If a Maine lawyer owns a title insurance company, can the lawyer refer a real estate client to it, and do the ethics rules govern the title company's work?
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This page answers the general question as of 2003. Ezel answers yours: whether it's allowed on your facts, under the current Maine Rules of Professional Conduct, with citations.
Plain-English summary
The Commission received two inquiries arising from Opinion #179, which had held that a lawyer does not violate the IOLTA provisions by closing real estate transactions through a lawyer-owned title company, provided the title company (a law-related service) is operated in compliance with Bar Rule 3.2(h). The first inquiry asked whether Opinion #179 meant a lawyer providing legal services in a real estate transaction may not refer that client to the lawyer's own title company. The second asked the Commission to reconsider #179 and decide whether any disclosure could make the title company's services not "legal services" entitled to the Code's protections.
On the first question, the Commission clarified that Opinion #179 does not prohibit the referral. What #179 holds is that if the lawyer makes such a referral, the Code (including the IOLTA requirements) applies to the law-related services provided by the lawyer-owned title company. The Commission stated that where the lawyer is simultaneously representing the client in the same transaction, the lawyer's "mere disclosure to the client of what the lawyer describes as separate work of the title company does not suffice" to distinguish the title company's law-related services from the lawyer's legal services. By contrast, full disclosure is effective to keep the Code from applying to the title company's services where the lawyer is not simultaneously providing legal representation to the client.
The Commission declined to rule on the adequacy of the specific disclosure form submitted, citing the absence of full facts about the recipient's sophistication. It did comment on the disclosed corporate structure: the title company was a limited liability company whose members were a second LLC and a separate corporation, with firm attorneys identified as investors. The Commission flagged that, when the Code applies, Bar Rule 3.12(d) could prohibit the title company's corporate structure if the member LLC or corporation included nonlawyer members or shareholders, and Bar Rule 3.12(a) would prohibit the lawyers from sharing title-work fees with any nonlawyer shareholders. Finally, the Commission acknowledged it might be theoretically possible to structure some product, such as selling an insurance policy for a separate premium, so as to be distinct from legal services, but held that where the title company provides the lawyer's client a title opinion, deed, or other legal documentation in the same transaction, mere disclosure will not satisfy the Rule and the title company's work is subject to the Code.
In practice
Under the Maine Bar Rules as the opinion read them (the law-related-services provisions correspond to ABA Model Rule 5.7, and the fee-sharing and independence limits to Model Rule 5.4), the opinion holds that the question is not whether the referral is allowed (it is) but whether the Code reaches the title company's services. The opinion makes the dividing line simultaneous representation: when the lawyer both represents the client and supplies the title company's law-related services in the same transaction, disclosure does not pull those services outside the Code; when the lawyer is not also representing the client, full disclosure can. The opinion further holds that a true product sale (an insurance policy for a separate premium) can be distinct from legal services, but a title opinion, deed, or other legal documentation provided to the lawyer's client in the same deal cannot be, and that the title company's corporate structure must satisfy Rule 3.12 when the Code applies.
Common questions
Q: Can a Maine lawyer refer a real estate client to a title company the lawyer owns?
A: Yes. The opinion clarifies that Opinion #179 does not prohibit the referral; it holds only that, if the lawyer makes it, the Code (including IOLTA requirements) applies to the title company's law-related services.
Q: Does disclosing that the title company's work is "separate" keep it outside the ethics rules?
A: Not when the lawyer also represents the client in the same transaction. The opinion holds that mere disclosure does not suffice to distinguish the title company's law-related services from the lawyer's legal services where the lawyer is simultaneously representing the client; full disclosure is effective only when the lawyer is not also providing legal representation in that deal.
Q: Are there services the title company can provide that the Code does not reach?
A: Possibly a pure product sale. The opinion states that selling an insurance policy for a separate premium may be distinct from legal services, but a title opinion, deed, or other legal documentation provided to the lawyer's client in the same transaction is not, and remains subject to the Code.
Q: What corporate-structure problems did the Commission flag?
A: Fee-sharing and ownership limits. The opinion notes that when the Code applies, Rule 3.12(d) could prohibit a title company whose members or shareholders include nonlawyers, and Rule 3.12(a) bars the lawyers from sharing title-work fees with nonlawyer shareholders.
Background and rules framework
The opinion interprets Maine Bar Rule 3.2(h) (law-related services and when the Code applies to them, including the "reasonable measures" provision of Rule 3.2(h)(1)(ii)) and Rule 3.12 (independence of professional judgment and the fee-sharing and ownership limits in Rule 3.12(a) and (d)). These correspond to ABA Model Rule 5.7 (responsibilities regarding law-related services), Model Rule 5.4 (professional independence and fee sharing with nonlawyers), and Model Rule 1.7 (conflicts). The opinion construes and refines Opinion #179 (IOLTA and lawyer-owned title companies).
Citations and references
Rules of Professional Conduct:
- Model Rules 5.7, 5.4, 1.7
- Maine Bar Rules 3.2(h), 3.2(h)(1)(i) and (ii), 3.12(a), 3.12(d)
Other opinions cited:
- Maine Prof. Ethics Comm'n Op. #179 (2002).
