Can a real estate lawyer take closing referrals from her own paralegal, who is also a broker earning a commission on the deal?

Plain-English summary

The inquirer is a transactional real estate lawyer who employs a paralegal who is also a real estate broker. The paralegal wants to refer his brokerage clients to the lawyer for their closings. The paralegal earns a commission only if the deal closes; the lawyer has no interest in that commission and will charge her usual legal fee. The paralegal will not work on or assist with the closings he refers. The inquirer asked whether she may accept these referrals and whether the paralegal's referrals would be improper solicitation.

On independent judgment, the committee distinguishes its line of opinions holding that a lawyer may not act as both lawyer and broker in the same transaction (a per se, non-waivable conflict because the lawyer's stake in the commission compromises independent advice, citing N.Y. State 916, 1043, 919, 753). Here the lawyer has no interest in the commission, so that per se bar is not triggered. The remaining question under Rule 1.7(a)(2) is whether the referrals are financially or personally so significant to the lawyer (for example, whether they make up a major part of her fee income, or the paralegal is a key employee) that she would be tempted to close a deal to keep referrals flowing even when not closing would serve the client. That is fact-specific; the committee cannot assess the risk without knowing the materiality of the referrals and the nature of the relationship. Absent a significant risk, Rule 1.7(a)(2) does not apply and she may take the matter without consent; if a significant risk exists, she may proceed only if the conflict is consentable and she obtains informed consent confirmed in writing under Rule 1.7(b). She must also not let the paralegal direct her professional judgment (Rule 5.4(c)).

On solicitation, Rule 7.3 regulates solicitation, and Rule 7.3(a)(1) bars in-person, telephone, or real-time contact unless the recipient is a close friend, relative, or current or former client. Rule 7.3(b) distinguishes lawyer-initiated communications from those a potential client invites: if clients ask the paralegal-broker to recommend a lawyer and he refers them to the inquirer, that is not solicitation; if the paralegal initiates unprompted recommendations, it violates Rule 7.3(b) (citing N.Y. State 1049, 1150). Under Rule 8.4(a), a lawyer may not violate the Rules through the acts of another, so if the inquirer assists, directs, or induces the paralegal to solicit in a way that would violate Rule 7.3(a)(1), she violates Rule 8.4(a) (citing N.Y. State 1150). Finally, under Rule 5.3(a) she must adequately supervise the paralegal, and under Rule 5.3(b) she may be responsible for solicitation by the paralegal that would violate Rule 7.3 if done by a lawyer.

In practice

Under this opinion, a New York real estate lawyer who has no interest in the broker's commission may accept closing referrals from her paralegal-broker, because the per se bar on serving as both lawyer and broker is not triggered; she must still assess under Rule 1.7(a)(2) whether the referrals are material enough financially or personally to create a significant risk to her independent judgment, and if so obtain informed written consent under Rule 1.7(b). Per the opinion, she must keep the paralegal from directing her judgment (Rule 5.4(c)), and must ensure the paralegal's referrals are client-initiated rather than unprompted solicitation, since under Rule 8.4(a) and Rule 5.3 she is responsible for soliciting through the paralegal that would violate Rule 7.3.

Common questions

Q: Can the lawyer take referrals from her own paralegal who is also the broker on the deal?

A: Yes, in principle. Per the opinion, because she has no interest in the commission, the per se bar on acting as both lawyer and broker does not apply, so the referrals turn on a Rule 1.7(a)(2) analysis.

Q: When would these referrals create a conflict?

A: Per the opinion, a Rule 1.7(a)(2) conflict arises if the referrals are financially or personally significant enough that the lawyer would be tempted to close a deal to keep referrals flowing even against the client's interest; it is fact-specific.

Q: If there is a significant risk, can the lawyer still take the matter?

A: Only with consent. Per the opinion, she may proceed if the conflict is consentable and she obtains the client's informed consent confirmed in writing under Rule 1.7(b).

Q: When does the paralegal's referral become improper solicitation?

A: Per the opinion, if a client asks the paralegal to recommend a lawyer and he refers to the inquirer, that is not solicitation; but unprompted recommendations violate Rule 7.3(b), and under Rule 8.4(a) the lawyer is responsible if she induces such solicitation through the paralegal.

Background and rules framework

The opinion interprets Rule 1.7(a)(2) and (b) (personal-interest conflicts and consent), Rule 5.4(c) (no nonlawyer direction of professional judgment), Rule 7.3(a)(1) and (b) (solicitation and the client-initiated distinction), Rule 8.4(a) (violating the Rules through another), and Rule 5.3(a)-(b) (supervision of nonlawyers). These correspond to ABA Model Rules 1.7, 5.4, 7.3, 8.4, and 5.3.

Citations and references

Rules of Professional Conduct:

• New York Rules of Professional Conduct 1.7(a)(2), (b); 5.3(a), (b); 5.4(c); 7.3(a)(1), (b); 8.4(a)
• ABA Model Rules 1.7, 5.3, 5.4, 7.3, 8.4 (analogues)

Other opinions cited:

• N.Y. State 753 (2002); 916 (2012); 919 (2012); 1043 (2015): lawyer-broker conflicts in real estate
• N.Y. State 1049 (2015); 1150 (2018): client-initiated versus lawyer-initiated referrals and acting through a spouse-broker
• N.Y. City 2014-1 (2014): divided loyalties from dependence on a referral source

See also

• NY State Bar Op. 1273: Referral of Real Estate Matters to a Lawyer From a Real Estate Broker
• NY State Bar Op. 1237: Lawyer-Broker Referral From the Lawyer's Own Real Estate Company
• NY State Bar Op. 1213: Paying an Online Lawyer-Matching Service That Recommends
• NY State Bar Op. 1267: Paying for a Recommendation or Referral

Source

• Landing page: https://nysba.org/ethics-opinion-1208/