Frye v. Tenderloin Housing Clinic, Inc.

percent of the total award, including attorney fees, costs, and interest, proved to be greater than the award of statutory attorney fees plus interest ($168,543.88).

THC retained $1,203.96 from Frye’s share of the damages award to satisfy the balance of attorney fees he owed under the contingency agreement and remitted $11,599.04 to Frye. Shortly thereafter, Frye demanded an accounting. Collier provided Frye with a detailed explanation of THC’s calculations in distributing the judgment award.

In January 1998, Frye filed the present action against THC, alleging five causes of action: (1) money had and received; (2) fraud and negligent misrepresentation; (3) breach of fiduciary duty; (4) breach of contract; and (5) unfair business practices.

In his first cause of action, for money had and received, Frye alleged that THC was not licensed to practice law in California or to represent the plaintiff tenants in the underlying action, with the result that the contract between THC and Frye was void, and therefore that THC was not entitled to retain attorney fees or costs. Frye alleged that the reasonable value of THC’s services was zero. In his second cause of action, for fraud and negligent misrepresentation, Frye alleged that THC falsely represented that it would provide free legal services, that it was licensed to practice law and was authorized to enter into contracts for legal services, and that it had authority to charge attorney fees. Frye claimed that he relied on these representations, and that had they not been made, Frye would not have paid THC attorney fees and costs. In his third cause of action, for breach of fiduciary duty, Frye alleged that the nature of the underlying action “did not justify the amounts collected by [THC]” and that the amounts collected were “unreasonable, used an impermissible compounding of fees, and were in violation of defendant’s fiduciary duty to plaintiff]].” In his fourth cause of action, for breach of contract, plaintiff alleged that THC retained attorney fees in excess of the amount allowable under the agreement. In his fifth cause of action, Frye alleged THC engaged in a pattern and practice of unfair and illegal practices in violation of the Business and Professions Code, damaging both Frye and the public. Frye claimed that THC was not entitled to receive or retain unlawful fees and costs it collected during the litigation. Frye’s prayer for relief sought the return of a specified amount of fees and costs from THC and disgorgement of “all of [THC’s] unlawfully collected fees and costs and . . . restitution to each member of the general public who has paid unlawful fees and costs,” along with statutory and punitive damages and an injunction against further unfair business practices.

In February 1998, THC moved for summary judgment or, in the alternative, summary adjudication of each cause of action. In April 1998, the trial court (David A. Garcia, Judge) denied the motion as to the first, third, fourth, and fifth causes of action, finding that triable issues of material fact remained concerning the “amount of fees due under the contract.” The trial court granted THC’s motion as to the second cause of action for fraud and negligent misrepresentation, determining that no remaining triable issues of material fact remained, and explaining that, contrary to Frye’s claim, nonprofit corporations are not required to register as professional law corporations. Accordingly, the trial court concluded, THC had not “expressly or impliedly misrepresented its authority to provide legal services or to recover attomeyí] fees and costs” and had not committed fraud as a matter of law.

In June 1998, Frye entered into a stipulation with THC to settle his fourth and fifth causes of action (for breach of contract and unfair business practices) for $1,390.06, an amount representing the contingency fee that THC had deducted from Frye’s award, plus interest. The parties stipulated that the court (Thomas J. Mellon, Judge) would determine certain issues raised by the pleadings on the remaining causes of action for money had and received and breach of fiduciary duty, and that the matter would be tried to the court rather than before a jury.

In September 1998, the parties stipulated to provide supplemental briefing with respect to various legal issues raised by the pleadings, including (despite the earlier disposition by Judge Garcia) whether THC was required to register with the State Bar as a professional law corporation, whether THC was required to disgorge fees to Frye, whether THC was entitled to fees in quantum meruit, whether individual THC attorneys were indispensable parties, and whether further discovery was required.

In December 1998, four employees of THC, including Stephen L. Collier, moved to intervene on the basis that they were entitled to attorney fees even if THC was not entitled to them. The court granted the motion, and a complaint in intervention was filed.

In October 1999, Frye requested that the trial court issue a statement of decision on certain issues identified in the earlier stipulation. In December 1999, the trial court (Judge Mellon) filed a notice of intended decision. The trial court concluded that the relevant statutes did not require every nonprofit corporation or legal services project that employs attorneys practicing law on behalf of clients of the corporation to register with the State Bar. The court, however, was unable to determine, based solely upon the pleadings, whether the nature of THC’s activities required that it register, or whether the agreement was unenforceable. The court pointed out that, by virtue of the First

negligent misrepresentation, because “THC represented to Frye that it was an attorney but was actually not licensed with the State Bar or otherwise entitled to practice law.” Frye further contended that the second trial court erred in granting judgment on the pleadings as to the remaining two causes of action, because THC “is not authorized to practice law, entered into an illegal agreement with . . . Frye, and retained money to which i[t] was not entitled.”

