Rothman, In re

• Decision Date: 08 June 1953
• Docket Number: No. D--9,D--9
• Citation: 39 A.L.R.2d 1032,12 N.J. 528,97 A.2d 621
• Parties: , 39 A.L.R.2d 1032 In re ROTHMAN et al.
• Court: New Jersey Supreme Court

Page 528

12 N.J. 528

97 A.2d 621, 39 A.L.R.2d 1032

In re ROTHMAN et al.

No. D--9.

Supreme Court of New Jersey.

Argued March 30, 1953.

Decided June 8, 1953.

Milton T. Lasher, Hackensack, by designation of the Ethics and Grievance Committee for Bergen County, argued the cause for the committee.

Samuel Kaufman, Newark, argued the cause for the respondent David Irving, Jr.

Julius E. Kramer, Hackensack, argued the cause for the respondent George I. Rothman.

The opinion of the court was delivered by

VANDERBILT, C.J.

This matter comes before us on the return of an order to show cause issued on a presentment filed by the Ethics and Grievance Committee for Bergen County charging the respondents with various violations of the 27th, 35th and 47th Canons of Professional Ethics. These violations involve (1) extensive advertising and direct solicitation of mortgage business by a corporation owned by the respondents, leading directly and inevitably to the acquisition by them of a very substantial amount of professional employment which they would not have obtained without such advertising and solicitation, in violation of Canon 27; (2) the receipt by the corporation owned by them of substantial legal fees, in violation of Canon 47, forbidding a member of the bar to aid the unauthorized practice of the law by and lay agency, and of Canon 35 prohibiting the intervention of a lay agency between client and lawyer.

I. The Facts.

The facts are not in dispute. The background of the respondents is summarized in the respondents' brief as follows:

Irving was admitted to the bar in 1940 after having spent some years in the handling of claims for an insurance company. His partnership for the practice of law with George I. Rothman was formed in 1945. At that time Mr. Irving had an independent clientele wholly unrelated to the mortgage financing or real estate business. His practice consisted of the usual trial work in the negligence and compensation fields and in the handling of industrial relations.

George I. Rothman, his law partner, was interested solely in the real estate and mortgage field where he and his family had wide and extensive experience. When he received his discharge from military service, his home community was in the midst of a great building boom which still continues unabated. Residential housing and industrial and commercial development were in the midst of an unparalleled growth. The mortgage insurance which underlay G.I. loans presented an outstanding opportunity for banks, savings and loans and mortgage lending institutions all over the metropolitan area to assist in the financing of these large building ventures. Rothman determined that his opportunity lay in this area.

In 1946 Rothman took over the trade name of Northern New Jersey Mortgage Associates from Irving's brother and began to develop a mortgage business in the same quarters as the law partnership at 12 Engle Street, Englewood. By 1949 the business had developed to such an extent that they moved to larger quarters at 63 West Palisade Avenue, Englewood, where the partners formed a corporation, Northern New Jersey Mortgage Associates, whereupon the similar trade name was cancelled of record. Where Rothman had previously owned the trade name, each partner then owned 50% Of the stock of the corporation. The mortgage business of the corporation was carried on in rooms leased by the partnership. Although Irving then had some clients other than the mortgage company, he devoted most of his time to legal work in connection with the mortgage loans of the corporation and eventually he abandoned practically all of his other law practice. Rothman did not practice law to any extent from 1949 on, but became the president and guiding hand in the mortgage company, the business of which increased tremendously. It had from 45 to 50 mortgage closings a week, and it handled around a quarter of a billion dollars in mortgages in seven years. In 1951 the law partnership had from 15 to 18 employees, while the corporation had another 12 to 20, all in the same offices. Of them six or seven were fieldmen soliciting mortgage business. They had a single telephone number and eventually a 16-line switchboard, for the use of both the law firm and the corporation. In answering calls the operator would answer with the number rather than the name of the firm or of the corporation. The corporation employed two firms of accountants. For a time it had a branch office in Newark and acted as a broker in at least one real estate development in Burlington County.

