Whether Settlement Lawyer Selected by Real Estate Purchaser Has a
Sufficient Lawyer-Client Relationship With Seller to Warrant Disqualification;
Conflict of Interest if Adverse Party Formerly Was Represented by a Firm
to Whom Lawyer Is “Of Counsel”
When a lawyer who performed some services for both seller and purchaser
in a residential real estate transaction did not notify the seller that
he represented only the purchaser and did not specify his relationship
to the seller, the lawyer should not represent the purchaser against the
seller in a subsequent dispute concerning the sale. This disqualification
is imputed to a lawyer who listed himself as “of counsel” to
the real estate lawyer at the time of the transaction.
- Rule 1.7 (Conflict of Interest: General Rule)
- Rule 1.9 (Conflict of Interest: Former Client)
- Rule 1.10 (Conflict of Interest: Imputed Disqualification: General
- Rule 2.2 (Lawyer as Intermediary)
- Rule 4.3 (Dealing With Unrepresented Persons)
The Inquirer’s firm shares office space with Lawyer A and Inquirer
is listed on Lawyer A’s letterhead as “of counsel” to Lawyer
A’s firm. The Inquirer has been asked to represent the purchaser of a
house in a potential lawsuit against the seller. Lawyer A conducted the
settlement of the house in question in 1983.
The standard form real estate contract used in
the transaction gave purchasers the opportunity to select the real estate
lawyer. At settlement, the sellers paid $100 of Lawyer A’s “closing
fee” and the purchasers paid $125. The purchasers also paid $100
to Lawyer A for a title examination. The sellers paid $90 to Lawyer A
for notes and deeds of trust drafted for two $9000 trusts taken back on
the property. The purchasers also paid $75 for the title abstract to the
title insurance company. Lawyer A was the only lawyer involved in the
The “of counsel” designation and shared
space arrangements between Lawyer A and the Inquirer have been in place
from prior to 1983 through the time of the Inquiry. The Inquirer says
that his relationship with Lawyer A always has been to render occasional
advice on matters outside real estate practice and that he had no knowledge
of the 1983 real estate transaction in question.
Lawyer A employs the receptionist in the office
suite, and the Inquirer contributes a percentage of her salary. The single
receptionist greets guests to the office and directs Inquirer’s clients
to him or to his secretary. She takes phone messages for the Inquirer
and his partners in the secretary’s absence. She answers Inquirer’s phone
number with the name of Inquirer’s firm. She answers Lawyer A’s separate
phone lines as “Law Offices.” She sorts mail and leaves it unopened
for the Inquirer’s secretary. The receptionist is the only employee of
Lawyer A who does any work for the Inquirer or his firm. (In 1983, the
receptionist was employed by the Inquirer’s firm with a salary contribution
from Lawyer A, but the office procedure was the same.)
Files are kept completely separate. The two firms
are on different computer systems that are not compatible. The firms have
different phone numbers but share a common fax machine. No fees are shared
between the firms. The two firms have had tenant and subtenant arrangements
on the lease as well as being joint tenants on the current sublease. The
relationship has been solely legal advice on cases when useful and case
referrals. At the beginning of the relationship, Lawyer A was a solo practitioner,
and the three partners in Inquirer’s firm were all “of counsel”
to him. Today, Lawyer A has four associated lawyers, and Inquirer’s firm
has two lawyers after one’s retirement.
In 1993, the purchasers in the 1983 transaction
retained the Inquirer in a claim for damages against the sellers in the
1983 transaction alleging latent defects in the property. Lawyer A had
referred them to the Inquirer on a zoning matter a couple of years after
the 1983 closing. Inquirer had done a couple of hours work for the purchasers
then. When the current dispute arose, Lawyer A again suggested that purchasers
consult the Inquirer.
Inquirer’s letter is accompanied by a letter
from Lawyer A that recounts the following additional information. Before
the purchasers retained the Inquirer, one of the sellers called Lawyer
A and asked some questions. After some conversation, Lawyer A asked whom
the transaction involved. When he was told, Lawyer A said that he remembered
settling the property and still knew the purchasers. He said he would
not discuss the matter further in any detail with the seller in that there
was a dispute between the parties. He said that he assured the seller
that he would not discuss his comments with the purchasers and would not
represent them. He says he took this position because he preferred to
err on the side of caution although he was not sure that he was disqualified
from representing the purchasers based on the conversation or the past
Lawyer A says that, in his opinion, he did not
enter into a lawyer-client relationship with the Sellers that would have
disqualified him from representing the purchasers. He characterizes his
relationship to the sellers as “the fiduciary relationship to properly
record documents of record and to disburse funds from escrow exactly as
indicated in the contract and on the agreed-upon Settlement Statement.”
In a subsequent conversation, Lawyer A says that, as a settlement lawyer,
he considers himself to represent the purchaser up through closing. Up
to that time, he will act for the purchaser in a manner that might be
adverse to the interests of other parties, e.g., advising them on how
to break the contract. He says that he informs the purchaser that, once
the point of closing is reached, he undertakes a fiduciary obligation
to the other parties as well which requires him to prepare and record
documents and other things necessary to properly effect the agreements.
