Florida Bar, In re, 31073

• Decision Date: 11 October 1961
• Docket Number: No. 31073,31073
• Citation: 4 A.L.R.3d 375,133 So.2d 554
• Parties: In the Matter of THE FLORIDA BAR, Petitioner.
• Court: Florida Supreme Court

Page 554

133 So.2d 554

4 A.L.R.3d 375

In the Matter of THE FLORIDA BAR, Petitioner.

No. 31073.

Supreme Court of Florida.

Oct. 11, 1961.

Charles Fulton, West Palm Beach, Robert M. Ervin, Tallahasse, and William A. Hamilton, Jacksonville, for The Florida Bar, petitioner.

THORNAL, Justice.

The Florida Bar has filed its original petition here requesting approval of certain amendments to the Integration Rule and the Code of Ethics to enable members of the petitioner to qualify under a State Statute known as 'The Professional Service Corporation Act,' Chapter 61-64, Laws of 1961.

We must decide whether members of The Florida Bar should be permitted to practice law as a corporate entity pursuant to statute above mentioned.

Our jurisdiction stems from Section 23, Article V, Florida Constitution, F.S.A., which provides in part that: 'The supreme court shall have exclusive jurisdiction over the admission to the practice of law and the discipline of persons admitted.' The Integration Rule governing the Florida Bar was adopted by this Court originally on March 4, 1950, pursuant to an approving decision filed June 7, 1949. Petition of Florida State Bar Ass'n, Fla., 40 So.2d 902. The original rule was revised on December 6, 1955. Under this rule all persons licensed to practice law in this State are required to be members of The Florida Bar and are prohibited from engaging in the practice of law unless they are members of The Florida Bar in good standing. A lone exception is the privilege of a nonresident lawyer to participate in litigation in this State under a rule of comity.

At its 1961 Session the Florida Legislature enacted Chapter 61-64, known as 'The Professional Service Corporation Act.' This statute will be referred to herein as 'The 1961 Act.' We recognize the authority of the Legislature to enact legislation regulating the organization and operation of corporations. However, the responsibility which the Constitution imposes upon us to supervise admissions to the practice of law and the discipline of those admitted, necessarily requires an examination by this Court into any proposal that directly affects these two constitutional functions. Enabling action by this Court is therefore an essential condition precedent to authorize members of The Florida Bar to qualify under and engage in the practice of their profession pursuant to The 1961 Act.

The petition now before us was filed pursuant to Article XIII of The Integration Rule, 31 F.S.A., governing amendments thereto after the publication of notice of hearing in The Florida Bar Journal. A public hearing has been held and the matter has been thoroughly considered.

Chapter 61-64, supra, is similar to statutes recently enacted by the Legislatures of a number of other states. Connecticut, Public Act No. 158; Georgia, Act No. 285 of 1961; Illinois, Senate Bill No. 804 of 1961; Ohio, Senate Bill No. 550 of 1961; Oklahoma, Senate Bill No. 399 of 1961; Pennsylvania, Act 416 (Senate Bill 525), 1961; Texas, Chapter 158 (Vernon's Ann.Civ.St., Art. 6132b); Wisconsin, Chapter 350, Laws of 1961. The basic purpose of these enactments is to enable those engaged in various professions to form corporations or associations for the practice of their professions. The statutes apply particularly to numerous professional and other self-employed groups which previously were not permitted to incorporate. Traditionally, the so-called learned professions have not been permitted to practice as corporate entities. 13 Am.Jur., Corporations, Section 837, page 835; 5 Am.Jur., Attorneys at Law, Section 25, page 276. The principal reason for this change in attitude regarding these professional groups appears to arise out of the provisions of the Internal Revenue Code of 1954, U.S.C.A. Title 26, § 1 et seq., which permit an employer to establish a pension fund for the benefit of his employees. Payments by the employer into the fund are income tax deductible. Payments to the employee do not subject him to income tax until he actually receives the pension later in life. Stockholders of corporations can be employees thereof even though they own the corporate entity. Corporate stockholders can thus take advantage of these benefits. The Internal Revenue Code, supra, has been interpreted so that the owners of an unincorporated business or professional partnership cannot obtain similar benefits. The American Bar Association has strongly supported federal legislation aimed at permitting self-employed persons to receive the same tax privileges in regard to tax deferred pension plans as have been accorded to those employed by corporations and others for a number of years. See 'Tax Equity for Self-employed' by Eugene J. Keogh, American Bar Association Journal, July 1961, Volume 47, No. 7, page 665; American Bar News, August 15, 1961, Volume 6, No. 9.

