Evolving risks of unauthorized practice of law

Posted on Posted in Employee Benefits

revised March 10, 2016

This post contains information collected in several attempts to clarify and digest opinions about the unauthorized practice of law as it pertains to my own employee benefits practice.  I presented these issues to two of my own attorneys in 2013 and neither was able to offer an opinion at that time. I am looking for an opinion on what I might do next to gain clarification on this issue and adapt suitable practices accordingly.

Jurisdiction and background

For jurisdictional background, my accounting license is issued in Delaware, I work from home in Pennsylvania and sub-contract work for another CPA’s office in New Jersey and serve small business clients in all 50 states and the District of Columbia through my web sites. I have insurance licenses in all states and DC. I am not a lawyer and, at least from my perspective, clearly do not practice law.

I operate as a sole proprietor. I am not concerned with the legal risks of financial claims stemming from civil liability. My main focus is on controlling the risk of criminal liability in these applicable statutes.

Facts

I maintain a collection of redacted or prototype employee benefit plan documents for small businesses and communications that I’ve accumulated over several decades. There might be 200-300 documents in all. The collection began when I was employed by a law firm in the early 1980s and was responsible (under the direction of an attorney) for the drafting of customized pension plan documents. As far as I know, my hap-hazard collection of has grown to be perhaps the largest of its type focusing specifically on small business compensation planning issues. I do not have concerns about copyright; most of these documents were previously published in some public form or intended for public domain.

Experience and training seem to play a role in the New Jersey definition of unauthorized practice. I am familiar with the background and structure of benefit plan documents and have worked in this field since 1985. I have a master’s degree in taxation with a focus on compensation planning from Villanova University Law School but not a J.D. I taught CPE courses for CPAs, attorneys and insurance agents in Pennsylvania in the 1990s and sometimes used these employee benefit plan documents as a teaching tool in the courses. So it is fair to conclude that I have substantial experience in the field as a non-attorney.

Until around 2012 I made my collection of employee benefit documents available to the public including attorneys and non-attorney alike, all free, online and across all state lines, and without any representations as to their suitability for any purpose. In 2012 I temporarily removed the collection of documents from my Web site because I felt that some were abusing my offer by distorting interpretations of the ACA. My document removal from public domain at that time had nothing to do with the question of unauthorized practice of law. It was purely a matter of managing time demands stemming from this project.

Now specific documents are available without charge but usually in connection with an accounting engagement. Separately, I often discuss employee benefit plans with non-client callers using “OnlineAdviser” and “OnlineNavigator” web services and may offer them a sample document I have but I do not charge for this service. An argument could be made that I benefited from the documents as a form of marketing.

When working with a client, I recommend in writing that they consult an attorney before adopting any legal document and this disclosure is part of my agreement to provide service. I’ve made it clear that I am not charging for any legal documents or any part of their preparation, review or opinion as to suitability. Yet I am aware that some small business clients do in fact use sample documents without consulting an attorney.

A New Jersey accountant raised the question of whether this practice might violate that state’s tough new law against unauthorized practice of law. Apparently the language and penalties of NJ’s law is tougher than in other states.

Discussion

This 1999 article by Dered Deneckla in Fordham Law Review titled “Nonlawyers and the Unauthorized Practice of Law: An Overview of the Legal and Ethical Parameters” includes a useful summary on the history of the pre-internet era broad application of unauthorized practice of law statutes. It is clear that unauthorized practice of law is an evolving topic spurred by the widespread adoption of online technology. Consider this 2015 article by Mary Juetten titled “Technology and the Unauthorized Practice of Law” that concludes “The legal industry needs to embrace technology and stop trying to play the UPL card”. Regarding my specific interest in small business Juetten writes “small business owners do not wake up and decide to proactively search out legal help. Instead, they seek legal services when an issue arises. As a business owner, I can say that when I have an issue to solve, I take to the Internet and look for a simple, cost-effective, and quick solution. If I can find a solution where I don’t have to talk to anyone on the phone and can just get it done, regardless of the time of day or day of the week, then that’s the solution for me”.

