CI-740

April 12, 1982

SYLLABUS

A lawyer, who is inside counsel for a corporation which solicits syndications and investments in real estate via a prospectus, would be engaging in the unauthorized practice of law if the lawyer aided the corporation in rendering legal services to the investors in the syndication. The corporation itself would likewise be engaging in the unauthorized practice of law if it renders legal services to the investors.

A lawyer may not share fees earned by the law practice with the corporation, which is a lay business.

A lawyer for the corporation must take care in determining who the client is with respect to the real estate investment, and if representing both corporation and syndication must obtain the consent of both to the dual representation after full disclosure of all potential conflicts, that the corporation agrees to make no attempt to control or interfere with the attorney's representation of the syndication, and that the attorney bills the syndication directly, not the corporation, for services.

References: MCPR Canons 3, 4, 5; MCPR DR 2-106, DR 3-101, DR 3-102, DR 5-105.

TEXT

A lawyer is an inside corporate attorney for an international real estate syndication and investment firm. The firm, a corporation, solicits syndications and investments via a prospectus which states to prospective investors that all legal work will be done by the corporation's lawyers as a service provided by the corporation. The corporation's charge as stated in the prospectus purportedly is to cover the overhead costs of the in-house lawyer.

The lawyer asks (a) whether the proposal constitutes unauthorized practice of law; (b) whether the corporation's charge constitutes improper fee splitting; (c) how the lawyer should resolve conflicts of interest between the corporation and the syndication; and (d) whether the corporation may charge for additional legal services that were rendered which would exceed the stated amount in the prospectus.

The last question is the easiest to deal with, as it appears to be beyond the jurisdictional scope of this Committee. Our charge is to provide informal opinions and guidance concerning the propriety of professional and judicial conduct. We are not to render legal judgments, requiring interpretation of statute or rule beyond those involved in governing legal ethics. The last question appears to primarily concern a legal question beyond the scope of the Committee. However, care should be taken to evaluate the prohibition against charging excessive fees and its impact upon this question. See MCPR DR 2-106.

To the extent that the corporation renders legal services to the investors beyond the creation of the syndication, the service would constitute the unauthorized practice of law by the corporation. To the extent that the corporation actually carries out the actions proposed by it in the prospectus, beyond those services necessary to create the syndication, it is engaging itself to provide legal services to the syndication and investors, apparently a separate and distinct entity or group of entities from the corporation itself. MCPR Canon 3 prohibits such legal representation by a lay corporation. That Canon and MCPR DR 3-101 prohibit a lawyer from aiding a lay business in the unauthorized practice of law.

The lay corporation's practice of charging or billing for legal services may be construed as prohibited fee splitting under MCPR DR 3-102. In this case, it is unclear whether the corporation charges the syndication investors more than the lawyer's costs, or whether the lawyer shares those costs paid for legal services with the corporation in any way.

To resolve prospective conflicts of interest, we must determine who is the lawyer's "client". It would appear that the lawyer represents the corporation. While it is not improper for a lawyer to represent multiple clients in connection with one matter, it must be done in compliance with MCPR DR 5-105. The lawyer must take care to determine that when representing both the corporation and the syndication investors, both the corporation and the investors have consented to the dual representation following full disclosure of potential conflicts.

The corporation must make no attempt to control or interfere with the lawyer's representation of the investors. MCPR DR 5-105. The lawyer must bill the syndication investors directly for legal services and not through the corporation. Only in that fashion may a lawyer represent both interests. If the lawyer is representing the syndication, but the representation is paid for by the corporation, this could represent prohibited conduct under MCPR Canons 4 and 5. See also, CI-719 and ABA i973.