In July 2004, the Court of Appeal reversed in part and affirmed in part the rulings of the trial court. The appellate court affirmed the order granting summary adjudication as to the second cause of action for fraud and misrepresentation, determining that, although the trial court erred in deciding that THC was not under any obligation to register with the State Bar as a professional law corporation, plaintiff suffered no damages. The Court of Appeal reversed, however, the trial court’s order granting judgment on the pleadings as to the causes of action for money had and received, and breach of fiduciary duty. The court concluded that THC had a duty to register with the State Bar and otherwise to comply with the provisions of section 13406(b) and that THC’s refusal to do so necessitated disgorgement of the statutory attorney fees awarded in the underlying action. The court also remanded the matter to the trial court to determine “whether and in what amounts Frye or the individual attorneys should be entitled to the awarded fees.”

This court granted THC’s petition for review. Numerous organizations, including the Pacific Legal Foundation and the Los Angeles County Bar Association—all told representing more than 70 nonprofit organizations— have filed amicus curiae briefs contending that section 13406(b) does not apply to organizations such as THC and that such organizations cannot serve in their present form if they are required to conform to the requirements of that statute. The State Bar filed an amicus curiae brief asserting that it never has required organizations such as THC to register and to comply with section 13406(b), and that only five of the hundreds of nonprofit corporations that offer legal services to third parties in this state have registered and organized themselves pursuant to the statute.

A

Section 13406(b), which was added to the Moscone-Knox Professional Corporation Act (§ 13400 et seq. (Professional Corporation Act)) in 1993,

entering into contingency fee agreements. THC evidently did not fall within either exception while it was representing Frye. It did not register with the State Bar as a professional corporation pursuant to Business and Professions Code section 6160 and, contrary to section 13406(b), its board and membership included nonlawyers; it did not at all times have a policy restricting its practice primarily to low-income persons; and it entered into contingent fee agreements.

B

The Court of Appeal began its analysis with the premise that corporations ordinarily are not permitted to practice law. The appellate court stated its belief that, until section 13406(b) was enacted, the sole statute permitting the corporate practice of law was the Professional Corporation Act, which authorized for-profit corporations to practice law under certain restrictions. (§ 13400 et seq., added by Stats. 1968, ch. 1375, § 9, p. 2704.) The court concluded that although the 1993 amendments adding section 13406(b) to the Professional Corporation Act granted nonprofit corporations statutory authority to practice law, the authority of nonprofit corporations in general to practice law necessarily was circumscribed by the conditions set forth in section 13406(b). In essence, the Court of Appeal held that this statute occupies the entire field of law governing the authority of nonprofit corporations to practice law.

The Court of Appeal summarily rejected the contention that the conditions set out in section 13406(b) are permissive. “The only thing ‘permissive’ about section 13406, subdivision (b) is that a corporation practicing law may be incorporated as a for-profit or a nonprofit corporation, provided that it complies with code requirements pertaining to each. Either way, however, registration is required.” The Court of Appeal concluded that, because THC chose to practice law as a nonprofit corporation, in order to be authorized to practice law it not only would be required to register with the State Bar pursuant to Business and Professions Code section 6160, but it also would be subject to the other limitations imposed by section 13406(b).

THC contended on appeal that section 13406(b), which became effective in 1994, did not apply retroactively to the retainer agreement it entered into with Frye in 1993. The Court of Appeal disagreed. On the one hand, as we have seen, that court treated section 13406(b) as the sole source of authority under which a nonprofit corporation may practice law. On the other hand, responding to THC’s retroactivity claim, the court seemed to acknowledge that, in some

instances prior to the enactment of section 13406(b), a corporation could enjoy protection under the First Amendment from state regulation that impaired the ability of the organization to practice law. The Court of Appeal concluded, however, that THC had failed to prove that its activities and purpose in practicing law invoked the protection of the First Amendment.

C

We now consider the Court of Appeal’s conclusion that section 13406(b) serves as the sole source of authority under which a nonprofit corporation may practice law. We conclude, for the reasons that follow, that the Court of Appeal’s reasoning on this point is flawed, largely because that court failed to take into account the history of the rule against corporate practice of law and the absence of any evidence that the Legislature intended to overturn preexisting authority permitting legal aid, mutual benefit, and advocacy groups to practice law in the corporate form.

