Opinion ID: 853748
Heading Depth: 2
Heading Rank: 1

Heading: Violation of the Unauthorized Practice of Law Statute

Text: The majority holds that an insurance company does not necessarily engage in the unauthorized practice of law when house counsel represents insureds in liability claims litigation. I disagree and, like the trial court, am convinced that an insurance company does, in fact, engage in the unauthorized practice of law when its house counsel represents its insureds.
Anglo-American law has a long history, dating back more than seven hundred years, of limiting the practice of law to natural persons who meet certain qualifications. See Rhode Island Bar Ass'n v. Automobile Service Ass'n, 55 R.I. 122, 179 A. 139 (1935). This body of law was established in Indiana, and our statutes have explicitly proscribed the unauthorized practice of law for nearly a century. See, e.g., 1913 Ind. Acts ch. 347, § 1, p. 940; Pub.L. No. 2, § 3301 (1978). In its present version, the statute provides: It is a Class B misdemeanor for a person to hold himself out as a practicing lawyer, to conduct the trial of a case in any court of this state, or to engage in the business of a practicing lawyer, without first having been duly admitted as an attorney-at-law by the supreme court of this state. IND.CODE § 33-1-5-1 (1998). Another statute provides: The practice of law by a person who is not an attorney is prohibited under IC 33-1-5. IND.CODE § 33-21-2-1 (1998). Person includes a corporation. IND.CODE § 35-41-1-22 (1998) (defining person); IND.CODE § 35-41-1-3 (1998) (applying definition to all statutes relating to penal offenses). The Indiana Rules of Professional Conduct apply only to those persons who are admitted to the bar in Indiana. Rule 5.5 relates to the unauthorized practice of law and prohibits lawyers from (a) practic[ing] law in a jurisdiction where doing so violates the regulation of the legal profession of that jurisdiction; or (b) assist[ing] a person who is not a member of the bar in the performance of activity that constitutes the unauthorized practice of law. [3] Thus, Rule 5.5(b), in regulating attorney conduct, prohibits attorneys from assisting a person, which would include corporations and other organizational entities, in the performance of activities that constitute the unauthorized practice of law. Thus, an important distinction exists between the application of the professional rules and the application of the statute prohibiting the unauthorized practice of law. The statute governs all persons, whether natural or legal, whether lawyers or non-lawyers. The Professional Conduct Rules regulate only the conduct of lawyers, but not that of non-lawyers, corporations, or other organizational entities. The unauthorized practice of law statute operates to prohibit conduct by both individuals and legal entities that the professional rules do not regulate. In so doing, the statute criminalizes conduct by natural and legal persons who are not subject to this Court's authority under the professional rules and thereby protects the public from the practice of law by individuals and entities not qualified to practice law. The majority departs from this statutory proscription prohibiting the practice of law by legal entities not admitted as attorneys at law. Instead, it creates and announces a new judicial exemption, henceforth permitting an unlicensed legal entity to employ licensed agents to perform those acts requiring a license. Op. at 160 (citation omitted). The majority then recognizes that [i]n each case the lawfulness of the entity's activities turns on whether the individual is properly licensed. Op. at 160. The majority continues: Regardless of whether a partnership, a professional corporation, an insurance company, or any other legal entity may be said to be practicing law in some sense, we believe the proper focus of the unauthorized practice inquiry is whether the challenged activity results in the unauthorized practice by the individuals involved. Op. at 160 (footnote omitted). The majority thus reshapes the law regarding the unauthorized practice of law, even referring to it as the unlicensed practice of law, Op. at 158, and limits the unauthorized practice of law inquiry to the qualification and activity of the individuals (impliedly only natural persons) involved, such as when a disbarred attorney practices, an unlicensed person practices, or an out-of-state attorney practices without a license or proper approval. This new understanding obliterates the function of the statute in criminalizing conduct by both natural and legal persons who are not subject to this Court's authority under the professional rules. Under the majority's interpretation, only limited and indirect recourse [4] is available against general business corporations and other organizational entities that employ licensed attorneys and hold them out to the public. I am convinced that the legislature intended a broader application of the statute than the majority's interpretation allows. I believe the statute presently proscribes entities from undertaking such activities. Under Indiana statutory law, the unauthorized practice of law occurs when a person (whether natural or legal) not authorized to practice law in Indiana holds himself, herself, or itself out as a practicing lawyer, conducts a trial in a court, engages in the business of a practicing lawyer, or otherwise represents another person in a matter having legal consequences. The unauthorized practice of law statute is violated when either (1) an unlicensed individual engages in the practice of law, or (2) a person or entity, through its use of lawyers or non-lawyers, engages in the practice of law. [5] Under this interpretation, recourse may be taken under this Court's Rules of Professional Conduct against attorneys who improperly practice law, and recourse may be taken under the unauthorized practice of law statute against persons, both real and legal, who engage in the unauthorized practice of law. This second means of recourse would include corporations and other entities that employ attorneys and hold them out to the public as providing legal services. [6] I believe that Celina, through its use of a licensed attorney-employee, engaged in the unauthorized practice of law in violation of Indiana statutory law.
