May a lawyer help arrange a loan at an interest rate that would be criminal usury at home by having the documents signed in another state to invoke its more permissive law?

Plain-English summary

The inquirer asked whether a New Jersey attorney, A, could participate in a transaction in which his clients, a New Jersey corporation and a New Jersey resident, would jointly borrow $100,000 from a New York businessman at $20,000 interest for thirty days, an annual rate over 240%. A took the position that the loan was not usurious under New Jersey statutes because it exceeded $50,000 and that it would not be loan sharking under N.J.S. 2A:119-A-1, which he believed was not meant to govern commercial loans. The New York businessman's attorney disagreed, viewing the loan as illegal in New York and possibly criminal in New Jersey, and proposed executing the document in Georgia, where he had concluded the loan would not be illegal.

The Committee answered no. It found A's view that the transaction would not be loan sharking in New Jersey probably unfounded, observing that the statute is clear and that the courts have held a conviction does not depend on proof of scienter or criminal intent, citing State v. Tillem, 127 N.J. Super. 421 (App. Div. 1974). The crime consists not only of making a loan but of charging, taking, agreeing to take, or receiving interest above the maximum rate. The Committee added that by assisting in any way in the commission of this crime, A and his clients might themselves be committing the crime of aiding and abetting under N.J.S. 2A:85-14, making all three guilty as principals.

The Committee concluded that what A proposed to do was to help his New Jersey clients engage in conduct with a New York resident that New Jersey has declared criminal and New York has declared illegal and against public policy. There was no suggestion that the parties' business or domicile would change, only that a document be executed in Georgia, presumably to have Georgia law govern enforcement; the substance of the transaction remained between New York and New Jersey.

Currency note

This opinion was issued in 1974, before New Jersey's adoption of the 2004 revisions to the Rules of Professional Conduct, and predates the 1984 replacement of the Disciplinary Rules by the RPCs. A lawyer's duty not to assist a client in conduct the lawyer knows is criminal or fraudulent is now stated in RPC 1.2(d). The cited usury and aiding-and-abetting statutes (N.J.S. 2A:119-A-1, N.J.S. 2A:85-14) have since been recodified. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer arrange a loan at a rate that is criminal usury in his state?

A: Under this opinion, no. The Committee concluded the lawyer may not participate in a transaction that would constitute criminal loan sharking in New Jersey.

Q: Does signing the loan papers in a more permissive state cure the problem?

A: No. The Committee found that executing the document in Georgia did not change the substance of the transaction, which remained between New York and New Jersey where it was illegal and criminal.

Q: Could the lawyer himself face criminal exposure for assisting?

A: The opinion observed that by assisting in any way in committing the crime, the lawyer and his clients might be aiding and abetting under N.J.S. 2A:85-14, which would make all three guilty as principals.

Background and rules framework

The opinion turned on the principle that a lawyer may not assist a client in conduct the lawyer knows to be criminal, applied through the New Jersey usury and aiding-and-abetting statutes rather than a specific Disciplinary Rule. In current New Jersey terms, the assisting-illegality limit is stated in RPC 1.2(d).

Citations and references

Rules of Professional Conduct:

• The lawyer's duty not to assist client crime, as applied 1974; now MR 1.2(d) / NJ RPC 1.2(d)

Statutes:

• N.J.S. 2A:119-A-1 (loan sharking)
• N.J.S. 2A:85-14 (aiding and abetting)

Cases:

• State v. Tillem, 127 N.J. Super. 421 (App. Div. 1974), loan-sharking conviction does not require scienter

See also

• NJ ACPE Op. 299: An Attorney Practicing From a Client's Out-of-State Office
• NJ ACPE Op. 301: A Third-Party Forgery Claim Against a Current Bank Client

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp289-1.html
• Issuing authority: New Jersey Supreme Court Advisory Committee on Professional Ethics, via the NJ Courts Supreme Court Committees page

Original opinion text

Reproduced from a full-text mirror of the official opinion for research purposes. The linked official source controls.

97 N.J.L.J. 766, October 3, 1974

OPINION 289

Attorney's Participation In Transacting Usurious Loan

The inquirer asks whether it is ethical for a New Jersey attorney, A, to participate in a transaction as herein indicated.

A's clients, a New Jersey corporation and an individual (a New Jersey resident), wish to borrow jointly $100,000 from a New York businessman who we assume is not authorized or permitted by law to charge interest in excess of 50% per annum. Interest will be charged in the amount of $20,000 on $100,000 for 30 days (an annual rate of over 240%). The inquirer states that, in A's opinion, the loan is not usurious under New Jersey statutes since it is in an amount in excess of $50,000 and that the loan if transacted in New Jersey would not constitute the crime of loan sharking in violation of N.J.S. 2A:119-A-1 since in A's opinion the statute wasn't designed to govern loans of a "commercial nature." He states, however, that the attorney for the New York businessman disagrees and believes the loan is illegal as usurious in New York and is possibly criminal in New Jersey. He wishes to have the loan transaction executed in Georgia since he has searched throughout the country and discovered that in his opinion the loan is not illegal or criminal in that jurisdiction.

The inquirer asks whether A may participate as an attorney in this transaction at all or under certain circumstances. Our answer is no. A's opinion that the proposed transaction would not constitute the crime of loan sharking if executed or carried out in New Jersey is probably unfounded. The statute is clear and our courts have held that a conviction does not depend upon proof of scienter and criminal intent. State v. Tillem, 127 N.J. Super. 421 (App. Div. 1974). That case is also instructive on the seriousness with which our courts consider that our legislature and the courts themselves view this particular crime. The crime consists not only of making a loan but of charging, taking, agreeing to take, or receiving interest at over the maximum rate. We further believe that by assisting in any way in the commission of this crime A and his clients might be committing the crime described in N.J.S. 2A:85-14, i.e., "aiding and abetting," making all three guilty as principals.

It seems clear, therefore, that what A is proposing to assist his New Jersey clients in doing is to engage in conduct with a New York resident that New Jersey has declared to be criminal and New York to be illegal and against public policy. There is no suggestion that the business or domicile of the proposed parties be altered, but simply that a document be executed in Georgia - so as presumably to have the enforcement of the contract governed by Georgia law. The substance of the transaction remains with New York and New Jersey and it will be carried out between these two jurisdictions.