MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2001-07
CONFLICT OF INTEREST: May Law Firm of Owner of Title Company Which Settled Loan Represent Seller in a Dispute with Buyer
Your letter states that you are the President and general counsel of a title company and you also practice law in a separate law firm. The title company handled the settlement of a construction loan on property. You have now been asked to represent the seller of the property in a dispute which has arisen between the seller and the buyer of the property. You ask whether there would be any conflict of interest in your representation of the seller.
In a separate phone conversation, you advised me that the title company was engaged by a third party lender in connection with the settlement of the construction loan, which has now been repaid and replaced with permanent financing. You also advised me that you did not attend the settlement of the construction loan; the project was handled by one of your paralegals. The current dispute between the seller and buyer does not pertain to either the construction loan or title to the property; instead, it involves the buyer’s obligations with respect to resale of a portion of the property to the seller. These obligations are contained in an unrecorded contract between the buyer and seller of which you had no knowledge at the time the title company handled the settlement of the construction loan. Finally, you have consulted with the third party lender for the construction loan and confirmed that such lender has no on-going or further interest in the property or relationship with either the buyer or the seller.
Rule 1.7 of the Maryland Rules of Professional Conduct governs conflicts of interests in situations where parties may have divergent interests. Paragraph (b) of the Rule states:
“(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests, unless:
(1) the lawyer reasonably believes the representation will not be
adversely affected; and
(2) the client consents after consultation.”
It does not appear that you or your law firm or the title company have any on-going responsibilities to the buyer or the third party lender. It also does not appear that you have any other interests on behalf of your law firm or the title company that would limit in any way your responsibilities to your proposed client, the seller.
The buyer of the property is not now and never has been a client of your law firm. The question is whether the buyer was ever a client of the title company. If so, you could be subject to the provisions of Rule 1.9 of the Maryland Rules of Professional Conduct , which governs conflicts of interest which might arise in connection with former clients. See Ethics Docket 89-18. Rule 1.9 states:
“A lawyer who has formerly represented a client in a matter shall not thereafter:
(a) represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client consents after consultation; or
(b) use information relating to the representation to the disadvantage of the former client except as Rule 1.6 would permit with respect to a client or when the information has become generally known.”
Even if you were to determine that this new matter is not the same or substantially related to any matter you previously handled for your former client, Rule 1.9(b) would prohibit you from using information relating to the representation of the former client to the disadvantage of the former client unless such information is permitted to be disclosed under Rule 1.6 or has become generally known.
The facts as you have presented them, however, do not reflect that you, either through your law firm or through the title company, formerly represented either the buyer or the seller. The title company settled the construction loan on behalf of the third-party lender. Accordingly, based on the facts as presented, the Committee believes you may undertake this representation of the seller in his dispute with the buyer.
This opinion, 01-07 makes references to opinion 89-18.
REFERENCES:
Rules 1.7(b) and 1.9