Under long-settled Anglo-American law, corporations and other organizational entities have been prohibited from practicing law. [7] This black-letter law has governed the practice of law in Indiana, presumably since the state was founded. [8] Just over eleven years ago, Chief Justice Shepard, writing for this Court, stated: A corporation is a creature of statute and can neither practice law nor act in person. Out of court it must act through its agents, and in court it must generally act only through an agent who is a licensed attorney. The fundamental principles regarding the authority of an agent of a corporation are substantially the same as those applicable to agents generally. Indiana Dep't of Public Welfare v. Chair Lance Service, Inc., 523 N.E.2d 1373, 1377 (Ind.1988). This Court has also said: The practice of the law is personal. It is open only to individuals proved to the satisfaction of the court to possess sufficient general knowledge and adequate special qualifications as to learning in the law and to be of good moral character.... A dual trust is imposed on attorneys at law: they must act with all good fidelity both to the courts and to their clients. They are bound by canons of ethics which have been the growth of long experience and which are enforced by the courts. Practice of law under modern conditions consists in no small part of work performed outside of any court and having no immediate relation to proceedings in court.... Although these transactions may have no direct connection with court proceedings, they are always subject to become involved in litigation. They require in many aspects a high degree of legal skill, a wide experience with men and affairs, and great capacity for adaptation to difficult and complex situations. These `customary functions of an attorney or counsellor at law' ... bear an intimate relation to the administration of justice by the courts. No valid distinction ... can be drawn between that part of the work of the lawyer which involves appearance in court and that part which involves advice and drafting of instruments in his office. The work of the office lawyer is the groundwork for future contests in courts.... The underlying reasons which prevent corporations, associations and individuals other than members of the bar from appearing before the courts apply with equal force to the performance of these customary functions of attorneys and counsellors at law outside of courts.  Fink, 214 Ind. at 590-91, 17 N.E.2d at 97-98 (quoting In re Opinion of the Justices, 289 Mass. 607, 612, 194 N.E. 313, 316-17 (1935)) (internal citations omitted) (emphasis added). Simply put, corporate and other organizational entities are unable to satisfy the admission requirements and thus are unable to be duly admitted as ... attorney[s]-at-law by the supreme court of this state. [9] See IND.CODE § 33-1-5-1. Numerous reasons have been offered in support of this body of law, including primarily the concern that harm would come to the public as corporate business interests invade the attorney-client relationship, as the independence of professional judgment is eroded, and as the trust and confidence placed in attorneys is threatened. [10] Corporations may employ attorneys in connection with matters that arise in the course of business, but the scope of their representation is limited. [11] This principle was well-stated by the Committee on Unauthorized Practice of Law for the American Bar Association in an informative opinion: While a corporation may employ legal counsel to render legal services to the corporation, such services are not the subject of barter on the market place by the corporate principal. This constitutes unauthorized practice of law by the corporate principal. ABA Comm. on Unauthorized Practice of Law, Informative Op. A (1967) (citing Land Title Abstract & Trust Co. v. Dworken, 129 Ohio St. 23, 1 O.O. 313, 193 N.E. 650 (1934); Steer v. Land Title Guarantee & Trust Co., 113 N.E.2d 763 (Ohio Ct.C.P.1953); Hexter Title & Abstract Co. v. Grievance Com., 142 Tex. 506, 179 S.W.2d 946 (1944)), reprinted in RES GESTAE, May 1967, at 31, 32. Under Indiana law, every person is entitled to act as his or her own attorney both in and out of court and to assume the consequences of those acts so performed. State ex rel. Indiana State Bar Ass'n v. Indiana Real