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7 N.J.L. 1584
July 13, 1998
153 N.J.L.J. 184
July 13, 1998
COMMITTEE ON THE UNAUTHORIZED PRACTICE OF LAW
Appointed by the New Jersey
Supreme Court
OPINION 33
Bond Counsel
This Opinion addresses an inquiry from the New Jersey State
Bar Association regarding foreign bond counsel practicing in New
Jersey. The issue can be stated as follows: are attorneys who are
not admitted to practice law in New Jersey engaging in the
unauthorized practice of law when they advise New Jersey
governmental bodies in connection with the issuance of state and
municipal bonds?
There is no doubt that the services provided by bond counsel
constitute the "practice of law" as defined by the prior opinions
of this Committee and the courts of New Jersey. The ultimate
responsibility of bond counsel in connection with the issuance of
state or municipal bonds is the rendering of a legal opinion.
[B]ond counsel are lawyers engaged to provide
an expert and objective legal opinion with
respect to the validity of bonds and other
subjects, particularly the tax treatment of
interest on the bonds.
COMMITTEE ON PROFESSIONAL RESPONSIBILITY, NATIONAL ASS'N OF BOND
LAWYERS, The Function and Professional Responsibilities of Bond
Counsel 2 (2d ed. 1995) ("NABL Report"). The opinion usually
addresses issues such as whether the bonds are valid and binding
obligations, the source of payment or security and the effect of
state and federal tax law on the interest paid on the bonds. NABL
Report at 6. Bond counsel also frequently engage in other
activities related to bond issues, such as:
(1) supervising the bond proceedings, including
preparing documents and drafting or reviewing
enabling legislation or constitutional
amendments;
(2) preparing or reviewing the form of offering,
disclosure, or continuing disclosure document
to be distributed in connection with the
bonds;
(3) assisting the issuer or others in obtaining
approvals, rulings, permissions and exemptions
from governmental authorities as deemed
necessary by counsel;
(4) pursuing validation proceedings or test cases
or participating in relevant litigation;
(5) preparing a mortgage, security agreement or
other document related to the bonds; and
(6) rendering opinions on related matters such as:
a) federal and state securities laws;
b) eligibility of bonds for investment by
regulated investors;
c) the status of the bonds and related
obligations under creditors' rights laws; and
d) the validity and enforceability of
security agreements, indentures and related
documents.
Id. at 4. Moreover, as alluded to above, "[i]n particular bond
transactions, various issues may arise that require knowledge of
other practice areas, such as corporate law, creditors' rights,
real estate, and commercial law." Id. at 15.
These activities are clearly the province of the lawyer and
are the "practice of law." This Committee and the courts have
consistently ruled that this is so.
The preparation and drafting of legal
documents, such as trust instruments,
contracts, and corporate documents, for
execution or use by others is the practice of
law.
Opinion 22, 103 N.J.L.J. 246 (1979). The New Jersey Supreme Court
has also left little doubt that the above-described activities
constitute the practice of law. N.J. State Bar Ass'n v. N.J.
Mortgage Assocs., 32 N.J. 430, 444 (1960) ("[t]he drawing of legal
instruments . . . for others . . . is clearly within the
traditional definition of the practice of law.") and Cape May
County Bar Ass'n v. Ludlam, 45 N.J. 121, 124 (1965) (quoting N.J.
State Bar Ass'n ). See also In re Application of New Jersey Soc'y
of Certified Pub. Accountants, 102 N.J. 231, 233 (1986) (the
practice of law is not confined to litigation, but often includes
legal activities in non-litigious fields) and Stack v. P.G. Garage
Inc., 7 N.J. 118, 120-21 (1951) ("The practice of law is not,
therefore, necessarily limited to the conduct of cases in court but
is engaged in whenever legal knowledge, training, skill, and
ability are required.").
Because the professional services of bond counsel constitute
the "practice of law," the question then becomes: do these services
constitute the unauthorized practice of law when they are provided
to New Jersey clients by bond counsel who are not admitted to
practice law in the State of New Jersey?
New Jersey, like all other states, regulates the practice of
law within its boundaries. In New Jersey, the responsibility for
such regulation has been given to the State's Supreme Court. N.J.
CONST., ART. IV, § 2, ¶ 3. New Jersey Court Rule 1:21-1(a)
provides that only attorneys admitted in New Jersey may practice
law in this State:
[N]o person shall practice law in this State unless
that person is an attorney holding a plenary
license to practice in this State, has complied
with the R.1:26 skills and methods course
requirement in effect on the date of the attorney's
admission, is in good standing, and maintains a
bona fide office for the practice of law in this
State regardless of where the attorney is
domiciled.
