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109 N.J.L.J. 329
April 22, 1982
ADVISORY COMMITTEE ON PROFESSIONAL ETHICS
Appointed by the New Jersey Supreme Court
OPINION 495
Conflict of Interest
Attorney Stockholder of Title Insurance
Agency Representing Purchaser and Lender
An opinion is requested concerning the following queries:
1. Is there a conflict of interest (real or potential) when
an attorney represents the purchaser of real estate (and
that purchaser's mortgage lender) and the title insurance
is obtained through a title insurance company agency in
which that attorney owns a beneficial interest?
2. Can the situation be properly resolved by full disclosure
to the purchaser client (and lender) of all foreseeable
potential conflicts between the buyer's or lender's
interests and those of the title insurance company?See footnote 1
1
The hypothetical situation under review involves a situation
where an attorney representing purchasers of real estate also
represents the interests of the mortgagee-lender in preparation of
documents, securing a first lien, remitting escrows, etc. The
issues posited arise where that attorney holds a beneficial
interest in a title insurance company agency and proposes to submit
title insurance binders issued by his agencies, and countersigned
by him, for his client purchasers and lenders.
While noting that practices differ in various parts of the
State, and even from county to county, notice may also be taken
that reliance by purchasers of real estate of good and marketable
title has shifted from lawyers who examined and certified title to
title insurance companies. The lawyer now plays the role of
reviewing the commitment binder and obtaining or negotiating the
removal of exceptions. Thus the title insurance company seeks to
limit its liability while counsel for the purchaser and lender has
a duty to try to expand the liability of the title company. The
title insurance company agent acts as an agent for the company and
binds it. If he is also an attorney representing the purchaser and
lender in the transaction, he also acts for them. In all instances,
he owes a duty of fidelity to each interest.
The brief submitted by inquirers pursuant to the command of R.
1:19-3 urges the relevancy here of DR 5-107 (a)(2), DR 5-105, and
DR 5-101. DR 5-105 mandates that a lawyer shall decline employment
if his independent professional judgment would be impaired for any
reason (Sec. A) or if that judgment would be affected adversely by
representation of another client (Sec. B). DR 5-101 (a) prohibits
the acceptance of employment if his professional judgment may be
affected by his own financial or business interests. DR 5-107
(a)(2) provides that a lawyer may not accept from someone other
than his client anything of value related to representation of his
client.
The recitation of those Disciplinary Rules appears clearly to
provide an answer to the first inquiry. In the case of In re Kamp,
40 N.J. 588, 597 (1963), Justice Proctor said that the practice of
law cannot be placed in a commercial atmosphere, for it is foreign
to the principle that the practice of law is a profession and not
a business. He went on to say, "(F)ailure to give adequate
representation is an inherent danger in representing conflicting
interest. Consequently, there need not be an actual conflict to
bring the aforementioned rules into focus. They become critical
when an attorney's judgment is likely to be adversely affected and
where an "appearance of impropriety" may exist. In re Lanza, 65
N.J. 347, 354 (concurring opinion); In re Kamp, supra, at 595. It
is therefore the opinion of the Committee that there is a conflict
of interest presented under the circumstances set forth by
inquirers. The second question poses a thornier problem. Is there
a potential conflict or a real conflict? Put another way, is the
conflict presented so contrary to the nature of the lawyer-client
relationship that it cannot be cured by the consent of the client?
See Opinion 463, 106 N.J.L.J. 485 (1980).See footnote 2
2
In Opinion 463, this Committee held that it would be improper
for an attorney to represent a buyer mortgagor where the attorney
originated the mortgage financing with a mortgage broker on a
referral fee basis because the commercial exploitation aspects of
the transaction were such that the conflict could not be cured by
consent of the client. See, also, Opinion 416, 103 N.J.L.J. 109
(1979) (Improper to represent any party in a transaction where the
attorney originated the referral to the realtor.)See footnote 3
3
Instructive here is the enunciation by our Supreme Court:
If an attorney wishes to be a businessman as well as
perform the precise functions of a lawyer, he must act in
the transactions with the high standards of his
profession and not with an 'arm's length' and lapsable
attitude.
The fiduciary obligation of a lawyer applies to
persons who, although not strictly clients, he has or
should have reason to believe rely on him... In re
Genser, 15 N.J. 600, 606 (1954)
Keeping in mind the strictures set forth above, we address the
issue presented. It may be urged, not without some persuasiveness,
that in truth what is being sought is a common goal, i.e., all the
parties to the transaction desire a good, marketable title. That
obviously is true, but that surface argument is too simplistic.
Guidance may, we think, be obtained by reference to Opinion 243, 95
N.J.L.J. 1145 (1972). The Committee there considered two separate
factual situations: (1) whether representation of a mortgagor and
mortgagee is permitted in the absence of actual conflict by making
full disclosure; and (2) whether the representation of a vendor and
vendee in the same transaction is interdicted absolutely.
The Committee held that the proctocolitis including the cost
to the borrower and the fact that both had identical interests with
regard to title, militated in favor of permitting the practice of
dual representation, but "approached with great caution." To the
contrary, it was held that:
...(T)he representation of a buyer and a seller in
connection with the preparation and execution of a
contract of sale of real property is so fraught with
obvious situations where a conflict may arise that one
attorney shall not undertake to represent both parties in
such a situation.
In the case presented here, each title binder which contains
standard exceptions and specifically related exceptions presents an
absolute conflict requiring independent evaluation in every case
and, conceivably, hard negotiation on the one hand, as set forth at
the outset, to expand liability and, on the other, to limit or
restrict liability. The 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.See footnote 4
4
* * *
Footnote: 1 1
Inquirers certify that the inquiry involves others and that no
matters in their office presently involve the circumstances
involved herein.
Footnote: 2 2
Each of the Disciplinary Rules considered herein contains a
provision which appears to cure a conflict, except where the public
interest is involved, by the attorney's making full disclosure and
receiving consent of the client or clients. However, it is clear
that certain relationships create conflicts which may not be cured
by disclosure and consent.
Footnote: 3 3
There is no indication here that any remuneration is received by
the attorney title company agent and it is assumed that none is
received other than profit or dividends.
Footnote: 4 4
The facts set out by inquirer do not spell out the extent of the
interest of the attorney title company agent. It is assumed in
this opinion that the company is not a public company and that the
attorney has a significant beneficial interest.
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