Estate Ass'n, Inc., 244 Ind. 214, 226 n. 2, 191 N.E.2d 711, 717 n. 2 (1963). This right, however, is possessed only by those who are the parties to the transaction. Id. at 226, 191 N.E.2d at 717. Only qualified, licensed attorneys may appear for other persons. Matter of Estate of Rondinelli, 692 N.E.2d 915, 918 (Ind.Ct. App.1998) (only persons duly admitted to practice law in this state may appear on behalf of other persons) (citing Butler v. State, 668 N.E.2d 266, 268 (Ind.Ct.App. 1996)). See also Simmons v. Carter, 576 N.E.2d 1278, 1279 (Ind.Ct.App. 1991) ([W]hile any natural person may appear in court on his or her own behalf, only persons duly admitted to practice may appear on behalf of other persons.). This Court has discussed the application of these rules to organizational entities involved in out-of-court actions that have legal consequences: We find no reason or authority for holding that a trust company, authorized by law to act as executor, administrator, guardian, or trustee, may not execute such trusts in the same manner and through the same agencies that may be resorted to by a natural person in the same situation, except, of course, that a natural person may act in propria persona, while a corporation must act through some natural person. If a natural person, who is not admitted to practice law, may do the things which the appellee has done without illegally practicing law, so can the trust company. If it is unwise to permit a corporation to act in a fiduciary capacity, the remedy is with the Legislature and not with the courts. The practice of law is restricted to natural persons who have been licensed upon the basis of established character and competence as a protection to the public against lack of knowledge, skill, integrity, and fidelity. Disbarment procedure is available in the case of those who do not conform to proper practice. The practice of law involves advising or rendering services for another. A natural person may plead his own case in court or do any of the things for himself which if done for another would constitute practicing law. He may discuss the legal aspects of his affairs with other interested parties or with strangers. Either a natural person or a corporation may employ lawyers to do these things. A corporation may choose its own attorney as freely as a natural person may do so. Where the services of an attorney are necessary in the execution of a trust, the trustee is charged with the responsibility of selecting an attorney and with the duty to exercise reasonable care in the selection, and a corporate fiduciary has the same duty and the same right as a natural person. A natural person acting as executor, administrator, guardian, or trustee, may choose his own personal attorney, employed by him on an annual salary basis, to perform services for his trust, without expense to the trust, or he may employ such a personal attorney at the expense of the trust, or he may employ some attorney with whom he has no business or professional connection. No reason is seen why a corporate fiduciary may not do the same.... Groninger, 220 Ind. at 206-208, 41 N.E.2d at 141-42. We have also explained: When a corporation becomes a party to a civil action its status to represent itself in that proceeding differs from that of an individual. The individual has a personal stake in the outcome of the litigation and can readily be identified as both a party litigant and an individual person. A corporation, however, although a person in the eyes of the law, cannot be wholly identified with any individual person and thus, by necessity, must be represented by its agents. Those agents can only have an indirect stake in the case for the reason that a corporation exists as an independent legal entity, separate and distinct from its shareholders, officers or any agents.... State ex rel. Western Parks, Inc. v. Bartholomew County Court, 270 Ind. 41, 44, 383 N.E.2d 290, 292-93 (1978). To this general rule, we have created a single, limited exception that presently applies in claims arising out of the business of the corporation that do not exceed $1,500 and that are filed as small claims, but then only after the corporation has designated an employee and satisfied specified filing requirements. Ind. Small Claims Rule 8(C). [12]