Historically, judicial decisions in California and most other states proscribed the corporate practice of law. (People v. Merchants Protective Corp. (1922) 189 Cal. 531 , 537-538 [ 209 P. 363 ] (Merchants Protective Corp.); In re Co-operative Law Co. (1910) 198 N.Y. 479 [ 92 N.E. 15 ]; Giesel, Corporations Practicing Law Through Lawyers: Why the Unauthorized. Practice of Law Doctrine Should Not Apply (2000) 65 Mo. L.Rev. 151 , 172 (Giesel).) In the exercise of their authority to regulate the practice of law, courts concluded the interests of clients required that corporations not be authorized to practice law themselves or hire attorneys for the purpose of representing third parties. (See Merchants Protective Corp., supra, 189 Cal. at pp. 538-539; see also In re Attorney Discipline System (1998) 19 Cal.4th 582 , 592-593 [ 79 Cal.Rptr.2d 836 , 967 P.2d 49 ] [regulation of the practice of law constitutes a core judicial function].)

This court set forth the proscription on the corporate practice of law in a decision relying upon our inherent authority to regulate the practice of law. (Merchants Protective Corp., supra, 189 Cal. at pp. 537-538, 540.) In that case, the Attorney General challenged the authority to practice law of an incorporated trade association that employed attorneys to represent its members. We held that the corporation was engaged in the unauthorized practice of law and that a corporation could neither practice law nor employ lawyers to represent third parties. (Ibid.; see also Hildebrand v. State Bar (1950) 36 Cal.2d 504 , 509-510 [ 225 P.2d 508 ].)

We reasoned that the profit motive created an inherent conflict of interest for attorneys and would foster inappropriate commercialization of the profession. (Me rchants Protective Corp., supra, 189 Cal. at p. 539.) It was this

court’s view that the corporate practice of law posed the risk that the corporation, potentially governed by persons not versed in or bound by lawyers’ ethical obligations and the duty of undivided loyalty owed by an attorney to his or her client, would seek to advance its own commercial interest at the expense of the interests of clients. (Id. at pp. 538-539.) “The essential relation of trust and confidence between attorney and client cannot be said to arise where the attorney is employed, not by the client, but by some corporation which has undertaken to furnish its members with legal advice, counsel and professional services. The attorney in such a case owes his first allegiance to his immediate employer, the corporation, and owes, at most, but an incidental, secondary and divided loyalty to the clientele of the corporation.” (Ibid.)

We also were concerned that clients would possess few remedies against a law corporation for malpractice committed by the corporation’s attorneys, because “ ‘[t]here would be no remedy by attachment or disbarment to protect the public from imposition or fraud, no stimulus to good conduct from the traditions of an ancient and honorable profession, and no guide except the sordid purpose to earn money for stockholders. The bar, which is an institution of the highest usefulness and standing, would be degraded if even its humblest member became subject to the orders of a money-making corporation engaged not in conducting litigation for itself, but in the business of conducting litigation for others.’ ” (Merchants Protective Corp., supra, 189 Cal. at p. 539.)

Notwithstanding the foregoing historical rule, a number of sources provided for exceptions to the rule. First, legislation was enacted that eroded the broad rule against the corporate practice of law and the practice of other professions. As noted, the Professional Corporation Act (§ 13400 et seq.) permits the corporate practice of law even for profit, subject to various restrictions that are intended to safeguard client interests against the profit motive, including registration with the State Bar and a requirement of corporate ownership and governance solely by attorneys. (See, e.g., §§ 13401, subd. (b), 13404; Bus. & Prof. Code, §§ 6160, 6165.) In addition, group legal services plans—whose function is substantially similar to that of the corporation in the Merchants Protective Corp. case—have been authorized to operate as nonprofit corporations (§ 10830; see also § 7110 et seq.). So have lawyer referral services. (Bus. & Prof. Code, § 6155.)

Even more significantly, the traditional judicial rule against the corporate practice of law has been subject to judicial exceptions for nonprofit corporate practice that developed both prior to and subsequent to the enactment of the Professional Corporation Act. Under the authority of this case law, legal aid, mutual benefit, and advocacy groups have practiced law in the

corporate form, and we find no indication that the Legislature intended to abrogate or challenge these decisions when it enacted section 13406(b).

In order to supply a reasonable solution to the continuing problem of access to justice for the poor and the economically disadvantaged, legal aid societies have been permitted to practice in a nonprofit corporate form. Courts have accepted the premises that legal aid societies serve an important public interest, and that the nonprofit nature of the enterprise reduces or eliminates the risk that the entity will compromise the loyalty of attorney-employees to clients or otherwise threaten clients’ interests. (See Azzarello v. Aid Society (1962) 117 OhioApp. 471 [ 90 OhioLawAbs. 564 , 185 N.E.2d 566 , 570]; Touchy v. Houston Legal Foundation (1968) 432 S.W.2d 690 , 694—695 [ 11 Tex. Sup. Ct. J. 477 ]; Annot., Restrictions on Right of Legal Services Corporation or “Public Interest” Law Firm to Practice (1983) 26 A.L.R.4th 614 , 615 [“Many jurisdictions . . . have carved out an exception to that rule [barring corporate practice of law] for benevolent or charitable organizations, in order to facilitate the activities of public interest law firms, legal aid societies, and the like”].)