R.1:27 further specifies the requirements one must meet in order to
obtain a license to practice law in New Jersey. These rules are
not unlike those in any other state which are designed to protect
the public against inexpert, unskilled legal advice. The interest
protected by these rules is considered of such importance to this
State that the Legislature has made the unauthorized practice of
law in New Jersey a criminal offense. N.J.S.A. 2C:21-22(b).
Prior opinions of this Committee and the courts make it clear
that a foreign attorney cannot practice law within the State of New
Jersey by virtue of the attorney's license to practice law in
another state. In five of the six opinions issued by this
Committee dealing with attorneys admitted to practice in another
jurisdiction,See footnote 1
1
it has ruled that if such an attorney were to
practice law in this state, without being admitted to the New
Jersey bar -- even if that practice were in his or her area of
specialization and even if said practice were transactional in
nature -- such practice would constitute the unauthorized practice
of law. Opinion 1, 91 N.J.L.J. 656 (1968) (an attorney who is a
member of the bar of another state, but not the New Jersey bar, is
guilty of the unauthorized practice of law if he or she represents
a New Jersey resident in a New Jersey real estate transaction);
Opinion 7, 94 N.J.L.J. 1077 (1971) (an attorney who is not a member
of the New Jersey bar is guilty of the unauthorized practice of law
even if the attorney limits his or her New Jersey practice to
federal customs and tariff laws); Opinion 9, 95 N.J.L.J. 269 (1972)
(a patent attorney who is not a member of the New Jersey bar is
guilty of the unauthorized practice of law if he or she practices
in New Jersey, unless specific permission is obtained from the
United States District Court for the District of New Jersey);
Opinion 17, 98 N.J.L.J. 568 (1975) (a member of the bar of a
foreign state who is not a member of the New Jersey bar is guilty
of the unauthorized practice of law if he or she draws a deed to
convey New Jersey real estate); Opinion 27, 133 N.J.L.J. 652, 2
N.J.L. 324 (1993) (a foreign attorney who is not a member of the
New Jersey bar is guilty of the unauthorized practice of law if he
or she opens or otherwise establishes offices in New Jersey to
represent clients before the Immigration and Naturalization Service
in New Jersey).See footnote 2
2
In other words, this Committee has consistently
denied foreign lawyers the right to practice their profession in
New Jersey merely by virtue of their licensure in another state.See footnote 3
3
The courts of New Jersey have similarly ruled that, under
circumstances such as those surrounding bond counsel practice, only
attorneys who have been admitted in New Jersey may practice in New
Jersey. Appell v. Reiner, 43 N.J. 313 (1964). In Appell, the
Supreme Court recognized the "generally controlling principle" in
New Jersey that, absent exceptional or unusual circumstances,
"legal services to be furnished to New Jersey residents relating to
New Jersey matters may be furnished only by New Jersey counsel."
Id. at 316. This principle is well-established at common law and
is intended to assure to the public "a sufficient degree of
competence, accessibility and accountability" from their attorneys.
In re Kasson, 141, N.J. 83, 86 (1995) (quoting In re Sackman, 90
N.J. 521, 523 (1982).
The circumstances surrounding bond counsel practice are not
the "exceptional or unusual circumstances" contemplated by the
Appell Court. In that case, the Court was envisioning "multi-state
transactions" whose individual state elements were "inseparable"
and involved "tangled and interwoven elements" from different
jurisdictions that would make it more efficient and practical to
have one counsel handle the entire matter, even if that counsel
were not a member of the bar of every state involved in the
transaction. Appell v. Reiner, supra, 43 N.J. at 316-17. See In
re Estate of Waring, 47 N.J. 367, 375-78 (1966) (foreign attorney's
participation with New Jersey counsel in estate matter did not
constitute the unauthorized practice of law where multi-state
relationships and interests were involved) and Rule 4:88-4
(permitting application for attorney's fees for foreign attorney's
participation in probate matters made payable through its New
Jersey counsel).
That is the exact opposite of the circumstances surrounding
New Jersey bond practice. These are not "multi-state
transactions." There are no "inseparable" elements located in
different states. There are no "tangled and interwoven elements"
from different jurisdictions. On the contrary, the New Jersey bond
issues are home-grown, Garden State-only matters. These matters
involve only New Jersey -- New Jersey facts, New Jersey
governments, New Jersey bonds, New Jersey law. The only non-New
Jersey element involved in bond practice is federal tax law.