The current State legislation typified by Chapter 61-64, supra, is an outgrowth of various regulations promulgated by the Internal Revenue Service of the United States Treasury Department following the decision of the United States Court of Appeals in United States v. Kintner et al., 9 Cir., 216 F.2d 418. By that decision the Court of Appeals of the Ninth Circuit granted to an unincorporated association organized by a group of doctors the status of a corporate employer for income tax purposes. Motivated by this decision the Internal Revenue Service promulgated a number of regulations establishing standards by which various associations would be categorized for purposes of taxation. Federal Tax Regulations, 1961, Section 301.7701; Code of Federal Regulations, Title 26, Section 301.7701-1 et seq. Since the promulgation of these regulations the state legislation, which we have mentioned, has ensued in order to enable various self-employed businesses and professions, not previously privileged to incorporate, to form organizations that would legitimately and in good faith meet the requirements of the United States Treasury Department.

This state legislation and those who seek to meet its requirements are not to be catalogued as devious or evasive. We construe the legislation, including Chapter 61-64, supra, as a frank and forthright effort to adapt certain business and professional relationships to the requirements of the Internal Revenue Service in order that the members of such businesses or professions may be placed on an equal footing with other taxpayers. For a helpful discussion see, 'The Professional Corporation' by H. Bradley Jones, Fordham Law Review, Autumn 1958, Vol. XXVII, No. 3, page 353.

We have dwelt on the reasons for the Florida enactment and the amendments to the Integration Rule in order that we might better define the purposes of the pending petition and lay the basis for any future interpretation of the Rules which we hereafter announce. It is not our function to announce the standards which the Internal Revenue Service will apply in determining the classification to which an organization might belong for purposes of taxation. However, we understand the rule to be that local law governs 'in determining whether the legal relationships which have been established in the formation of an organization are such that the standards are met.' Federal Tax Regulations, 1961, Section 301.7701-1(c). Traditionally, prohibition against the practice of a profession through the corporate entity has been grounded of the essentially personal relationship existing between the lawyer and his client, or the doctor and his patient. This necessary personal relationship imposes upon the lawyer a standard of duty and responsibility which does not apply in the ordinary commercial relationship. The non-corporate status of the lawyer was deemed necessary in order to preserve to the client the benefits of a highly confidential relationship, based upon personal confidence, ability, and integrity. If a means can be devised which preserves to the client and the public generally, all of the traditional obligations and responsibilities of the lawyer and at the same time enables the legal profession to obtain a benefit not otherwise available to it, we can find no objection to the proposal.

As we read Chapter 61-64, supra, implemented by the Rules which we hereafter announce, the highly personal obligation of the lawyer to his client is in no way adversely affected. The individual practitioner, whether a stockholder in a corporation or otherwise, will continue to be expected to abide by all of the Rules and Canons of professional ethics heretofore or hereafter required of him. The corporate entity as a method of doing business will not be permitted to protect the unfaithful or the unethical. As a matter of fact, the corporate entity itself will automatically come within the ambit of our jurisdiction in regard to discipline. In addition to the individual liability and responsibility of the stockholder, the corporate entity will be liable for the misprisions of its members to the extent of the corporate assets. As we read the subject statute and the implementing rules proposed by the petitioner, a corporation organized under the statute and rules will meet substantially the...