What must a closing lawyer do when a title company appears to be preparing deeds in the unauthorized practice of law?

Plain-English summary

The day before a closing, a buyer/borrower's lawyer received a draft deed stating it was "prepared by ABC Title Company under the supervision of John Doe, attorney at law." The title company is not a bank or law firm, John Doe is not its employee, and the lawyer believed a nonlawyer at the title company actually prepared the deed and forwarded it to John Doe for review, with John Doe neither employing nor independently contracting that person. The lawyer asked about his obligations.

The opinion declines to decide the legal question of whether the title company is engaged in the unauthorized practice of law, assuming for the analysis that the lawyer reasonably believes it is. On reporting, the opinion explains that Rule 8.3(a) requires reporting only "another lawyer" whose violation raises a substantial question as to honesty, trustworthiness, or fitness, so there is no Rule 8.3 duty to report unauthorized practice by a nonlawyer or company. But Rule 5.5(d) bars a lawyer from assisting another person in the unauthorized practice of law. The opinion directs the inquiring lawyer to communicate his concerns to John Doe and suggest John Doe seek an ethics opinion about future dealings with the title company; if, after that, the lawyer reasonably believes John Doe is knowingly assisting the title company's unauthorized practice and plans to continue, the lawyer must report John Doe to the State Bar.

On the closing itself, the opinion concludes the lawyer has an obligation to act in the client's best interest while not assisting unauthorized practice. The lawyer should advise the client of his concerns and any harm the conduct may pose, but if the deed appears to convey marketable title and the client decides to proceed after advice, the lawyer may close the transaction (citing 2007 FEO 3); the client's participation does not further the title company's unauthorized practice.

In practice

Under the North Carolina rules as they stood at the time, the opinion holds that the closing lawyer's duties run in two directions: there is no Rule 8.3 duty to report a nonlawyer or company for unauthorized practice, but a conditional duty to report the supervising attorney arises if, after raising the issue with him, the lawyer reasonably believes he is knowingly assisting and will continue. The lawyer may proceed to close after advising the client of the concerns, provided the deed appears to convey marketable title and the lawyer does not himself assist the unauthorized practice (Rule 5.5(d)).

Common questions

Q: Does a lawyer have to report a title company for the unauthorized practice of law?

A: Per Opinion #1, no. Rule 8.3(a) requires reporting only "another lawyer," not a nonlawyer or company.

Q: When must the closing lawyer report the supervising attorney?

A: The opinion says the lawyer should first raise the concern with the attorney, and must report him to the State Bar only if the lawyer then reasonably believes the attorney is knowingly assisting the unauthorized practice and plans to continue (Rule 8.3(a)).

Q: Can the lawyer still close the transaction?

A: Per Opinion #2, yes, after advising the client of the concerns, if the deed appears to convey marketable title and the client decides to proceed; the client's participation does not further the unauthorized practice.

Background and rules framework

The opinion interprets North Carolina Rules of Professional Conduct 8.3(a) (reporting professional misconduct of another lawyer) and 5.5(d) (assisting the unauthorized practice of law). These correspond to ABA Model Rules 8.3 and 5.5. It declines to reach the underlying legal question of whether the title company engaged in unauthorized practice, and applies prior opinion 2007 FEO 3.

Citations and references

Rules of Professional Conduct:

• Model Rule 5.5 / NC Rule 5.5(d) (assisting the unauthorized practice of law)
• Model Rule 8.3 / NC Rule 8.3(a) (reporting misconduct of another lawyer)

Other opinions cited:

• 2007 FEO 3 (proceeding after advising the client of a nonlawyer's representative appearance)

See also

• ABA Formal Op. 506: Responsibilities Regarding Nonlawyer Assistants
• ABA Formal Op. 03-431: Reporting an Impaired Lawyer Outside the Firm

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2009-formal-ethics-opinion-2/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Inquiry #1:

Buyer/borrower's counsel is preparing for closing. The day prior to closing a draft of a deed is forwarded to buyer/borrower's counsel by ABC Title Company. At or near the top of the draft deed it states in writing, "This deed was prepared by ABC Title Company under the supervision of John Doe, attorney at law." ABC Title Company is not a bank or a law firm. John Doe is not employed by ABC Title Company. Buyer/borrower's counsel believes that the deed is actually being prepared by a nonlawyer employee or independent contractor of the ABC Title Company who then forwards the deed to John Doe for his review and approval. John Doe does not directly employ the nonlegal staff person who prepares the deed, nor is that person an independent contractor hired by John Doe for the purpose of assisting John Doe with the legal work he performs on behalf of his clients.

What are the ethical obligations of buyer/borrower's counsel as to John Doe and ABC Title Company?

Opinion #1:

No opinion is expressed on the legal question of whether ABC Title Company is engaged in the unauthorized practice of law. For the purpose of responding to this inquiry, however, it is assumed that buyer/borrower's counsel reasonably believes that ABC is engaged in the unauthorized practice of law.

Rule 8.3(a) requires a lawyer who knows that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer's honesty, trustworthiness, or fitness as a lawyer in other respects, to inform the North Carolina State Bar or a court having jurisdiction over the matter. Rule 8.3 only requires a lawyer to report rule violations of "another lawyer." There is no requirement under Rule 8.3 to report the unauthorized practice of law by a nonlawyer or company. Nevertheless, Rule 5.5(d) of the Rules of Professional Conduct prohibits a lawyer from assisting another person in the unauthorized practice of law.

If buyer/borrower's counsel suspects that John Doe is assisting ABC Title Company in the unauthorized practice of law, he should communicate his concerns to John Doe and advise John Doe that he may wish to contact the State Bar for an ethics opinion as to his future transactions with ABC Title Company. If, after communicating with John Doe, buyer/borrower's counsel reasonably believes that John Doe is knowingly assisting the title company in the unauthorized practice of law, and plans to continue participating in such conduct, buyer/borrower's counsel must report John Doe to the State Bar. Rule 8.3(a).

Inquiry #2:

May buyer/borrower's counsel proceed with the closing?

Opinion #2:

Buyer/borrower's counsel has an obligation to do what is in the best interest of his client while not assisting in the unauthorized practice of law. The lawyer should advise the client of his concerns about ABC's unauthorized practice of law and any harm that such conduct may pose to the client. However, if buyer/borrower's counsel determines that the deed appears to convey marketable title and the client decides to proceed with the closing after receiving his lawyer's advice, buyer/borrower's counsel may close the transaction. See 2007 FEO 3 (lawyer may proceed with representation of city council in quasi-judicial proceeding after advising the council of the legal implications of a nonlawyer appearing before the council in representative capacity). Buyer/borrower's participation in the closing does not further the unauthorized practice of law by ABC Title Company.