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Ethics Opinion

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CI-622

April 27, 1981

SYLLABUS

    It is not improper for a lawyer to acquire an interest in a real estate company by providing professional services as consideration for such interest.

    It is not improper for a lawyer with an interest in a real estate firm to represent that concern or act as general counsel.

    There is no prohibition against a lawyer sharing the same receptionist with a real estate firm in which he or she shares an interest where the receptionist works for the lawyer in the morning and the real estate company in the afternoon.

    Provided a lawyer maintains a separate telephone line for his or her law practice, and there is little chance of confusion, it is not improper for a lawyer to share a trunk line with another business in which he/she has an interest.

    References: CI-221, CI-236, CI-433.

TEXT

ABC Realty Company (ABC) employed a lawyer as general counsel for ABC and the lawyer prepared the documents necessary for residential real estate closings. This relationship lasted for a period of one year, whereupon ABC, finding itself in financial distress, determined that it was no longer economically feasible to continue the business. Two other brokers employed by ABC decided to begin their own real estate company, XYZ Realty Company. These brokers approached the lawyer who also has a real estate salesperson's license, with the following offer:

  1. A twenty percent (20%) interest in the XYZ Realty Company, in exchange for the attorney's professional services in familiarizing the XYZ employees with laws applicable to the sale of real estate, for bookkeeping and for other administrative functions.
  2. The retention of the attorney as general counsel to XYZ Realty Company as well as preparing and conducting real estate closings for a separate fee.

The inquiry is whether or not such an arrangement would be in compliance with the fundamental requirements of the ethical practice of law specifically:

  1. May the attorney ethically accept the offer for a twenty percent (20%) interest in XYZ Realty Company?
  2. May the attorney serve as general counsel to XYZ Realty company, if the attorney acquires an interest in XYZ Realty Company?
  3. May the attorney and XYZ Realty Company share the cost of hiring a receptionist, if the receptionist works for the attorney in the morning and XYZ in the afternoon?
  4. May the attorney and XYZ utilize a phone system where XYZ has a trunk line that the attorney has access to and the attorney has a separate line that XYZ does not have access to?

For purposes of responding to this inquiry, the Committee is assuming that the ABC Realty Company is no longer in existence and that there are no actual or potential disputes which have arise or might foreseeable arise between the former ABC Realty Company and the new XYZ Realty Company, or persons associated. Simply stated, facts do not exist which might raise questions concerning any conflict of interest or the preservation of confidences and secrets of a client.

It is noted that there is no prohibition against a lawyer engaging in another profession or business. See CI-236, CI-302 and CI-433. Additionally, this Committee has held that a lawyer may ethically engage in a real estate business or be a shareholder in a real estate company. CI-236.

It is common knowledge that oftentimes one party to a business venture furnishes capital while another provides services or talents. The fact that one's services or talents relate to the practice of law would not ethically prohibit a lawyer from consummating the hypothetical arrangement. Thus, with regard to the first inquiry, it would not be improper to accept the offer of a twenty- percent (20%) interest in the XYZ Realty Company in exchange for legal services.

With regard to the second inquire, CI-236 stated that it is not improper for a lawyer with an interest in a real estate firm to represent that concern. Acting as general counsel for a real estate firm in which the attorney shares an interest would be included within the intent of the language of CI-236. Thus, no impropriety exists with regard to the second inquiry.

The third inquiry appears to suggest an intent to conduct the practice of law from the same offices as the real estate business. CI-433 contains an extensive analysis of such a practice and discusses the inherent problems associated. The concerns of the Committee with such a practice, as pointed out, center primarily on the likelihood that improper solicitation might occur. As stated in CI-433:

    ". . . [I]t appears, that the critical concern of the Committee in all the decisions involving this issue was that the other profession or business would serve as a feeder of the law practice and that this was an impermissible form of solicitation under the Code."

Specifically, with regard to a lawyer's separate real estate business, CI-236 states:

    "A real estate business may, under no circumstances, be a vehicle for the referral of business to you as an attorney. Direct and indirect solicitation is prohibited."

While the prohibition against advertising has been virtually abolished to the extent such advertisement is not false, fraudulent, misleading or deceptive, indirect feeding of a law practice by a separate occupation continues to be prohibited by this Committee as impermissible solicitation.

This Committee at one time held that a lawyer's law office must be kept physically separate from a real estate business so as to avoid the type of feeding discussed above. CI-221. However, the Committee has retreated somewhat from this hard and fast position in recent years. In CI-329, the Committee cited with approval the ABA's position stating:

    ". . . a lawyer could conduct his law practice and a law-related profession or occupation such as a marriage counselor, accountant, labor relations consultant, real estate broker or mortgage broker from the same office provided he complies with all of the provisions of the Code of Professional Responsibility." Emphasis added.

Adopting the language of CI-433, the Committee opined:

    ". . . [W]hile it would not be technically improper for you . . . [Real Estate Business] from your law offices, it would be very difficult for you to comply with the Code from a practical perspective. Concluding, as we do, that your . . . [Real Estate Business] is sufficiently law-related to require your compliance with the Code of professional Responsibility when you are engaged in those pursuits and endeavors, we are somewhat skeptical whether this can be effectively accomplished. In any event, the burden will be upon you as an attorney accepting this additional employment, to be scrupulous and circumspect in your conduct so as not to give any impression of soliciting representation from other potential clients.

    "Referring to the qualifications expressed above we must impress upon you that they are substantial ones indeed. The American Bar Association in Opinion 328 in delineating the scope of complying with the Code of Professional Responsibility in practicing the other profession said the following:

    "For example, fees set by a lawyer purporting to carry on from his law office, a mortgage brokerage or loan brokerage business must conform with DR 2-106. Publicity given to the second occupation and methods of seeking business must be in accord with DR 2-101, DR 2-103 and DR 2-104. The lawyer may have a duty under DR 4-101, to preserve confidences and secrets, or information, acquired in carrying on the second occupation even though others engaged in that occupation do not have a similar duty. Similarly, the lawyer may, in connection with the second occupation, owe a duty as a fiduciary even though the relationship of others in that occupation to their clients and customers is not that of a fiduciary; see DR 5-101, DR 5-104 and DR 5-105."

Note that with regard to the BAB language pertaining to publicity and methods of seeking business, to the extent it is not solicitation, an attorney in Michigan must only conform to Administrative Order 1978-4. That order states that any public communication by an attorney may not be false, fraudulent, misleading or deceptive.

With the above in mind, there is no prohibition against a lawyer sharing the same receptionist with a real estate firm in which he or she maintains an interest in the manner in which you describe. As to the final inquiry, provided the attorney keeps a separate telephone line for the practice of law, and there is little chance of confusion, there is no impropriety.

The Committee suggests that you review any applicable restrictions imposed by the real estate laws of the State of Michigan and rules promulgated, to determine if our suggested arrangement is permissible.

 
     

 

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