Under the rules promulgated by this Court and accepted forms of practice, members of the Indiana bar are authorized to practice, individually or with other attorneys, in private law firms, in the legal departments of corporations or other public or private organizations, and in group legal service plans. See Prof. Cond. R. Preamble; Prof. Cond. R. 1.13; Ind. Admission and Discipline Rule 26. In addition to practicing in partnerships, corporate legal departments, and group legal service plans, attorneys are also authorized to practice in other organizational contexts: professional corporations, limited liability companies, and limited partnerships. See IND.CODE § 23-1.5-1; IND.CODE § 23-18-1; IND.CODE § 23-4-1; Admis. Disc. R. 27. Nevertheless, all members of the Indiana bar, regardless of the nature or context of their practices, are subject to the same ethical and legal obligations under the professional rules. When attorneys practice in organizational contexts, certain limitations apply to the organizations themselves. For instance, with professional corporations, limited liability companies, and limited partnerships, statutory law and court rules place specific requirements on these organizations in terms of organizational purpose, activities, control, and liability. See IND.CODE § 23-1.5-1; IND.CODE § 23-18-1; IND.CODE § 23-4-1; Admis. Disc. R. 27. In the case of professional corporations, our statutes have authorized attorneys to form professional corporations to render services that may legally be performed only by an attorney. IND.CODE § 23-1.5-2-3(3). However, these professional corporations may render professional services only through individuals permitted to render such services in Indiana. IND.CODE § 23-1.5-2-5(a). And, [a] licensed individual acting in his individual capacity may render professional services, even though the individual may be a shareholder, director, officer, employee, or agent of a professional corporation. IND.CODE § 23-1.5-2-5(b). Also, with group legal service plans, our professional rules require the group plans to meet certain conditions before an attorney may render services pursuant to the plan and to file an initial disclosure statement, annual reports, and a final report upon the discontinuation of operation; included in these mandated filings are the names of the attorneys rendering services under the plan. See Admis. Disc. R. 26. The majority correctly notes that the Preamble to our Rules of Professional Conduct defines firm and law firm to include lawyers employed in the legal department of a corporation or other organization. Prof. Cond. R. Preamble. The majority also correctly recognizes that attorneys may be retained or employed by corporations and may work in their legal departments and that Rule 1.13 applies to attorneys employed or retained by a corporation or other organization. Indeed, members of the Indiana bar who serve as house counsel are subject to the professional rules and the obligations arising therefrom, like all other attorneys in Indiana. However, none of these statutory or rule provisions constitutes authorization for insurance companies to employ house counsel to represent their insureds. As already noted, corporate and other organizational entities often employ house counsel in their legal departments to represent the entities in their legal matters and transactions. Indeed, when it comes to an entity's own legal matters and transactions, there is no real difference between an entity employing attorneys as house counsel or as outside counsel. In both cases, the entity-client hires an attorney to provide legal services. Like any other person, an organization may secure counsel to represent the company in its own affairs-whether that attorney is a salaried attorney-employee or outside counsel is unimportant. Indiana Professional Conduct Rule 1.13 states that [a] lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents. Thus, Rule 1.13 contemplates that an attorney retained or employed by an organization represents the organization. Implicit in this rule is the idea that an attorney employed in the legal department of an organizational entity represents the organization in those transactions in which the organization has a primary interest. This was the understanding at common law that provides the background and context for our statute and our professional rules.
