Proposed Opinions

Seller (a financial institution) acquires property as a result of the foreclosure by execution of the power of sale contained in a deed of trust securing its own note or a note that it was servicing. Client X entered into a contract with Seller to buy the property that was repossessed via foreclosure.

Attorney A regularly handles foreclosure proceedings for Seller either serving as the trustee or as the lawyer for the trustee (both roles are referred to herein as the "foreclosure lawyer"). In the current proceeding, Attorney A served as the foreclosure lawyer.

Client X would like Attorney A to close the sale. May Attorney A represent both Client X and Seller on the closing of the transaction, including examining title and giving an opinion as to title to Client X?

Yes, provided there is full disclosure to Client X of all potential risks and Client X gives informed consent. Multiple representation of parties to a real estate closing is allowed in RPC 210 and in 97 FEO 8. The latter opinion holds that a lawyer who regularly represents a real estate developer may represent the buyer and the developer in the closing of residential real estate. Rule 1.7 permits multiple representation notwithstanding the existence of a concurrent conflict of interest if the lawyer concludes that he or she can provide competent and diligent representation to each affected client and the clients give informed consent which is confirmed in writing. If Attorney A concludes that, under the circumstances, he can still exercise independent, professional judgment on behalf of all of the parties to the closing, he may seek the informed consent Client X.

Obtaining the informed consent of the buyer in this situation means that the buyer must be advised of the potential risks to a purchaser of property that was previously foreclosed including the distinctions between marketable and insurable title and between a non-warranty and a warranty deed. The buyer must also be advised of his potential liability for homeowners’ association dues. Most importantly, the lawyer must disclose his prior participation in the foreclosure and explain that the lawyer must examine his own work on the foreclosure to certify title to the property.

Attorney A may represent all of the parties to the closing even if Client X procures financing to purchase the property (including financing provided by Seller). Attorney A must be able fully to explain, without objection from the lender/seller, the loan documents, setting forth the terms of repayment (and potentially including a balloon payment and/or prepayment penalty), and the status of title including any material exceptions between the lender’s and owner’s title insurance policies.

 If Client X consents to the representation, Attorney A may proceed unless and until it becomes apparent that he cannot manage the potential conflict between the interests of the lender/seller and the buyer. If the lawyer determines that he can no longer exercise his independent professional judgment on behalf of both clients, he must withdraw from the representation of both clients.

Under the facts of Inquiry #1, the contract signed by Client X provides that Seller will select the title and closing agent. However, the contract specifies that the buyer is also entitled to legal representation at the buyer’s own expense. Seller names Attorney A as the "title/closing agent" for the sale to Client X.

May Attorney A represent both Client X and Seller on the closing of the transaction, including examining title and giving an opinion as to title to Client X?

No. Under these circumstances, it is apparent that it is in Attorney A’s personal financial interest to preserve and protect his relationship with Seller. This self-interest will impair Attorney A’s independent professional judgment and his ability to be objective and impartial when making the disclosures necessary to obtain informed consent from Client X. Therefore, Attorney A may not seek the informed consent of Client X and may not represent Client X in the closing.

Under the facts of Inquiry #2, Attorney B regularly represents Seller on various matters but did not represent the trustee on the foreclosure of the subject property and did not act as trustee. May Attorney B represent both Client X and Seller on the closing of the transaction, including examining title and giving an opinion as to title to Client X?

Yes, Attorney B may represent both parties to the transaction but only upon satisfaction of the following conditions: Attorney B reasonably believes that the common representation will not be adverse to the interests of either client; there is full disclosure of Attorney B’s prior representation and relationship with Seller; Attorney B reasonably believes that he can exercise independent professional judgment on behalf of Client X including explaining to Client X the provisions of the purchase contract and the distinction between a lawyer’s opinion on title and title insurance; and Client X consents to the representation. Rule 1.7; 97 FEO 8.

Under the facts of Inquiry #2, Attorney A intends to represent only the interests of Seller and does not intend to represent Client X in closing the transaction. May Attorney A limit his representation in this manner?

