Rhode Island Bar Ass'n, In re

• Decision Date: 26 March 1970
• Docket Number: No. 793-M,793-M
• Citation: 263 A.2d 692,106 R.I. 752
• Parties: In the Matter of RHODE ISLAND BAR ASSOCIATION. P.
• Court: Rhode Island Supreme Court

Page 692

263 A.2d 692

106 R.I. 752

In the Matter of RHODE ISLAND BAR ASSOCIATION.

No. 793-M.P.

Supreme Court of Rhode Island.

March 26, 1970.

Salter & McGowan, Lester H. Salter, Providence, for Rhode Island Bar assn

Charles H. Drummey, Providence, in opposition to petition of Rhode Island Bar Assn.

OPINION

PAOLINO, Justice.

On July 7, 1969, the Rhode Island Bar Association filed a petition in this court requesting the court to promulgate a rule or order authorizing attorneys at law admitted to practice before the court to engage in the practice of law in the form of professional service corporations as provided by the professional service corporation law, G.L.1956, chapter 5.1 of title 7, as enacted by P.L.1964, chap. 185, sec. 1 (as amended by P.L.1968, chap. 236, sec. 1, and P.L.1969, chap. 163, sec. 1).

On the same day we entered an order directing petitioner to insert or cause to be inserted an order of notice in two newspapers of statewide circulation directed to the members of the Rhode Island bar and to any and all persons interested in the petition inviting them to file, within 50 days of the order, written memoranda setting forth reasons or grounds, if any, why this court should not enter an order or ruling as requested by petitioner. The order also provided that petitioner would have 20 days thereafter in which to file a memorandum in support of the petition.

Charles H. Drummey, a member of the Rhode Island bar, filed a brief in opposition to the petition, and Lester H. Salter, also a member of the Rhode Island bar, filed a brief on behalf of the petitioner in support of the petition. On December 5, 1969, we heard oral arguments, and thereafter, at our request, Mr. Salter filed a supplemental memorandum.

Before discussing the pros and cons of petitioner's request, it may be illuminating to set forth certain well-established concepts which have a direct bearing here with respect to the practice of law and the admission and control of attorneys.

In Rhode Island Bar Ass'n v. Automobile Service Ass'n, 53 R.I. 122, 179 A. 139, the court pointed out that 'The practice of law is affected with a public interest,' and that 'This court, by the Constitution, Art. X, sec. 1 and Art. XII, sec. 1 of Amendments, has had imposed upon it the duty of protecting the public in the administration of justice.' ¹ Id. at 131 and 132, 179 A. at 143. The court also stated that it alone had the power to license attorneys and counsellors at law in the courts of this state and to admit them to the practice of law; that in Rhode Island, at least since the adoption of the state constitution, such power has been vested in this court; and that the General Assembly had conceded this in G.L.1923, chap. 322, § 2 (now G.L. this in G.L.1923, chap. 322, § 2 (now G.L.1956, § 8-1-2), where it declared that 'The special rules regulate the admission of attorneys to practice in all the courts of the state.' In referring to the quoted statutory language of § 8-1-2, the court said:

'This language has long been accepted by common consent to be declaratory of the power inherent in this court to control and supervise the practice of law generally whether in or out of court. A careful examination of the public laws, even before the adoption of the constitution, and as far back as the year 1800, fails to reveal any enactment of the general assembly assuming to regulate the matter by statute. On the other hand, there is ample evidence of the exercise of this power as a matter of course by the Superior Court of Judicature established in 1746-47 which was the predecessor of this court until 1798, when it became the Supreme Judicial Court.' Id. at 129-130, 179 A. at 142.

The court further noted that the power of the court to regulate and control the practice of law remained where it had always been, notwithstanding the exercise by the General Assembly of its undoubted power to declare acts of unauthorized practice illegal and punishable by fine or imprisonment, or both, and it held that the enactment of the legislation involved in that case relating to the practice of law was in aid of the authority of this court in the regulation and control of the practice of the law, and not subversive to it. Id. at 127, 179 A. at 141. The court also held that the authority to admit to the bar and to disbar necessarily carries with it power to define what constitutes the practice of law and to exclude unauthorized persons therefrom. Id. at 130-131, 179 A. at 142.