The trial court correctly held that Celina was engaged in the practice of law, that its practice was unauthorized, and that its house counsel assisted in this unauthorized practice. As to Celina's engaging in the practice of law, it held: Celina does in fact engage in the practice of law when its salaried attorneys represent its insureds. A corporation acts through its agents and the acts of the agent are the acts of the corporation. Because Celina's attorneys are its agents, and the acts of those attorneys are therefore those of Celina, Celina is engaged in the corporate practice of law when it assigns its salaried attorneys to represent its insureds. See Record at 1209 (internal citations and footnote omitted). The majority rearranged the trial court's reasoning and reduced it to the following syllogism: (1) the attorney-agents of Celina are engaged in the practice of law; (2) Celina, a corporation, can act only through agents; (3) the acts of the attorneys are those of Celina; therefore (4) Celina is engaged in the practice of law. Op. at 156. [13] While the majority dismissively characterized this as a syllogism based on a series of propositions of dubious general validity, op. at 160, I am not persuaded that the trial court's propositions are false or even dubious. These propositions are well-established legal principles in Indiana law. First, the trial court states its conclusion that Celina is engaged in the practice of law when its house counsel represent its insureds. Next, the trial court recites the established legal principles that a corporation can only act through its agents and that the acts of a corporation's agents are the acts of the corporation. See Bud Wolf Chevrolet, Inc. v. Robertson, 519 N.E.2d 135, 137 (Ind. 1988) (Actions of employees and agents of corporation, when done in the scope of their employment, are attributable to the corporation.); Hibschman Pontiac, Inc. v. Batchelor, 266 Ind. 310, 315, 362 N.E.2d 845, 848 (1977) (A corporation can act only through its agents, and their acts, when done within the scope of their authority, are attributable to the corporation.); Soft Water Utilities, Inc. v. LeFevre, 159 Ind.App. 529, 539, 308 N.E.2d 395, 399 (1974) (A corporation acts through its agents and the acts of the agent are the acts of the corporation.) (citing Johnston v. Baker, 445 F.2d 424 (3d Cir.1971); Pearson v. Youngstown Sheet & Tube Co., 332 F.2d 439 (7th Cir.1964); Nelson Radio & Supply Co. v. Motorola, Inc., 200 F.2d 911 (5th Cir.1952)); Evansville & Terre Haute R.R. Co. v. McKee, 99 Ind. 519, 522 (1885) (Where the particular act [of an agent of a corporation] is within the scope of the agency, then it is, in legal contemplation, the act of the principal, no matter by what name the agent is designated[, as t]he material element is the authority of the agent, and not his mere name or position.). It logically follows that, because Celina is a corporate entity, Celina can only act through its agents, and the acts of Celina's agents are the acts of Celina. Next, the trial court states that Celina's attorneys are its agents and that the acts of those attorneys in practicing law are the acts of Celina. When house counsel represents one of the insurance company's insureds, house counsel as an agent-attorney of the company is practicing law on behalf of the company; thus, the agent-attorney acts as the corporation in representing the third party. The attorney is not operating simply as counsel for the insurance company (conduct that is authorized by law). As an agent of the insurance company, the attorney's acts are the acts of the company, and the acts of the agent-attorney in representing insureds are properly attributed to the corporate entity. [14] It is in this situation that the company undertakes the practice of law. The trial court's deductive reasoning led to the conclusion that Celina, the corporation, was engaged in the practice of law. The trial court's reasoning is sound, and its conclusion is proper. The trial court also determined that Celina's practice of law was unauthorized: The next inquiry must then be whether Celina's corporate practice of law is unauthorized and therefore illegal. No statutory or common law prohibition exists directly proscribing the corporate practice of law. However, the absence of such a direct prohibition does not end the inquiry. In 1983, the Indiana legislature enacted the Professional Corporation Act, allowing one (1) or more attorneys [to] form a professional corporation to render services that may legally be performed only by an attorney. I.C. 23-1.5-3-3(a)(3). Pursuant to that statute and Article 7, § 4 of the Indiana Constitution, the Indiana Supreme Court promulgated Admission and Discipline Rule 27, which permits [o]ne or more lawyers [to] form a professional corporation ... for the practice of law ... The promulgation of this rule leads to the inference that nonprofessional corporations may not practice law. If corporations other than professional corporations were