Written employee benefit plan communications are at the core of any compensation planning practice and I’ve operated for decades giving out these sample documents without any complaint, question or problem. I’m fond of saying that compensation planning is nothing more than the manipulation of employment contracts to achieve a desired result. Some of these documents are meant as “fill in the blank” documents, for example, the Simplified Employee Pension plan documents published on the IRS Web site.

ERISA Pre-emption

This specific issue and all issues relating to ERISA plans are under the jurisdiction of federal law and not state law. Employee benefits practice appears to be exempted by the tough New Jersey law against unauthorized practice of law. Yet one of the attorneys who received my inquiry did not agree and said that I should not rely solely on the ERISA pre-emption. I recognize that there is practical risk that a small business simply can not afford to claim federal pre-emption in the event that a state prosecutor takes a contrary position.  Even after the March 2016 Supreme Court decision in Vermont Green Mountain Care Board v. Liberty Mutual Insurance Company, I wrote in my blog that I fear it might still be impossible for a small practitioner to claim ERISA exemption, even if the large insurance companies are now able to do so.

Attorney affiliation

One possible solution is to have my public web sites affiliated with or be absorbed by an attorney who would assume management of the unauthorized practice risk. Discussions are still in early stages.

Conclusion

It appears that the best practical measure I can take immediately is to clarify that I am not providing legal advice or services as defined by the courts.

My web sites and communications may adopt language like: “We do not prepare any document in any medium intended to affect or secure legal rights for a specific person or entity, prepare or express legal opinions, represent another in a judicial, quasi-judicial, or administrative proceeding, or other formal dispute resolution process such as arbitration and mediation except as permitted by the Internal Revenue Service and taxing authorities, prepare any document through any medium for filing in any court, administrative agency or tribunal for a specific person or entity; or negotiate legal rights or responsibilities for a specific person or entity. We are not attorneys. Consult an attorney for legal advice.”

Related notes

Pro-consumer stance: http://www.fed-soc.org/aboutus/DownloadLibrary?id=688

NJ legal ethics: http://www.law.cornell.edu/ethics/nj/narr/

5.5:210      Practice of Law by Nonlawyers

The New Jersey Constitution provides that “[t]he Supreme Court shall have jurisdiction over the admission to the practice of law and the discipline of persons admitted.” N.J. Const. art. 6, §2, para. 3. The New Jersey Supreme Court has interpreted this paragraph as giving it “the power to punish for contempt those engaged in the unauthorized practice of law.” N.J. State Bar Ass’n v. Northern N.J. Mortgage Associates, 22 N.J. 184, 193 (1956). In an earlier case, In re Baker, 8 N.J. 321, 334 (1951), the New Jersey Supreme Court reasoned that its jurisdiction over the admission and discipline of members of the bar would be meaningless if nonlawyers were permitted to practice law “with impunity.” Consequently, the New Jersey Supreme Court concluded that the power to prevent laymen from practicing law was a necessary adjunct to its constitutionally granted authority to establish qualifications for lawyers. See id.

The New Jersey Legislature has created an additional avenue for the prevention of the unauthorized practice of law, which coexists with the judiciary’s power to punish such conduct in contempt proceedings, to enjoin and to refuse compensation.

The relevant current statute, N.J.S. 2C:21-22, treats unauthorized practice as either a disorderly persons offense or a fourth degree crime:

a. A person is guilty of a disorderly persons offense if the person knowingly engages in the unauthorized practice of law.

b. A person is guilty of a crime of the fourth degree if the person knowingly engages in the unauthorized practice of law and:

(1) Creates or reinforces a false impression that the person is licensed to engage in the practice of law; or

(2) Derives a benefit; or

(3) In fact causes injury to another.

c. For the purposes of this section, the phrase “in fact” indicates strict liability.

