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In re Rothman

Decided: June 8, 1953.

IN THE MATTER OF GEORGE I. ROTHMAN AND DAVID IRVING, JR., ATTORNEYS AT LAW


On presentation of the Ethics and Grievance Committee for Bergen County.

Guilty and for reprimand -- Chief Justice Vanderbilt, and Justices Heher, Oliphant and Burling. Not guilty and for dismissal -- Justices Wachenfeld, Jacobs and Brennan. The opinion of the court was delivered by Vanderbilt, C.J. William J. Brennan, Jr., J. (dissenting). Justices Wachenfeld and Jacobs join in this dissent.

Vanderbilt

[12 NJ Page 529] 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 any 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 partnership. Irving still continues to do the legal work of the mortgage company and to own stock in it, one-half up to November 26, 1952 and one-third since then, when a third stockholder took title to one-third of his and of Rothman's stockholdings, after hearings had commenced before the Ethics and Grievance Committee. At the oral argument before us on the presentment, Irving offered unreservedly to dispose of his stock in the mortgage company and also, if the court insisted, of his stock in the company owning the office building.

Rothman filed no brief in his own behalf, but at the oral argument his counsel "adopted" Irving's brief. Counsel's only excuse for not filing a brief was that he had been in Washington the week before the argument. He stated that Rothman had never read the brief filed by the Committee on Ethics and Grievances for Bergen County, although he had "gone over it" with Rothman. Rothman frequently stated in printed articles, in statements before the committee and through counsel before us that he did not intend to return to the practice of law when he left the armed services, but to engage in the mortgage and real estate business. At one point he testified that if he devoted five percent of his time in 1951 to the practice of law it was a lot, and at another time he said he had not actively engaged in the practice of law during the last five years. Rothman held a real estate

broker's license and was interested in various building corporations that had offices with the mortgage company and the law partnership.

II. THE CONTROLLING AUTHORITIES

The controlling authorities in the instant case are the 27th, 35th and 47th Canons of Professional Ethics and the unanimous opinion of this court of less than two years ago in In the Matter of L.R., an Attorney at Law, 7 N.J. 390 (1951).

The Canons of Professional Ethics of the American Bar Association, with the exception of one amendment not pertinent here, were adopted by Rule 1:7-6; they "shall govern the conduct of the judges and the members of the bar of this State." This rule is grounded not only on the rulemaking power of the Supreme Court, but on its express jurisdiction over the discipline of members of the bar, N.J. Const., Art. VI, Sec. II, par. 3.

The Canons of Professional Ethics undertake to codify in convenient form the traditions and practice that have been recognized over the centuries as part of the common law with respect to the lawyer's obligations to the courts and the administration of justice, to the public and his clients, and to his profession and his fellow practitioners. They are as obligatory on him as if cast in statutory form, as indeed they are in large part in many states.

The three canons referred to relate in one aspect to the lawyer's duties to his profession and his fellow practitioners. If the practice of the law is to remain a profession and not to become a mere trade, it is quite as important that ethical practitioners be protected from unfair competition within the profession as from the unauthorized practice of the law outside the profession by laymen and corporations. But this is not the only aspect of these canons. Their enforcement is of concern not merely to the members of the profession. It is equally essential to the public. Our citizens have a right to expect from the members of a learned profession who are

granted by the State the privilege to practice law that they in return for this privilege will live up to the standards long recognized at common law and in large part codified in the Canons of Professional Ethics.

One has but to read the three canons above referred to to see how directly and immediately they apply to the facts of this case as summarized herein:

"27. ADVERTISING, DIRECT OR INDIRECT. It is unprofessional to solicit professional employment by circulars, advertisements, through touters or by personal communications or interviews not warranted by personal relations. Indirect advertisements for professional employment such as furnishing or inspiring newspaper comments, or procuring his photograph to be published in connection with causes in which the lawyer has been or is engaged or concerning the manner of their conduct, the magnitude of the interest involved, the importance of the lawyer's position, and all other like self-laudation, offend the traditions and lower the tone of our profession and are reprehensible; but the customary use of simple professional cards is not improper. * * *

"35. INTERMEDIARIES. The professional services of a lawyer should not be controlled or exploited by any lay agency, personal or corporate, which intervenes between client and lawyer. A lawyer's responsibilities and qualifications are individual. He should avoid all relations which direct the performance of his duties by or in the interest of such intermediary. A lawyer's relation to his client should be personal, and the responsibility should be direct to the client. * * *

"47. AIDING THE UNAUTHORIZED PRACTICE OF LAW. No lawyer shall permit his professional services, or his name, to be used in aid of, or to make possible, the unauthorized practice of law by any lay agency, personal or corporate."

Nor do we have to look far afield for a judicial application of these canons to the facts of the pending case, for in In re L.R. supra, we dealt with a similar situation, the chief differences being (1) that in that case the business was relatively small, (2) but there the unprofessional scheme was nipped in the bud, whereas here the business ran to "more than a quarter of a billion dollars worth of loans since 1945," to quote one of the mortgage company's advertisements, and has been carried on for seven years, the last two years in the face of the decision of this court in In re L.R., and (3) that the methods of the respondents here were somewhat more

subtle but no less effective in getting business than were those of L.R.

