143 N.J.L.J. 454
                                        February 5, 1996

                                        5 N.J.L. 258
                                        February 5, 1996

OPINION 682

Attorneys Owning and Managing
Bar Related Title Insurance Company

    The inquirer seeks Committee approval to permit New Jersey attorneys to become "full participants in a bar related title insurance company owned and managed by lawyers." Acknowledging the relevance of Opinion 495, 109 N.J.L.J. 329 (1982); Opinion 513, 111 N.J.L.J. 392 (1983); Opinion 612, 121 N.J.L.J. 1010 (1988) and Opinion 639, 125 N.J.L.J. 894 (1990), the inquirer asks that we modify these opinions to the extent required in order that the proposal be found acceptable. This we decline to do. The guidelines established by these opinions are of long standing and, in the view of the Committee, continue to be relevant. It remains to be discussed whether those guidelines prohibit the undertaking proposed by the inquirer.
    A group of New Jersey lawyers has formed the New Jersey Attorneys Title Corporation (NJATC), intended to operate as a bar related title insurance company. The founding members of NJATC have been chairs or members of the Board of Consultors of the Real Property, Probate and Trust Law Section of the New Jersey State Bar Association. Stock ownership in NJATC will be shared by New Jersey lawyers who choose to participate. Stockholders will receive no dividends on their holdings, which will be restricted so that the stock will never be traded and will always have nominal value. Neither the founders nor members of the company's board of directors will receive compensation, beyond expense reimbursement, for their services.
    At the outset, NJATC will function as a title agency of an associated, but independent, title insurance company qualified to operate in New Jersey. Ultimately, it is intended that NJATC will act alone, once sufficient capital is available to meet regulatory requirements.
    It is contemplated that the attorney stockholders of NJATC will refer clients, after disclosure of their interest in NJATC, to the bar related company. Benefits to the public are said to include more thorough title examination, a more informed public, price competition, a possible attorney guarantee fund (none now exists) and the addition "of a qualified independent attorney back into the residential real estate closing process." It is intended, however, that the attorney stockholders will retain a portion of the title insurance premium paid by the client as a part of their fee for representing the client. The inquirer advises the Committee that this procedure, or at least its major elements, is in place in a number of other states.
    The inquirer makes clear that the recent decision of the Supreme Court of New Jersey, In re Opinion No. 26 of the Committee on the Unauthorized Practice of Law, 139 N.J. 323 (1995), is a major factor in stimulating this request. In that case, based upon a record developed by Judge Edward S. Miller, as Special Master, the Supreme Court held that buyers and sellers of real property, properly informed of the risks and of the true interests of others in the transaction, may proceed without counsel. As noted by the inquirer, the Supreme Court stated that it "strongly believes" that parties to a real estate transaction should each retain counsel for their own protection. Id. at 325. The Court, however, also noted:
        There is a point at which an institution attempting to provide protection to a public that seems clearly, over a long period, not to want it, and perhaps not to need it ... must wonder whether it is helping or hurting the public. Id. at 357.

    At no time in the course of its 40 page opinion did the Court advert to, critically or otherwise, any of the relevant opinions of this Committee.
    The Committee also notes the inquirer's remark that the "timing and rationale for the formal organization of the corporation [NJATC] and its initiation" were "encouraged" by Judge Miller's report to the Supreme Court, at page 15 thereof. We have carefully reviewed Judge Miller's report and have not read his remarks to support that view. In support of the inquiry, it is stated by the inquirer that a lawyer member of NJATC will not have an interest in conflict with the client, and that the service provided by the NJATC lawyer may cost the client more if title insurance is obtained from some other title company. Our examination of the Supreme Court's decision in In re Opinion No. 26 of the Committee on the Unauthorized Practice of Law, supra, 139 N.J. 323, leads us to conclude that our decision remains controlled by Opinion 495, supra,; 109 N.J.L.J. 329; Opinion 513, supra, 111 N.J.L.J. 392; Opinion 612, supra, 121 N.J.L.J. 1010; and Opinion 639, supra, 125 N.J.L.J. 894. While none of these opinions involve facts exactly the same as the present inquiry, the aggregate of the views of the above-cited opinions is quite clear as it relates to the present inquiry: attorneys who are holders of substantive beneficial interests in a title insurance company, such as commissions, rebates or profit sharing, may not purchase title insurance from that company on behalf of their real estate purchasing clients.
    Preliminarily, we observe that in addition to the reasoning of Opinions 495, 513, 612 and 639, RPC 1.8(f) is also controlling. Pursuant to RPC 1.8(f):
        A lawyer shall not accept compensation for representing a client from one other than the client unless:

        (1)    The client consents after consultation;
        (2)    There is no interference with the lawyer's independence of professional judgement or with the lawyer-client relationship; and
        (3)    Information relating to representation of a client     is protected as required by RPC 1.6.

This rule would apply to prohibit lawyers from accepting compensation for representing a client from one other than the client; here, from the title company by means of a partial rebate of the insurance premium. Cf. Opinion 178, 93 N.J.L.J. 461 (1970) (a lawyer must either turn over to clients finder's fees, or account to or credit to the clients the amount of rebates, or fees, since whatever the lawyer receives from others in the service of clients properly belongs to the clients). While the prohibition may be waived by the client, consent is appropriate under the rule only when there is no interference with the lawyer's independence of professional judgment or with the lawyer-client relationship. RPC 1.8(f)(2). In our view, the availability of a rebate from the title insurance company, or retention of a portion of the title premium, puts the lawyer in a conflict of interest situation in determining in behalf of the client (1) whether title insurance is necessary at all in the particular circumstances and, if so, (2) which title company to use. See Opinion 657, 130 N.J.L.J. 656, 1 N.J.L. 129 (1992).See footnote 1 ¹ This seems clearly a circumstance which can adversely impair the lawyer's professional judgement.
    Opinion 495, supra, 109 N.J.L.J. 329, held that an inherent conflict of interest is created when an attorney represents a purchaser of real estate (and a mortgage lender) and the title insurance is obtained through an agency in which the attorney owns a beneficial interest. The Committee found the multiplicity of obligations the lawyer sought to handle to be unacceptable and non- waivable.
        ...[R]eliance 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.

        ...

        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. Ibid.

    The Supreme Court has also held that:
        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.

In re Genser, 15 N.J. 600, 606 (1954).
    Opinion 513, supra, 111 N.J.L.J. 392, involved a less troublesome situation, and one substantially different from that ultimately intended by the inquirer. There the Committee permitted an attorney holding a minority interest in a local abstract company to obtain for a client title insurance from the large underwriter which held a majority interest in the local company. The facts showed substantial independence between the attorney and the local company as well as attenuated relationships which would not generate any appearance of impropriety. This will not be the case where sharing of the title premium is envisioned; nor where the underwriter company itself is later owned by the bar members.
    In Opinion 612, supra, 121 N.J.L.J. 1010, an attempted extension of Opinion 513 was rejected. There the relevant inquiry was whether lawyers who held a majority interest in a local title abstract company, which was an agent for a nationally known underwriter, could utilize that agency for the benefit of their respective real estate purchase clients after full disclosure. Relying on the above-quoted portions of Opinion 495, supra, 109 N.J.L.J. 329, this Committee rejected the proposal. It is noted that, as an ancillary inquiry, Opinion 612 addressed the question of whether the result would be different if attorneys set up their own title abstract company. The answer was "no."
    Finally, in Opinion 639, supra, 125 N.J.L.J. 894, a law firm was prohibited from employing the services of a title agency owned by an associate in the firm. Once again the inherent conflict of interest "which tends to create uneasiness and suspicion" was emphasized.
    In any of these situations, possible savings to the client are, at best, of secondary importance. The undivided fidelity of the lawyer to the client is of prime importance. We deem the inquiry to involve a contradiction of that obligation.