A 1972 opinion of the California Attorney General, citing Azzarello v. Legal Aid Society of Cleveland, supra, 185 N.E.2d 566 , and other out-of-state decisions, explained that the general rule against corporate practice of law does not extend to legal aid societies in this state, principally because of the public policy that supports efforts to provide access to justice for all members of society. “[T]he operation of these and similar nonprofit charitable societies has been the subject of judicial recognition and rests upon sound policy objectives” (55 Ops.Cal.Atty.Gen. 39, 43-44 (1972)), including the important goal of ensuring that persons of limited means retain access to the courts, a value that outweighs concerns about potential conflicts of interest. (Id. at pp. 42-44; see also State Bar Com. On Prof. Responsibility, Formal Opn. No. 1981-64 (1981) p. 3, fn. *, reprinted in 1 Cal. Compendium on Prof. Responsibility, State Bar Formal Opn. No. 1981-64, p. IIA-182 [observing that legal aid organizations are authorized to practice as nonprofit corporations in California].)

Case law provides another exception to the rule against corporate practice of law that is of particular relevance for nonprofit organizations such as THC. The First Amendment protects the associational and expressive rights of persons—both lawyers and nonlawyers—to join together to employ litigation to seek redress of grievances. (NAACP v. Button (1963) 371 U.S. 415 , 428-431 [ 9 L.Ed.2d 405 , 83 S.Ct. 328 ].) In NAACP v. Button, statutes that would have prohibited NAACP attorneys and lay members or supporters of the NAACP from urging others to join them in undertaking litigation challenging discriminatory practices impermissibly “broadly curtailed] group

to the courts for private gain, serving no public interest.” (Ibid.) Finally, “[objection to the intervention of a lay intermediary, who may control litigation or otherwise interfere with the rendering of legal services in a confidential relationship, also derives from the element of pecuniary gain.” (Id. at p. 441.) By contrast, “[r]esort to the courts to seek vindication of constitutional rights is a different matter from the oppressive, malicious, or avaricious use of the legal process for purely private gain” (id. at p. 443) and, moreover, the state made no showing of “substantive evils flowing from [NAACP’s] activities [that warrant] the broad prohibition which it has imposed.” (Id. at p. 444; see also Mine Workers v. Illinois Bar Assn. (1967) 389 U.S. 217 , 221, 225 [ 19 L.Ed.2d 426 , 88 S.Ct 353 ] (Mine Workers) [rejecting the claim that the holding of NAACP v. Button is restricted to politically motivated advocacy]; see also United Transportation Union, supra, 401 U.S. at pp. 585-586; Railroad Trainmen v. Virginia Bar (1964) 377 U.S. 1 , 7, 8, & fn. 10, [ 12 L.Ed.2d 89 , 84 S.Ct. 1113 , 94 OhioLawAbs. 33 ].)

The Supreme Court also rejected the view that the potential award of statutory attorney fees to the nonprofit organization would endow the organization with a pecuniary motive likely to cause a conflict of interest. (In re Primus, supra, 436 U.S. at pp. 430-431; see also ABA formal opn. No. 93-374, reprinted in ABA Lawyer’s Manual on Prof. Conduct, supra, at pp. 1001:187-1001:188 [a corporation’s pecuniary interest in attorney fees is not of concern when the corporation is not for profit and the fees are statutory and are paid by the opposing party].)

The constitutional principles described ante have been applied to disapprove a state rule of practice that, as Frye would have us interpret section 13406(b), clearly prohibited the corporate practice of law except only for nonprofit corporations that are both (1) composed entirely of attorneys, and (2) devoted solely to serving the poor. (In re N.H. Disabilities Rights Center, Inc. (1988) 130 N.H. 328 [ 541 A.2d 208 ].) Justice Souter, then writing for the New Hampshire Supreme Court, determined that both restrictions fell afoul of the line of cases beginning with NAACP v. Button and could not be enforced against the Disability Rights Center, an organization that undertook litigation to further the rights of disabled persons. (In re N.H. Disabilities Rights Center, Inc., supra, 541 A.2d at pp. 212-215.)