In the earlier case the respondent operated a realty corporation under his family name. Agents of his corporation informed prospective customers that the corporation would obtain the desired mortgage, make the title search, prepare all the legal papers, and do everything necessary to close the transaction and that, the respondent being a lawyer himself, it was not necessary for the customer to engage his own lawyer, although he might do so if he desired. The respondent paid for complimentary press notices, featuring biographical sketches of himself and including his photograph, emphasizing the corporation's volume of business and growing staff, and broadcasting that "the firm has a 1-package system which includes servicing a transaction from its inception to its closing. The corporation has its own legal department which processes and expedites every mortgage applied for through the office." We there held that:

"The practice which has been referred to as 'a one-package system' is a system whereby commercial services, including a lawyer's fee, are rendered to a person for a single charge. This throws the practice of law into a commercial atmosphere which is wholly foreign to the concept of a correct practice and which has been soundly condemned. Stack v. P.G. Garage, Inc., 7 N.J. 118, [decided May 7, 1951]; In the Matter of A.B.C., an attorney and counselor at law [7 N.J. 388, decided June 4, 1951]."

The similarity between the facts in the earlier case and the facts in the pending case is striking, except that the violations here proved are far more extensive in amount, in the length of time pursued and in subtlety than they were in the earlier case, and also in willfulness in flaunting the clearcut declarations of In re L.R. In the earlier case L.R. operated a realty corporation in his family name, while here a trade name totally unrelated to either party was purchased by the respondents from a brother of one of them. L.R. testified that he telephoned his complimentary press notices to the newspaper and did not concern himself with making any corrections thereof. Here the respondent Rothman either

wrote the press notices or had them written for him by publicity men or public relations counsel and sent them to the newspaper, while the respondent Irving never disclaimed any of the benefits proceeding therefrom. Neither took any steps to curb the advertising or press notices or to renounce any statements contained therein. While L.R. advertised the unusual facilities of his title plant, quick service and a one-package deal, the mortgage company here even after the decision in In re L.R. continued to advertise the unusual facilities of its title plant and quick service "under one friendly roof," its equivalent of L.R.'s one-package deal. As far as the customer was concerned, everything was being done for him by the mortgage company. He saw a mortgage company and a law firm whose physical set-up and work were so intertwined that it was impossible to separate them. Rothman himself could not satisfactorily explain the arrangement between the corporation and the law firm under the contract dated July 1, 1951, whereby the law firm agreed to provide legal closing services for all real estate and mortgage transactions negotiated by Northern New Jersey Mortgage Associates. Still further proof, if any be needed, of the fusion of the respondents' professional and corporate interests may be found in Irving's explanation of his rental agreement in the new building in Teaneck:

"Q. What is the gist of the agreement? A. Well, on what I can afford to pay on the income that I will derive. I haven't arrived at a common denominator yet."

The two cases have these salient points in common: (1) The use of extensive, extravagant advertising by a corporation owned by lawyers to produce a large volume of law business which they would otherwise not have obtained, and (2) the carrying on of the work of the corporation and of the law business as a single interrelated unit.

There is little difference between the advertising done in In re L.R. and here except that here the advertising was done on a much greater scale. The attorney in the earlier

case frankly advertised his one-package deal. Here the respondents just as effectively advertised their one-package deal "under one friendly roof" through their salesmen and also through newspaper advertising, through their common telephone and their commingled law and mortgage office. A glance at a few newspaper advertisements and articles, all admittedly printed at the instigation of Rothman and without repudiation by Irving, reveals a continual program of publicity for the company's efficient and quick service in handling mortgage loans. In addition we find many laudatory articles concerning Rothman, in many of which his background as an attorney is mentioned. Such advertising continued, even after the complaint was filed by the Ethics and Grievance Committee. Thus on November 8, 1952, there appeared on the first page of the real estate and building section of the Bergen Evening Record a large article headlined "Business Volume Hits New High, Sets Theme for Firm Expansion." This article gives a summary of a statement by Rothman to the effect that he attributes the mortgage company's success to the "specialized service for builders and technical current knowledge to do the job correctly," as well as a "complete technical requirement aspects of conventional and Governmental financing, including application procedure in accordance with Government regulation, preliminary requirements of local and Government authorities, and procedure to insure a fast and successful moving project." Such selfpraise is, of course, a clear violation of Canon 27.

The three pages of advertisements and articles in the Bergen Evening Record for December 6, 1952, are especially significant in view of the fact that at that time the charges here under review had been made by the Ethics and Grievance Committee for Bergen County and the hearings before it were under way. The articles are devoted largely to an enumeration of Rothman's accomplishments. The first page carries two photographs of the new office in Teaneck, New Jersey, one of the outside of the building and the other of the title and mortgage analysis department. There is also an advertisement for the company in which is a sketch of the

new office building. It mentions the "complete facilities" of the company and further provides "Time Saved . . . Expense Avoided -- Loans are expedited, and expense avoided, by our knowledge of the requirements of the various government loan agencies." There is a two-column spread giving a history of the firm with a biographical sketch of and a laudatory article on Rothman. The article states that Rothman is an attorney, a graduate of Columbia University and Newark Law School, and that:

"Unwilling to go back to his law practice when he was handed his service discharge, Rothman scanned the field for new opportunities. He finally chose the mortgage business, deciding that his legal background, plus a knowledge of the maze of new Government regulations for veterans and nonveterans fitted him for that field."

The article further provides:

"Success and growth of the firm is attributed by Rothman to key personnel, availability of funds even during the most stringent periods, technical know-how, and competent service. * * *

Another ambitious undertaking of the company has been its investments in the ability of a number of young energetic builders who had the experience to go along with their ambitions. The firm backed a number of these builders financially, Rothman said, and today several are included in the State's top echelon in the construction field."

On the second page, headlined "Rothman Sees His Dream Come True," appear several pictures of the new offices, as well as a photograph of Rothman. Another article on Rothman states:

"From Columbia Rothman went to New Jersey Law School, graduating in 1939 and passing his bar examination. Then after a brief period at practicing law, Rothman went into the service. * * *

While in the service he decided to make a phase of the real estate business his career. He formed Northern New Jersey Mortgage Associates in November, 1945 after receiving his discharge from the service, and ...


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