117 N.J.L.J. 757
June 5, 1986
Conflict of Interest - Brokerage
Commissions for Corporate Realty
by Shareholder and by House Counsel
The Committee once again finds itself faced with inquiries
concerning the propriety of an individual attorney acting in dual
capacities in conjunction with the sale of real estate. In the
first inquiry, the inquirer asks whether, as attorney for a
corporation and as a major shareholder in that same corporation, he
can enter into an agreement to receive a real estate commission
upon sale of real estate owned by the corporation, assuming he was
instrumental in consummating that sale.
The inquirer recognizes that New Jersey Advisory Committee on Professional Ethics Opinions 514, 111 N.J.L.J. 392 (1983); 411, 102 N.J.L.J. 451 (1978); and 312, 98 N.J.L.J. 646 (1975), in general, ban an attorney from both acting as attorney and receiving a broker's commission upon sale of the same real property. The inquirer, however, cites former Disciplinary Rule 5-101, which allows an exception to this ban in those situations where the attorney has a personal interest in the sale. He also cites N.J.S.A. 45:15-4 in support of his position.
We note that DR 5-101 has no analog in the Rules of Professional Conduct which now govern every attorney's behavior. In any event, the personal interest of the inquirer in the sale of the property is indirect and can come only through action by the corporation. He also notes that N.J.S.A. 45:15-4 has no application here because by its language, an exemption is created for a person who owns real estate. In the situation before us, the corporation, rather than the inquirer, is the entity vested with ownership of the property.
The direct benefit to the inquirer flows from receipt of commission and receipt of payment for professional services rendered. Viewed in this light, the dual representation here is not unlike that forbidden in Opinion 514, supra. Yet, the potential benefit derived by the inquirer from being a broker will vary directly, as will the benefit to the corporation. This is a distinguishing factor taking this inquiry outside Opinion 514, supra.
Here, the corporation might benefit from efficiencies and advantages involved in allowing the inquirer to act in a dual capacity. It appears that this is a closely held corporation, so the inquirer may have knowledge which might facilitate a sale advantageous to the corporation and, hence, to all shareholders.
As indicated above, there is no question that a conflict of interest can exist in this situation. There are, however, corresponding advantages to be gained by the client corporation by having the inquirer act in a dual capacity. See Opinion 100, 89 N.J.L.J. 696 (1966). The inquirer should make a full disclosure of the facts surrounding his dual capacities to the corporation, pursuant to Title 14A and as detailed in In re Kamp, 40 N.J. 588 (1963), followed by the informed consent of the corporation and all stockholders, before he can act both as attorney for the corporation and as broker in the sale being made on behalf of the corporation.
We render no opinion as to whether the certificate of incorporation and bylaws of this particular corporation would permit the activity the inquirer projects.
The second inquiry asks whether a regular counsel for a realty development company can act on behalf of either buyers or sellers when that company serves as broker. This same counsel also acts as house counsel to a corporation which has an indirect ownership interest in the realty company, by virtue of a closely held affiliate which owns a majority of the realty company. The inquirer also represents the closely held affiliate. Thus, the inquirer represents, in some capacity, all three of the related entities. In conjunction with his representation of the realty company, the inquirer drafts form contracts of sale, among other things. The realty company and the inquirer also occupy different floors in the same two-story building. The inquirer utilizes the realty company's secretary for some of his work.
The permutations and combinations of conflicts presented by the inquiry are so diverse and diffuse as to render extensive discussion unnecessary. The inquirer cites in favor of allowing dual representation Opinion 51, 87 N.J.L.J. 705 (1964) which by its terms was limited to dual representation of the seller-developer. He also cites Opinion 100, supra, which limits itself to clear-cut dual representation situations. The other opinions cited by the inquirer - Opinion 243, 95 N.J.L.J. 1145 (1972), dealing with dual representation in various situations of mortgagors, mortgagees, buyers and sellers, and Opinion 398, 101 N.J.L.J. 578 (1978) a compilation of other issues, the majority of which are not germane to this inquiry - shed little light on the issues presented.
In any event, the inquirer's proposed duality extends far beyond the clear-cut boundaries of Opinions 51, supra and 100, supra. His representation of the three corporations and his inter-relationships with these corporations far transcend the relatively simple dual capacities which the Committee has previously decided may properly be the subject of disclosure and waiver. The most glaring conflict presented by the inquirer is his pervasive relationship with the realty corporation and the related companies. Because the inquirer appears to derive a substantial portion of his livelihood from these companies and is closely connected with them, it is extremely doubtful that he could adequately represent and exercise independent professional judgment both on behalf of these regular clients and the one-time buyers and sellers as well. There appears to be no way that even the most informed consent could obviate the numerous clear conflicts presented here.