MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2007-07
Operation of Law Firm by Attorney Employed by Title Company
You state that you are a licensed member of the Maryland Bar and a full-time employee of a Virginia title and settlement company. The title company has asked you to open and operate a Maryland law practice for the sole purpose of providing it with deeds, powers of attorney and other legal documents prepared by you, or under your supervision, for use in settlements. You will not serve as the title company’s settlement agent or otherwise be involved in conducting settlements. You characterize the fees you will receive as attorney’s fees, and you advise that those fees will be reflected on line 1007 (attorney’s fees) of the HUD-1 settlement sheet. All attorney’s fees collected by you for the described services will be retained by the law firm to defray the costs of operation. You inquire whether the proposed arrangements presents “a conflict of interest or any possible ethical violation” and you further ask if any such conflict is “one that could be resolved by a disclosure letter signed by all parties”.
Md. Rule of Professional Conduct 1.7 defines the circumstances under which a conflict of interest arises:
(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a conflict of interest. A conflict exists if:
(1) the representation of one client will be directly adverse to another client; or
(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.
(b) Notwithstanding the existence of a conflict of interest under paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing.
Although you do not explicitly state this in your inquiry, we believe the “conflicts” to which you allude arise from potential multiple representation. The drafting of a deed, for example, may be done at the request of the lender or title company, but will benefit the buyer to whom title is conveyed. Arguably, an attorney-client relationship may be formed with the buyer. The creation of an attorney-client relationship is not dependent on the payment of a fee or a formal written agreement of representation. Crest Inv. Trust, Inc. v. Comstock, 23 Md.App. 280, 296, 327 A.2d 891, 902 (1974); Flaherty v. Weinberg, 303 Md. 116, 134, 492 A.2d 618, 627 (1985). Conversely, the mere fact that a party agrees to pay legal fees at closing does not necessarily mean that this party enjoys any legal representation. Carter v. Rosenberg, 2005 WL 782913 (D. Md. 2005) (allocation of the costs of a real estate closing does not effect an attorney-client relationship); Flaherty v. Baybank Merrimack Valley, N.A., 808 F. Supp. 55 (D. Mass. 1992) (same). It is not the province of this Committee to opine as to whether, and with whom, you have an attorney-client relationship, but you properly note the risk of multiple representation in this context. Thus, the Committee believes you need to be concerned with whether your representation will create conflicts arising from multiple representation and whether such conflicts may be addressed through informed consent.
Although we are aware of no Maryland precedent addressing this precise issue, it has arisen elsewhere. In Doe v. McMaster, 355 S.C. 306, 585 S.E.2d 773 (2003), the South Carolina Supreme Court considered a situation where the lender employed an attorney to supervise the preparation of legal documents for it and to also supervise the closing and provide legal advice to the buyer. The attorney was independent of the lender. The Court noted that the lender and buyer had adverse interests, but it declined to find a per se conflict arising from the dual representation. It reasoned that any such per se prohibition would be contrary to the public interest in light of the unique nature of real estate settlements. Consequently, the court held that the attorney could engage in the
dual representation after giving full disclosure of his role to both parties and obtaining their informed consent.
In Pennsylvania Ethics Docket 2005-180, 2006 WL 2669677, the inquirer stated that on occasion he is asked by the seller of real estate to prepare a deed. The inquirer advised that “since both sides have a common interest in a document that passes good title, [he felt] that it is reasonable” to represent both parties. The Pennsylvania Ethics Committee treated the inquiry as a request for an opinion as to whether the rules of Professional Conduct impose a per se prohibition on dual representation. Like the South Carolina Supreme Court, the Pennsylvania Ethics Committee was unwilling to find a per se prohibition. It noted that Rule 1.7 clearly contemplates dual representation in the transactional context. It emphasized, however, the questions an attorney must ask to satisfy herself that any particular representation is proper:
(1) What is the likelihood that a difference in interests will eventuate during the course of the representation; and (2) If a difference in interests does arise, will it materially interfere with my ability to exercise independent professional judgment in considering courses of action on behalf of the client? Dual representation is generally prohibited if, under the circumstances, the lawyer cannot reasonably conclude that he or she will be able to provide competent and diligent representation, maintain the confidentiality of information related to the representation and exercise independent professional judgment.
