Can a lawyer for an estate administrator agree to a surety company's conditions for issuing a bond, such as exercising joint control over estate assets, paying the bond premium, and reporting the client to the surety?

Plain-English summary

An attorney representing the administrator of an intestate estate asked whether he could agree to the conditions two surety companies set for issuing the administrator's bond. Because the administrator had poor credit, the sureties demanded that the attorney remain involved until the estate closed, pay the bond premiums, protect the surety's interests and provide legal services for the surety's benefit, exercise joint control over estate assets, and notify the surety if the administrator breached a fiduciary duty. The Committee concluded that compliance with these conditions is prohibited by the Rules of Professional Conduct.

The Committee explained that an attorney for an administrator represents the administrator in a fiduciary capacity, and the attorney's job is to assist the administrator in faithfully administering the estate. Requiring the attorney to exercise joint control over estate assets inserts the attorney into the administration of the estate and creates a conflict of interest under RPC 1.7(a)(2), because the attorney acquires a personal interest in the administration that interferes with independent judgment. Requiring the attorney to protect the surety's interests and provide legal services for the surety likewise creates a conflict and impairs the attorney's professional independence, contravening RPC 1.7(a)(2) and RPC 2.1 (and cf. RPC 1.8(f) and 5.4(c), which bar a third person from interfering with the attorney's independent judgment).

The Committee identified two further problems. Requiring the attorney to notify the surety of the client's fiduciary breaches interferes with the duty of confidentiality under RPC 1.6(a); a lawyer should not secure prospective consent to disclose confidential information to assist the surety. And requiring the attorney to pay the bond premium violates RPC 1.8(e) (no financial assistance to a client), while requiring the attorney to remain involved until the estate closes interferes with the client's right to discharge the attorney (RPC 5.6 and 1.16). The Committee drew on Opinion 691, which addressed similar conflicts when an attorney refers a client to a litigation-funding factor.

In practice

The opinion holds that, under the New Jersey rules as they stood at the time, a lawyer for an estate administrator may not accept surety-bond conditions that turn the lawyer into a co-fiduciary or an agent of the surety. Per the opinion, joint control over estate assets and providing services for the surety's benefit create conflicts of interest under RPC 1.7(a)(2) and undermine independent judgment under RPC 2.1; agreeing to report the client to the surety conflicts with the confidentiality duty under RPC 1.6(a); paying the bond premium is prohibited financial assistance under RPC 1.8(e); and committing to remain in the matter until the estate closes interferes with the client's right to discharge counsel.

Common questions

Q: Can a lawyer for an estate administrator agree to jointly control the estate's assets with a surety?

A: No. The Committee found that exercising joint control over estate assets inserts the lawyer into the administration of the estate and gives the lawyer a personal interest that creates a conflict under RPC 1.7(a)(2).

Q: Can the lawyer agree to report the client to the surety if the administrator breaches a fiduciary duty?

A: No. Per the opinion, agreeing to notify the surety of the client's breaches interferes with the duty of confidentiality under RPC 1.6(a), and a lawyer should not secure prospective consent to disclose confidential information to assist the surety.

Q: Can the lawyer pay the surety bond premium for the client?

A: No. The Committee concluded that paying the bond premium violates RPC 1.8(e), which prohibits an attorney from providing financial assistance to a client.

Q: What is the core problem with these surety conditions?

A: They make the attorney a co-fiduciary with, or an agent of, the surety, impairing the attorney's undivided loyalty and independent professional judgment owed to the client administrator.

Background and rules framework

The opinion applies RPC 1.7(a)(2) (a conflict when representation is materially limited by the lawyer's personal interest; cf. Model Rule 1.7(a)(2)), RPC 2.1 (independent professional judgment; cf. Model Rule 2.1), RPC 1.6(a) (confidentiality; cf. Model Rule 1.6), and RPC 1.8(e) (no financial assistance to a client; cf. Model Rule 1.8(e)). It cites RPC 1.8(f) and RPC 5.4(c) (a third person paying for or directing the representation may not interfere with the lawyer's independent judgment; cf. Model Rules 1.8(f) and 5.4(c)) and RPC 5.6 and 1.16 (the client's right to discharge counsel). The estate-bond requirement arises under N.J.S.A. 3B:15-1.

Citations and references

Rules of Professional Conduct:

• RPC 1.7(a)(2) (conflict; material limitation by personal interest or duty to a third person); cf. Model Rule 1.7(a)(2)
• RPC 2.1 (independent professional judgment); cf. Model Rule 2.1
• RPC 1.6(a) (confidentiality); cf. Model Rule 1.6
• RPC 1.8(e) (no financial assistance to a client); cf. Model Rule 1.8(e)
• RPC 1.8(f) and RPC 5.4(c) (third-person interference with independent judgment); cf. Model Rules 1.8(f), 5.4(c)
• RPC 5.6 and RPC 1.16 (client's right to discharge counsel)

Statutes:

• N.J.S.A. 3B:15-1 (administrator's bond requirement)
• N.J.S.A. 3B:15-24 (surety's recovery against administrator)