Yes, Attorney A may limit his representation to Seller. However, if he does so, in light of the provisions of the purchase contract, it is possible that Client X will be misled about Attorney A’s role. Therefore, Attorney A must fully disclose to Client X that Seller is his sole client, he does not represent the interests of Client X, the closing documents will be prepared consistent with the specifications in the contract to purchase, and, in the absence of such specifications, he will prepare the documents in a manner that will protect the interests of his client, Seller, and, therefore, Client X may wish to obtain his own lawyer. See, e.g., RPC 40 (disclosure must be far enough in advance of the closing that the buyer can procure his own counsel), RPC 210, 04 FEO 10, and Rule 4.3(a). Because of the strong potential for Client X to be misled, the disclosure must be thorough and robust.

Under the facts of Inquiry #4, if Attorney A limits his representation to Seller, but closes the transaction, does he have any duty to disclose or discuss any of the following with Client X: defects of title; the difference between insurable title and marketable title; the exceptions contained in the title policy and the need for exception documents at closing; and the terms of the sales contract?

If Attorney A explicitly limits his representation to Seller, he cannot give any legal advice to Client X except the advice to secure counsel. Rule 4.3(a). In light of the significant issues involved for Client X, Attorney A should advise Client X to obtain his own lawyer.

Under the facts of Inquiry #4, Attorney A closes the transaction. The contract required the buyer to pay the closing agent’s "customary closing fee;" therefore, Client X pays a fee to Attorney A as the title/closing agent. Subsequently, a defect of title caused by Seller is discovered. May Attorney A be held liable to Client X for malpractice?

This is a legal question that is outside the purview of the Ethics Committee.

Under the facts of Inquiry #1, the contract to buy the property signed by Client X contains the following conditions: Seller will select the title and closing agent; Seller will pay the title examination fee and the premium for the owner’s title insurance policy; the buyer will pay the title/closing agent’s "customary closing fee;" and all closing transactions will be held at the title/closing agent’s office. The contract specifies that the buyer is entitled to legal representation at the buyer’s own expense. Seller names Attorney A as the "title/closing agent" for the sale to Client X.

May Attorney A represent both Client X and Seller on the closing of the transaction, including examining title and giving an opinion as to title to Client X?

No, see Opinion #2 above.

Under the facts of Inquiries #2, 3, and 4, Client X asks Attorney Y to represent him on the closing of the purchase of the property. Client X wants Attorney Y to examine the title to the property, give his opinion as to title, and act as Client X’s agent at the closing.

Attorney A insists that the contract requires Client X to accept him as the closing agent for the transaction even if he only represents Seller. May Attorney A refuse to allow Attorney Y to participate in the closing as Client X’s lawyer?

No. Clients are entitled to legal counsel of their choice. See, e.g., RPC 48. A lawyer may not participate in any scheme or contract that states or implies that a party to the transaction does not have the right to obtain independent legal counsel to represent his interests. Drafting such a provision for a client or agreeing to provide representation pursuant to such a provision is unethical because the provision will chill the buyer’s right to independent legal counsel even if the enforceability of the provision is doubtful.

Attorney A may, by the terms of the purchase agreement, be the designated closing agent for the sale. However, if Client X hires a lawyer to represent his interests by examining and giving him an opinion on title and participating in the closing on his behalf, the other lawyer may not interfere with this representation. See, e.g., Rule 4.2. In addition, Attorney A must comply with the prohibition in Rule 4.2(a) on direct communications with a represented person without the consent of the lawyer for the represented person. If Client X chooses to obtain his own lawyer, Attorney A shall cede the closing responsibilities to the lawyer for the buyer consistent with North Carolina custom and practice in real estate closings.

Under the facts of Inquiries #2, 3, and 4, Attorney A agrees that Attorney Y will represent Client X’s interests at the closing. However, Attorney A claims that he is still entitled to a fee from Client X because the terms of the contract.