Pennsylvania:

Pennsylvania

Gmerek v. State Ethics Com’n, 751 A.2d 1241 (Pa.Cmwlth. 2000)

In attempting to determine the parameters of what constitutes the “practice of law”, the Pennsylvania Supreme Court stated long ago:

There is no need for present purposes to venture upon a comprehensive survey of the boundaries- -necessarily somewhat obscure–which limit the practice of law. An attempt to formulate a precise definition would be more likely to invite criticism than to achieve clarity. We know, however, that when a lawyer has, through patient years of study, acquired an understanding of the law and obtained a license to engage in its practice, he applied his knowledge in three principal domains of professional activity:

1. He instructs and advises clients in regard to the law, so that they may properly pursue their affairs and be informed as to their rights and obligations.

2. He prepares for clients documents requiring familiarity with legal principles, beyond the ken of the ordinary layman,–for example, wills and such contracts as are not of a routine nature.

3. He appears for clients before public tribunals to whom is committed the function of determining rights of life, liberty and property according to the law of the land, in order that he may assist the deciding official in the proper interpretation and enforcement of the law…

Shortz v. Farrell, 327 Pa. 81, 84, 193 A. 20, 21 (1937). Thus, although the “practice of law” may be difficult to define, it most assuredly encompasses: advising clients regarding the law; preparing documents for clients which require a familiarity with legal principles beyond the ken of the ordinary layman such as wills and contracts; and appearing for clients before public tribunals charged with the power of determining liberty or property rights. Id.

However, it is important to stress that the “practice of law” is not limited to a lawyer’s appearance in court. As it has been previously noted:

[I]t is too obvious for discussion that the practice of law is not limited to the conduct of cases in courts. According to the generally understood definition of the practice of law in this country, it embraces the preparation of pleadings, and other papers incident to actions and special proceedings, and the management of such actions and proceedings on behalf of clients before judges and courts, and, in addition, conveyancing, the preparation of legal instruments of all kinds, and, in general, all advice to clients, and all action taken for them in matters connected with the law. An attorney at law is one who engages in any of these branches of the practice of law. The following is the concise definition given by the Supreme Court of the United States: “Persons acting professionally in legal formalities, negotiations, or proceedings by the warrant or authority of their clients may be regarded as attorneys at law within the meaning of that designation as employed in this country.” [Savings Bank v. Ward, 100 U.S. 195, 199, 10 Otto 195, 25 L.Ed. 621 (1879).]

In re Duncan, 83 S.C. 186, 187-190, 65 S.E. 210, 211 (1909).

New Jersey:

In re Jackman, 761 A.2d 1103 (N.J. 2000)

The practice of law in New Jersey is not limited to litigation. State v. Rogers, 308 N.J.Super. 59, 67-70, 705 A.2d 397 (App.Div.), certif. denied, 156 N.J. 385, 718 A.2d 1214 (1998). One is engaged in the practice of law whenever legal knowledge, training, skill, and ability are required. Id. at 66, 705 A.2d 397. Other jurisdictions have adopted a similar definition. See Kennedy v. Bar Ass’n, 316 Md. 646, 561 A.2d 200, 208 (1989)(using legal education, training, and experience to apply legal analysis to client’s problems constitutes practice of law).

In re Opinion 33 of Committee on Unauthorized Practice of Law, 733 A.2d 478 (N.J. 1999)

In In re Opinion 26, supra, 139 N.J. at 340, 654 A.2d 1344, we described that standard in simple and pragmatic terms:

Practically all of the cases in this area are relatively recent. They consistently reflect the conclusion that the determination of whether someone should be permitted to engage in conduct that is arguably the practice of law is governed not by attempting to apply some definition of what constitutes that practice, but rather by asking whether the public interest is disserved by permitting such conduct. The resolution of the question is determined by practical, not theoretical, considerations; the public interest is weighed by analyzing the competing policies and interests that may be involved in the case; the conduct, if permitted, is often conditioned by requirements designed to assure that the public interest is indeed not disserved.