Cases:

• Ordinary v. Hitchner, 119 N.J.L. 20 (E. & A. 1937), purpose of the administrator's bond
• Fengya v. Fengya, 156 N.J. Super. 340 (App. Div. 1978), surety's recovery rights
• Estate of Albanese v. Lolio, 393 N.J. Super. 355 (App. Div. 2007), attorney represents administrator in fiduciary capacity
• Estate of Fitzgerald v. Linnus, 336 N.J. Super. 458 (App. Div. 2001), attorney's duty to assist the administrator
• Cohen v. Radio-Electronics Officers Union, 146 N.J. 140 (1996), client's right to discharge counsel

Other opinions cited:

• ACPE Opinion 691 (Jan. 2001): conflicts when an attorney refers a client to a litigation-funding factor

See also

• NJ ACPE Op. 727: ERISA Subrogation and Personal Guarantees
• NJ ACPE Op. 700: Disclosing Protected Client Information to Litigation Funders
• NJ ACPE Op. 691: Referring a Client to a Third-Party Factor

Source

• Landing page: https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2010/acp719-1-8.html

Original opinion text

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

OPINION 719

ADVISORY COMMITTEE ON PROFESSIONAL ETHICS

Appointed by the Supreme Court of New Jersey

Attorney Agreement With Surety Company As Condition for Issuance of Bond to Estate Administrator Client

The Advisory Committee on Professional Ethics reviewed an inquiry from an attorney who represents the administrator of an estate. The administrator was required to obtain a surety bond. This client, however, apparently had poor credit and the surety companies set conditions for issuance of the bond. The conditions included an agreement by the attorney that the attorney will remain involved in the matter; will pay the bond premiums; will protect the interests of the surety as well as the client administrator; will provide legal services for the benefit of the surety; will exercise joint control over estate assets; and will notify the surety if the client administrator breaches his or her fiduciary duty. The inquirer asked whether he may, consistent with the Rules of Professional Conduct, comply with such conditions. The Committee finds that compliance with these conditions is prohibited by the Rules of Professional Conduct.

A person appointed administrator of an estate when the decedent dies intestate is required to post a bond. N.J.S.A. 3B:15-1. The administrator must faithfully perform his or her fiduciary duties and the bond protects the heirs and creditors of the estate in the event the administrator defalcates. See Ordinary v. Hitchner, 119 N.J.L. 20 (E. & A. 1937). A surety bond is not liability or indemnity insurance; if the surety company is ordered to make payments under the bond, it may seek recovery from the administrator. N.J.S.A. 3B:15-24; Fengya v. Fengya, 156 N.J. Super. 340 (App. Div. 1978).

The inquirer attached letters from two separate surety companies setting forth conditions for issuance of a bond. The first company, in a document titled Probate Bond Requirements for Representing Attorney, requested the attorney make representations on firm letterhead as to nine items. The items are:

Please list all assets and liabilities of estate.

Please note that you have executed a thorough search for liabilities.

Provide written assurance that attorney will deposit funds in trust account and disburse accordingly.

Attorney has conducted a search of all heirs, please indicate all heirs and their relationship to the deceased.

Provide written confirmation that attorney will remain involved until Estate matters are closed and will pay the annual premiums until the refunding bonds are filed and confirmed.

Attorney will provide updates to the Surety on Estate matters and will work to protect the interests of the administrator and surety as a condition to the surety writing the bond and provide close out documents.

Attorney will attach copy of professional liability policy and agrees to be liable to the surety should the attorney fail to be involved as herein stated.

Attorney will confirm that there are no disputes on any estate matters to the best of his or her knowledge and if there are, will provide full details and what the plan is for the attorney's client to operate as administrator.

Retainer agreement indicating that as a condition to obtaining the bond, client agrees to retain law firm and to what law firm proposed in their letter to surety until estate is settled and bond is released.

The second surety company submitted a Joint Control Agreement for the attorney and client administrator to sign. This agreement provided that the attorney agrees to exercise joint control over all personal property assets of the estate of any nature. You agree to jointly exercise judgment over the deposit, safekeeping and expenditure of estate personal property assets in accordance with the Probate Code. Counsel acknowledges that he/she is providing legal services for the benefit of Surety in connection with the joint control agreement such as to create a legal duty to perform his/her professional duties in this regard in a reasonable manner. All deposits of estate funds are to be in an account that would require the joint signatures of [the administrator] and Counsel for all withdraws [sic] checks, and/or other debits against the deposit. The attorney agrees to not substitute the administrator of the estate, to give notice to the surety of any change in legal representation, and to provide notice to the surety of any request for the administrator's removal, objection to a request by the administrator for commissions or fees, allegation of breach of duty, or request for surcharge damages. Lastly, Counsel agrees to act as a fiduciary to the Surety in establishing and maintaining the joint control as set forth herein.

An attorney who complies with these requirements becomes a co-fiduciary with the client administrator. The attorney may not, consistent with the Rules of Professional Conduct, provide legal services to a client administrator under these circumstances.