See also
- Maine Ethics Op. 179: Title Insurance and Law-Related Services
- NY State Bar Op. 891: Referrals to a Lawyer-Owned Title Co.
- NY State Bar Op. 753: Lawyer-Owned Mortgage and Title Company
Source
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
Issued by the Professional Ethics Commission
Date Issued: August 6, 2003
Questions
The Commission has had two inquiries premised on Opinion 179, issued July 18, 2002. In that opinion, the Commission addressed the question whether an attorney would violate the IOLTA provisions of the Code of Professional Responsibility by structuring and closing real estate transactions to receive escrowed funds in the name of a title company, which the attorney owns or in which he or she has a proprietary interest, with that attorney retaining the net interest generated by those funds. The Commission concluded that there would be no violation of the IOLTA provisions provided that the title company, a law-related service, was operated in compliance with Bar Rule 3.2(h). In its opinion, the Commission also rendered guidance on compliance with Bar Rule 3.2(h), including the ?reasonable measures? provision of Rule 3.2(h)(1)(ii), stating that in connection with real estate transaction services, the recipient of the law-related services could not also be a client of the lawyer or the lawyer?s firm in the real estate matter if adherence to the Code is not to be required. The Commission suggested that, in such a transaction, Bar Rule 3.2(h)(1)(i) mandates that the title company comply with the Code in providing law-related services.
The first new inquiry asks whether the Commission?s opinion should be understood to mean that a lawyer providing legal services to a client in a real estate transaction cannot ethically refer that client to the lawyer?s or law firm?s title insurance company. This inquiry also requests the Commission?s opinion on the adequacy of a form of disclosure concerning a proposed venture for a Maine title insurance agency.
The second inquiry asks the Commission to reconsider Opinion No. 179, postulating that the Commission erred in suggesting that an attorney can never provide legal services to a client who is obtaining title insurance from a separate entity in which the attorney has an ownership interest, without incurring the obligation to ensure that the separate entity complies with the Code. In other words, the Commission is asked to consider whether there is any circumstance in which a lawyer may make adequate disclosure to the client that services performed by the lawyer?s title company are not to be considered legal services entitled to the protections of the Code.
Opinion
As to the questions presented in the first inquiry, Opinion 179 does not say and should not be read to mean that a lawyer, who is providing legal services to a client in connection with a real estate transaction, is prohibited in the same transaction from referring the client to a title company owned by the lawyer or law firm. On this issue, the Opinion states only that, if the lawyer engages in this practice, then the Code, including the IOLTA requirements, apply to law-related services provided by the lawyer-owned title company. In these circumstances, in the Commission?s view, the lawyer?s mere disclosure to the client of what the lawyer describes as separate work of the title company does not suffice to adequately distinguish law-related services provided by the title company from the provision of legal services by the lawyer to the same client in the same transaction. However, as stated in Opinion 179, full disclosure would be effective in avoiding application of the Code to law-related services of a lawyer-owned title company where the lawyer is not simultaneously providing legal representation to the client.
Turning to the adequacy of the form of disclosure, while the disclosure appears to us to be reasonable on the surface, we decline to render an opinion on its adequacy in the absence of a full and complete understanding of all the relevant facts, including those bearing on the degree of sophistication of the recipient of the disclosure. Having declined to opine on the adequacy of the disclosure, we are compelled to comment on what the disclosure reveals about the corporate structure of the title company. We notice that the law firm?s inquiry discloses the fact that the title company at issue is a limited liability company (LLC), the members of which are a second LLC and a separate corporation. Although the disclosure fails to identify the separate corporation or its shareholders, it does state that a number of attorneys in the inquiring law firm are ?investors? in the LLC that is a member of the title company LLC. The disclosure further states that as the title company LLC accrues earnings, ?the owners of that company will share in those earnings on the basis of their respective ownership interests.? This raises a number of possible issues under Maine Bar Rule 3.12, designed to protect clients by insuring that lawyers act as independent professionals. When the Code of Professional Responsibility applies, Rule 3.12(d) could prohibit the corporate structure of the title company itself, if the LLC that is a member of the title company includes lawyer and non-lawyer members or if the corporate member of the title company LLC includes non-lawyer shareholders. In addition, Rule 3.12(a) would prohibit the lawyers in the LLC from sharing fees that derive from title work in situations covered by the Code with any non-lawyer shareholders of the corporation.
After also closely considering the question presented in the second inquiry, the Commission acknowledges that it might be theoretically possible for certain services or products of a lawyer-owned title company to be structured so as to be sufficiently distinct from legal services so that the Bar Rules would not apply to the service or product of title company. For example, where a lawyer-owned title company is merely selling a product like an insurance policy, for which the client pays a separate policy premium to the company, the Commission would view the sale of this product alone as distinct from the provision of legal representation in the same transaction. However, where the lawyer-owned title company is providing to the lawyer?s client in the same transaction a title opinion, deed or other legal documentation, then the Commission remains of the opinion that mere disclosure and consultation will not satisfy the requirements of the Rule and thus the work of the title company will be subject to the Code.
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