allowed to practice law, no rule would be necessary to specifically permit professional corporations to practice law, for a professional corporation is merely a specialized type of corporation. Further, in addition to the implied prohibition against the nonprofessional corporate practice of law, the Admission and Discipline Rules are devoid of a rule specifically permitting the practice of law by a nonprofessional corporation. The absence of such a rule, considered in conjunction with the rule pertaining to professional corporations, leads inescapably to the conclusion that only professional corporations are permitted to practice law. If the Indiana Supreme Court chose to do so, it could promulgate a rule permitting the nonprofessional corporate practice of law, just as it has with professional corporations. Instead, the Court has extended permission only to professional corporations, thereby barring nonprofessional corporations from the practice of law. ... In light of the foregoing, because Celina is not a professional corporation, and because Celina is engaged in the practice of law when it assigns its salaried attorneys to represent its insureds, this court is compelled to conclude that such a practice by Celina constitutes the unauthorized practice of law by a corporation.... See Record at 1209-12 (internal citations and footnote omitted). The majority opinion correctly notes that the trial court concluded that Celina's practice of law was unauthorized because Indiana's professional corporation statute implicitly prohibits general business corporations and insurance companies from practicing law. Op. at 156. The statutes were enacted and the rules were adopted because organizational entities were prohibited from practicing law and attorneys were prohibited from practicing law in such contexts. The statutes specifically authorize professional corporations and a limited class of other entities to render legal services, and court rules explicitly authorize attorneys to practice in contexts in which organizational entities and attorneys were previously prohibited from practicing law. [15] The authorization of these entities, under statute and court rules, to exist for the purpose of rendering services or the authorization of attorneys to practice in such contexts should not be read to support the conclusion that such entities are themselves practicing law. [16] The statutory provisions and the court rules that authorize attorneys to form and practice in certain organizational contexts include very specific requirements, limiting these organizations to protect the public and to preserve professional independent judgment. These statutes and rules explicitly authorize attorneys to form only certain kinds of organizational entities and to render legal services only through these entities when the requirements are satisfied. The relevant statutory provisions, including the Professional Corporation Act, and the relevant court rules were adopted against the backdrop of the common law and statutory prohibitions against the unauthorized practice of law and the corporate practice of law. Together, these considerations support the trial court's reasonable inference that general business corporations may not practice law. The majority finds support in its assertion that Indiana has no express statutory prohibition against corporations practicing law. [17] In my view, however, because only certain persons, who have met specific qualifications and are licensed, may practice law in Indiana, the proper inquiry is not whether any law or rule prohibits this activity. Rather, it is whether any law or rule authorizes the insurance company to undertake this challenged activity. Under Indiana law, no statute or professional rule authorizes a general business corporation to render legal services or an insurance company to practice law. [18] Therefore, Celina engages in the unauthorized practice of law when its house counsel represents its insured. [19] See GEOFFREY C. HAZARD, JR., & SUSAN P. KONIAK, THE LAW AND ETHICS OF LAWYERING 903 (1990) ([T]he corporation is engaged in unauthorized practice if its lawyers provide legal assistance to others, such as the corporation's customers. However, the corporation can provide legal assistance to itself without thereby engaging in practice of law.). Simply put, Celina is delivering legal services to policyholders through its employee, who is an attorney. Celina is not authorized to do this. The trial court is correct on this point. After concluding that Celina was engaged in the unauthorized practice of law, the trial court found that Celina's house counsel violated the rule prohibiting an attorney from assisting in the unauthorized practice of law. The trial court determined that, [b]ecause th[e] unauthorized practice of law results when Mr. Faber represents Celina's insureds, Mr. Faber is undeniably assisting Celina in unauthorized practice of law in violation of Indiana Rule of Professional Conduct 5.5(b). Record at 1220. I agree.