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RE: Advisory
Opinion 2000-01
Arkansas Bar Association
DATE: February
21, 2000
SUBJECT: Attorney Involvement with Land Title Company
Background:
A group of non-attorneys plan to establish a land
title company. A non-attorney will be a full time
manager. The plan envisions a law office to be physically
located in the title company's office. The office
would prepare deeds, contracts and other legal documents
to be used by the title company in real estate closing.
The office would be staffed by a licensed Arkansas
attorney, who has a full time practice in another
county and would be present in the law office approximately
one day per week.
Analysis:
In Advisory Opinion 98-01 this committee analyzed
the proposal of several attorneys to create a title
insurance company. We examined the conflicts of interest
between the attorneys' professional practice and ownership
of a related or ancillary business, and the resulting
necessary disclosure and consent. In contrast, no
lawyer will own any part of this proposed company.
However, this proposal presents three ethical issues
of its own.
1)
Unauthorized Practice of Law: Corporations are not
permitted to practice law. Ark. Code Ann. § 16-22-211(a).
Title companies are not permitted to draft legal documents,
provide them to individuals in real estate transactions,
and charge for their services. Beach Abstract &
Guarantee Co. v. Ark. Bar Assn., 230 Ark. 494,
326 S.W.2d 900 (1959). Admittedly in some instances
real estate brokers, and by extension others in the
real estate profession, may complete standardized
legal documents in connection with a particular transaction.
See Pope County Bar Association v. Suggs, 274
Ark. 250, 624 S.W.2d 828 (1981). But that opinion
expressly bars brokers and others from giving legal
advice or charging for their services.
If
a title company cannot engage in the unauthorized
practice of law directly, neither can it do so indirectly.
See Arkansas Bar Association v. Union National
Bank of Little Rock, 224 Ark. 48, 273 S.W.2d 408
(1954). Regardless of whether the title company has
an attorney serving as an officer or employee, whether
the title company has a lawyer physically in the building,
or whether the company has an attorney on retainer,
the title company cannot engage in those activities
that are traditionally restricted to licensed lawyers.
2)
Location of the attorney. No ethical rules restrict
the office of an attorney. An attorney may rent space
for a law office in a bank, a shopping mall, a courthouse
annex, or a real estate office. Nothing prevents the
attorney from entering into a landlord-tenant relationship
and having an office in the same facility as the land
title company. But in addition to adherence to the
ethical standards, including those of reasonable fees,
confidentiality, and conflicts of interest, the attorney
must be particularly sensitive to two dangers.
Arkansas
Rule of Professional Conduct 5.4(a) prohibits sharing
legal fees with non-lawyers. Accordingly, it would
be improper for the rent to be based on a percentage
of the legal fees received. The rent should be established
in a manner that does not violate this rule. Likewise
the fees paid for legal services must be paid to attorneys
and retained by them.
In
addition Rule 5.4(c) mandates that the attorney exercise
independent professional judgment, free of any interference
from the third party (such as the land title company)
who recommends the attorney to individuals. The relationship
between the title company and the law office must
assure professional independence.
3)
Supervision of non-lawyers: Without running afoul
of the unauthorized practice of law, an attorney may
use law clerks, paralegals, accountants, investigators
and other skilled individuals to assist in the rendition
of legal services. Comment to Rule 5.5. A real estate
lawyer can rely on others to research titles, prepare
deeds and handle closings.
However,
we offer three caveats:
a)
The attorney must have control and authority over
the assistants. In this proposed plan, the attorney
cannot delegate the research and drafting to employees
of the land title company. The attorney lacks ultimate
control over them. The attorney would be delegating
legal services to individuals controlled by non lawyers.
Unless the relationship between the attorney and the
paraprofessionals is that of employer-employee (or
a comparable relationship), the attorney may lack
sufficient control to assure professional standards.
b)
The attorney must actually exercise control. The attorney
is to give appropriate instruction to assistants concerning
their responsibilities and supervise, as well, the
ethical aspects of their employment. Comment to Rule
5.3. The attorney is responsible from both a malpractice
and a discipline perspective for the failure to exercise
control. In addition, the failure to properly exercise
oversight subjects the attorney to a possible unauthorized
practice of law violation under Rule 5.5(b). The assistants
have no authority to give legal advice or provide
other legal services. We note, for instance, that
the Supreme Court and its Committee on Professional
Conduct have disciplined attorneys for the lax control
and supervision of employees. For example, Mays
v. Neal, 327 Ark. 302, 938 S.W.2d 830 (1997) (attorney
disciplined for permitting office personnel to practice
law).
c)
No rule requires the attorney to be physically present
in the office a prescribed number of hours. No rule
expressly
prohibits an employee from signing, with clear permission,
the name of the attorney. But the risks are great.
No competent lawyer in the real estate setting would
approve a document without having seen it, and any
careful lawyer will insist on personally approving,
if not signing, the document.
NOTICE
"This
is an opinion only of the Arkansas Bar Association
which is a voluntary association of attorneys licensed
to practice in the State of Arkansas, and reliance
thereon is voluntary and relieves any Association
member from liability for the content hereof. This
opinion is intended to be the Association's best interpretation
of the Model Rules of Professional Conduct as promulgated
by the Supreme Court of Arkansas as that code applies
to the written facts presented to the Committee."
ARKANSAS
BAR ASSOCIATION
By: ____________________________________
Howard W. Brill
Reporter for Professional
Ethics
and Grievances
Committee
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