The professional service corporation law, hereinafter sometimes referred to as the act, provides in § 7-5.1-1 that, except as otherwise provided, '* * * all provisions of the general corporation law applicable to domestic business corporations shall be applicable to corporations organized under this chapter.' Section 7-5.1-3 reads:

'Any corporation organized under this chapter ² may engage in rendering professional services of only one (1) of the professions enumerated in § 7-5.1-2, provided that every officer, director, and shareholder of said corporation is an individual authorized to practice such profession and is actively employed by the corporation in such practice. No such individual may be an officer, shareholder, director or employee of any other corporation engaged in the practice of the same profession.'

The act provides a procedure, purely optional to members of the bar of this state, to practice their profession in a corporate form. For a discussion of practice by professional service corporations, see 7 Am.Jur.2d, Attorneys At Law § 85. Under G.L.1956, § 11-27-5, no person except a duly admitted member of the bar of this state, in good standing, can practice law in Rhode Island. Absent express statutory authority, the so-called 'learned professions' have not been permitted to practice in the corporate form. See 19 Am.Jur.2d, Corporations § 1052; 7 Am.Jur.2d, Attorneys At Law § 83. Prior to the enactment of the professional service corporation law, the practice of law by a corporation was expressly prohibited in Rhode Island. G.L.1956, § 11-27-15; Rhode Island Bar Ass'n v. Automobile Service Ass'n, supra, at 136-137, 179 A. at 145. The statutory prohibition was repealed by P.L.1964, chap. 186, sec. 2. ³ We do not question the authority of the General Assembly to enact legislation regulating the organization and operation of corporations. It must be assumed, however, that in enacting the professional service corporation law, the General Assembly was cognizant of the decision of this court in Rhode Island Bar Ass'n v. Automobile Service Ass'n, supra, and recognized the inherent and exclusive power of this court to license attorneys at law, to admit them to practice, and to control the practice of law generally. In fact, this assumption is supported by the language of § 7-5.1-10 which provides:

'Nothing contained in this chapter shall be interpreted to abolish, repeal, modify, restrict, or limit the powers of any state regulatory agency, ⁴ to regulate the conduct of professional services pursuant to law.'

In recognition of the power of this court to regulate the practice of law and to license attorneys and admit them to the practice of law, the Rhode Island Bar Association filed this petition for permission for lawyers to incorporate.

The principal reason advanced as motivating attorneys to seek practice in the corporate form is the possible economic benefits offered by various provisions of federal tax law to corporations and their employees, ⁵ but not to self- employed persons or to partnerships. As pointed out by petitioner, such benefits include tax-qualified pension and profit-sharing plans, taxfree death benefits for employees' beneficiaries and tax-free group life insurance, wage continuation and accident and health plans. Other reasons for incorporation are of a non-tax nature, such as limited liability for the torts of associates and the debts of the corporation, continuity of life of the corporate entity, and the ease of transferring ownership interests. ⁶ See In Matter of Florida Bar, 133 So.2d 554 (Fla.1961).

The petitioner states that over the years, efforts, to achieve the benefits listed above by other methods have not proved satisfactory. It refers specifically to the 'Self-employed Individuals Tax Retirement Act of 1962,' sometimes referred to as 'H R 10' or the 'Keogh Act.'

The professional service corporation law in this state was enacted for the purpose of enabling members of the covered professions, not previously allowed to incorporate, to form corporations, thus putting such members on an equal footing with other taxpayers.

The usual reasons put forth against the practice of law as a corporate entity are that the relationship of attorney and client is one of trust and confidence in the highest degree, that such a relationship calls for strict regulation of the admission of attorneys so as to insure that only persons having the qualifications of character, integrity and learning shall be permitted to practice, that only natural persons can conform to such exacting requirements, and that when an attorney is employed by a corporation his first allegiance is to his corporate employer and not to his client. See People v. Merchants' Protective Corp., 189 Cal. 531, 209 P. 363, and Opinion of the Justices, 289 Mass. 607, 194 N.E. 313. See also Jones, The Professional Corporation, 27 Fordham L.Rev. 353, 354-355 (1958). In In re Co-operative Law Co., 198 N.Y. 479, 92 N.E. 15, cited with approval by the court in Rhode Island Bar Ass'n v. Automobile Service Ass'n, supra, at 136-137, 179 A. at 145, the New York court, in speaking of corporations organized under general business corporation statutes to practice law, said: '* * * The corporation might not have a lawyer among its stockholders, directors, or officers. Its members might be without character, learning or standing. There would be no remedy by attachment or disbarment to protect the public from...