The Pennsylvania Committee noted, without adopting, the inquirer’s suggestion that the parties’ interests were aligned because they both had an interest in having the deed drafted properly to pass good title. It stressed that the attorney had an obligation to inform both clients of the risk of a conflict arising and to obtain their informed consent to the dual representation. It further noted that should a non-waivable conflict ripen, the attorney would be required to withdraw from representation of both parties. See also Conn. Ethics Op. 46, 1999 WL 33954558 (1999) (discussing the Committee’s serious reservations regarding dual representation in real estate transactions).
Like the South Carolina Supreme Court and the Pennsylvania Ethics Committee, this Committee does not find that multiple representation in a real estate transaction creates a per se conflict.1 Each transaction needs to be evaluated in light of its specific facts and you must assess whether those facts indicate the existence of more than one attorney-client relationship. Absent the formation of multiple attorney-client relationships, disclosure is not required.
We caution, however, that in this context, the ambiguity in the law, the difficulty of discerning the existence of such relationships, and the parties’ often erroneous perception of such relationships, create a task fraught with peril. See, e.g., Countrywide Home Loans, Inc. v. Kentucky Bar Ass’n, 113 S.W.3d 105, 122-23 (2003) (noting that many buyers often erroneously assume lender’s lawyer represents their interests); Harris v. Magri, 39 Mass. App. 349, 656 N.E. 2nd 585 (1995) (nature of lawyer’s role in real estate transaction and the absence of an express notice by him that he represented only the seller created a potential conflict of interest); Flaherty v. Weinberg, 303 Md. 116, 492 A.2d 618 (1985) (discussing difficulty in discerning distinction between true attorney-client relationship and third-party beneficiary status in real estate settlements). Some lawyers resort to explicit disclaimers of representation to clarify their role. See, e.g., Williams v. Fortson, Bentley & Griffin, 212 Ga. App. 222, 441 S.E.2d 686 (1994) (no attorney-client relationship with home buyers who signed disclaimer stating that all legal services provided by attorney and law firm were on lender’s behalf). Obviously, however, no disclaimer can be effective where the existence of an attorney-client relationship is indisputable. In view of these concerns, it may be prudent to advise the relevant parties of the potentiality of multiple representation and to obtain their informed consent to such representation to avoid any suggestion that you have acted improperly.
We hasten to add our advice applies with equal force to in-house or corporate attorneys who engage in this practice. In this context, the Maryland Rules of Professional Conduct draws no distinction between those who are in private practice and those employed in-house.2 In its past opinions, this Committee has recognized none. See., e.g., Ethics Dockets 78-43, 2000-46.3
Finally, in establishing and operating your firm you must take care to preserve your professional independence and to avoid any actions which could be construed as assisting a non-lawyer in the unauthorized practice of law. See Md. Rule Professional Conduct 5.44 and 5.5.5 Your firm cannot be owned, operated, or managed by the title company or any of its non-lawyer owners or shareholders. They cannot share in the firm’s profits. It cannot be a subsidiary or captive of the title company. You have represented that the legal fees (or document preparation charges) will be used solely to defray the law firm’s operating expenses. Should the income from legal fees exceed the firm’s operating expenses, you must ensure that the profits are not paid directly or indirectly to the title company or its non-lawyer owners or shareholders. Finally, the professional judgments made by you must be yours, and cannot be directed by the title company or its owners.
1 This Committee is aware of only one opinion finding a per se conflict created by dual representation in the real estate setting. See In re Opinion 682 of the Advisory Committee on Professional Ethics, 147 N.J. 360, 687 A.2d 1000 (1997) (title insurance company owned and managed by lawyers who would retain portion of premium paid by client would created conflict of interest and violate rules restricting dual representation, even if client consents).
2See, e.g., Comment 3 to Rule 1.0: “With respect to the law department of an organization…there is ordinarily no question that the members of the department constitute a firm within the meaning of the Maryland Lawyers’ Rules of Professional Conduct.”
3 We do not mean to suggest that unique circumstances may not arise in organizational representation (for instance with lawyers employed by public entities) that may require examination on a case-by-case basis under the applicable rules.
4 Rule 5.4, Professional Independence of a Lawyer, provides in relevant part:
(a) A lawyer or law firm shall not share legal fees with a nonlawyer…
(b) A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.
(c) A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer’s professional judgment in rendering such legal services.
(d) A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if:
(1) a nonlawyer owns any interest therein, except that a fiduciary representation of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration.
(2) a nonlawyer is a corporate director or officer thereof or occupies the position of similar responsibility in any form of association other than a corporation; or
(3) a nonlawyer has the right to direct or control the professional judgment of a lawyer.
5 Rule 5.5(a) provides, in relevant part, that a lawyer shall not “assist another” in engaging in the unauthorized practice of law.