May the legal fee for Attorney A’s representation of Seller be charged to Client X?

Whether the contract to purchase the property requires Client X to pay Attorney A’s fee for representation of Seller is a legal question outside the purview of the Ethics Committee. However, a lawyer may be paid by a third party, including an opposing party, provided the lawyer complies with Rule 1.8(f) and the fee is not illegal or clearly excessive in violation of Rule 1.5(a). See RPC 196. Attorney A’s time and labor relative to the closing may be reduced because of the legal services performed by Attorney Y on behalf of Client X. If so, this fact should be taken into account in determining whether the "customary fee" for closing the transaction is excessive and an appropriate reduction in the fee should be made. Rule 1.5(a). Because Client X is represented by Attorney Y, Attorney A may not charge or collect any money for representing Client X.

A realtor prepared the purchase contract. It alters the usual closing arrangements, waives many "normal" rights of a buyer, and favors the seller by allowing the seller to terminate the contract for any reason and return the deposit without further liability. Is the realtor engaged in the unauthorized practice of law when preparing the contract? Does it matter whether the realtor is a buyer’s agent, a seller’s agent, or a dual agent? Does it matter whether the seller and the buyer have different realtors? Is consumer protection legislation needed?

These questions do not relate to the professional responsibilities of lawyers and cannot be answered by the Ethics Committee.

Proposed opinion provides guidance on miscellaneous issues relative to client seminars and solicitation, gifts to clients and others following referrals, distribution of business cards, and client endorsements.

May an attorney advertise and conduct educational seminars for non-clients and, at the end of the presentation, request that the attendees complete an evaluation feedback form which includes the attendee's name, contact, and family information, as well as check boxes to indicate areas of particular interest and a desire, or not, for a free, personal consultation?

An attorney may conduct educational seminars for non-clients. See RPC 36. The attorney may advertise the seminars so long as the advertisements comply with the Rules of Professional Conduct. See Rule 7.2. The attorney may request attendees to complete an evaluation feedback form that includes the attendee's name, contact, and family information, as well as check boxes to indicate areas of particular interest. After the seminar, the attorney may not contact an attendee by in-person or telephone solicitation, but must wait for the attendee to contact the attorney. Rule 7.3(a).

May an attorney host a purely social, non-education function for clients and non-clients, including allied professionals, at no charge to them, who have referred prospective business to the attorney?

An attorney may host a social function for existing clients, non-clients, or both. See RPC 146. The attorney may invite non-clients, provided the attorney does not solicit business from the non-clients.

May an attorney send a restaurant or store gift certificate to a client or non-client in appreciation for a referral from that person?

No. Rule 7.2(b) prohibits a lawyer from giving anything of value to a person for recommending the lawyer's services.

May an attorney send gifts of nominal value—such as holiday fruit baskets, flowers, or gift certificates—to existing clients or non-clients with whom the attorney has an existing professional relationship?

Yes, as long as a gift is not a quid pro quo for the referral of clients. Rule 7.2(b).

If a client, non-client, fellow attorney, or allied professional requests one or more business cards or firm brochures from an attorney, may the attorney oblige the request?

Yes. The potential for abuse or overreaching is not present where an attorney gives multiple cards or brochures to a third party if there is no understanding that the recipient will engage in in-person solicitation on the attorney's behalf. Rule 7.3.

2006 FEO 7 is distinguishable because it deals with the distribution of business cards at a meeting of a for-profit networking organization whose stated purpose is to provide referrals to its members.

Along with a thank-you letter from the attorney to a client for the client's having allowed the attorney to provide services to that client, may the attorney include a business card and/or firm brochure with the suggestion that the client, if so willing, pass it along to someone who the client thinks might need similar services?

Yes, so long as there is no incentive for the client to engage in in-person solicitation on the attorney's behalf. 2006 FEO 7 is distinguishable because it deals with members of a for-profit networking organization rather than a former client.