He says his relationship to purchasers never involves asking them for
information or other-wise acquiring confidential information nor the provision
of legal advice. He does not use informed consent waivers with real estate
settlement clients nor distribute any type of written notice on his role
and relationship to the parties.
The seller has challenged the Inquirer’s representation.
Inquirer asks if his “of counsel” relationship is sufficient
to impute disqualification to the Inquirer from representing the purchasers
in the 1983 transaction. In the alternative, he asks whether Lawyer A’s
relationship to the 1983 sellers was sufficient to create a disqualification
of Lawyer A that could be so imputed.
The inquiry raises four possible issues:
- Does Lawyer A’s relationship with the sellers in the 1983 real estate
closing create a conflict such that he would be barred from representing
the purchasers in the subsequent dispute over latent defects in the
- If such a conflict exists for Lawyer A, should this conflict be imputed
to the Inquirer who is listed as “of counsel” to Lawyer A’s
firm and shares space with Lawyer A?
- Even if Lawyer A were not barred from representing the purchasers
under the previous analysis, would he be barred because of the seller’s
1993 phone call to Lawyer A?
- If Lawyer A were barred because of the phone call, would this bar
be imputed to the Inquirer?
Numerous bar associations have opined on representation of multiple interests
(buyer, seller, mortgagor, title insurance company) in real estate transactions,
but our Committee has not commented previously. Some of these opinions
from other jurisdictions also address representation if a subsequent dispute
arises among the parties to the transaction.1
Representation in real estate transactions also
has been discussed in cases concerning whether real estate closings conducted
by settlement companies or other non-lawyers are the unauthorized practice
of law. See In re First Escrow, Inc., In re Best Escrow, Inc., __ Mo.
__, 840 S.W.2d 839 (1992), reviewing case law in multiple jurisdictions.
In addition to reviewing these two lines of authority, the Committee heard
from several lawyers experienced in residential real estate closings as
part of its deliberation.
There is debate about how the role of a single
lawyer at closing should be characterized. 1. The lawyer is performing
activities that are not the practice of law since the functions are also
performed by non-lawyers. 2. The lawyer represents multiple clients (buyer,
seller, and lender) with potentially differing interests. 3. The lawyer
represents only one party (usually the buyer who has the contractual option
to elect counsel) with fiduciary obligations that arise to the other parties
at closing. These fiduciary obligations require that certain actions be
taken, e.g., recording of documents, distribution of funds, but do not
constitute a lawyer-client relationship with those other parties. 4. The
lawyer functions as an intermediary between clients.
Lawyer A uses the third characterization to describe
the 1983 representation. The seller disagrees and would choose the second
characterization to describe the representation.
This inquiry does not ask for guidance on how
lawyers in residential real estate closing should deal with the multiple
parties involved. The Committee does not think it wise to address that
question in an inquiry in which the matter comes up only indirectly. We
do not reach a conclusion on which characterization(s) of the lawyer role
in a residential closing are permissible and which should apply to the
1983 transaction involved here.
Without choosing among competing characterizations,
we direct attention to provisions of Rules 2.2 (lawyer as intermediary
for common clients) and 4.3 (lawyer who deals with an unrepresented person
on behalf of a client). Both rules emphasize the importance of making
the lawyer’s role, duties, and non-duties clear when those matters could
be misunderstood by multiple participants in a matter.
In this case, we understand that Lawyer A gave
no oral or written notice that explicitly stated to the seller the lawyer’s
view that he represented the purchasers, not the sellers, and only had
fiduciary obligations for completing the transaction to the seller. Lawyer
A points out that the seller who has questioned the representation also
is a lawyer. Lawyer A says that, when the second trust was needed, he
asked the seller whether he wished to draft the trust himself, use another
lawyer, or have Lawyer A produce one (for which he used a standard form
from the federal insurer).
We do not speculate what the seller understood
or should have understood about this matter, given his legal training.
This opinion considers the relationship of the attorney to the parties
in the 1983 transaction solely to determine whether under Rule 1.9 Lawyer
A may represent the purchasers against the sellers in a substantially
related matter. On that issue, we hold that, in the absence of a clear
contemporaneous statement that Lawyer A represented only the purchasers
and not the sellers, Lawyer A may not represent the purchasers against
the sellers in a subsequent substantially related matter. Whether such
an omission would be sufficient to impose duties on Lawyer A to the sellers
in the 1983 transaction under other Rules will depend on the policies
underlying those Rules. We express no opinion on such issues that may
arise in future inquiries.
The Committee’s consultation with residential
real estate lawyers suggested that some lawyers routinely provide a written
notice to parties explaining the lawyer’s scope of representation, obligations,
non-obligations, and course that will be followed if a dispute arises
among the parties. This seems wise no matter which characterization of
the relationship to multiple parties a lawyer assumes or which characterization
a court might find to exist as a matter of law.
