Can a law firm use a title insurance agency owned by one of its own associates for the firm's real estate clients?

Plain-English summary

A New Jersey lawyer who was also a licensed title insurance agent and owned a title insurance agency was asked to join a law firm as an associate to handle work unrelated to real estate, while other members of the firm would use his title agency (disclosing his relationship to their real estate clients). He argued that because he would have no real estate involvement and no equity in the firm, his situation was distinguishable from Opinions 495 and 612.

The Committee disagreed. It recalled Opinion 495, which barred an attorney from representing purchasers and the mortgage lender while holding a beneficial interest in a title agency, calling the arrangement inherently creative of an appearance of impropriety that could not be permitted even with disclosure to all parties, and Opinion 612, which reached the same conclusion where firm members sought stock in a local title abstract company servicing their clients. It distinguished Opinion 513, where the degree of independence and attenuated relationships made a perception of impropriety unlikely, so consent after disclosure could cure the possible conflict.

The Committee held that the proposed activity is proscribed under Opinion 495 by reason of the inherent potential for conflict that tends to create uneasiness and suspicion in the minds of all parties, citing RPC 1.7(c)(1) and RPC 1.8. It rejected the associate's reliance on his lack of equity and his exclusion from real estate work, because RPC 1.10(a) provides that no lawyer associated in a firm may knowingly represent a client when any one of them would be prohibited from doing so.

Currency note

This opinion was issued in 1990, before New Jersey's adoption of the 2004 revisions to the Rules of Professional Conduct; the appearance-of-impropriety standard the opinion applied was eliminated from the New Jersey Rules effective January 1, 2004. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule mentioned here.

Common questions

Q: Can a firm route its real estate clients' title work to an agency owned by a firm associate?

A: No. Per the opinion, the proposed activity is proscribed by RPC 1.7(c)(1) and RPC 1.8 because of the inherent potential for conflict between a lawyer representing a purchaser or mortgage lender and a title company.

Q: Does it help that the associate has no equity in the firm and does no real estate work?

A: No. The Committee said no solace can be taken from those facts, because RPC 1.10(a) provides that no lawyer associated in a firm may knowingly represent a client when any one of them would be prohibited from doing so.

Q: Does client disclosure cure the conflict?

A: Not here. The Committee distinguished Opinion 513 (where attenuated relationships made consent-after-disclosure workable) and followed Opinions 495 and 612, where the conflict could not be permitted even with full disclosure.

Background and rules framework

The opinion applied NJ RPC 1.7(c)(1) (conflict of interest and the then-existing appearance-of-impropriety standard), RPC 1.8 (interests adverse to a client), and RPC 1.10(a) (imputed disqualification across a firm); Model Rules 1.7, 1.8, and 1.10. It relied on Opinions 495, 612, and 513 concerning lawyers and title companies.

Citations and references

Rules of Professional Conduct:

• MR 1.7 / NJ RPC 1.7(c)(1) (conflict; appearance of impropriety, since eliminated)
• MR 1.8 / NJ RPC 1.8 (interests adverse to a client)
• MR 1.10 / NJ RPC 1.10(a) (imputed disqualification)

Other opinions cited:

• NJ ACPE Op. 495 (109 N.J.L.J. 329), beneficial interest in a title agency
• NJ ACPE Op. 612 (121 N.J.L.J. 1010), firm members owning title-company stock
• NJ ACPE Op. 513 (111 N.J.L.J. 392), attenuated relationship curable by consent

See also

• NJ ACPE Op. 682: Attorney-Owned Title Insurance Company and Divided Loyalty
• NJ ACPE Op. 688: Attorney-Owned Title Abstract Company in Foreclosures

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp639-1.html
• Issuing authority: New Jersey Supreme Court Advisory Committee on Professional Ethics, via the NJ Courts Supreme Court Committees page

Original opinion text

Reproduced from a full-text mirror of the official opinion for research purposes. The linked official source controls.

125 N.J.L.J. 894, April 5, 1990

OPINION 639

Conflict of Interest: Law Firm Employing Services of Title Insurance Agency Owned by an Associate of the Firm

This inquiry relates to a New Jersey lawyer who is also a licensed title insurance agent and the owner of a title insurance agency. He has been asked to join a law firm as an associate to do work in areas unrelated to real estate. However, it appears that other members of the firm will utilize the services of his title insurance agency. It is asserted that they "... would disclose to their real estate clients the associate's relationship to the title agency."

Inquirer argues that since he will have no involvement in real estate matters and will have no equity interest in the law firm, these facts are distinguishable from, and not governed by this Committee's Opinions 495, 109 N.J.L.J. 329 (1982) and 612, 121 N.J.L.J. 1010 (1988).

In Opinion 495, supra, 109 N.J.L.J. 329, it was held that an attorney could not represent purchasers of real estate and the mortgage lender where he also held a beneficial interest in a title insurance agency. This Committee stated that "[t]he situation presented is basically contrary to the professional standards required and inherently creative of an appearance of impropriety such that it cannot be permitted even if disclosure is made to all parties."

Opinion 612, supra, 121 N.J.L.J. 1010, reached the same conclusion where the several members of two law firms sought to purchase stock interests in a local title abstract company which was an agent for a national underwriter which would later be used to service purchasers and/or mortgage lenders who they would represent. The inherent conflict existing between a lawyer representing a purchaser - or a mortgage lender - and a title company was fully explored in both those opinions and, because of the continuing requirement of fidelity to each interest, the proposed practice was disapproved.

The facts and circumstances posited in Opinion 513, 111 N.J.L.J. 392 (1983) make it distinguishable from Opinion 495, supra, 109 N.J.L.J. 329. In Opinion 513, the degree of independence between the attorney and the local company, as well as the attenuated relationships - attorney-shareholder with local company as opposed to any direct relationship with the national underwriter - made it unlikely that a perception of impropriety would be generated. Therefore, although there was the possibility of a conflict, it could be cured by consent of the clients upon full disclosure. Such is not the case here.

It is the holding of this Committee, as set forth in Opinion 495, supra, 109 N.J.L.J. 329, that the proposed activity posited by inquirer is proscribed by reason of the inherent potential for conflict which tends to create uneasiness and suspicion in the minds of all parties to these transactions. RPC 1.7(c)(1); RPC 1.8.

Finally, inquirer suggests that a difference exists because the attorney is only an associate without an equity interest in the law firm, and that he will do no real estate work and be shielded from any "conflict." We do not believe any solace can be taken from those facts based upon RPC 1.10(a), which provides that no lawyer associated with a firm may knowingly represent a client when any one of them would be prohibited from so acting.