petition with the clerk of the New York Supreme Court, commencement of a proceeding, the appointment of hearing officers, the presentation of statements and evidence, the issuance and filing of a decision with the clerk of the court, and the potential award of costs.

 

Although the Code does not specifically define what conduct or activity may constitute the practice of law (EC3-5), the New York State Bar Association Committee on Professional Ethics has noted that there are many services which may be properly undertaken by lawyers and non-lawyers alike - especially in the fields of taxation and tax planning. Opinion No. 557 (2-17-84) (holding that it is improper for a lawyer and an accountant to for in a firm for the purpose of preparing tax returns and giving tax-related advice to clients). The State Bar Committee has held that when such services are performed by a lawyer, they constitute the practice of law and the lawyer, in performing them, is governed by the Code of Professional Responsibility. Id. Therefore, the active participation by a lawyer in the rendering of services in a small claims assessment review proceeding would for the purposes of those services performed by the lawyer, constitute the practice of law even though a non-lawyer is authorized by the statute to perform the same services. If the lawyer is found to have engaged in the practice of law, then the lawyer may not affiliate with a non-lawyer as observed by this committee in Opinion 93-24 (a lawyer may form a partnership with non-lawyers so long as the lawyer does not act as a lawyer in the same transaction in which his or her real estate firm acts as a broker, and none of the activities of the partnership may consist of the practice of law.)

 

Based upon the provisions set forth above, this Committee now determines that the proposed conduct by a lawyer of actively rendering services in a small claims assessment review proceeding, through the use of a corporation in which the lawyer and real estate broker are the shareholders, is prohibited in that: (i) the proposed conduct would be in violation of Disciplinary Rule 3-102 which prohibits sharing of legal fees with a non-lawyer; and (ii) such conduct would violate the prohibitions against practicing in affiliation with non-lawyers under Disciplinary Rule 3-103. On the other hand, if the attorney were not proposing to render the services at issue, but rather was merely a passive investor in the corporation (and does not hold himself or herself out as providing services) , this Committee's view of the applicability of these Disciplinary Rules, would be different. In that event, the lawyer, as an investor, would not be rendering a service, so that there could be no conduct considered to be the practice of law. This would thereby enable the lawyer to remain a passive investor, with the corporation through its non-lawyer agents or employees, allowed to provide services as authorized by statute, without the lawyer practicing law in affiliation with non-lawyers, conduct proscribed by the Code.1/

 

Furthermore, without passing upon the legality of forming a corporation for the purpose of filing residential tax certiorari cases, this committee observes that Section 495 of the Judiciary Law provides in pertinent part, that:

 

No corporation or voluntary association shall ... practice or appear as an attorney-at-law ... nor ... make it a business to practice as an attorney-at-law ... nor ... hold itself out to the public as being entitled to practice law, or to render legal services or advice, nor ... furnish attorneys or counsel, nor ... render legal services of any kind in actions or proceedings of any nature or in any other way or manner, nor ... assume in any other manner to be entitled to practice law. N. Y. Jud. Law § 495 (1) (a) - (f)

Thus, in the event the proposed conduct would constitute the practice of law because of the lawyer's capacity, a corporation furnishing such legal services as described could then be in violation of 5495. See, e.g., Lefkowitz v. Lawrence Preska Assocs., Inc., 90 Misc.2d 59, 393 N.Y.Supp.2d. 650 (1977) (purpose of § 495 is to prohibit interference and possible conflict of interest in the attorney-client relationship); People v. People's Trust CO., 180 A.D. 494, 167 N.Y.S. 767 (1917) (purpose of § 495 is to prevent corporations from performing legal services through lawyers in their employ and having lawyers owe loyalty primarily to the corporations and not to the client)2/

 

For the reasons set forth above, this Committee answers the above Inquiry in the negative, and finds that an attorney and a real estate broker may not form a corporation for the purpose of filing residential tax certiorari cases where the lawyer is an active participant and renders services in that proceeding.

(Approved by Executive Subcommittee on 2/21/95; Approved Full Committee on 3/l/95)

 


1/ Since inquiry has not been made as to whether or not a lawyer, who is only a passive investor in a corporation, may accept referrals from that corporation to render legal services in a small claims assessment review procedure, this Committee does not now address the application, if any, of the Disciplinary Rules.

2/ It is also significant to note Disciplinary Rule 7-102(A)(8) which provides that a lawyer shall not knowingly engage in illegal conduct or conduct contrary to a Disciplinary Rule.

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