Can a closing lawyer own stock in a title insurance agency that earns compensation on the same real estate transactions the lawyer closes?

Plain-English summary

A lawyer was invited to buy shares in a new corporation, "Title Agency," that would act under contract as an agent of a title insurer to issue title policies and commitments. The lawyer would give the title insurer title opinions on transactions for which he served as the closing lawyer, but would not be an agent of the insurer, an employee of the agency, or a Chapter 58 licensee. The inquiry asked what percentage of the agency's stock the lawyer could acquire without violating CPR 101 or otherwise acting unethically.

The opinion concluded the lawyer should not acquire such an interest. It recounted that CPR 101 had held it unethical for a lawyer who owns a substantial interest in a title insurance company or agency, and who acts as a lawyer in a transaction insured through it, to receive any compensation or benefit from it, whether or not the interest is disclosed. Because CPR 101 rested on the superseded Code of Professional Responsibility, the opinion turned to Rule 5.1(b), which disqualifies a lawyer from a representation that may be materially limited by the lawyer's own interests unless the lawyer reasonably believes the representation will not be adversely affected and the client consents after full disclosure. The opinion reasoned that even an insubstantial interest in a title agency could materially impair a closing lawyer's judgment. Drawing on RPC 49, which held that a closing lawyer's ownership of shares in a realty firm earning a commission on the closing is too great a conflict to allow even with client consent, the opinion found the same conflict present when the title agency, and indirectly the lawyer who owns an interest in it, would be compensated from the client as a result of the closing. The lawyer's interest in the agency's compensation could conflict with the duty to close the transaction only if doing so is in the client's best interest. The opinion added that it does not prohibit a lawyer from owning stock in a publicly traded title insurance company.

Currency note

This opinion was issued in 1994, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a closing lawyer own an interest in a title agency paid on his own closings?

A: No. The opinion concluded that even an insubstantial interest in a title agency compensated on the lawyer's closings could materially impair his judgment and presents a conflict too great to allow.

Q: Can client consent cure the conflict?

A: No. Relying on RPC 49, the opinion treated the conflict as too great to be allowed even if the client wishes to consent.

Q: Does this bar a lawyer from owning any title insurance stock?

A: No. The opinion expressly stated it does not prohibit a lawyer from owning stock in a publicly traded title insurance company.

Background and rules framework

The opinion applied North Carolina's then-current Rule 5.1(b), corresponding to Model Rule 1.7, which disqualifies a lawyer where the representation may be materially limited by the lawyer's own interests absent the lawyer's reasonable belief in no adverse effect and the client's consent after full disclosure. It treated the older CPR 101, decided under the superseded Code of Professional Responsibility, as background, and relied on RPC 49's holding that a closing lawyer's financial stake in a commission on the transaction is a nonconsentable conflict.

Citations and references

Rules of Professional Conduct:

• MR 1.7 (conflict of interest; material limitation by the lawyer's own interests)
• North Carolina Rule 5.1(b)

Statutes:

• N.C. Gen. Stat. §58-27-5 (title insurance agency operations)
• N.C. Gen. Stat. Chapter 84 (prohibition on the unauthorized practice of law)
• N.C. Gen. Stat. Chapter 58 (insurance licensing)

Other opinions cited:

• North Carolina CPR 101 (lawyer's ownership interest in a title insurance company or agency)
• North Carolina RPC 49 (closing lawyer's ownership of shares in a realty firm earning a commission)

See also

• NC Ethics Op. RPC 188: lawyer closing a deal his realtor spouse brokered
• NC Ethics Op. RPC 201: combining law practice and work as a realtor

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-185/

Original opinion text

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

Inquiry:

Attorney A has been invited to purchase shares of stock in a new North Carolina corporation to be called "Title Agency." Pursuant to a written contract, Title Agency will be an agent of Title Insurer for the purpose of issuing title policies and title commitments. Title Agency will do business in conformity with G.S. §58-27-5 and will comply with the prohibition on the unauthorized practice of law set forth in Chapter 84 of the General Statutes. Attorney A will give Title Insurer title opinions regarding transactions for which Attorney A acts as the closing lawyer. Attorney A is not an agent of Title Insurer and will not be an employee of Title Agency or a person holding a license pursuant to Chapter 58 of the General Statutes. Attorney A would like to acquire stock in Title Agency without violating the requirements of CPR 101 or engaging in any other unethical conduct. What percentage of the shares of stock of Title Agency may Attorney A acquire without violating the Rules of Professional Conduct?

Opinion:

CPR 101 held that it is unethical for a lawyer who owns a substantial interest, directly or indirectly, in a title insurance company, agency, or agent, who acts as a lawyer in a real estate transaction insured by such title insurance company or through such agency or agent, to receive any commission, fee, salary, dividend, or other compensation or benefit from the title insurance company, agency, or agent, regardless of whether the ownership interest is disclosed to the client for whom the services are performed.

CPR 101 was based on the Code of Professional Responsibility which has been supplanted by the Rules of Professional Conduct. Rule 5.1(b) now governs potential conflicts of interest between a lawyer's own interests and the representation of a client. The rule disqualifies a lawyer from representing a client if the representation of the client may be materially limited by the lawyer's own interests unless: 1) the lawyer reasonably believes that the representation will not be adversely affected; and 2) the client consents after full disclosure.

CPR 101 authorized a lawyer who owns an insubstantial interest in a title insurance agency to render title opinions to the title insurer and to receive compensation from the title insurance agency in the form of dividends or otherwise. Even an insubstantial interest in a title insurance agency, however, could materially impair the judgment of a closing lawyer. RPC 49 addresses a closing lawyer's duty to his or her client when the lawyer owns shares in a realty firm that will realize a commission upon the closing of the transaction. RPC 49 states that the conflict of interest is too great to be allowed even if the client wishes to consent. This conflict is also present when a title agency, and, therefore, indirectly the closing lawyer who owns an interest in the title agency, will receive compensation from the client as a result of the closing of the transaction. The lawyer's personal interest in having the title insurance agency receive its compensation could conflict with the lawyer's duty to close the transaction only if it is in the client's best interest.

This opinion does not prohibit a lawyer from owning stock in a publicly traded title insurance company.