Our earliest precedents are faithful to that formulation. In Auerbacher v. Wood, 142 N.J.Eq. 484, 59 A.2d 863 (E. & A.1948), . . . observing that “[w]hat constitutes the practice of law does not lend itself to precise and all-inclusive definition.” Id. at 485, 59 A.2d 863

New law advisory

https://www.judiciary.state.nj.us/legis/P.L.%202011,%20c.209%20-%20Upgrades%20offenses%20related%20to%20unauthorized%20practice%20of%20law.pdf

Real estate exception is  narrowly defined:

http://njlaw.rutgers.edu/collections/ethics/cuap/cua35_1.html

Employee benefit law is governed by ERISA

http://www.americanbar.org/content/dam/aba/administrative/labor_law/meetings/2010/annualconference/060.authcheckdam.pdf

  • Treasury Circular 230 seems to override state law

NJSCPA Professional Conduct Committee weighs in:

Unauthorized Practice of Law

Pro-consumer stance: http://www.fed-soc.org/aboutus/DownloadLibrary?id=688

NJ legal ethics: http://www.law.cornell.edu/ethics/nj/narr/

5.5:210      Practice of Law by Nonlawyers

The New Jersey Constitution provides that “[t]he Supreme Court shall have jurisdiction over the admission to the practice of law and the discipline of persons admitted.” N.J. Const. art. 6, §2, para. 3. The New Jersey Supreme Court has interpreted this paragraph as giving it “the power to punish for contempt those engaged in the unauthorized practice of law.” N.J. State Bar Ass’n v. Northern N.J. Mortgage Associates, 22 N.J. 184, 193 (1956). In an earlier case, In re Baker, 8 N.J. 321, 334 (1951), the New Jersey Supreme Court reasoned that its jurisdiction over the admission and discipline of members of the bar would be meaningless if nonlawyers were permitted to practice law “with impunity.” Consequently, the New Jersey Supreme Court concluded that the power to prevent laymen from practicing law was a necessary adjunct to its constitutionally granted authority to establish qualifications for lawyers. See id.

The New Jersey Legislature has created an additional avenue for the prevention of the unauthorized practice of law, which coexists with the judiciary’s power to punish such conduct in contempt proceedings, to enjoin and to refuse compensation.

The relevant current statute, N.J.S. 2C:21-22, treats unauthorized practice as either a disorderly persons offense or a fourth degree crime:

a. A person is guilty of a disorderly persons offense if the person knowingly engages in the unauthorized practice of law.

b. A person is guilty of a crime of the fourth degree if the person knowingly engages in the unauthorized practice of law and:

(1) Creates or reinforces a false impression that the person is licensed to engage in the practice of law; or

(2) Derives a benefit; or

(3) In fact causes injury to another.

c. For the purposes of this section, the phrase “in fact” indicates strict liability.

Pennsylvania:

Pennsylvania

Gmerek v. State Ethics Com’n, 751 A.2d 1241 (Pa.Cmwlth. 2000)

In attempting to determine the parameters of what constitutes the “practice of law”, the Pennsylvania Supreme Court stated long ago:

There is no need for present purposes to venture upon a comprehensive survey of the boundaries- -necessarily somewhat obscure–which limit the practice of law. An attempt to formulate a precise definition would be more likely to invite criticism than to achieve clarity. We know, however, that when a lawyer has, through patient years of study, acquired an understanding of the law and obtained a license to engage in its practice, he applied his knowledge in three principal domains of professional activity:

1. He instructs and advises clients in regard to the law, so that they may properly pursue their affairs and be informed as to their rights and obligations.

2. He prepares for clients documents requiring familiarity with legal principles, beyond the ken of the ordinary layman,–for example, wills and such contracts as are not of a routine nature.

3. He appears for clients before public tribunals to whom is committed the function of determining rights of life, liberty and property according to the law of the land, in order that he may assist the deciding official in the proper interpretation and enforcement of the law…

Shortz v. Farrell, 327 Pa. 81, 84, 193 A. 20, 21 (1937). Thus, although the “practice of law” may be difficult to define, it most assuredly encompasses: advising clients regarding the law; preparing documents for clients which require a familiarity with legal principles beyond the ken of the ordinary layman such as wills and contracts; and appearing for clients before public tribunals charged with the power of determining liberty or property rights. Id.

