New Jersey State Bar Ass'n v. Northern New Jersey Mortg. Associates

• Citation: 22 N.J. 184,123 A.2d 498
• Decision Date: 25 June 1956
• Docket Number: No. A--154,A--154
• Parties: NEW JERSEY STATE BAR ASSOCIATION, etc., et al., Plaintiffs-Appellants, v. NORTHERN NEW JERSEY MORTGAGE ASSOCIATES et al., Defendants-Respondents.
• Court: United States State Supreme Court (New Jersey)

Page 184

22 N.J. 184

123 A.2d 498

NEW JERSEY STATE BAR ASSOCIATION, etc., et al., Plaintiffs-Appellants, v. NORTHERN NEW JERSEY MORTGAGE ASSOCIATES et al.,

Defendants-Respondents.

No. A--154.

Supreme Court of New Jersey.

Argued May 14, 1956.

Decided June 25, 1956.

Milton T. Lasher, Hackensack, for appellants.

Milton M. Unger, Newark, for respondents (Milton M. and Adrian M. Unger, Newark, for defendants-respondents; Sam Denstman, Newark, on the brief).

The opinion of the court was delivered by

VANDERBILT, C.J.

The New Jersey State Bar Association and the five individual plaintiffs, as officers of the association and as attorneys-at-law of this State, sued to enjoin the defendants Northern New Jersey Mortgage Associates and Northern New Jersey Abstract Company from performing acts and rendering services which are alleged to constitute the unauthorized practice of law. From the summary judgment entered by the Chancery Division of the Superior Court in favor of the defendants dismissing the action, the plaintiffs appealed to the Appellate Division of the Superior Court. Since the decision below turned on a belief that the Supreme Court had the exclusive jurisdiction to prevent the unauthorized practice of law by laymen and since the case presents a matter of great interest to the members of the bar of this State, we certified the appeal on our own motion.

The plaintiffs sue to protect 'the public' and 'the administration of justice' from the irreparable harm that will come to both, as a result of the practice of law by persons not licensed or authorized to do so; the five individual plaintiffs sue also to protect their property rights in their licenses to practice law.

The complaint alleges that the defendant Northern New Jersey Mortgage Associates (which for the sake of convenience we will refer to as the 'Mortgage Company'), in connection with its business of lending money on the security of real property mortgages, causes to be prepared by its employees and by its affiliate, the other defendant, Northern New Jersey Abstract Company (referred to as the 'Abstract Company'), 'all of the legal instruments required in connection with these loans, such as bonds, mortgages, affidavits, abstracts of title, title reports and title certificates.' It alleges that in addition 'it engages one or more attorneys or laymen to supervise the execution of such legal instruments, to close such loans, to render legal opinions, and to perform such other legal services as may be required or requested by the parties to the transactions.' All this, it is charged, constitutes the practice of law which can never be done by a corporation, nor by an individual either unless he is duly licensed to practice in New Jersey 'and then only when acting as attorney for the persons or corporation constituting a party to the instrument or transaction.'

By way of relief the plaintiffs seek to enjoin the defendants and their associates and employees from all acts which constitute the practice of law, including the preparation of legal instruments and the giving of advice to any one 'in matters involving legal knowledge or the application of legal principles' pertaining to 'ownership, conveyance or mortgage of land, or otherwise.'

Separate answers were filed by each defendant denying the material allegations of the complaint, and in four separate defenses they each alleged that the practices claimed to constitute the practice of law were incident to their business and by statute did not constitute the unauthorized practice of law and that they were being deprived of their constitutional guarantees. Depositions of the president and the employees of the defendants were taken, after which the plaintiffs made a motion for a judgment on the pleadings or in the alternative for a summary judgment, and in the event that neither was granted then for an order striking the defenses. The defendants filed a cross-motion for summary judgment.