Because New Jersey bond lawyers are equally as skilled in federal
tax law as foreign bond counsel -- and federal tax law, by
definition, does not vary from state to state -- there is no need
for New Jersey to permit the unauthorized practice of law by
foreign attorneys whose primary practice is outside the State.
Moreover, New Jersey bond issues are not matters which foreign
counsel handle because they are integrally related to one of their
non-New Jersey matters, nor are they part and parcel of an
interstate transaction. The clients are New Jersey governmental
bodies issuing New Jersey bonds for New Jersey public purposes.
There is no pragmatic or "efficient" reason why foreign counsel are
or should be retained, such as because the bond is "intertwined"
with a foreign matter being handled by a foreign lawyer. They are
not performing a necessary task relating to matters for existing
in-state clients. Thus, this Committee is of the view that the
current practice of law by foreign bond counsel in New Jersey is
prohibited by court rule, statute and a long and unbroken line of
prior opinions by this Committee and the courts of this State.
Most recently, the Supreme Court of New Jersey made it clear
that the touchstone of any inquiry into the unauthorized practice
of law is whether the practice serves the public interest. In re
Opinion No. 26, supra, 139 N.J. 323. If it does, even the practice
of law by those unauthorized to do so may be permitted (although it
may be subject to certain limiting conditions). The types of
factors to consider in the public interest test outlined by the
Court are as follows:
.
the real business with which the questioned practice is
concerned
.
the real impact of the questioned practice on the public
.
the benefits of the practice to the public
.
the costs of the practice to the public
.
the knowledge of the public of those costs and benefits
.
the difference between the questioned practice and
the accepted practice in terms of advantages and
disadvantages to the public
.
any conflicting interests of the practitioners
.
the relationships between all involved
.
remedies available to the public for any damages
caused by the questioned practice
.
consumer satisfaction with the questioned practice
.
any active discouragement by those involved of the
participation of proper legal counsel
Id. at 330, 343.
The "real business" in the present matter is the issuance of
state and municipal bonds for New Jersey governmental bodies with
the advice and counsel of attorneys who are not admitted to
practice law in this State. The benefits of this practice to the
public have not been systematically measured, but this Committee
recognizes the fact that there are highly competent bond counsel
located within the State of New Jersey, obviating any need to
retain foreign bond counsel for their "greater" expertise. See
Rocco Cammarere, Out-of-State Bond Counsel; Opposition Swells, 6
N.J.L. 489 (1977) ("Some lawyers say there is no good reason today
to hire an outside firm, that there are ample veteran and
knowledgeable bond attorneys practicing on the home turf.").
Undoubtedly, the public has little or no knowledge of the costs and
benefits of this questioned practice. Bond issues are handled by
governmental bodies and few, if any, of the legal details of the
bond work are scrutinized or understood by the public. Thus, the
public's level of satisfaction or dissatisfaction with the practice
is essentially meaningless. That is why our Supreme Court
regulates and disciplines attorneys practicing in this State -- to
provide the public with an informed watchdog. But foreign bond
counsel are not members of our bar and are thus not subject to our
disciplinary rules. Thus, the full panoply of disciplinary
remedies available to the public in this State for any damages
caused by the questioned practice are diminished.
Regardless of the above analysis, however, this Committee
believes that the application of the public interest test from In
re Opinion 26, supra, 139 N.J. 323, is neither dispositive of nor
applicable to the foreign bond counsel question. This is due to
the fact that the present bond counsel inquiry is clearly
distinguishable in two key respects from the situation presented by
the "Southern Jersey real estate practice" discussed in Opinion 26.
The first distinction involves the particular consumer's
choice which is protected in In re Opinion 26. The decision in
that case protects a party's right to choose to proceed with or
without the aid of counsel, whereas the present bond counsel
inquiry deals with a party's non-existent "right" to choose to
proceed with a licensed New Jersey attorney or an unlicensed
foreign attorney -- a choice not protected by any New Jersey legal
authority. No New Jersey client has ever been given the option of
hiring a Pennsylvania attorney to do a real estate closing.
Indeed, the well-settled law is to the contrary. See State v.
Kavanaugh, 52 N.J. 7, 18 (1968) (so long as the New Jersey Bar is
willing to provide effective counsel, there is no constitutional
right to select an attorney who is not a member of the Bar).
