By Lazar Emanuel [Originally published in NYPRR June 2001]
In NYSBA Opinion 738, released on April 16, 2001, the State Bar Committee reviewed a number of prior Ethics Opinions dealing with the conflicts which can arise when a lawyer or law firm occupies a dual role in a single transaction — e.g., lawyer and title company; lawyer and broker, etc. The Committee considered the effect of these opinions on the specific question: May a lawyer who represents clients engaged in real estate matters refer those clients to a title abstract company in which the lawyer’s spouse has an ownership interest?
In judging whether an impermissible conflict exists in a particular case, the Committee would apply the new “disinterested lawyer” test instead of the former “obviousness” test. The disinterested lawyer test was adopted in 1999 and is now embodied in DR 5-105(C) and DR 5-101(A) of the Code of Professional Responsibility. DR 5-101(A) says:
A lawyer shall not accept or continue 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, unless a disinterested lawyer would believe that the representation of the client will not be adversely affected thereby and the client consents to the representation after full disclosure of the implications of the lawyer’s interest. [Emphasis added]
In its earlier Opinions, the Committee had criticized as per se violations of DR 5-101(A) (i.e., violations which could not be cured by client consent), the following activities by lawyers or law firms:
• Preparation of a title report or acting as agent for the title underwriter by a title abstract company in which a law firm had an ownership interest in a transaction in which the law firm represented a party
• Acting as broker in a real estate transaction while acting also as lawyer for one of the parties
• Acting as lawyer in a real estate transaction in which the lawyer’s spouse acted as broker or salesperson
• Acting as prosecutor in a criminal proceeding in which the prosecutor’s spouse represented the defendant
Each of these activities fails the “disinterested lawyer” test in the same way as it failed the “obviousness” test. “In our view, a ‘disinterested lawyer’ would believe that the conflict inherent in those dual roles would adversely affect the representation of the real estate client for the same reasons the conflict would not pass muster under the prior ‘obviousness’ test imported into DR 5-105(A).”
The Committee concluded that in assessing the scope of the potential conflict in a particular transaction, the lawyer’s spouse should be included in the prohibitions upon the lawyer. The lawyer’s spouse is not insulated from the reach of the New York rules.
Accordingly, except for “ministerial title work” a lawyer may not refer a real estate client to a title abstract company in which the lawyer’s spouse has an ownership interest.
Lazar Emanuel is the Publisher of NYPRR.
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