The trial court dismissed the complaint holding:

'While the complaint contains an allegation of damage to the individual plaintiffs as a result of the activities of the defendants, no proof in support of the allegation was offered and there are, in fact, no private rights involved. What the plaintiffs seek in this action is to have this court regulate the practice of law by the use of its injunctive power. In my opinion, this court is without jurisdiction to grant the relief sought. Under the provisions of Art. VI, sec. II, par. 3 of the Constitution, the Supreme Court is vested with exclusive jurisdiction over the admission of persons to the practice of law; the discipline of those admitted and the prevention of unauthorized practice of law by laymen. In re Baker, 8 N.J. 321 (85 A.2d 505) (1951).'

Piecing together the bits of information given to us by the pleadings and the depositions taken prior to the motions in the trial court the following facts appear:

The defendants are both private corporations. They have a common president, George Rothman, an attorney-at-law of New Jersey, and common directors and stockholders. The Mortgage Company is in the business of negotiating and placing loans on real estate on behalf of itself and others. The greater portion of the loans which it places in its own name are subsequently assigned to others. The Abstract Company handles all of the details in connection with the searching, certifying and closing of the titles and loans on the properties upon which the mortgage loans are made by the Mortgage Company or its clients, and it arranges for title insurance to the mortgagees and to the buyers or borrowers. While the defendants are apparently separate entities, there is a certain confusion of their records and in some cases even their employees do not distinguish between the two as their employer.

The business of both companies seems to deal primarily with two distinct types of transactions--(1) loans on properties that are to be developed into new home communities, and (2) loans on old and new homes as single units unconnected with such new developments.

In the first type of transaction the Mortgage Company arranges for the complete financing of a development from the construction loans to the builder, to enable him to build the homes, to the permanent mortgage loans to be granted to the individual home buyers in the development, to enable them to buy the homes. In most cases the development is financed with a view toward Federal Housing Administration mortgage insurance or Veterans' Administration loan guarantees, and in these cases the Mortgage Company undertakes to procure the necessary approvals incident to the protection offered by the Federal Government. In most cases the Abstract Company searches the title to the entire tract and determines the state of the title; it procures the necessary title certificates and clearances during construction and up to the final placing of the permanent mortgage loans on each dwelling unit. The bonds and mortgages in connection with construction loans are prepared by the staff of the Abstract Company. There is some indication, though the proof is not clear, however, that no charges are made for the services performed for the developer of multiple units. How these companies who are in business for profit make their money is again not clear from the depositions. There is some indication that each individual purchaser of the houses in a development pays a mortgage processing fee to the Mortgage Company, and a charge for title searching, abstracting and 'legal work' to the Abstract Company, all as part of his 'closing' fees and expenses. Apparently included in services rendered here by the Abstract Company is the preparation of title affidavits, corporate resolutions and the purchaser's bonds and mortgages.

In the other type of transaction, when a mortgage commitment is obtained from a lender or if the Mortgage Company itself determines to lend the money initially, the matter is turned over to the Abstract Company. That Company arranges for the necessary title searches, the reading and certification of the title, the removal of objections to the title, the preparation and issuance of a title insurance binder through one of the title companies with which it does business, the preparation of the mortgage and related documents, and the closing of the title and the loan. The closings are handled by one of three attorneys employed by the Abstract Company. All fees for services rendered in connection with a particular loan are billed for by the Abstract Company and collected at the closings.

One of the attorneys employed by the Abstract Company indicated in his deposition that his job was to read, certify and close titles and mortgage loans, and that his compensation was fixed on a case basis with a weekly ceiling.

The claim is made by the defendants that outside attorneys representing purchasers and mortgagors are never excluded from serving their clients unless they are 'unqualified' or not approved by the title insurance companies.

On this record we are urged to reverse the judgment below and grant judgment enjoining the defendants in accordance with the prayers of the complaint.

The two basic questions presented by this appeal are: (1) whether the plaintiffs have standing to maintain such an action as this, and (2) whether the acts and practices presented to the court constitute the unauthorized practice of law.

It was indeed proper for the trial court to have distinguished between its right to enjoin the defendants where private property rights are involved and special irreparable injury suffered or threatened, and its power to do so at the instance of the plaintiffs as protectors of the public's interest when no such private rights are concerned. The considerations underlying the granting of injunctive relief differ in each case. Its brief comment indicates that it recognized its fundamental jurisdiction in equity to...