Having decided that Lawyer A should not represent the 1983 purchaser against
the seller in a substantially related matter, we reach the question of
whether the Inquirer who is “of counsel” to Lawyer A also is
disqualified. Rule 1.10 says that
[w]hile lawyers are associated in a firm, none of them shall
knowingly represent a client when any one of them practicing alone would
be prohibited from doing so by Rules 1.7, 1.8(b), 1.9, or 2.2.
In the previous section, we declined to decide whether a single lawyer
in a residential real estate closing should be characterized as representing
multiple clients with potentially different interests governed by Rule
1.7, an intermediary among clients governed by Rule 2.2, or two other
possibilities. We held that the lack of notice clarifying the lawyer’s
role with respect to the seller allowed sufficient ambiguity that Lawyer
A should not later take on an adverse representation in a substantially
related matter over the seller’s objection. The relationship between lawyer
and seller was sufficient to result in a disqualification under Rule 1.9.
Since the relationship to the seller, absent clarifying notice, was sufficient
to trigger a disqualification of Lawyer A, it is also sufficient to disqualify
a lawyer “associated in a firm” under Rule 1.10.
We now turn to whether Lawyer A and the Inquirer
should be considered “associated in a firm” within the meaning
of Rule 1.10(a). Until now, Opinion 151 on fee splitting was our only
statement on the implications of the term “of counsel.” Opinion
151 held an of counsel relationship could be sufficiently like that of
a partner or associate to permit fee splitting limited to “partners”
and “associates” under the language of DR 2-107(A).
Here we consider whether lawyers who hold themselves
out to the public as “of counsel” could be found to have a sufficiently
distant relationship to avoid imputed disqualification under Rule 1.10(a).
As Opinion 151 mentions, the imputed disqualification rule then in effect
(DR 5-105(D)) explicitly extended imputed disqualification beyond partners
and associates to “any other lawyer affiliated with him or his firm.”
Rule 1.10(a) hinges disqualification on whether lawyers are “associated
in a firm.”
Opinion 192 considers whether members of “associated”
or “correspondent” firms should be disqualified for conflicts
on this basis. The Committee held that these terms foster an impression
of an “ongoing and regular relationship” and create the “reasonable
impression attorneys in the firms will not represent conflicting interests.”
ABA Opinion 90-357 reasons likewise that the
term “of counsel” holds out to the public a “close, regular,
personal relationship” among the lawyers that is a “general
and continuing” one. It holds that there “can be no doubt”
that an of counsel lawyer or firm is “associated” for purposes
of imputed disqualification under Model Rule 1.10 (as well as 1.11 (a)
and 1.12 (c)).
Comment 1 to Rule 1.10 says that two practitioners
who share space and occasionally consult will be regarded as a firm for
disqualification if they hold themselves out to the public in a manner
that suggests they are a firm. The previously cited sections of Opinion
192 and ABA Opinion 90-357 are consistent with our holding that an “of
counsel” designation gives a public impression of a sufficiently
close relationship among lawyers that they should be treated as if they
were in the same firm for imputed disqualification analysis under Rule
Issues 3 and 4
Having reached the previous conclusions on Issues #1 and #2, we do not
reach Issue #3. As to Issue #4, if Lawyer A were disqualified on Issue
#3 (the 1993 phone call with seller), the Inquirer would have been disqualified
on the same reasoning on the “of counsel” designation discussed
in Issue #2.
Inquiry No. 93-11-31
Adopted: May 24, 1994
- See Ala. Op. 86-106 (11/6/86); Ill. Op.
86-15 (5/13/87) and Op. 90-3 (11/6/90); Mass. Op. 1990-3 (undated);
N.H. Op. 1989-90/1 (6/21/90); New York City Op. 1990-1 (undated);
N.Y. State Op. 576 (6/5/86) and Op. 611 (6/20/90); Pa. Op. 88-95 (undated);
Philadelphia Op. 86-46 (4/10/86) and Op. 89-16 (6/16/89); S.C. Op. 86-9
(undated); Suffolk County, New York Op. 88-6 (undated); Tex. Op. 448
(9/11/87); Va. Op. 824 (10/9/86), Op. 1000 (11/12/87), Op. 1089 (6/8/88),
and Op. 1149 (12/19/88); W.Va., Op 89-1 (undated).
- This opinion imputes disqualification to
attorneys sharing space because of their representations to the public.
ABA Formal Op. 90-357 disapproves the use of the term “of counsel”
for relationships involving an individual case, a forwarder or receiver
of legal business, occasional collaborative efforts among otherwise
unrelated lawyers or firms, or the relationship of an outside consultant.
It lists four other situations where it deems the term to be properly
applied. It does not discuss lawyers who call themselves of counsel
on the basis of sharing space alone, but the implication is that would
be considered ethically impermissible.
D.C. Op. 151 refers to the definition of “of
counsel” as an “evolving concept.” It cites, as one
possibility, an of counsel lawyer who merely shares office space and
other facilities. We do not reach whether Op. 151’s approval of the
term “of counsel” to describe an arrangement to share space
should be reconsidered.