The business of the mortgage company and the practice of the law firm were conducted as a single intermingled enterprise. Thus, prior to June 30, 1951 the law partnership paid all telephone bills and the salary of the switchboard operator. From July 1, 1951 to June 30, 1952 the mortgage corporation paid the telephone bills and salary of the switchboard operator. From July 1, 1952 to October 31, 1952 the law partnership again paid the telephone bills and switchboard operator's salary. The law partnership, moreover, paid the entire rent for the premises at 63 W. Palisade Avenue, Englewood, for the years 1949, 1950, 1951 and 1952. From July 1, 1951 to June 30, 1952 the mortgage company paid the partnership rent of $300 a month. Employees were frequently shifted back and forth between the two payrolls. Although Rothman did not practice law during the period from July 1, 1951 to June 30, 1952, yet he shared in all of the profits of the law partnership from 1945 on, including the annual payment from the mortgage company to the law partnership pursuant to the contract agreement mentioned hereafter. Irving, on the other hand, did not engage in the mortgage business, yet as the 50% Owner of the stock of the corporation he was entitled to one-half of its substantial profits. The accountants seldom made any adjustments between the mortgage company and the law partnership. The ownership of the title plant was so uncertain that even Rothman himself could not tell the committee whether the law firm or the mortgage company owns it, as a result of the complete commingling of the business of the mortgage company and the practice of law by the partnership 'under one friendly roof,' as the mortgage company aptly phrased it in its advertisements.

The mortgage company was paid large amounts by borrowers for legal fees. On July 1, 1951 the mortgage company made a written contract to pay the law partnership $42,000 annually, later reduced to $33,000, for legal services to be rendered by it. An outstanding instance of the interrelatedness of the two enterprises is found in the fact that While the agreement was in force the mortgage company received all moneys paid by mortgage borrowers for services including legal fees. Rothman testified that the law firm also received additional fees besides the $33,000 annual payment. The mortgage company's closing statement form even included an item for search fees. These fees were considerable. Rothman testified that on the sale of a house to a G.I. for $15,000 the mortgage company's fees totalled $483. These fees were made up of 1% G.I. discount, recording fees, the cost of the title policy, three months' taxes, the fire insurance premium, a survey and the closing fee of $150. In addition thereto, if the mortgage were a construction mortgage the builder was required to pay a construction mortgage fee of $111. While the contract providing for this annual payment was in force, Rothman received $3,600 and Irving received $2,275 as officers of Northern New Jersey Mortgage Associates for each of the first two quarters of 1952.

Of equal significance is the mortgage company's course in the solicitation of mortgage business. Rothman solicited work for the mortgage company by letters to builders and developers, emphasizing the company's complete and speedy service, always a telling argument with important real estate developers and mortgage borrowers. The salesmen of the mortgage company were instructed to take the same theme of speedy service in their selling efforts. In addition to the solicitation of mortgage business through advertising, letters to builders and through salesmen, the corporation secured 25% Of its business from real estate brokers to whom it paid commissions. The company employed several advertising firms and public relations counsel who aided Rothman in the preparation of large newspaper advertisements and press releases extolling the services of the mortgage company in the highest terms. On at least one occasion the mortgage company made a direct payment to a newspaper reporter. On December 6, 1952, even after the hearings in this matter had started before the committee, the mortgage company had three consecutive pages of advertisements and reading matter in the Bergen Evening Record announcing the opening of the new offices at 133 Cedar Lane, Teaneck, in a building owned by a corporation of which the respondents are equal one-third stockholders. The advertisements and press releases, which will be discussed later, made it clear that the corporation would furnish complete service to builders, developers, and others. The title facilities and personnel of the corporation were extolled in the highest terms. A great many news items were released to the daily press, including the New York Times, the New York Herald Tribune, the New York Post and Telegram in New York City and newspapers in Newark and Passaic. Such articles appeared once or twice a week for five years. A recurring advertisement was carried in the Bergen Evening Record for at least a year. For all of these advertisements, which we will discuss later, Rothman assumes responsibility.

On July 1, 1952 the contract between the mortgage company and the law partnership was abandoned and thereafter the legal fees were paid by the borrowers directly to the partnership. On November 1, 1952 Irving and Rothman dissolved their law...