Ethics Opinions

 
NASSAU COUNTY BAR ASSOCIATION
COMMITTEE ON PROFESSIONAL ETHICS
Archive of Ethics Opinions
Opinion No.: 1998-10
Topics: (1)Providing discount coupons for attorney's legal fees to real estate brokers for distribution to the broker's clientele; and (2) dual representation in a residential mortgage transaction of (a) the same entity as both seller and loan originator/lender
Digest: (1) It is improper for a lawyer to provide a real estate broker with lawyer discount coupons to be given to the broker's clientele, whether or not the brokers regularly refer clients to the lawyer, as it would constitute the giving of consideration for a reference and a request for promotion of a lawyer's services in violation of DR 2-103(B) and DR 2-103(C) of the Code of Professional Responsibility.
(2) Attorney may represent a single entity as both seller and loan originator/lender in the same residential mortgage transaction.
(3) Attorney may not represent both the purchaser and the lender in the same residential purchase and mortgage transaction.
Code Provisions: DR 2-101(A)
DR 2-101(B)
DR 2-101(C)
DR 2-103(A)
DR 2-103(B)
DR 2-103(C)
DR 5-105(A)
DR 5-105(C)
Facts Presented: (1) Inquiring attorney ("Attorney") receives referrals from real estate brokers. In order to encourage these referrals, Attorney agreed to discount his fee to those clients that are referred from real estate brokers who regularly refer clients to him. Attorney's normal rate was quoted to a prospective client who subsequently retained one of these real estate brokers. The broker informed the client of Attorney's discounted legal fee. Attorney has attempted to solve this apparent problem by creating a discount coupon to be given to those clients referred by these brokers. The proposed coupon reads as follows: "Special Offer!", "$100 Off Selected Legal Services" and "Up to three coupons may be redeemed for any client/transaction per year."

(2) Attorney has further been asked to represent a mortgage company in two circumstances as part of a loan origination sales program that is being offered to new borrowers. First, in the sales of real property and co-op's that the mortgage company acquires as a result of foreclosure, Attorney has been asked to represent the same mortgage company which acted as both the seller and the loan originator. Second, when Attorney's client as a real estate purchaser selects the mortgage company as a lender, Attorney has been asked to represent his client and the mortgage company as the lender.

Inquiry: (1) May a lawyer provide discount coupons for selected legal services to real estate brokers to be given to the broker's clientele?

(2) May a lawyer represent a single entity as both seller and loan originator/lender in the same residential mortgage transaction?

(3) May a lawyer represent both the purchaser and the lender in the same residential mortgage-e transaction?

Determination: (1) No, a lawyer may not provide discount coupons to real estate brokers to be given to the broker's clientele as such conduct constitutes giving the brokers something of value for referring clients and a request to the broker to promote the lawyer's legal services.

(2) Yes, a lawyer may represent an entity with two divisions, one acting as a seller and the other as a loan originator/lender, in the same transaction because no conflict of interest exists in representing a single entity.

(3) No, a lawyer may not represent both a purchaser and a lender in the same transaction because the parties possess differing interests which cannot be readily reconciled and in a typical personal residential real estate transaction cannot be consented to or waived.

Analysis: (1) Discount Coupons: DR 2-103(C) of the Code of Professional Responsibility ("Code") provides:

 

"A lawyer shall not request a person or organization to recommend or promote the use of the lawyer's services ... or any other affiliated lawyer as a private practitioner, other than by advertising or publicity not proscribed by DR 2-101, . . ."

 

It appears that Attorney is seeking to have brokers deliver the coupons to prospective clients. This conduct, in the opinion of this Committee, constitutes a "request" by the Attorney to "recommend or promote the use of [Attorney's] legal services." A lawyer's knowledge of and acquiescence in third-party advertising of legal services is tantamount to a "request" by the lawyer for the purposes of DR 2-103(C). See Bar Ass'n of Nassau County Opinion ("BANC,") # 91-10.

