Please note that Legal Ethics Opinion #l564 (February 15, 1995)
printed herein is a reissuance with revisions of Legal Ethics
Opinion #l564 issued December 8, l994.
The three revisions are intended to clarify the conclusions of the
Opinion and can be found in the definition of "Associated Attorney"
in section l; the last sentence of the first paragraph of section
2; and the last paragraph of section 4.
The original version dated December 8, 1994 was inadvertently
provided to Michie-Butterworth for publication in the supplement to
the unnumbered volume of the Virginia Code.
Virginia State Bar
Legal Ethics Opinion #l564
Attorney Relationships With Title Insurance Agencies
BACKGROUND:
The Committee is cognizant that a number of Virginia attorneys are
associated with or have a relationship with a title insurance
agency in some capacity. Since l972 the Committee has issued a
number of Opinions relative to that association or relationship.
Upon its own initiative, the Committee has reviewed those Opinions
to determine whether they should remain in effect, be overruled, or
clarified.
This Opinion sets forth the ethical requirements in situations
where an attorney is associated with or has a relationship with the
title insurance agency and receives compensation from the title
insurance agency, but also wishes to represent a party to a real
estate transaction where title insurance or related products or
services are to be provided by that title insurance agency. This
is a compendium Opinion in the sense that it incorporates in one
opinion those existing Legal Ethics Opinions which deal with the
subject described above. To the extent that prior Opinions hold to
the contrary or are inconsistent with this Opinion, they are hereby
overruled.
INQUIRY:
The issues which the Committee addresses in this Opinion relate to
an attorney's association with a title insurance agency, company,
or other entity [herein referred to collectively as "agency"] in an
ownership or other financial or business relationship.
Specifically, those issues include: (l) the propriety of an
attorney having an ownership or other financial interest in a title
insurance agency; (2) allowable methods of compensation paid to an
attorney having an ownership or other financial or business
relationship in a title insurance agency; (3) attorney
representation of parties to a real estate transaction involving a
title insurance agency in which the attorney has an ownership or
other financial or business interest relationship; and (4)
disclosure requirements an attorney must make and consent an
attorney must obtain prior to using a title insurance agency in
which the lawyer has such an interest.
APPLICABLE DISCIPLINARY RULES:
The appropriate and controlling disciplinary rules relevant to the
questions raised are:
DR 5-l0l(A) which prohibits an attorney from accepting
employment if the exercise of his professional judgment on
behalf of his client may be affected by his own financial,
business, property, or personal interests, except with the
consent of his client after full and adequate disclosure under
the circumstances [emphasis added];
DR 5-104(A) which prohibits an attorney from entering into a
business transaction with a client if they have differing
interests therein and if the client expects the attorney to
exercise his professional judgment therein for the protection
of the client, unless the client has consented after full and
adequate disclosure under the circumstances and provided that
the transaction was not unconscionable, unfair or inequitable
when made;
DR 5-l05(A, B and C) which preclude an attorney from accepting
or continuing employment by multiple clients if the exercise
of his independent professional judgment in behalf of a client
will be or is likely to be adversely affected by his
representation of another client, except where it is obvious
that the attorney can adequately represent the interest of
each and if each consents to the representation after full
disclosure; and
DR 3-l01(A) which prohibits an attorney from aiding a non-
lawyer in the unauthorized practice of law.
RELEVANT STATUTORY PROVISIONS:
Virginia Code 38.2-460l, as amended
Virginia Code 38.2-460l.l, as amended
Virginia Code 38.2-46l4, as amended
l2 U.S.C. 260l-26l7, Real Estate Settlement Procedures Act
PRIOR LEGAL ETHICS OPINIONS:
The following Opinions have dealt with the issue of attorney
relationships with title insurance agencies:
# 187 # 690 # 939 #1198
#1405
# 392 # 712 #1072 #1311 #1469
# 545 # 754 #1097 #1318 #1515
# 591 # 831 #1152 #1345
# 603 # 886 #1170 #1402
OPINION:
l. Definitions
For purposes of this Opinion, the following terms shall have
the indicated meanings:
Associated Attorney shall mean a partner, associate, attorney
who is of counsel or any other attorney who is in any way
involved in a profit or overhead sharing arrangement with
another attorney in the practice of law.