According to Justice Souter, decisions by the United States Supreme Court establish that “[organizations, their members and their staff lawyers may assert a protected first amendment right of associating for non-commercial purposes to advocate the enforcement of legal and constitutional rights of those members, or of others within a definite class whom the organization exists to serve. When such advocacy may reasonably include the provision of legal advice or take the form of litigation, the

organization may itself provide legal representation to its members or beneficiaries despite State regulations restricting legal practice and the solicitation of clients, provided that the organization and its lawyers do not engage in the specific evils that the general State regulations are intended to prevent.” (In re N. H. Disability Rights Center, Inc., supra, 541 A.2d at p. 213.)

The New Hampshire decision acknowledged the state interests served by the ban on the corporate practice of law—to ensure attorney loyalty to clients by requiring that all directors and members of law corporations be lawyers, and to preserve the court’s disciplinary authority over the practice of law. Nonetheless, the court agreed with the Disability Rights Center that the salutary objectives of the prohibition on corporate practice “must yield to first amendment values when their enforcement is unjustified by any specific and immediate threat of the evils the requirements are intended to insure against. . . .” (In re N. H. Disability Rights Center, Inc., supra, 541 A.2d at p. 215, italics added.) Thus, although the state theorized that the Disability Rights Center’s lawyers might experience a conflict between the ideological goals of the directors of the organization and the interests of the individual clients, the court concluded that the “general possibility of conflicting interests” did not warrant enforcement of the state statute, which “compromise^] a demonstrated first amendment interest.” (Ibid.)

The foregoing decisions persuade us that the associational interests of persons wishing to join together to gain meaningful access to the courts for redress of grievances would be implicated by section 13406(b)’s requirement that the directors and entire membership of the corporation be composed of persons who are licensed to practice law. As the various amicus curiae briefs have explained, a great number of advocacy organizations set objectives and define their mission through governing boards that include constituent members, community members, and others who may not be attorneys. (See, e.g., 45 C.F.R. § 1607.3 (c) & (d) (2005)) [corporate grantees of the Legal Services Corporation must include clients and other nonattomey representatives of the community on their governing boards].) These organizations turn to nonattorney board members for expertise and advice when making the decision to undertake litigation intended to advance the organization’s goals. Similarly, the expressive and associational interests of attorneys, members, and supporters of advocacy groups would be implicated by a rule that would restrict the group’s advocacy to litigation on behalf of the poor. As several nonprofit organizations have explained in amicus curiae briefs filed on behalf of THC, such organizations entertain many protected expressive goals other than service to low-income persons.

We conclude that these considerations weigh against interpreting section 13406(b) in the manner adopted by the Court of Appeal. Grave First

authority for nonprofit corporations to employ attorneys, or that common law sources of such authority are abrogated. The legislative history of the enactment makes it evident that it represented an effort to supply an explicit extension of authorization for the corporate practice of law in order to solve a limited problem, not to overturn past practices or to restrict nonprofit corporate practice of law by advocacy groups.

The Legislature’s intent to expand nonprofit corporate practice apparently emanated from its desire to ensure the continued functioning of a particular nonprofit law office. In 1992, the Community Law Center of Oakland asked the Attorney General whether it could incorporate as a law corporation under the nonprofit public benefit corporation provisions. The Oakland law center was concerned that it might not be authorized to so incorporate because, unlike a pure legal aid society practice, it accepted fees from clients who had low incomes but were not indigent, and it engaged in a general law practice, primarily in the area of family law. The law center secured an Attorney General opinion on the question, the validity of which is not before us in the present case. The opinion concluded that the nonstatutory legal aid exception to the judicial prohibition on the corporate practice of law was limited to free legal services to indigents, whereas the Oakland law center did not limit its services to indigent persons and charged for its services. (75 Ops.Cal.Atty.Gen. 92, 93 (1992).) In the Attorney General’s opinion, the center also did not constitute a membership organization serving the common interests of its members. The opinion concluded that “the Center is not engaged in any form of political expression in terms of advocating the unique legal or constitutional interests of the poor. Instead, it is engaged in a general law practice, primarily in the family law field.” (Id. at p. 96.)

The Legislature enacted section 13406(b) in response to the Oakland law center’s predicament, taking into account the 1992 Attorney General opinion. (Assem. Com. on Judiciary, Analysis of Sen. Bill No. 312 (1993-1994 Reg. Sess.) as amended June 22, 1993.) The Legislature intended to ensure that the Oakland law center was authorized to practice law as a nonprofit corporation despite its deviation from the pure legal aid model in that its services were not always free and it served persons who were not indigent. (Ibid.)