At the conclusion of rendering services to the client, assume the attorney includes with a thank-you letter a "report card" form for the client to return, if so willing, indicating the client's level of satisfaction with various aspects of the attorney/client experience. If the client chooses to make favorable comments about the attorney or services and expressly consents to the use of those comments for the attorney's marketing purposes, may the attorney use those testimonials in any of its advertising media?

With the clients' consent, an attorney may use client endorsements if the clients' statements are truthful "soft" endorsements of the attorney's services that do not create unjustified expectations about the results that the attorney can achieve. A soft endorsement describes characteristics of the lawyer's client service and does not describe the results that the lawyer achieved for the client.

If the attorney's office is in North Carolina but the attorney is also licensed to practice in or for clients in another state, and something is expressly allowed ethically by the other state but prohibited in North Carolina, is the attorney subject to discipline in North Carolina?

Yes, if the conduct is unethical under the North Carolina Rules of Professional Conduct and the lawyer's conduct occurred in North Carolina or the predominant effect of the conduct is in North Carolina. Rule 8.5(b)

If any of the foregoing activities are prohibited, which ones must be reported to the State Bar pursuant to Rule 8.3?

As stated in Rule 8.3, a violation of the Rules of Professional Conduct that raises a substantial question about a lawyer's honesty, trustworthiness, or fitness must be reported to the State Bar.

In a workers' compensation action, what duties does a lawyer have to the court if the lawyer learns that his client, who is an undocumented worker, has been using an alias and that the court documents have been filed under the alias rather than the client's legal name?

The protection of client confidences is one of the most significant responsibilities imposed on a lawyer. Rule 1.6(a) of the Rules of Professional Conduct provides that a lawyer shall not reveal information acquired during the professional relationship with a client unless (1) the client gives informed consent; (2) the disclosure is impliedly authorized; or (3) one of the exceptions set out in Rule 1.6(b) applies. One of the exceptions set out in Rule 1.6(b) allows a lawyer to reveal confidential information to the extent the lawyer reasonably believes necessary to comply with the Rules of Professional Conduct. Rule 1.6(b)(1).

Rule 3.3(a)(1) prohibits a lawyer from knowingly making a false statement of material fact to a tribunal and requires a lawyer to correct any false statement of material fact previously made. Whether a lawyer has a duty under Rule 3.3 that would require the lawyer to breach a client's confidences to correct previously filed court documents depends on whether the documents contain false statements of material fact.

If the client's name is an issue of material fact in the workers' compensation action, then the lawyer has a duty to correct the filed court documents. The North Carolina Workers' Compensation Act applies to "every person engaged in an employment under any appointment or contract of hire or apprenticeship, express or implied, oral or written, including aliens, and also minors, whether lawfully or unlawfully employed." N.C.G.S. A7 97-2. Arguably, the fact that the lawyer's client is an undocumented worker would not affect the client's right to compensation under the Act. On the other hand, issues of credibility may affect the client's action. A determination of the materiality of the client's use of an alias in a workers' compensation action is a legal question outside the purview of the Ethics Committee.

Before taking any necessary remedial measures, the lawyer should advise the client of the lawyer's duty of candor to the tribunal and seek the client's cooperation with respect to the correction of the false statements in the filed court documents.

Materiality does not affect the lawyer's duty to refrain from offering false evidence in the future. Rule 3.3(a)(3) provides that a lawyer shall not offer any evidence that the lawyer knows to be false. Therefore, the lawyer would be prohibited from introducing any evidence in support of the proposition that the alias is the client's true name, including the client's own testimony. See RPC 33. If the client cannot agree to the lawyer's proposed terms of the continued representation, the lawyer must seek to withdraw from the action in accordance with Rule 1.16.

A student who is suspended from public school for more than ten days may appeal the suspension to the school board. Similarly, when a certified employee of a school system is dismissed, the employee may appeal the dismissal to the school board. An administrative hearing is held, with the board sitting in a quasi-judicial capacity, to determine whether the decision of the administration should be upheld.

