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New Jersey State Bar Association v. Northern New Jersey Mortgage Associates

Decided: April 17, 1959.

NEW JERSEY STATE BAR ASSOCIATION, A CORPORATION OF THE STATE OF NEW JERSEY, ET AL., PLAINTIFFS,
v.
NORTHERN NEW JERSEY MORTGAGE ASSOCIATES, A NEW JERSEY CORPORATION, ET AL., DEFENDANTS



Scherer, J.s.c.

Scherer

The original complaint in this case was filed by the New Jersey State Bar Association and its officers, as attorneys at law, against Northern New Jersey Mortgage Associates (hereinafter called "Mortgage Associates") and Northern New Jersey Abstract Company (hereinafter called the "Abstract Company"), both New Jersey corporations. It was alleged that these corporations were performing acts and rendering services which constituted the practice of law. An injunction was sought to restrain defendants from performing any acts or rendering any services which constituted the practice of law, since the defendants were not authorized to practice law in this State. On the motion of defendants, a summary judgment was entered dismissing the complaint. On appeal to the Supreme Court, the judgment was reversed and the cause was remanded for plenary hearing and disposition in the Chancery Division. See 22 N.J. 184 (1956).

In its opinion, the Supreme Court said, at page 196, that unless the individual plaintiffs could show specific injury the action as to them should be dismissed, and it affirmed the judgment of the Chancery Division in that respect. The

suit was thereafter continued in the name of the New Jersey State Bar Association alone.

No recital of the facts of the original suit will be undertaken herein, as they are fully set forth in the Supreme Court's opinion. Some background of the case is also to be found in In re Rothman , 12 N.J. 528 (1953).

Pursuant to the Supreme Court's mandate, additional testimony was taken by deposition on September 13, 1956 and in open court on January 14 and February 1, 1957. This testimony revealed that Lawyers Mortgage and Title Company (hereinafter called "Lawyers"), a corporation of New York, had purchased the physical assets, business and good will of Mortgage Associates and of the Abstract Company. Lawyers continued to operate at the same address as had the above named companies, 133 Cedar Lane, Teaneck, New Jersey, and with substantially the same personnel.

On March 4, 1957 plaintiff applied for and was granted leave to add Lawyers as a party defendant. Thereafter, a supplemental complaint was filed joining Lawyers as a party defendant and alleging as to it that since November 1, 1956, when it purchased the assets of Mortgage Associates and the Abstract Company, it had engaged in acts constituting the unauthorized practice of law. An injunction was sought enjoining Lawyers, its agents and employees, from all acts or services which constitute the practice of law.

In its answer Lawyers admitted that it had purchased all of the physical assets of Mortgage Associates and of the Abstract Company, but denied that it was engaged in the unlawful practice of law and averred that it was engaged in the business of searching, insuring titles, lending money on mortgages, and performing legitimate services in connection with its business, and that such acts as it performed were incidental to the carrying on of such business, which business was authorized by statute. It further alleged that any attempt on the part of the Supreme Court of New Jersey to limit its business activities, authorized by statute, was null and void as an attempt to alter substantive law in excess

of authority conferred upon it by the New Jersey Constitution of 1947, Art. VI, Sec. II, par. 3.

The case was pretried January 30, 1958, and at that time plaintiff contended that Mortgage Associates and the Abstract Company, despite the purchase of their assets and the fact that they were in the process of dissolution, were nevertheless still subject to the court's power to impose an injunction and costs in these proceedings, since the companies were properly before the court in the original suit and their subsequent dissolution did not deprive the court of jurisdiction.

It is the contention of Lawyers that such services as it performs are incidental to the carrying out of its business, are authorized by the law of this State, and do not amount to the unauthorized practice of law. It alleges that it is a corporation of the State of New York and has been engaged in the title business in that state, making searches, abstracts of title and loans secured by mortgages since 1893. Since 1949 it has been engaged, in addition, in the business of insuring titles with respect to real estate transactions, and since 1956 it has been duly authorized to transact business in New Jersey, operating under the Department of Banking and Insurance of this State, as well as of the State of New York. It admits that most of the personnel formerly employed by Mortgage Associates and the Abstract Company were retained by it as its employees, but says that it has increased its staff and has made changes in the method of carrying on the business which it purchased. It contends that it has had no business relationship with the original defendants subsequent to November 1, 1956, and that when it purchased the assets of said defendants it did not assume any obligations with respect to any of their existing debts or liabilities in litigation pending. It further contends that in the operation of its business it employs New Jersey attorneys, some of whom are on a salary basis and supervise the title operations at its Teaneck office. Others work independently on a fee basis. It also has put into effect a method

of employing other attorneys under the "Approved Attorneys Plan," pursuant to which these members of the New Jersey Bar make their own searches for their clients and render title reports and opinions to Lawyers, which it accepts and issues policies based on their certificates.

The business of Lawyers in New Jersey may be said to fall into three general classifications: (1) the making of mortgage loans directly by it as mortgagee; (2) the placing of mortgages for other institutions, such as banks, savings and loan associations, and other organizations desiring to loan money on mortgages, and, in connection with this, servicing the mortgage and insuring the title to the property upon which the mortgage is given as security; and (3) the insuring of titles generally to lands of corporations and individuals. A part of the latter service is causing searches to be made.

It should be noted that Lawyers did not purchase the stock of either Mortgage Associates or the Abstract Company, both of which were corporations incorporated under the General Corporation Act (N.J.S.A. Title 14), and neither of which was subject to supervision or control of the Department of Banking and Insurance of this State. Neither of these companies insured titles. Lawyers purchased only the assets of these corporations and, although it continued to occupy the space formerly used by these defendants, it had no business relationship with them and its operations were distinct and separate.

The issues generally, as defined by the pretrial order, were whether Mortgage Associates and the Abstract Company should still be enjoined; whether they were subject to having costs assessed against them, even though their voluntary dissolutions were completed during the pendency of this suit; whether the acts complained of against Lawyers constitute the illegal practice of law and, if so, what relief should be accorded the plaintiff; and whether the fact that Lawyers is a foreign corporation authorized to transact business in this State has any effect on the situation.

The basis for the plaintiff's action is 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.

In reversing the summary judgment, the Supreme Court, at pages 198-199 of its opinion (22 N.J.), said that it would be manifestly unfair to make a general peremptory determination against the defendants in that suit -- to which Lawyers was not then a party -- without a complete record of the details of their business. Since this evidence was important only if the original defendants were continuing in business, and since they had sold their assets and had been dissolved before the trial of this case, no evidence on this issue was adduced. The termination of the businesses also eliminates from the case many of the other questions upon which the Supreme Court directed that testimony be taken, such as the method and manner of the transacting of those phases of the businesses which involve the practice of law, the volume and extent of those businesses, the exact relationship of the defendants inter sese , their relationship with the title insurance companies with which they did business, and the relationship between the defendants and mortgagors.

The plaintiff sought to show that George I. Rothman, the moving spirit in Mortgage Associates and the Abstract Company, was also a dominant force in the activities and policies of Lawyers; that the latter was conducting its business in relatively the same manner as Rothman had conducted the business of his companies; and that Lawyers made the ...


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