We agree with THC that the Legislature intended to broaden rather than restrict the existing legal aid exception to the ban on corporate practice of law to include organizations providing legal services to the working poor for a fee. Evidence of the Legislature’s intent to expand nonprofit practice of law includes language such as the following: “[T]his bill will enable the Center, and similarly situated legal providers, to provide additional legal services on a more stable basis, [f] There is no serious question that low-income persons, or the working poor, are increasingly unable to afford legal services. It is

critical that alternative means of delivery of legal services to the poor be developed. SB 312 is an effort to facilitate the delivery of legal services to this presently underserved segment of the population.” (Assem. Com. on Judiciary, analysis of Sen. Bill No. 312 (1993-1994 Reg. Sess.) June 30, 1993, p. 1, italics added; see also Sen. Rules Com., analysis of Sen. Bill No. 312 (1993-1994 Reg. Sess.) May 3, 1993, p. 2 [“There is no provision in law for a law firm to incorporate as a non-profit. This change would allow them (Community Law Center) and others in the state to serve the poor and working poor as non-profit corporations”].)

It is significant that Frye is unable to point to any element of the legislative history suggesting an intent to restrict the preexisting authority of nonprofit corporations to practice law. Accordingly, the historical impetus for the legislation and the analyses relied upon by the Legislature dispel any suggestion that the Legislature intended the restrictive meaning attributed by the Court of Appeal to the enactment of section 13406(b).

We conclude, on the basis of the evident legislative intent to expand the nonprofit practice of law, the historical exceptions to the common law rule prohibiting nonprofit law practice, and the constitutional problems that would be presented by the Court of Appeal’s interpretation, that section 13406(b) cannot be construed to govern all nonprofit corporations that provide legal services to third parties.

A

The remaining question before us involves the authority under which THC may practice law in the corporate form. THC claims it is an advocacy group that must be permitted to practice law under the authority of NAACP v. Button, supra, 371 U.S. 415 , and its progeny. The Court of Appeal concluded THC is not an advocacy group but, as noted above, it did so in the unusual context of THC’s claim that section 13406(b) could not be applied retroactively to the fee agreement between Frye and THC, which predated the measure’s 1994 effective date. Starting with the premise that, even prior to the enactment of section 13406(b), there was a general rule against the corporate practice of law, the Court of Appeal found that the exceptions to that general rule—for legal aid societies, mutual benefit groups, and advocacy organizations—were narrow. Although THC claimed authority to practice law in the corporate form under the advocacy-group exemption, the Court of Appeal concluded that

THC’s claim extended the rationale of NAACP v. Button, supra, 371 U.S. 415 , beyond its assertedly narrow factual setting—specifically, beyond the context of a state law prohibiting solicitation of clients that was applied to an organization that clearly employed litigation as a form of political expression. The Court of Appeal denied the assertion that the relevant statutes implicated First Amendment interests. The court’s terse conclusion was: “THC has failed to establish that the litigation it pursues is a form of political expression. On the facts before us, requiring THC to register with the State Bar presents no First Ametidment concerns.”

The claim that NAACP v. Button, supra, 371 U.S. 415 , and its progeny created a harrow rule that would not even be implicated by restrictions such as those imposed by section 13406(b) and Business and Professions Code section 6160 already has been rebutted in our earlier discussion of the potential, constitutional issues that would be raised by the Court of Appeal’s conclusion that those statutes occupy the field of nonprofit corporate law practice in this state to the exclusion of any other rule. Contrary to the Court of Appeal’s assertion, the issue does not merely involve the simple act of registering with the State Bar. The registration requirement itself, under the Court df Appeal’s interpretation of section 13406(b), would require as a condition Of registration that the organization limit its directors and members to licensed attorneys, and limit its clientele as described in that statute.

The Court of Appeal’s next conclusion—that, as a factual matter, THC is not ah advocacy group because the evidence does not demonstrate that it employs litigation as a form of political expression—requires a separate analysis. Frye expands upon the Court of Appeal’s brief discussion, asserting that THC is not an advocacy group but simply constitutes an ordinary law firm that, in fact, is engaged in a general landlord-tenant practice. He claims that 'í'HC’s law practice consists not of bringing test cases or class action lawsuits, but rather of defending individual tenants threatened with eviction or undergoing tenancy in uninhabitable dwellings.

Contrary to the view of the Court of Appeal, the United States Supreme Court has made it clear that the principles set out in NAACP v. Button, supra, 371 U.S. 415 , are not limited to political advocacy groups. “[T]he First Amendment does not protect speech and assembly only to the extent it can be characterized as political.” (Mine Workers, supra, 389 U.S. at p. 223.) Justice Souter made the same point in the previously discussed decision he authored for the New Hampshire Supreme Court. (In re N.H. Disabilities Rights Center, Inc., supra, 541 A.2d at p. 213 [“Organizations, their members and their staff lawyers may assert a protected first amendment right of associating for non-commercial purposes to advocate the enforcement of legal and constitutional rights of those members, or of others within a definite class whom the organization exists to serve”].)

