Can one law firm represent both the buyer and the seller in the same residential real estate sale if both sides consent, or is that a nonconsentable conflict of interest?

Plain-English summary

The inquiring attorney works for a municipal law department and encountered a matter in which one law firm represented both Buyer A and Seller A in a real estate sale, then immediately represented Buyer A in a second sale reselling the same property to Buyer B for fifty percent more than Buyer A had just paid Seller A. According to the inquiring attorney, the terms of the resale from Buyer A to Buyer B were negotiated before Seller A ever sold the property to Buyer A. The attorney asked whether these transactions violate the Rules of Professional Conduct, and the panel concluded they do.

The panel analyzed the situation under Rule 1.7, which governs concurrent conflicts of interest. Representing both Buyer A and Seller A in the same transaction implicates Rule 1.7(a)(1) because their interests may be directly adverse (citing Comment [7], recognizing directly adverse conflicts in transactional matters, and Credit Union Central Falls v. Groff), and Rule 1.7(a)(2) because there is a significant risk the firm could not adequately represent both. While clients may ordinarily consent to a conflict, some conflicts are nonconsentable: under Rule 1.7(b)(1), representation is prohibited if the lawyer cannot reasonably conclude he or she will be able to provide competent and diligent representation, a determination made on a per-client, case-by-case basis.

Noting it had not squarely addressed whether a firm may obtain consent to represent both parties to a real estate transaction, the panel found persuasive the decisions of ethics bodies in other states that have answered no absent rare and extraordinary circumstances. It discussed Illinois State Bar Opinion 17-04 at length (a lawyer generally cannot represent both buyer and seller even where they have worked out the deal, because issues arising after the contract and before closing require unqualified advice to one client), and cited New York State Bar Opinion 807 and Vermont Opinion 2004-03 to the same effect. Applying that reasoning, the panel found the structure and outcome here (Buyer A's immediate fifty-percent resale on terms fixed before the first sale) strongly suggested the firm advanced Buyer A's interests over Seller A's, so its representation of Seller A necessarily fell below the competence and diligence required by Rules 1.1 and 1.3. The transactions therefore violated multiple Rules of Professional Conduct.

In practice

Under this opinion, a Rhode Island firm's simultaneous representation of both the buyer and the seller in the same real estate sale is a concurrent conflict under Rule 1.7(a), and where the firm cannot reasonably conclude it can competently and diligently serve both, the conflict is nonconsentable under Rule 1.7(b)(1) so client consent cannot cure it. The panel treated the transaction's structure and result (an immediate, pre-arranged resale at a large markup) as evidence that the firm had in fact favored one client, breaching the competence and diligence duties of Rules 1.1 and 1.3.

Common questions

Q: Can one firm represent both the buyer and the seller in the same real estate sale?

A: The panel held that doing so is a directly adverse concurrent conflict under Rule 1.7(a)(1), and on these facts it was nonconsentable because the firm could not reasonably provide competent and diligent representation to both parties.

Q: Does client consent fix the conflict?

A: Not where the conflict is nonconsentable. Under Rule 1.7(b)(1), representation is prohibited if the lawyer cannot reasonably conclude he or she can competently and diligently represent each client; the panel found that standard unmet here.

Q: What facts showed the firm favored one client?

A: Buyer A immediately resold the property to Buyer B for fifty percent more than Buyer A paid Seller A, on terms negotiated before the first sale. The panel read this structure and outcome as strongly suggesting the firm advanced Buyer A's interests over Seller A's.

Q: How did other states influence the panel?

A: The panel found persuasive Illinois Opinion 17-04, New York State Bar Opinion 807, and Vermont Opinion 2004-03, which conclude that a lawyer generally cannot represent both sides of a real estate sale absent rare and extraordinary circumstances.