Lawyers with ABC Law Firm have extensive experience and special expertise in education law. School Board retains Law Firm to provide all legal representation to the board and, through the board, to the administration of the school system.

Lawyer A and Lawyer B are both education lawyers employed by ABC Law Firm. May Lawyer A represent the administration in a suspension case against a student in an appeal to the board while Lawyer B advises the board on the legal and procedural issues that arise during the hearing? Similarly, may Lawyer A represent the administration in a dismissal case against an employee in an appeal to the board while Lawyer B advises the board?

This inquiry presents an interesting technical issue of professional responsibility relative to whether there is a conflict of interests created by this form of dual representation. The opinion concludes there is no conflict of interests but that this form of dual representation should be avoided to foster the public's perception of the integrity and fairness of the process.

Rule 1.7(a) provides, in part, that it is a concurrent conflict of interest if the representation of one client will be directly adverse to another client or the representation of one or more clients may be materially limited by the lawyer's professional responsibilities to another client or a former client. Under Rule 1.10, a conflict of interest for one lawyer in a firm is imputed to the other lawyers in the firm unless it is a personal conflict of interest.

It is not a concurrent conflict of interest for one lawyer in a firm to present the administration's position to the school board while another lawyer in the same firm advises the board on the legal and procedural issues that arise during the hearing. Both lawyers, whether acting in the role of prosecutor or the role of advisor, represent the school board and not the student or employee appearing before the board. The arrangement described in the inquiry, therefore, does not present a conflict of interest relative to the student or the employee because no duty of loyalty is owed to them by the lawyers with ABC Law Firm.

Although it is assumed that there is no due process prohibition on the dual representation described in this inquiry and no opinion is expressed on this legal issue, see Hope v. Charlotte-Mecklenburg Board of Education, 110 N.C. App. 599 (1993), it is clear that the dual representation creates a perception of unfairness in the minds of students (and their parents) and employees appearing before the board. During the public comment period on this proposed opinion, numerous commentators stated that respondents, upon learning that the board will be advised by a lawyer who works in the same firm as the lawyer who will be presenting the administration's position, conclude that the board will receive legal advice that is biased in favor of the administration and, for this reason, the proceeding cannot be fair and impartial.

In Rule 0.1, Preamble: A Lawyer's Professional Responsibilities, it is observed that "[w]ithin the framework of [the] Rules [of Professional Conduct],85, many difficult issues of professional discretion can arise. Such issues must be resolved through the exercise of sensitive professional moral judgment guided by the basic principles underlying the Rules." One of the basic principles underlying the Rules is the duty of a lawyer, as an officer of the court, to uphold the legal process and to seek improvement in the administration of justice. Rule 0.1, cmts. [5] - [6]. As noted in comment [6] to the Preamble, "a lawyer should further the public's understanding of and confidence in the rule of law and the justice system because legal institutions in constitutional democracy depend on popular participation and support to maintain their authority." This admonition applies to administrative proceedings as well as to judicial proceedings. The dual representation described in this inquiry creates a perception of unfairness that undermines the public's confidence in the rule of law and the fairness of the proceeding. For this reason, lawyers are urged to avoid such dual representation and to recommend that the school board obtain other legal counsel to either advise the board or represent the administration.1

1. In the event lawyers in the same firm do not heed the admonition of the Ethics Committee to avoid this form of dual representation, it is recommended that the lawyers protect the integrity of the adjudicative process by avoiding communications between themselves about a pending disciplinary or employment proceeding. Screening the lawyers from each other would avoid the appearance that the lawyer presenting the administration's position may influence the lawyer advising the board of education and would be consistent with the prohibitions on improper communications about a pending matter with a judge or other adjudicative official or body in Rule 3.5(a). See Rule 1.0(l) ("'screened' denotes the isolation of a lawyer from any participation in a professional matter through the timely imposition of procedures within a firm that are reasonably adequate under the circumstances to protect information that the isolated lawyer is obligated to protect under these Rules or other law.")