The conclusion of the Court of Appeal that, as a factual matter, THC does not qualify as a protected advocacy group is questionable on the present record, in light of the goals stated in THC’s charter and bylaws and the community of interested persons it exists to serve, the ostensible relationship of its landlord-tenant litigation to its broader goal of maintaining the residential nature of the Tenderloin district and preserving low-income housing stock, and the circumstance that, at least in the years noted in the record, THC was approved by the Internal Revenue Service as an organization broadly devoted to promoting the public interest, a requirement for tax-exempt status. (See Rev.Proc. 92-59, 1992- 2 C.B. 411 , § 3; see also id., § 4 [permitting public interest organizations under limited circumstances to exact fees from clients rather than from the opposing party]; 26 C.F.R. § 601.201 (2005).)

Because of the procedural posture of the present case, however, we are not called upon to render a final determination on the question whether THC’s structure and activities demonstrate that it is an advocacy group within the meaning of NAACP v. Button, supra, 371 U.S. 415 . We note that in that case, the high court examined an extensive record to determine whether the NAACP’s activities were protected by the First Amendment to the extent that a state law prohibiting the organization from soliciting clients could not constitutionally be applied to it. A full record of the union’s practices was also apparently before the court in Mine Workers, supra, 389 U.S. 217 , as was a record of the ACLU’s practices in In re Primus, supra, 436 U.S. 412 . The record was useful to the court not only to determine the nature of the advocacy group’s work but also to determine whether the state had demonstrated a compelling need to impose its regulations on the group.

Because of the procedural posture of the present case, a full record was not developed. THC did not have an adequate opportunity to litigate the questions whether it was engaged in activities warranting First Amendment protection or the extent to which it earned a profit from the attorney fees it charged. The trial court that granted the judgment on the pleadings under review in the present case did not resolve the factual issue of the nature of THC’s activities. Instead, prior to the completion of discovery on issues such as the allegedly profitable nature of THC’s law practice, and prior to trial, the trial court concluded THC was entitled to judgment on the pleadings upon another ground—an issue involving remedy. The trial court found that, even if Frye was correct that THC was an ordinary law firm engaged in the unauthorized practice of law rather than an advocacy group, and that it should have registered and complied with section 13406(b), THC’s failure to do so did not justify the remedy of disgorgement of statutory attorney fees to Frye, because Frye was not injured by THC’s failure to register or to comply with section 13406(b).

Although we could remand this case to permit development of a full evidentiary record concerning THC’s organization and activities in order to permit an appropriate determination whether its practice falls within the protection of NAACP v. Button, supra, 371 U.S. 415 , and its progeny, we need not prolong litigation that already has consumed many years. We agree with the trial court, on another ground, that Frye was not entitled to relief; the remedy he sought was not available to him, for the reasons that follow.

B

We examine the trial court’s alternative ground for granting judgment on the pleadings. We agree with that court that THC’s failure to register with the State Bar or to comply with section 13406(b) was not a cause of any injury to Frye. Under no imaginable circumstance would Frye have fared better had THC registered with the State Bar and complied with section 13406(b). The trial court in the underlying landlord-tenant action still would have awarded the same statutory attorney fees to compensate THC for its efforts, and THC still would have refunded to Frye the fees it collected in excess of the statutory fees pursuant to the contingency fee agreement. Indeed, the Court of Appeal itself, in affirming the trial court’s grant of summary judgment in favor of THC on Frye’s causes of action for fraud and misrepresentation, reached the conclusion that Frye had not been injured.

Under these circumstances, “[t]o require disgorgement of fees because of a failure to register the corporation ... is disproportionate to the wrong.” (Olson, supra, 106 Cal.App.4th at p. 1215 [equitable considerations did not support an order for disgorgement of earned fees when a licensed attorney failed to register his for-profit law corporation as required by statute].) And with respect to any claim for misrepresentation or concealment, there was no damage. (See id. at pp. 1216-1217; see also Ford Motor Credit Co. v. Sperry (2005) 214 Ill.2d 371 [ 292 Ill.Dec. 893 , 827 N.E.2d 422 , 432] [“there is a fundamental difference between an unlicensed individual representing a party . . . and duly licensed attorneys who happen to belong to a law firm that has not filed its registration and paid its fees”].)

