Ethics Opinions

 
NASSAU COUNTY BAR ASSOCIATION
COMMITTEE ON PROFESSIONAL ETHICS
Archive of Ethics Opinions
Opinion No.: 1998-13
Topics: Lawyer retained by client upon recommendation of person with adverse legal interest who, directly or indirectly, pays lawyer to render legal services to client.
Digest: It is not impermissible for a lawyer to render legal services to a client (a purchaser of real property) at the recommendation of a third party with differing legal interests (the developer/seller of the property) after full disclosure to and consent of the client of the payment by the third party, provided that the lawyer does not give anything of value for the referral and does not permit the third party to direct or regulate the lawyer's professional judgment in rendering such legal services.
Code Provisions: DR 4-101 (B)
DR 5-105
DR 5-107(A)(1), (2), (B)
Facts Presented: The inquiring attorney's firm is on a list of attorneys from which a home builder recommends attorneys to potential buyers of real estate when the purchaser has no attorney. It is customary for the referring seller to make "price concessions" to the purchaser to cover certain closing costs, including an agreed amount for the purchaser's legal fees, whether or not the purchaser uses an attorney from the list. These arrangements are fully explained to the client. The inquiring attorney's firm does not represent the seller, which has its own counsel for all of its legal matters, and nothing of value is given by the lawyer to the seller for this recommendation.
Inquiry: Is an impermissible conflict of interest created when a real estate seller recommends to purchasers a list of attorneys and also provides funds as a price concession on the real estate sale for payment of the purchasers' attorney's fees?
Determination: No, it is not impermissible for the inquiring attorney to accept referrals from the seller of real property to represent purchasers of the real property under circumstances where the seller, directly or indirectly, pays the purchasers' attorney's fees for legal services, provided the attorney gives nothing of value for the recommendations and does not permit the seller to direct or regulate the lawyer's professional judgment. In such circumstances it would be prudent for the attorney to take care to avoid any appearance of favoritism toward the seller; however, that does not imply that courtesy toward the adversary is inappropriate.
Analysis:
The Code of Professional Responsibility contemplates situations in which the legal fees of a lawyer are paid by a third party, with the client's consent after full disclosure. DR 5-107(A)(1). While the Code does not specifically so state, it is clear from longstanding practice in financial transactions, where lenders frequently require that their attorney's fees be paid by the borrower, that the third party pay or may also be a party adverse to the client. In circumstances where the lawyer is recommended to the client by the third party pay or, it is not unethical for the lawyer to represent the referred client, provided that the lawyer follows the strictures of DR 5-1.07(A)(1), which requires the client's consent after full disclosure of all material facts and circumstances, where the lawyer receives compensation for legal services from one other than the client, and DR 5-107(B), which states that a lawyer shall not "permit a person who recommends, employs, or pays the lawyer to render legal service for another to direct or regulate his or her professional judgment in rendering, such legal services." See Bar Ass'n of Nassau County, Prof Ethics Comm. Op. # 94-7 (approving retainer agreement with criminal defendant and defendant's sister whereby latter agrees to pay defendant's legal fees). It is also important in these circumstances for the lawyer to maintain the client's confidences and secrets, as provided in DR 4-101(B). See the Special [Krane] Committee's Proposed Amendments to N.Y. Lawyer's Code of Professional Responsibility, approved by NYSBA House of Delegates, Jan. 24, 1987, DR 5-107(B). It is also important that the lawyer comply with DR 5-107(A)(2), which prohibits the lawyer from giving "any thing of value" for the third-party's referral, and Judiciary Law § 482, which prohibits a lawyer from employing a person for the purpose of soliciting legal business.

 

The inquiring attorney has confirmed that there is full disclosure to the clients sufficient to comply with DR 5-107(A). We assume that the inquiring attorney understands that a lawyer cannot take direction from the referring seller and must use the lawyer's independent judgment for the benefit of the client. As a general comment, it is important for the image of the profession that attorneys irk such situations avoid the appearance of being overly attentive to the needs of the pay or and referring party; however, that should not prevent customary professional courtesy.

 

We note that under the facts of this inquiry the attorney is not simultaneously representing parties with differing legal interests since the referring party is not a client of the inquiring attorney. If that were the case, DR 5-105 on "conflicts of interest" in representing multiple parties would be applicable.

 

[Approved by the Exec. Subcomm. Oct. 20, 1998; Approved by the Full Committee Oct. 28, 1998.]
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