 

In order for an advertisement to fall within the reference in DR 2-103(C) to DR2-101, it must comply with the guidelines for lawyer advertising set forth in DR 2-101(A) and (B) of the Code. Those provisions provide that lawyer advertising shall not include "statements or claims that are false, deceptive, misleading, [or] puffery, self-laudation, claims regarding the quality of the lawyers' legal services, or claims that cannot be measured or verified."

 

Attorney's coupon offers "$ 100 Off Selected Legal Services." Although the information on the coupon does not contain statements of self-laudation or a description of Attorney's legal services, the coupon is nonetheless misleading. For example, it would be unclear to the consumer, a potential client, what is meant by "Selected Legal Services," and what the actual cost of these services would have been to a client not using the coupon.

 

An advertisement is intelligible and not misleading if the full "customary fee" that is being discounted is ascertainable. See NYS Bar Ass'n Opinions ("NYSBX") 9# 23-84; 21-2; and 83-2. A customary fee is "a fee charged by the lawyer for most of his engagements involving similar work." NYSBA # 23-84. It is understood that the phrase "Selected Services" refers primarily to the legal representation of purchasers in residential real estate closings. Real estate transactions are amenable to fixed rates or "customary fees." See id. Accordingly, Attorney's coupon should include a specific explanation of "Selected Legal Services,"and the "customary fee" for such services in addition to the discount being offered. Attorney's coupon lacks the foregoing information, and thus contravenes the advertising provisions of DR 2- 101 (A) and (B).

 

Since the existing coupon is one that is not permissible under DR 2-101 (A) and (B), the exception to DR 2-103(C) cannot be invoked. Also, legal services advertising must comply with DR 2-103 (A) and (B) of the Code. DR 2-103(A) provides:

 

"A lawyer shall not, directly or indirectly, seek professional employment for the lawyer ... from a person who has not sought advice regarding employment of the lawyer in violation of any statute..."

 

The statute governing the above described conduct is New York Judiciary Law § 479, which prohibits a lawyer from directly or indirectly soliciting legal business, which is generally limited to direct or indirect in-person solicitation, whether done by the lawyer or by an agent, employee or any other person acting on the buyers' behalf.

 

Published, mailed or broadcast advertising for legal services is expressly permitted under DR 2- 101. It is also constitutionally protected under the First Amendment and is not deemed prohibited solicitation. New York case law has helped to define lawful and unlawful solicitation by direct mail addressed to potential clients as to the availability of particular legal services and the costs of those services. See, e.g., In re Koffler , 51 N.Y.2d 140, 432 N.Y.S.2d 872, 412 N.E.2d 927 (1980), cert. denied, 450 U.S. 1026 (1981); In re Greene, 54 N.Y.2d 118, 444 N.Y.S.2d 883, 429 N.E.2d 390 (1981), cert. denied, 455 U.S. 1035 (1982).

 

In Greene, the Court of Appeals determined that mailings to real estate brokers presenting a lawyer's qualifications and fees for referrals to the brokers' clients was tantamount to a direct solicitation of brokers, and, thus, an indirect solicitation of legal business from the broker's clientele in violation of Judiciary Law § 479. 54 N.Y.2d at 125. Such indirect solicitation through real estate brokers leads to in-person solicitation by the broker on the lawyer's behalf and the dangers arising from the intertwined interests of brokers and attorneys.

 

Lawyers' mailings to third parties, such as real estate brokers, for the purpose of obtaining referrals to potential clients, have been held by the New York Court of Appeals to be specifically prohibited by Judiciary Law § 479:

 

"[T]he proscription is not against the attorney making known to potential clients the availability of his services or even against his doing so through third-parties, but against his doing so in a particular manner: through a third party whose interests may be more closely intertwined with those of the attorney than with those of the client."

Matter of Alessi, 60 N.Y.2d 229,234-235,469 N.Y.S. 2d 577,457 N.E.2d 682 (1983), cert. denied, 465 U.S. 1102 (1984). See NYSBA # 694. Moreover, the application of Judiciary Law § 479 prohibiting lawyers' solicitations through third parties has been upheld as constitutional. Greene, 54 N.Y.2d at 125-29.

