State Bar Mulls Regulating Legal Service Nonprofits
Tuesday, December 12, 2006
- Organization: Daily Journal
© 2006 The Daily Journal Corporation. All rights reserved.
PUBLIC INTEREST -- Dec. 12, 2006
State Bar Mulls Regulating Legal Service Nonprofits
By Amy Yarbrough
Daily Journal Staff Writer
SAN FRANCISCO - Should nonprofit corporations that provide legal services be regulated like their for-profit counterparts?
That's a question the State Bar is weighing and one, agency officials say, without an easy answer. The bar held two public hearings on the issue recently, the latest in San Francisco on Friday.
Though the process has just begun, the bar has been looking at whether to regulate nonprofit legal service providers since earlier this year. The state Supreme Court asked the bar to study the issue following its March 9, 2006, ruling in Frye v. Tenderloin Housing Clinic.
The case began as a landlord-tenant dispute in which the Tenderloin Housing Clinic represented Frye and several other tenants of a residential hotel. Frye claimed THC, a San Francisco-based nonprofit that provides legal services to low-income residents, was not entitled to attorney fees because it had not complied with government code and registered with the bar to practice as a nonprofit law corporation.
The trial court found that THC was not required to register with the bar, a decision that was reversed by the Court of Appeal. The Supreme Court sided with the nonprofit, interpreting government code to mean that registration with the bar was not mandatory.
Despite its ruling, the Supreme Court asked the bar to see whether there were any instances where nonprofit legal corporations had harmed their clients and whether those problems warranted regulation of the groups themselves.
Any regulations, the Supreme Court said, would have to balance the organizations' rights of expression and association guaranteed under the First Amendment.
Brad Seligman, executive director of Impact Fund, a Berkeley-based nonprofit that does public-interest impact litigation, said regulating organizations like his would be addressing a problem that doesn't exist.
"The only people who have suggested there's any problem at all are the Frye plaintiffs," Seligman said.
Seligman points out such firms are subject to regulation by four agencies; the state attorney general, the secretary of state, the Internal Revenue Service and the bar, which has a rule that applies to legal service programs.
Bar rules that govern for-profit legal corporations would be a bad fit for the nonprofit sector, Seligman said.
The bar prohibits for-profit corporations from having anyone but attorneys on their boards of directors. Nonprofits, however, must include nonattorneys on their boards in order to qualify for certain federal funding. They also do so because a mix of expertise can be beneficial, Seligman said.
"God knows lawyers don't have all the answers to all the problems in our society," he said.
Robert Hawley, deputy executive director of the bar, said the agency's Regulation, Admissions and Discipline Committee is carefully considering such issues as well as the fact that the nonprofits differ greatly, many providing services other than legal aid.
"Unlike the for-profit world, you have a very wide spectrum of activities that the nonprofits engage in," Hawley said. "It's a challenge to figure out what type of regulation would cover them all."
The committee will submit a report to the bar's Board of Governors on its recommended response to the Supreme Court. If all goes as scheduled, it should be completed by the end of next year, Hawley said.
Paul Utrecht, who represented the plaintiffs in the Frye case, said he could cite several examples of why more regulation of nonprofits is needed.
Among them is the fact that groups may provide legal services for free but, wanting to use their client's situation for a test case, may not advise them of other legal remedies, Utrecht said. While individual lawyers are bound by the bar's ethics rules, the nonprofit corporation itself is not.
"There's a dichotomy between the lawyers and the political people who work for the nonprofit," Utrecht said.
He added that may groups may be inclined to do what's best for all their clients, rather than what's good for the individual they are working with.
"The political people don't care about the client. They care about the cause," he said.
**********
© 2006 Daily Journal Corporation. All rights reserved.
PUBLIC INTEREST -- Dec. 12, 2006
State Bar Mulls Regulating Legal Service Nonprofits
By Amy Yarbrough
Daily Journal Staff Writer
SAN FRANCISCO - Should nonprofit corporations that provide legal services be regulated like their for-profit counterparts?
That's a question the State Bar is weighing and one, agency officials say, without an easy answer. The bar held two public hearings on the issue recently, the latest in San Francisco on Friday.
Though the process has just begun, the bar has been looking at whether to regulate nonprofit legal service providers since earlier this year. The state Supreme Court asked the bar to study the issue following its March 9, 2006, ruling in Frye v. Tenderloin Housing Clinic.
The case began as a landlord-tenant dispute in which the Tenderloin Housing Clinic represented Frye and several other tenants of a residential hotel. Frye claimed THC, a San Francisco-based nonprofit that provides legal services to low-income residents, was not entitled to attorney fees because it had not complied with government code and registered with the bar to practice as a nonprofit law corporation.
The trial court found that THC was not required to register with the bar, a decision that was reversed by the Court of Appeal. The Supreme Court sided with the nonprofit, interpreting government code to mean that registration with the bar was not mandatory.
Despite its ruling, the Supreme Court asked the bar to see whether there were any instances where nonprofit legal corporations had harmed their clients and whether those problems warranted regulation of the groups themselves.
Any regulations, the Supreme Court said, would have to balance the organizations' rights of expression and association guaranteed under the First Amendment.
Brad Seligman, executive director of Impact Fund, a Berkeley-based nonprofit that does public-interest impact litigation, said regulating organizations like his would be addressing a problem that doesn't exist.
"The only people who have suggested there's any problem at all are the Frye plaintiffs," Seligman said.
Seligman points out such firms are subject to regulation by four agencies; the state attorney general, the secretary of state, the Internal Revenue Service and the bar, which has a rule that applies to legal service programs.
Bar rules that govern for-profit legal corporations would be a bad fit for the nonprofit sector, Seligman said.
The bar prohibits for-profit corporations from having anyone but attorneys on their boards of directors. Nonprofits, however, must include nonattorneys on their boards in order to qualify for certain federal funding. They also do so because a mix of expertise can be beneficial, Seligman said.
"God knows lawyers don't have all the answers to all the problems in our society," he said.
Robert Hawley, deputy executive director of the bar, said the agency's Regulation, Admissions and Discipline Committee is carefully considering such issues as well as the fact that the nonprofits differ greatly, many providing services other than legal aid.
"Unlike the for-profit world, you have a very wide spectrum of activities that the nonprofits engage in," Hawley said. "It's a challenge to figure out what type of regulation would cover them all."
The committee will submit a report to the bar's Board of Governors on its recommended response to the Supreme Court. If all goes as scheduled, it should be completed by the end of next year, Hawley said.
Paul Utrecht, who represented the plaintiffs in the Frye case, said he could cite several examples of why more regulation of nonprofits is needed.
Among them is the fact that groups may provide legal services for free but, wanting to use their client's situation for a test case, may not advise them of other legal remedies, Utrecht said. While individual lawyers are bound by the bar's ethics rules, the nonprofit corporation itself is not.
"There's a dichotomy between the lawyers and the political people who work for the nonprofit," Utrecht said.
He added that may groups may be inclined to do what's best for all their clients, rather than what's good for the individual they are working with.
"The political people don't care about the client. They care about the cause," he said.
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© 2006 Daily Journal Corporation. All rights reserved.
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