The Recorder - January 11, 2006
Nonprofit Law Groups Could Win Reprieve
By Mike McKee
Shutting down hundreds of nonprofit law groups for failing to meet stringent statutory registration requirements isn't an appealing thought to the California Supreme Court.
Instead, a few of the six justices hearing oral arguments in San Francisco on Tuesday seemed inclined to ask the State Bar to draft a registration process that places controls over such groups without putting them out of business.
Although Chief Justice Ronald George broached the idea Tuesday, it was Justice Marvin Baxter who homed in on the concept with questions for Chapman, Popik & White partner Susan Popik, who represents San Francisco's Tenderloin Housing Clinic Inc.
Baxter asked Popik if there was "any reason" why the litigants couldn't have "the best of all worlds" — and thus ensure the survival of legal services organizations — by having them come under State Bar oversight.
"What is the concern?" Baxter asked. "That the State Bar should not be involved with the nonprofits in any way? Or is it broader than that?"
The two justices' comments mirrored the position advocated by the State Bar. In an amicus curiae brief requested by the Supreme Court, Bar attorneys Lawrence Yee and Rachel Grunberg said the agency's Board of Governors favored "some sort of registration" for nonprofits "without impairing the delivery of legal services by existing organizations."
The highly watched case was the second on the first day of oral arguments for Justice Carol Corrigan, who was confirmed to the high court one week ago today. She asked no questions during the first five cases on the docket.
Justice Ming Chin, who was recovering from what court officials called an "unexpected minor medical procedure," didn't participate, but will listen to tapes of the arguments.
The legal services case was brought to the court by the Tenderloin Housing Clinic, which is challenging an appeal court's 2004 ruling that state Corporations Code §13406(b) mandates that nonprofit law groups either register with the State Bar or forfeit any right to attorneys fees.
The decision by San Francisco's First District Court of Appeal essentially held that nonprofits not registered with the State Bar are unauthorized to practice law.
The case was filed in 1991 by Roy Frye, a tenant in a dilapidated San Francisco hotel who felt his share of the financial award in a landlord-tenant case was too small. Frye died during the litigation and his son, Steven, was substituted in as the plaintiff.
On Tuesday, Popik and co-counsel Brad Seligman, staff attorney with the Impact Fund of Berkeley, argued that besides closing organizations, a strict application of the state statute could force many organizations "to change their mission."
That's the case, they said, because the statute demands that all nonprofits' board members be attorneys and that 70 percent of their clients have a low income. All nonprofits have some community members, they noted, while several organizations fight for other causes, including the disabled, civil rights and the environment.
"The [American Civil Liberties Union] would have to fire its members," argued Seligman, who represents several amici curiae, including the ACLU Foundation. "That's how far this goes."
The chief justice had chimed in earlier to point out that the appeal court's ruling would even affect the workings of groups such as the National Association for the Advancement of Colored People.
"Only five organizations have ever registered," Popik said. "And that in itself speaks volumes about the unprecedented nature of the court of appeal opinion here."
She also argued that the state statute was never intended "to effect the sweeping changes" created by the appeal court ruling, but rather was supposed "to expand the availability of legal services."
Questioning for Zacks Utrecht & Leadbetter partner Paul Utrecht, the lawyer for Frye, was much tougher, with George challenging his contention that groups such as THC, which charge contingency fees, are not true nonprofits.
"The Tenderloin Housing Clinic," Utrecht argued, "is, in fact, a for-profit entity that has been put in a nonprofit."
When George said it seemed like THC was just "recouping costs," Utrecht argued that it was "doing more than that. They were making a profit."
"But," the chief justice said, "it goes into their expressive efforts, does it not?"
George also said that Utrecht's argument about contingency fees "seems rather beside the point or far afield" because the agency returned Frye's contingency fees plus interest.
George piled on by demanding to know if Utrecht had any evidence of THC charging inappropriate contingency fees to other clients. Utrecht said there was no evidence in the bare record of the case.
"You're asking us to speculate?" George asked.
"No," Utrecht responded. "I'm asking the court to allow us a trial" to find out if the agency had wronged others.
A ruling in Frye v. Tenderloin Housing Clinic, S127641, is expected within 90 days.