The second distinction involves the activities which comprise
the unauthorized practice of law. In re Opinion 26 dealt with
certain laypersons performing "limited activities" pertaining to
the practice of law, 139 N.J. at 327, whereas the present inquiry
deals with out-of-state lawyers providing extensive and complex
legal services. The Court made it very clear that its decision was
limited to the facts of that case (which, unlike here, involved
laypersons), and that particular "Southern Jersey" practice (which,
unlike here, involved very limited legal activity which was then
allowed only in conjunction with detailed warnings of risk).
Thus, the consumers' choice protected by the Court on public
interest grounds in In re Opinion 26 is not the choice presented
here by out-of-state bond counsel. The "Southern Jersey practice"
involved the right of the public when participating in a
residential real estate transaction to choose whether it wanted to
proceed either with a lawyer or without a lawyer. Indeed, the
Supreme Court referred to the public's right "to choose to proceed
without a lawyer" at least eleven times in In re Opinion 26, 139
N.J. at 326, 327, 328, 330, 354, 356. In contrast, the present
inquiry involves the "right" of public entities to participate in
the issuance and sale of multi-million dollar bond transactions
with New Jersey bond counsel or with out-of-state bond counsel.
Neither the Supreme Court nor this Committee has ever
protected this "right." Rather, the Court protected the public's
right to proceed pro se and provided the public with adequate
protections when it chooses to do so. The Court does not say in In
re Opinion 26 that real estate agents are acting as counsel --
rather, it notes that no one is functioning as counsel to the
parties and that the parties have the right to choose to proceed in
this fashion. The Court recognized that if a member of the public
chooses to retain a lawyer, then that person cannot choose a lawyer
from any jurisdiction which he or she desires.
We do not adopt a rule...that so long as informed
consent from the parties is obtained, any conduct
that might otherwise constitute the unauthorized
practice of law is permitted.
Id. at 356. The choice given to the public in In re Opinion 26 --
and supported by the entire body of "unauthorized practice" law --
is clear: a party can decline representation in certain limited
transactions (as with the "South Jersey practice") or it can choose
to be represented by an attorney admitted to practice in New
Jersey. See Opinion 1, supra, 91 N.J.L.J. 656; Opinion 7, supra,
94 N.J.L.J. 1077; Opinion 9, supra, 95 N.J.L.J. 269; Opinion 17,
supra, 98 N.J.L.J. 568, and Opinion 27, supra, 133 N.J.L.J. 652.
As stated above, In re Opinion 26, supra, 139 N.J. 323, can be
distinguished from the current bond counsel inquiry on the basis of
the scope of the questioned legal activities being performed. The
Court stated that its decision in that matter stood for the
proposition that "parties need not retain counsel to perform
limited activities that constitute the practice of law and that
others may perform them." Id. at 327 (emphasis added). The
practice of law by foreign bond counsel in New Jersey transactions
can hardly be described as a "limited activity." Bond counsel are
key figures in the bond-issuing process involving millions of
dollars. In contrast, in a "South Jersey" residential real estate
transaction, most of the attorney's functions are never performed
-- and foreign counsel certainly do not step in and perform the
work. Nor does this Committee believe that such conduct would be
permissible, under In re Opinion 26 or any other authority.
Other jurisdictions have concluded that, under most
circumstances, unlicensed interstate practice can violate the
prohibition against the unauthorized practice of law. In a recent
decision, the California Supreme Court ruled that a New York law
firm which represented a California client in California in a legal
dispute governed by California law was engaging in the unauthorized
practice of law. Birbrower, Montalbano, Condon & Frank v. Super.
Ct. Of Santa Clara County, 949 P.2d 1 (Cal. 1998). In that case,
the Court ruled that a New York law firm engaged in the
unauthorized practice of law when its attorneys -- none of whom
were admitted in California -- traveled to California to represent
a California client in a dispute with another California company
under California law.See footnote 4
4
The New York attorneys made preliminary
arbitration arrangements in California and ultimately negotiated a
settlement there. The Court denied the firm the right to collect
any fee for the legal services it provided to its client in
California. Significantly, the Court refused to carve out an
exception to the rule for out-of-state attorneys because the
statute did not recognize any such exception.
The Supreme Court of North Dakota reached the same conclusion
in 1986, prohibiting a Minnesota lawyer from collecting a fee from
a long-term North Dakota client for tax advice he had been giving
his client in North Dakota. Ranta v. McCarney, 391 N.W.2d 161
(N.D. 1986). Like California, the North Dakota Court also refused
to carve out any exception to the statutory prohibition on the
unauthorized practice of law. Id.