 

Whether Attorney's proposed coupon distribution to real estate brokers violates § 479 of the Judiciary Law is a question of law on which this Committee does not opine.

 

In addition, Judiciary Law § 482 prohibits "the employment of a person for the purpose of soliciting or aiding, assisting or abetting in the solicitation of legal business." The Committee cannot express an opinion whether Attorney's coupon proposal violates Judiciary Law § 482 because it is a question of law on which we also do not opine.

 

It also must be determined whether providing discount coupons to brokers constitutes giving "anything of value" which is prohibited by DR 2-103(B). That rule provides:

 

"A lawyer shall not compensate or give anything of value to a person or organization to recommend or obtain employment by a client, or as a reward for having made a recommendation resulting in employment by a client, except by any of the organizations listed in DR 2-103 (D)."

This last reference is to certain specified nonprofit organizations not relevant here.

 

Providing discount coupons to all or particular brokers' clientele may serve to give an incentive to clients to utilize these brokers' services (thereby giving something of value to brokers) in exchange for the brokers' promotion of Attorney's le-al services, in violation of DR 2-103(B). See BANC # 91-10.

(2) Representation of a Single Entity in Dual Capacities: The inquiry whether a conflict of interest arises in representing both a seller and a loan originator/lender in the same transaction is analyzed under DR 5-105(A) and DR 5-105(C). Those provisions permit the representation of multiple clients with differing interests if two conditions are satisfied. First, it must be "obvious" that the lawyer may adequately represent the interests of each client. Second, each client must consent after full disclosure of how the conflict may affect the lawyer's independent professional judgement on behalf of each client.

 

Differing interests are defined as "every interest of a client that will adversely affect either the judgment or the loyalty of a lawyer to a client whether it be conflicting, inconsistent, diverse or other interest." Section 1200.1 of the Code, Definitions, Par. 1.

 

There may be circumstances in which it is "obvious" to a lawyer that clients with differing interests can be adequately represented. Typically, a seller and a lender in the same transaction have differing interests. Issues may arise concerning the acceptability of title, or environmental conditions, or some other condition of the closing that may affect potential resale of the property causing the tender to choose not to make the loan while the seller wishes to close because he or she may be more intent on immediate use and occupancy. See NYSBA # 611. However, where the seller and the lender are the same client, as in Attorney's circumstance, it is "obvious" that adequate representation will be achieved because the interests of only one party is being represented. Any potential conflict between the role of the seller and that of the lender would arise within the entity itself, and is not a concern of the attorney in representing that entity.

(3) Dual Representations of Purchaser and Lender: The differing interests of a purchaser and a lender in the same real estate transaction typically cannot be adequately represented by the same attorney. As in situations where an attorney acts as both a real estate broker and an attorney, an inherent conflict of interest arises when the attorney's fee depends upon the closing of the transaction. See BANC ## 87-1 1; 89-33; 92-12; 87-41. An attorney representing a lender and a purchaser cannot best serve the interest of the purchaser if the attorney's judgment is tainted by his incentive to earn a fee from the lender, which is often contingent on closing. Like the attorney-broker scenario, "[t]here is a strong possibility - that the attorney will represent the [purchaser's] interest less zealously in the purchase transaction, in order to insure a successful closing of the mortgage transaction." Nassau County Opinion 4 87-41. It is also readily apparent that the lender and the purchaser may sometimes have significantly differing interests in the details and structure of the transaction. As a result, the lawyer's loyalty will be divided, affecting his independent judgment on behalf of the purchaser client or lender client in violation of DR 5-101 (A) and (C).

 

For the foregoing reasons, it is the Committee's opinion that it is improper for a lawyer to provide discount coupons to real estate brokers for the purpose of delivering them to the brokers' clientele. Moreover, Attorney may ethically represent the mortgage company as both the seller and the loan originator/lender in a transaction- however, a lawyer may not represent both an independent purchaser and a lender in the same residential real estate transaction.

 

[Approved by the Executive Subcommittee on Sept. 15, 1998; approved by the Full Committee on Sept. 23, 1998.]
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