An attorney who represents an administrator of an estate represents the administrator not personally but in his or her fiduciary capacity. Estate of Albanese v. Lolio, 393 N.J. Super. 355, 374 n. 4 (App. Div. 2007). An attorney may also choose to represent the executor individually or the beneficiaries, but such additional representation must be made clear in the retainer agreement and the interests of the beneficiaries and the fiduciary must not be or become in conflict. Id. at 375. Hence, the client administrator's duty is to faithfully administer the estate in accordance with the will or intestate laws and the attorney's duty is to assist the administrator in this task. Estate of Fitzgerald v. Linnus, 336 N.J. Super. 458, 468-69 (App. Div. 2001); Barner v. Sheldon, 292 N.J. Super. 258, 265-66 (Law Div. 1995), aff'd o.b. 292 N.J. Super. 157 (App. Div. 1996).

The requirement that the attorney exercise joint control over estate assets inserts the attorney into the client's administration of the estate and creates a conflict of interest under RPC 1.7(a)(2). RPC 1.7(a)(2) provides, in part, that a conflict of interest arises when the representation of the client will be materially limited by a personal interest of the lawyer. When exercising joint control over estate assets, the attorney and the client administrator are jointly administering the estate (though only the client administrator has been appointed to serve in this role). The attorney will have a personal interest in the administration of the estate and this personal interest will interfere with his or her objectivity and independence of judgment.

Similarly, the requirement that the attorney protect the surety's interests and provide legal services for the benefit of the surety creates a conflict of interest, interferes with the attorney-client relationship, and impairs the professional independence of the attorney. The surety company may seek to control the direction of the matter, or may have interests that diverge from those of the client administrator. An attorney who complies with this condition contravenes RPC 1.7(a)(2) (conflict arising from attorney's responsibilities to a third person) and RPC 2.1 (duty to exercise independent professional judgment). Cf. RPC 1.8(f) and RPC 5.4(c) (attorney may not permit third person to interfere with the attorney's independence of professional judgment or with the attorney-client relationship).

The requirement that the attorney notify the surety if the client administrator breaches his or her fiduciary duty interferes with the attorney's obligation to maintain confidentiality. RPC 1.6(a) provides that all information relating to representation of a client is confidential and shall not be disclosed unless the client consents after consultation. An attorney has the obligation to ensure that the client understands the risks of disclosure, particularly when the confidential information may establish the client's liability. An attorney should not, as a condition of representation, secure prospective client consent to disclose confidential information in order to assist the surety company.

The conditions demanded by the surety companies raise additional problems for attorneys. The requirement that the attorney will pay the surety bond premium violates RPC 1.8(e) (an attorney shall not provide financial assistance to a client). Further, the requirement that the attorney remain involved in the estate matter until it is closed interferes with the client's right to discharge the attorney. See Cohen v. Radio-Electronics Officers, 146 N.J. 140, 161-62 (1996); RPC 5.6; and RPC 1.16.

In Advisory Committee on Professional Ethics Opinion 691, 163 N.J.L.J. 220 (January 15, 2001), 10 N.J.L. 154 (January 22, 2001), the Committee considered whether an attorney may refer a client to a factor for an advance of monies against an anticipated personal injury judgment or settlement. The Committee found that counsel must refrain from any relationship with or responsibilities to the factor which could in any way impair his or her duty of undivided fidelity to the client. Ibid. The attorney may not allow the factor's interests or attempted input to affect the exercise of the attorney's professional judgment. Ibid. The Committee also emphasized that the attorney may not be involved in the client's decision to enter into a business transaction with the factor. Ibid. Counsel's relationship with the factor should not ordinarily extend materially beyond calling to the client's attention that there exist factors who may assist the client with financial matters. Ibid. The attorney must limit the confidential information to be provided to the factor to that information the financial institution may require in order to assess the risk of the transaction, and then limit, to the extent possible, the amount of information provided to the institution to that information which would be discoverable by the attorney's adversary. Ibid. Under no circumstances may an attorney allow a lay individual or entity to direct or regulate the lawyer's professional judgment in rendering legal services, and this is true even if the individual or entity is compensating the attorney for the legal services performed for the client pursuant to RPC 1.8(f). Ibid.

An attorney presented with the conditions of the surety company set forth by the inquirer is faced with similar conflicts of interest, challenges to professional independence, demands to disclose confidential information to a third person, and potential interference with the attorney-client relationship. An attorney must avoid entering into agreements with third parties that impair his or her duty of undivided loyalty to the client.

The Committee recognizes that the interests of the surety company are generally aligned with the interests of the client in faithfully administering the estate. The attorney's duty, however, is to assist the administrator as he or she faithfully administers the estate in accordance with the will or intestate laws. The attorney must be able to maintain the requisite objectivity and independence of professional judgment and perform his or her duty free of conflicts, personal interests, and interference. Accordingly, an attorney may not, consistent with the Rules of Professional Conduct, comply with such conditions of surety companies.