Attorney Agency shall mean a title insurance agency or title
insurance company, both as defined in the Code of Virginia,
which is directly or indirectly owned by an attorney or an
Associated Attorney, or a member of the family of the attorney
or the Associated Attorney, or in which the attorney has any
other financial, property, business or personal interest, from
which the attorney or the Associated Attorney proposes to
obtain title insurance or related products or services for his
client or a lender of his client.
Managerial Role shall mean the functioning as an officer of a
corporation, member of a limited liability company, partner of
a partnership or in another supervisory position on behalf of
the Attorney Agency.
Title Insurance Agent shall be an individual licensed by the
Commonwealth of Virginia as such and shall have the functions
as set forth in the Code of Virginia.
2. Attorney Ownership of Title Insurance Agencies
While consistently opining that an attorney's activities which
simultaneously constitute the practice of law and related
business endeavors are not per se improper, the Committee has
cautioned that such activities must comport with the
applicable requirements of DR 5-l0l(A) when clients of the
attorney's law practice are also users of the service offered
through the business activity. See, e.g., LEO 1198 (ownership
of court reporting service), 1311 (sale of insurance
products), 1318 (offering management consulting services),
1345 (wife's ownership of court reporting service). Thus, the
Committee is of the opinion that it is not improper for an
attorney to (i) acquire an ownership or other financial
interest in an Attorney Agency or (ii) have a Managerial Role
in the Attorney Agency, provided that the attorney complies
with the requirements set forth in this opinion.
When an attorney has an ownership or other financial interest
in an Attorney Agency, other title agency or any other
business other than his or her law practice, and conducts a
law practice on the same premises, the Committee believes that
it is incumbent upon the attorney to maintain separate signage
and telephone listings, separate and secure client files, and
separated office space. See LEO 754. Furthermore, when the
two entities employ the same individuals, great caution should
be taken to avoid any inadvertent disclosure of client
confidences and secrets. See DR 3-l04 and DR 4-l0l.
Although the Committee is not authorized to interpret
statutes, attention is also directed to Va. Code 38.2-46l4
which sets forth a statutory prohibition against payment or
receipt of title insurance kickbacks, rebates, commissions,
and other payments, but provides also that "no person shall be
in violation of this section solely by reason of ownership in
a bona fide title agency"; and also l2 U.S.C. 260l-26l7,
Real Estate Settlement Procedures Act which, among other
things, includes prohibitions against kickbacks and unearned
fees. The Committee cautions that an attorney must comply
with the requirements of all applicable state and federal laws
which, in some respects, may be more stringent than those
articulated in this Opinion.
The Committee also cautions that title insurance agencies, as
lay entities, are without authority to practice law, and their
activities are, of course, subject to the constraints of the
Unauthorized Practice Rules generally and to Unauthorized
Practice Rule 6 regarding Real Estate Practice specifically.
Part Six: Section I: UPR-6, Rules of Virginia Supreme Court.
See also LEO #l469.
3. Compensation of Attorney by Title Insurance Agency
The Committee has previously opined that it would be per se
improper for an attorney to be compensated by a title
insurance agency in which the attorney has an ownership or
other financial interest in a manner which is directly related
to the volume of business or the number of referrals the
attorney has generated for the agency or is based on premiums
paid for specific policies. See LEOs #545, 591. Similarly,
the Committee is of the belief that the attorney may not
receive a fixed salary from the agency unless it is
substantially related to the services rendered or work
performed for the agency. See LEO #59l; see also LEO #1402
(vacating LEO #ll38; thus concluding that no operative LEO
permits an attorney who is a shareholder in a title insurance
company to receive consulting fees tied to the number of
policies obtained for his clients). Thus, the Committee finds
that an attorney may receive reasonable compensation from an
Attorney Agency or other title insurance agency in the form
of: (i) periodic dividends on stock or similar distributions
as a result of ownership of the Attorney Agency; (ii)
legitimate fees based upon the attorney's having rendered
services for the Attorney Agency or other agency; or (iii)
reimbursement of reasonable expenses actually incurred on
behalf of the Attorney Agency or other agency. See LEOs #545,
59l. See also Va. Code 38.2-46l4 supra.
