WITH ISSUANCE OF STOCK BASED ON SIZE OF
                           ATTORNEY'S REAL ESTATE PRACTICE

You have presented a hypothetical situation in which several
attorneys form a stock corporation to serve as a title insurance
agency, with stock being issued to each attorney based upon the
size of their real estate law practice.   Those attorneys with
larger practices have the opportunity to buy more stock than
attorneys with smaller practices.  The current stockholders desire
to sell shares to new stockholders and only issue shares in amounts
based upon the new stockholders's projected title insurance
premiums.  In one year, all stockholders will buy and sell among
themselves the outstanding stock based upon their performance for
the past year.  This will result in a distribution of future
dividends based upon past premiums paid by clients of each

You have asked the Committee to opine whether this allocation of
stock for future dividends based on the past premiums paid is the
type of financial arrangement which the Committee concluded was
proper in prior legal ethics opinions numbered 1564, 545 and 591.

The controlling disciplinary rules are DR 1-102(A)(3) and DR 5-
101(A).  DR 1-102(A)(3) states that a lawyer shall not commit a
crime or other deliberately wrongful act that reflects adversely on
the lawyer's fitness to practice law.  DR 5-101(A) 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.

In Legal Ethics Opinion #545 and #591 the Committee opined that it
is not improper for an attorney to participate in a title agency as
a shareholder and thereby receive agency profits as a result of
timely distributions, as opposed to direct commissions, salaries or
payments with respect to specific policies at closings.  However,
written disclosure of the relationship between the attorneys and
the title agency must be made to the real estate clients for whom
the title agency is performing services.  In both opinions the
Committee declined to offer an opinion as to the application of the
"kickback" statute, then Va. Code 38.1-733.1 [now 38.2-4614], to
such financial interests.  The Committee cited in both opinions DR
5-101(A) as the controlling rule.

In Legal Ethics Opinion #1564, the Committee issued a compendium
opinion concerning attorney relationships with title insurance
companies and addressed, in the abstract, a number of ethical
issues arising out of an attorney having an ownership interest in
a title insurance agency.  The Committee did not consider any
specific facts or hypothetical situation in LEO #1564.  In LEO
#1564, the Committee reaffirmed its conclusions reached in prior
LEOs #545 and 591, 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.

In addressing this compensation issue, the Committee is mindful of
the prohibitions against receiving title insurance kickbacks,
rebates, commissions and other payments set forth under Section
38.2-4614(A) of the Code of Virginia of 1950, as amended, which

     No person selling real property, or performing services as a
     real estate agent, attorney, or lender, which services are
     incident to or a part of any real estate settlement or sale,
     shall pay or receive, directly or indirectly, any kickback,
     rebate, commission or other payment in connection with the
     issuance of title insurance for any real property that is a
     part of such sale or settlement; and no title insurance
     company, title insurance agency or agent shall make any such
     payment.  This section shall not prevent any federally insured
     lenders, or holding companies to which they belong, or
     subsidiaries of such lenders or holding companies from being
     licensed by the Commission as title insurance agents or
     agencies and receiving commissions from the sale of title
     insurance policies in their capacities as title insurance
     agents or agencies.

However, Section (C) of this statute states:

     No person shall be in violation of this section solely by
     reason of ownership in a title insurance company, title
     insurance agency or agent as defined in this chapter.

The Committee stated in LEO 1564 that it would be per se improper
for an attorney to be compensated by a title 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 number of
referrals.  Statutory law prohibits an attorney, in his role as a
supporting entity to the title insurance industry, from receiving
or paying kickbacks, rebates, commissions or other payments in
connection with the issuance of title insurance for any real estate
settlement or sale.  See, Virginia Code Section 38.2-4614(A).  In
addition, federal law (RESPA) has been interpreted to prohibit a
"controlled business relationship" where payments made to a person
who refers settlement service business to an agency is based upon
the volume of referrals rather than a return on ownership interest.

The manner of compensation proposed in your hypothetical is a
variation of what the Committee contemplated in LEO #1564.  Whether
your proposed dividend distribution is legal under state or federal
law is an issue beyond the purview of this Committee.  If your
proposed dividend distribution is illegal under state or federal
law, then it would be improper under DR 1-102(A)(3) for the
attorneys in your hypothetical to adjust their stock ownership in
the agency based upon the performance or volume of business
referred by each attorney.  However, assuming there is no
underlying violation of Virginia or federal law, this conduct would
not otherwise be considered unethical in the eyes of the Committee.

[DRs 1-102(A)(3), 5-101(A); Va. Code  38.2-4614; LEOs 545, 591,

Committee Opinion
December 15, 1995