Daily Journal - Sep 28, 2004
Nonprofit Groups Protest Ruling on Fees
Organizations protest having to meet State Bar requirements to collect legal fees in public interest cases.

By Peter Blumberg
Daily Journal Staff Writer

SAN FRANCISCO - Several prominent nonprofit groups have complained to the California Supreme Court that a July appellate ruling threatens their ability to collect fees in public interest cases.

The ACLU, Equal Rights Advocates and the Utility Reform Network, among others, say they are concerned that being forced to register with the State Bar will saddle them with new restrictions that will compromise the way they do business.

A three-judge panel of the 1st District Court of Appeal ruled July 27 that nonprofit organizations can't practice law in California unless they've registered with the bar.

The panel concluded that a San Francisco nonprofit group that wasn't registered, the Tenderloin Housing Clinic, had no authority to collect thousands of dollars in contingency fees for representing poor clients in tenant-landlord disputes.

The clinic is appealing the ruling to the state's highest court. Frye v. Tenderloin Housing Clinic, S127641

Several other groups with long-standing operations in California say that if the ruling stands, it could have disastrous consequences. Until now, most nonprofit groups have assumed it was unnecessary for them to register, a process that allows regulators and the public to keep track of law corporations.

"The Court of Appeal decision has led to incredible confusion and concern," Brad Seligman of Berkeley's Impact Fund wrote Friday in a letter to the Supreme Court. "Unless this genie is put back in the bottle, organizations are going to be left without any idea what the risks are."

For a nonprofit group to register with the bar as a public benefit corporation, it must have a board of directors comprised entirely of lawyers, must not issue memberships to any nonlawyers and must certify that at least 70 percent of its clients are poor.

Many public interest groups that employ lawyers, including the ACLU, do not meet any of these conditions.

"The provisions for registration clearly were written to help nonprofits whose primary focus is representing the poor and the near-poor," Seligman said. "If you're a legal aid group, that makes sense, but if you're trying to address issues of gay rights or disability rights or just general civil liberties, your focus is not on class. Your focus is on civil rights."

The Legal Aid Association of California also has complained to the Supreme Court, asking the court to overturn or depublish the 1st DCA ruling so that it cannot be cited as precedent.

"The holdings in Frye threaten to effectively dismantle the statewide community of public interest programs, which currently fulfill a crucial societal role: providing a measure of equal access to justice," LAAC president Gary Smith wrote. "Strict implementation of the court's startling new mandate would require fundamental and destructive changes to the corporate structure of dozens of public interest law organizations, whose collective mission, ironically, is to provide equal access to justice for the poorest and most disadvantaged persons and communities in our state."

The lawyer who won the 1st DCA ruling in July, a prominent landlords attorney who frequently litigates against the Tenderloin Housing Clinic, said the concerns voiced to the Supreme Court are overblown.

Andrew Zacks said the appellate court ruling, written by Justice Laurence Kay, addresses a narrow issue: Can a nonprofit group avoid a State Bar rule that forbids nonprofit groups from using contingency fees by not registering with the bar?

"I don't really understand why nonprofits should have any more ability to practice law than for-profit corporations without oversight from the State Bar,'' Zacks said.

Zacks said that if some groups have a problem with the registration prerequisites, they should get the bar or the Legislature to change the rules.

He said the petitions to the high court on behalf of the Tenderloin Housing Clinic appear to be an orchestrated effort to save the clinic from having to pay large contingency-fee refunds.

E.J. Bernacki, a spokesman for the bar, said the bar has been studying Frye, but will wait to see if the Supreme Court clarifies the ruling before taking any further action.

He said that since July, there has no been rush to register by nonprofit groups.

"We've had some calls but we haven't had people flocking to us to try to register," he said.