However, it is important to stress that the “practice of law” is not limited to a lawyer’s appearance in court. As it has been previously noted:

[I]t is too obvious for discussion that the practice of law is not limited to the conduct of cases in courts. According to the generally understood definition of the practice of law in this country, it embraces the preparation of pleadings, and other papers incident to actions and special proceedings, and the management of such actions and proceedings on behalf of clients before judges and courts, and, in addition, conveyancing, the preparation of legal instruments of all kinds, and, in general, all advice to clients, and all action taken for them in matters connected with the law. An attorney at law is one who engages in any of these branches of the practice of law. The following is the concise definition given by the Supreme Court of the United States: “Persons acting professionally in legal formalities, negotiations, or proceedings by the warrant or authority of their clients may be regarded as attorneys at law within the meaning of that designation as employed in this country.” [Savings Bank v. Ward, 100 U.S. 195, 199, 10 Otto 195, 25 L.Ed. 621 (1879).]

In re Duncan, 83 S.C. 186, 187-190, 65 S.E. 210, 211 (1909).

New Jersey:

In re Jackman, 761 A.2d 1103 (N.J. 2000)

The practice of law in New Jersey is not limited to litigation. State v. Rogers, 308 N.J.Super. 59, 67-70, 705 A.2d 397 (App.Div.), certif. denied, 156 N.J. 385, 718 A.2d 1214 (1998). One is engaged in the practice of law whenever legal knowledge, training, skill, and ability are required. Id. at 66, 705 A.2d 397. Other jurisdictions have adopted a similar definition. See Kennedy v. Bar Ass’n, 316 Md. 646, 561 A.2d 200, 208 (1989)(using legal education, training, and experience to apply legal analysis to client’s problems constitutes practice of law).

In re Opinion 33 of Committee on Unauthorized Practice of Law, 733 A.2d 478 (N.J. 1999)

In In re Opinion 26, supra, 139 N.J. at 340, 654 A.2d 1344, we described that standard in simple and pragmatic terms:

Practically all of the cases in this area are relatively recent. They consistently reflect the conclusion that the determination of whether someone should be permitted to engage in conduct that is arguably the practice of law is governed not by attempting to apply some definition of what constitutes that practice, but rather by asking whether the public interest is disserved by permitting such conduct. The resolution of the question is determined by practical, not theoretical, considerations; the public interest is weighed by analyzing the competing policies and interests that may be involved in the case; the conduct, if permitted, is often conditioned by requirements designed to assure that the public interest is indeed not disserved.

Our earliest precedents are faithful to that formulation. In Auerbacher v. Wood, 142 N.J.Eq. 484, 59 A.2d 863 (E. & A.1948), . . . observing that “[w]hat constitutes the practice of law does not lend itself to precise and all-inclusive definition.” Id. at 485, 59 A.2d 863

New law advisory

https://www.judiciary.state.nj.us/legis/P.L.%202011,%20c.209%20-%20Upgrades%20offenses%20related%20to%20unauthorized%20practice%20of%20law.pdf

Real estate exception is  narrowly defined:

http://njlaw.rutgers.edu/collections/ethics/cuap/cua35_1.html

Employee benefit law is governed by ERISA

http://www.americanbar.org/content/dam/aba/administrative/labor_law/meetings/2010/annualconference/060.authcheckdam.pdf

  • Treasury Circular 230 seems to override state law

Model complaint:

http://www.judiciary.state.nj.us/criminal/charges/unprlaw.doc

Employee benefits planning as an exception:

N. J. Comm. on Unauth. Pract. Op. 22 (Mar. 22, 1979)

An excellent source regarding these exceptions can be found at Chapter 39 of Michels, New Jersey Attorney Ethics (Gann 2013).

Economic protectionism

http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=4997&context=flr

Michael Gould does not address the exceptions, specifically employee benefits.

Model complaint:

http://www.judiciary.state.nj.us/criminal/charges/unprlaw.doc

Employee benefits planning as an exception:

N. J. Comm. on Unauth. Pract. Op. 22 (Mar. 22, 1979)

An excellent source regarding these exceptions can be found at Chapter 39 of Michels, New Jersey Attorney Ethics (Gann 2013).

Economic protectionism

http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=4997&context=flr

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