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NEW YORK STATE BAR ASSOCIATION
Committee on Professional Ethics
Opinion #694 - 08/25/1997
(3-97)
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Topic: Conflict of interest; solicitation by real estate broker; dual
representation of purchaser and lender.
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Digest: Improper for attorney to participate in "Home Buyers
Program."
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Code: DR 2-103(A), DR 2-103(C), DR 5-101(A), DR 5?105(A) and DR
5-105(C)
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QUESTION
May an attorney participate in a program operated by a real
estate broker in which prospective home purchasers are offered reduced
closing costs by permitting an attorney selected by the broker to
represent both the lender and the purchaser?
OPINION
A licensed real estate brokerage firm ("Broker") and its
affiliate, a licensed mortgage banker ("Lender"), are marketing a home
buyer's program ("Program") which, as described, "streamlines the
financial and legal aspects of the closing
process." A prospective purchaser
("Purchaser") first deals with the Lender to become pre-qualified for a
mortgage loan, and the Broker shows homes to the
Purchaser. If the Purchaser's bid on a
home is accepted, the Program offers, among other things, the
services of an attorney ("Attorney") to represent both the Purchaser and
the Lender. The legal fee for this dual
representation is the sole responsibility of the
Purchaser. The Attorney has agreed to
accept a fixed fee, as a condition of participating in the Program, that
is substantially less than the aggregate amount the Purchaser would
customarily pay for legal services if Purchaser instead paid for his or
her own attorney and, as is typically required, additionally paid the
legal fee of the Lender's attorney.
Third-Party Solicitation
The first issue we address is whether the marketing of the
Program by Broker constitutes an unethical third-party
solicitation. With exceptions not here
relevant, DR 2-103(C) provides:
A lawyer shall not request a person or organization to
recommend or promote the use of the lawyer's services or those of the
lawyer's partner or associate, or any other affiliated lawyer as a
private practitioner, other than by advertising or publicity not
proscribed by DR 2-101….
The Program brochure plainly markets the Program as reducing
closing costs and minimizing inconvenience and
delay. An important element of the
Program touted to achieve these ends is the Purchaser's acceptance of
the Attorney, selected by Broker, to represent both Lender and
Purchaser. By seeking admission into
the Program, Attorney is in effect "requesting" Broker to "recommend" or
"promote" Attorney's services. In fact,
the brochure does just that, as it comments positively on the
qualifications of the participating attorneys.
Consequently, this aspect of the Program contravenes DR
2-103(C).[1]
Conflict Of Interest
The Attorney's participation in the Program must also be
scrutinized from the conflict of interest
perspective. DR 5-105(A) and (C)
provide that attorneys may not represent multiple clients with differing
interests unless
it is obvious that the lawyer can adequately represent the
interest of each and if each consents to the representation after full
disclosure of the possible effect of such representation on the exercise
of the lawyer's independent professional judgment on behalf of
each.
"Differing interests" are defined by the Code to include "every
interest that will adversely affect either the judgment or the loyalty
of the lawyer to a client, whether it be conflicting, inconsistent,
diverse, or other interest." Code,
Definitions, Par. 1.
Although we have observed that the "differing interests"
inherent in the dual representation of a mortgagor and a mortgagee does
not create a per se ethical
constraint, and such dual representation may be permissible depending
upon the particular circumstances if accompanied by full disclosure of
the relevant facts and express consent by both
clients, see N.Y. State
199 (1971); N.Y. State 576 (1986); N.Y. State 162 (1970) and N.Y.
State 8 (1965), those opinions do not control the outcome
here. In
this case, the Attorney in the Program has not only divided his or her
loyalty between the Lender and the Purchaser, but as a practical matter
has a strong interest in the success of the
Broker. The Attorney has been accepted,
approved, promoted and recommended by the Broker, and the Attorney
continues to participate in the Program at the Broker's
sufferance. Thus, DR 5-101(A) is
implicated, and must be complied with. That Rule provides:
Except with the consent of the client after full disclosure, a
lawyer shall not accept employment if the exercise of professional
judgment on behalf of the client will be or reasonably may be affected
by the lawyer's own financial, business, property, or personal
interests.