Indirect remuneration to the attorney through the receipt of
interest earned on funds deposited in the agency's escrow
account has also been deemed improper and violative of DR l-
l02(A)(2) if the attorney has specifically steered a client to
the separate lay agency owned by the attorney for the purpose
of circumventing the absolute prohibition against an attorney
earning interest on a client's funds. See LEOs #392, 831,
ll70.
Finally, the Committee has also found that it would be
improper for the attorney to accept indirect remuneration in
the form of payments by the title insurance company for law
firm employees' salaries, and goods, services, and
advertisements rendered to the law firm. See LEO #1405.
4. Representation of Parties to a Real Estate
Transaction Involving the Attorney Agency
The Committee is of the opinion that the following activities
in and of themselves, when engaged in by an attorney or any
Associated Attorney, do not per se create a conflict under DR
5-l05(A) which would prohibit an attorney from representing a
party to a real estate transaction where title insurance or
related products or services are obtained from the Attorney
Agency for the client of the attorney or lender of the client.
(i) providing legal advice or acting as general
counsel to the Attorney Agency;
(ii) representing the Attorney Agency before any
tribunal, administrative agency or court;
(iii) holding oneself out to the public as being an
attorney for the Attorney Agency (i.e. the
representation of any attorney status on any
business card, stationery, advertisement, brochure
or announcement of the Attorney Agency);
(iv) serving as a director of the Attorney Agency;
(v) serving in a Managerial Role in the Attorney
Agency; or
(vi) serving as a registered agent of the Attorney
Agency.
The Committee cautions, however, that during the course of
representing a party to a real estate transaction where title
insurance or related products or services are obtained from
the Attorney Agency for the client of the attorney or the
lender of the client, the activities described in (i) through
(vi) above may create a conflict under DR 5-l05 in which event
the attorney may continue to represent the party only if it is
obvious that adequate representation can be provided that
party and the Attorney Agency, and both consent to the
representation. DR 5-l05(B) and (C).
However, the Committee is further of the opinion that, under
DR 5-l05(A), it is improper for an attorney to represent a
party to a real estate transaction if title insurance or
related products or services are to be provided by the
Attorney Agency to the client of the attorney or the lender of
the client and (i) the attorney or any Associated Attorney
holds a license with the Attorney Agency as a Title Insurance
Agent and acts as a Title Insurance Agent in the transaction
or (ii) the attorney or Associated Attorney, if not holding a
license with the Attorney Agency as a Title Insurance Agent,
directly or indirectly performs the function of a Title
Insurance Agent for the Attorney Agency in the transaction.
The Committee further opines that the impropriety is not
curable with disclosure to and consent of the client since it
is not obvious that the attorney can adequately represent the
interest of each. DR 5-l05(A) and (C).
5. Full Disclosure and Client Consent
The Committee is of the opinion, in circumstances where it
would not be improper for the attorney to represent a party to
a real estate transaction wherein the Attorney Agency provides
title insurance or related products or services, that, prior
to using such Attorney Agency, the attorney is required to
make a full and adequate disclosure to the client. See DR 5-
l0l(A) and LEOs #886, 939, ll52. Furthermore, since the
transaction will create a business relationship between the
attorney and client, DR 5-l04(A) requires that the transaction
must not be unconscionable, unfair or inequitable when made.
See LEOs #603, 712.
The Committee has consistently quantified adequate disclosure
as that which will enable the client to make an informed
decision. Furthermore, the Committee is of the view that all
doubts regarding the sufficiency of the disclosure must be
resolved in favor of the client, and against the attorney,
since it is the attorney who seeks to profit in advising his
client to utilize the services of a business in which the
attorney has a pecuniary interest. See LEO #187. In the
circumstances under consideration, the Committee opines that
a sufficient disclosure would include title insurance costs,
including the title insurance premium, binder fees, title
examination fees, closing fees, and any other charges which
the Attorney Agency would make and a suggestion of the
availability of securing title insurance and related services
from alternative title insurance agencies. See LEO #l5l5.
The Committee is of the further opinion that it is advisable
that the disclosure be made in writing and accepted by the
client in writing. Id.
Committee Opinion
December 8, l994
Revised February 15, 1995
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