Frye responds that “nonlawyers cannot recover fees for practicing law,” citing Birbrower, Montalbano, Condon & Frank v. Superior Court (1998) 17 Cal.4th 119 [ 70 Cal.Rptr.2d 304 , 949 P.2d 1 ]. In Birbrower, we concluded that an out-of-state law firm was not entitled to a judgment enforcing its client’s obligations under a fee agreement for legal services rendered in California,

Under the Court of Appeal’s rationale, all the statutory attorney fees that unsuccessful defendants have paid to nonprofit corporations in this state since 1994 should be disgorged to clients who did not pay fees and for whom the corporation won a favorable judgment—despite this court’s recognition that the award of attorney fees to such organizations serves the public interest by providing financial support for the organizations. (See Serrano v. Priest, supra, 20 Cal.3d at pp. 44—47; see also Press v. Lucky Stores, Inc., supra, 34 Cal.3d at pp. 318-321.) As one commentator has observed, adequately funded public interest litigation constitutes a “unique and indispensable vehicle through which citizens can systematically sponsor and assist litigation advancing broad public interests.” (Simon, Fee Sharing Between Lawyers and Public Interest Groups (1989) 98 Yale L.J. 1069 , 1114.) The remedy of disgorgement is grossly disproportionate to the asserted wrongdoing on THC’s part and would constitute a totally unwarranted windfall to Frye.

We conclude that the trial court correctly granted judgment on the pleadings in favor of THC on the issue of remedy.

This court has the authority to consider imposing registration requirements and other restrictions on the practice of law by nonprofit corporations pursuant to its “inherent responsibility and authority over the core functions of admission and discipline of attorneys.” (In re Attorney Discipline System, supra, 19 Cal.4th at pp. 603, 606-607; see also Merco Constr. Engineers, Inc. v. Municipal Court (1978) 21 Cal.3d 724 , 727, 730-731 [ 147 Cal.Rptr. 631 , 581 P.2d 636 ].)

In view of the State Bar’s experience in regulating the practice of law, its knowledge of the practical problems presented by various forms of law practice, and its ability to seek information and recommendations from the legal community and other interested persons, we believe the matter should be referred to the State Bar for further study, followed by a report and specific recommendations to this court. After appropriate study and specific recommendations from the State Bar, we shall consider the implementation of carefully drawn regulations directed at the practice of law by nonprofit corporations, if such regulations meet a demonstrated danger of injury to clients without impairing First Amendment expressive and associational rights.

Our dominant concern when we adopted the general rule prohibiting corporations from employing attorneys to represent third parties was to protect clients from conflicts of interest that we viewed as inevitably flowing from the profit motive with which corporations are imbued. The profit motive being absent in the case of nonprofit corporations, it may be that additional

Finally, the Attorney General is vested with authority to bring actions to challenge a nonprofit public benefit corporation’s failure to comply with its charitable mission or corporate charter. (§§ 5250, 6216; see also §§ 5141, 5142.) Nonprofit public benefit corporations are required to register with the Secretary of State and to register annually with the Attorney General. (§ 6210; Gov. Code, § 12585-12587.) Annual reports must include certain financial transactions, nonprogram expenditures, use of professional fundraisers, receipt of government funds, and certain IRS reporting requirements. (2 Advising Cal. Nonprofit Corporations (Cont.Ed.Bar 2d ed. 1998) § 1140, pp. 611-612.) “Public benefit corporations are subject to examination by the Attorney General at all times to ascertain the extent to which they may have departed from the purposes for which they were formed or have failed to comply with [the requirements of the] charitable trusts they have assumed. The Attorney General may institute any proceedings necessary to correct such a departure or noncompliance,” including proceedings to compel compliance with statutes governing nonprofit corporations. (1 Advising Cal. Nonprofit Corporations, supra, § 8.115, pp. 397-398.) In addition, public interest law firms seeking to maintain nonprofit status for the purpose of compliance with 26 U.S.C. § 501 (c) are subject to oversight by the Internal Revenue Service, both with respect to their public purpose and the circumstances under which they may accept fees from clients or through judicial awards. (Rev. Proc. 92-59, 1992- 2 C.B. 411 , § 4.)

In sum, in considering the practical need for additional regulation in California, the State Bar should reflect upon the rationale supporting the rule against the corporate practice of law as well as the constitutional principles discussed in this opinion, determine whether there is evidence of actual abuse or client endangerment, and consider whether the potential for harm to clients warrants regulation of the nonprofit entity itself.

The question whether additional regulation is required is referred to the State Bar for further study and report to this court.

V

For the foregoing reasons, the judgment of the Court of Appeal, reversing the trial court’s grant of judgment on the pleadings as to the causes of action for money had and received and breach of fiduciary duty, is reversed.

Kennard, J., Baxter, J., Werdegar, J., Chin, J., Moreno, J., and Corrigan, J„ concurred.