Background and rules framework

The opinion applies Rule 1.7 of the Rhode Island Rules of Professional Conduct (Model Rule 1.7), which prohibits representing a client where a concurrent conflict exists, including where the representation of one client is directly adverse to another (1.7(a)(1)) or is subject to a significant risk of material limitation (1.7(a)(2)). Consent under Rule 1.7(b) cannot cure a conflict the lawyer cannot reasonably conclude he or she can competently and diligently manage (1.7(b)(1), Comment [14]). The panel tied the resulting inadequate representation to the competence and diligence duties of Rules 1.1 and 1.3.

Citations and references

Rules of Professional Conduct:

• MR 1.7 (concurrent conflicts of interest)
• MR 1.1 (competence); MR 1.3 (diligence)
• RI RPC 1.7, 1.1, 1.3

Statutes:

• None cited.

Cases:

• Credit Union Central Falls v. Groff, 966 A.2d 1262, 1267-70 (R.I. 2009), directly adverse conflicts in transactional matters

Other opinions cited:

• Illinois State Bar Association Professional Conduct Advisory Opinion 17-04 (and Op. 86-15): a lawyer generally cannot represent both buyer and seller in a residential real estate transaction
• New York State Bar Association Opinion 807 (2007): separate lawyers in one firm cannot represent buyer and seller of residential real estate even with informed consent, except where little or no actual adversity exists
• Vermont Ethics Opinion 2004-03: a lawyer may not represent the seller while providing the buyer a title insurance policy, even with consent
• RI EAP Op. 88-26 (permitting an attorney to represent the borrower/buyer in the purchase closing along with the loan closing and title work)

See also

• RI EAP Op. 2011-05: Conflicts of an Approved Title-Insurance Attorney
• RI EAP Op. 2005-10: Conflict of Interest in a Real Estate Project

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP-2024-03.pdf

Original opinion text

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

Rhode Island Supreme Court
Ethics Advisory Panel Op. 2024-03
Issued April 11, 2024

FACTS

The inquiring attorney works for a municipal law department. In the course of the inquiring attorney's work, he or she encountered a matter in which a law firm represented both Buyer A and Seller A in the same real estate transaction wherein Buyer A purchased certain real property from Seller A. Immediately thereafter, the law firm represented Buyer A in a second real estate transaction in which Buyer A resold the real property Buyer A had just purchased from Seller A to Buyer B for fifty percent (50%) more than the price at which Buyer A originally purchased the property from Seller A. According to the inquiring attorney, the terms of the sale from Buyer A to Buyer B were negotiated before Seller A sold the subject property to Buyer A.

ISSUE PRESENTED

The inquiring attorney asks whether these transactions violate the Rules of Professional Conduct?

OPINION

It is the Panel's opinion that the transactions as described by the inquiring attorney violate the Rules of Professional Conduct.

REASONING

The scenario as described by the inquiring attorney concerns concurrent conflicts of interest as addressed in Rule 1.7 of the Rules of Professional Conduct:

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client; or

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law;

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4) each affected client gives informed consent, confirmed in writing.

In this case, a single law firm represented both Buyer A and Seller A in the same real estate transaction in which real property was conveyed from Seller A to Buyer A. This scenario implicates Rule 1.7(a)(1) because Buyer A's and Seller A's interests may be adverse. See Rule 1.7, Comment [7] (recognizing that "[d]irectly adverse conflicts can also arise in transactional matters"); see also Credit Union Central Falls v. Groff, 966 A.2d 1262, 1267-70 (R.I. 2009). It also raises the specter that the law firm could not adequately represent the interests of both parties as described in Rule 1.7(a)(2). See Rule 1.7, Comment [8] (noting that "a conflict of interest exists if there is a significant risk that a lawyer's ability to consider, recommend or carry out an appropriate course of action for the client will be materially limited as a result of the lawyer's other responsibilities or interests").