New Jersey's court rules and statutes likewise do not carve
out any exceptions -- for bond counsel or any other practitioner.
R. 1:21-1(a); N.J.S.A. 2C:21-22.
Conclusion
Based on all of the foregoing, it is the conclusion of this
Committee that an attorney who is not admitted to practice law in
New Jersey, but who is providing legal services to New Jersey
governmental bodies in connection with the issuance of bonds is
engaging in the unauthorized practice of law. It is the further
opinion of this Committee that the public interest test outlined in
In re Opinion 26, supra, 139 N.J. 323, does not operate to
otherwise permit this practice despite its unauthorized nature.
It should also be noted that it is no defense to a charge of
unauthorized practice of law that all legal services are performed
outside the boundaries of the State of New Jersey. Opinion 17,
supra, 98 N.J.L.J. 368. The mere fact that bond counsel may not
cross the New Jersey State border does not protect the attorney's
New Jersey activities from constituting the unauthorized practice
of law. For example, in Opinion 17, this Committee reviewed the
practice of foreign attorneys preparing deeds to convey real estate
in New Jersey. In that situation, the Committee stated:
[T]he fact that the foreign attorney may never set foot
within this jurisdiction is immaterial for the clear
intent of his act in the preparation of a deed to convey
real estate in New Jersey is to affect real property, the
parties and their respective rights and duties as
governed by the laws of the State of New Jersey.
Id. Similarly here, it is the intent of foreign bond counsel -- by
preparing the documents needed for New Jersey governmental bodies
to issue bonds -- to affect the financial obligations of these
bodies, the residents of New Jersey who purchase those bonds, and
their respective rights and duties as governed by the laws of the
State of New Jersey. In the view of this Committee, whether they
conduct such activity within the State or not has no bearing on
whether the activity is or is not the unauthorized practice of law.
This Committee has therefore determined that out-of-state bond
counsel engage in the unauthorized practice of law where they have
failed to fully and completely comply with all of the requirements
set forth in R. 1:21-1(a). This includes both the need to be
licensed in New Jersey as well as the need to be in compliance with
the bona fide office rule. Tolchin v. Supreme Court of New Jersey,
111 F.3d 1099 (3d Cir.), cert. denied, 118 S. Ct. 435 (1997). Even
if bond counsel is admitted to practice in New Jersey, any such
counsel whose primary office is located out-of-state and who fails
to maintain a bona fide office in New Jersey is in violation of R.
1:21-1(a) and may not practice law in this state. "All attorneys
who wish to practice in New Jersey must have a bona fide office."
Id. at 1107. This rule is intended to provide the public with
convenient access to and responsiveness from their attorneys, as
well as to prevent attorneys who practice primarily in other states
-- and who therefore might not be familiar with current New Jersey
laws and developments --from practicing in New Jersey. Id.
Even where an out-of-state firm has opened a New Jersey
office, it is still the unauthorized practice of law if the lawyers
in that office performing the legal services are not licensed in
the State of New Jersey. Opening an office in New Jersey does not
grant a license to practice law in this State to the entire legal
staff of the out-of-state law firm -- each attorney must be
individually licensed to practice law in New Jersey.
In conclusion, we hereby determine that attorneys who are not
admitted to practice law in New Jersey are engaged in the
unauthorized practice of law when they advise New Jersey
governmental bodies in connection with the issuance of state and
municipal bonds.
* * *
Footnote: 11
In Opinion 28, 138 N.J.L.J. 1558, 3 N.J.L. 2459 (1994), the
Committee permitted a foreign attorney to appear before a panel of
the American Arbitration Association in New Jersey due to the
contractual nature of the arbitration process and the particular
rules of the AAA. But see Nat'l Rep. on Legal Ethics and Prof.
Resp., Opinion No. 94-5 (III. July 1994) (an attorney licensed in
another state cannot represent parties in an arbitration in a
jurisdiction in which he or she is not admitted).
Footnote: 22
In fact, New Jersey has made the unauthorized practice of
immigration law in New Jersey a criminal act. N.J.S.A. 2C:21-31.
Footnote: 33
In In re Opinion No. 26, 139 N.J. 323 (1995) the Supreme Court
allowed lay persons working in and from New Jersey, to perform
certain limited legal tasks; however, it did not open the doors for
foreign attorneys to come into New Jersey to perform those same
tasks.
Footnote: 44
Section 6125 of the California Business and Professions Code
states: "No person shall practice law in California unless the
person is an active member of the State Bar."
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