Although the "obviousness" test of DR 5-105(C) does not appear
in the text of 5-101(A), this Committee has consistently interpreted
5-101(A) to impose such a requirement. See N.Y. State 660 (1994); N.Y. State 635 (1992); N.Y. State 619
(1991); N.Y. State 595 (1988). We believe the personal
financial incentive for the Attorney to use his or her influence over
the Purchaser to secure an enforceable contract of sale and to close the
transaction is sufficiently great that it is not at all obvious that the
Attorney can adequately represent the interests of the Purchaser and
Lender as well. Accordingly, the
Attorney’s DR 5-101(A) conflict cannot be cured by
consent. See N.Y. State 621
(1991) (lawyer may not refer real estate client to abstract company
owned by lawyer); N.Y. State 208 (1971) (lawyer for a real estate client
may not also act as a broker in the same
transaction). The relationship between the Attorney and the Broker at issue
here goes well beyond the mere acceptance of repeated referrals from a
broker that N.Y. State 467 (1977) found did not constitute
a per se violation of DR 5-101(A).
The language of the Court of Appeals in a related context is
apt here:
The possibility that the lawyer's view of
marketability of title may be colored by his knowledge that the
referring broker normally will receive no commission unless title
closes, the improbability that the attorney will negotiate to the lowest
possible level the commission to be paid to the broker who is an
important source of business for him (or suggest to the client that he
do so), the probability that the lawyer will not examine with the same
independence that he otherwise would the puffery that the broker has
indulged in to bring about the sale are examples of the conflict
potential to be protected against.
Greene v. Grievance Comm. for Ninth Judicial
District, 54 N.Y.2d at 129, 444 N.Y.S.2d at
889.
We conclude, therefore, that the Attorney’s participation
in the Program involves an impermissible conflict of
interest.
CONCLUSION
An attorney may not ethically participate in a home buyer's
program such as that described in this Opinion.
[1]
In addition, DR 2-103(A) prohibits soliciting business in violation of
any statute or court rule, and New York’s Judiciary Law in
§ 479 generally prohibits the soliciting of business on behalf
of an attorney. Whether Broker's conduct in marketing the Program
and distributing the brochure, or whether Attorney's participation in
the Program constitute violations of Section 479 are questions of law on
which we do not opine. Similarly, we do not opine as to whether
and to what extent First Amendment considerations might restrict the
application of Section 479 and permit the solicitation of clients by way
of written material, such as the Program brochure. See Shapero v. Kentucky Bar Ass'n,
486 U.S. 466, 108 S. Ct. 1916 (1988); In re R.M.J., 455 U.S. 191,
102 S. Ct. 929 (1982); Bates v. State Bar of Ariz., 433 U.S. 350,
97 S. Ct. 2691 (1977); Von Wiegen v. Comm. on Prof’l
Standards, 63 N.Y.2d 163, 481 N.Y.S.2d 40 (1984), cert.
denied, 472 U.S. 1007 (1985) ; see also Florida Bar
v. Went For It, Inc., 515 U.S. 618, 115 S. Ct. 2371 (1995);
but see In re Alessi, 60 N.Y.2d 229, 469
N.Y.S.2d 577 (1983), cert. denied, 465 U.S. 102 (1984) and
Greene v. Grievance Comm. for Ninth Judicial Dist., 54 N.Y.2d
118, 444 N.Y.S.2d 883 (1981), cert. denied, 455 U.S. 1035 (1982)
(both cases upholding against First Amendment challenge disciplinary
action taken against attorneys who solicited business by way of mailings
to real estate brokers). Any association by the Attorney
with an illegal solicitation scheme would, of course, be
unethical. N.Y. State 576 (1986).
Related Files
Opinion 694 (Adobe PDF File)
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