"Ordinarily, clients may consent to representation notwithstanding a conflict." Rule 1.7, Comment [13]. However, "some conflicts are nonconsentable, meaning that the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent." Id. Pertinent here is Rule 1.7(b)(1), pursuant to which "representation is prohibited if in the circumstances the lawyer cannot reasonably conclude that the lawyer will be able to provide competent and diligent representation." Rule 1.7, Comment [14]. This determination must be made on a per-client, case-by-case basis. See Rule 1.7, Comment [13].

The Panel has not squarely addressed whether a law firm may obtain client consent to represent both parties to a real estate transaction. C.f. Ethics Advisory Panel Opinion 88-26 (permitting the inquiring attorney to represent "the borrower/buyer . . . in the closing of the purchase and sale agreement in addition to . . . in closing the loan and doing title work"). Significantly, however, several attorney ethics bodies in other states have answered this question in the negative, determining that lawyers cannot do so absent rare and extraordinary circumstances.

For example, in Professional Conduct Advisory Opinion 17-04, the Illinois State Bar Association (the "ISBA") considered whether a lawyer may represent both the buyer and seller of a residential home "in the transaction and the closing," where the buyer and seller had already "worked out the details of the transaction without the assistance of counsel." The ISBA began by noting both that "numerous lawyers have been disciplined for representing or attempting to represent both the buyer and seller in a real estate transaction," and that it had generally prohibited the practice in a prior opinion. See ISBA Op. 86-15. In-keeping with these observations, the ISBA found that pursuant to Illinois Rule of Professional Conduct 1.7 (nearly identical to Rhode Island's Rule 1.7) "there is a concurrent conflict of interest" in this case because "[r]epresentation of a buyer in a real estate transaction is directly adverse to the representation of the seller." It further found that the conflict was likely not consentable because under the circumstances "the lawyer could not reasonably believe that he or she could provide competent and diligent representation to both the buyer and the seller." It elaborated that "[e]ven if the parties agree on the terms of the sale, and have already executed the sales contract, we believe that it is highly unlikely that a lawyer could properly represent both the buyer and seller in concluding the transaction" because "[i]ssues often arise after the parties have executed the contract and prior to closing that would require the lawyer to give unqualified advice to his or her client." Accordingly, the ISBA concluded that "[i]n most circumstances, a lawyer will not be able to represent both the buyer and seller in a real estate transaction . . . ." This analysis comports with reasoning expressed by attorney ethics bodies in New York and Vermont as well. See New York State Bar Association Opinion 807 (2007) (determining that separate attorneys associated in the same firm cannot represent the buyer and seller of residential real estate, even if the clients give informed consent to the conflict of interest, except in cases in which there is little or no actual adversity between the parties such as family transactions); Vermont Ethics Opinion 2004-03 (finding that an attorney may not represent a client in selling a parcel of real estate and simultaneously represent the buyer by providing him with a title insurance policy, even if both clients consent).

The Panel finds these decisions compelling. As the ISBA observed, the complex and negotiated nature of real estate transactions may generally preclude a lawyer from diligently and competently representing both the buyer and the seller thereto. See Rule 1.7, Comment [27] (observing that "a lawyer may not represent multiple parties to a negotiation whose interests are fundamentally antagonistic to each other . . ."). Under the facts of this case as reported by the inquiring attorney, this conclusion is evidenced by the structure and outcome of the transactions between Buyer A, Seller A, and Buyer B. Buyer A was able to immediately resell the subject property to Buyer B for fifty percent (50%) more than the cost Buyer A paid to purchase the property from Seller A—a significant sum—pursuant to terms agreed upon between Buyer A and Buyer B before the initial sale. These facts strongly suggest that the law firm affirmatively advanced the interests of Buyer A over those of Seller A, such that its representation of Seller A necessarily fell below the standard of competency and diligence required by the Rules of Professional Conduct. See Rules 1.1, 1.3.

Based on these facts, the transactions as described by the inquiring attorney violate multiple Rules of Professional Conduct. The Panel cautions all Rhode Island attorneys to carefully consider the full implications of a representation or representations before accepting the work to forestall situations such as the instant matter.