RI-5

July 12, 1989

SYLLABUS

    It is not improper for a lawyer to hold an ownership interest in a title company, if the businesses are maintained separately.

    It is improper for a lawyer having an ownership interest in a title company to agree to represent a client who is obtaining services from the title company, or to review the sufficiency of the title insurance policy issued by the company.

    References: MRPC 1.7(b), 1.8(a), 5.4(c), 8.4(a) and (c).

TEXT

A lawyer has been offered an opportunity to become an owner or partner in a corporation set up for the sole purpose of issuing title insurance. In the lawyer's private law practice, the lawyer provides advice on the quality of the title and the sufficiency of the title insurance policy from the perspective of a client purchaser or lender. The lawyer asks whether it is proper for a lawyer to have an ownership interest in a title insurance company.

Ethics rules do not prohibit a lawyer from engaging in a career or business other than the practice of law, and the bar does not regulate nonlaw businesses. A lawyer's ethical obligations may be affected by the lawyer's participation in a nonlaw business, however, and ethical perspectives should be safeguarded.

MRPC 1.8(a) states:

    "A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to the client unless:

      "(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client;

      "(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and

      "(3) the client consents in writing thereto."

If a lawyer's client needs the services of a title insurance company, the lawyer may not recommend or allow the lawyer's own company to undertake to provide the needed services unless the lawyer complies with MRPC 1.8(a).

MRPC 1.7(b) states:

    "A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's . . . own interests, unless:

      "(1) the lawyer reasonably believes the representation will not be adversely affected; and

      "(2) the client consents after consultation . . . ."

In CI-868 we stated a lawyer may not act as counsel for a personal representative of an estate where that lawyer's real estate firm sold assets of the decedent. Some jurisdictions have held that a lawyer may not certify title to a property and represent a buyer in an effort to obtain title insurance. North Carolina Op. 302. Nor may a lawyer execute title binders and policies issued by the title agency to the law firm's client. North Carolina Op. 690.

If a customer of a title insurance company needs legal services, it is not conceivable that a lawyer could "reasonably believe the representation will not be adversely affected" when the lawyer is asked to pass on the sufficiency of title or quality of services provided by the lawyer's own title company. MRPC 1.7(b)(1). Although the lawyer may be able to represent the client on other matters, the lawyer may not offer legal advice on the propriety of the services of the lawyer's own title company. We also note that the title company is prohibited from directly delivering legal services to customers, even through licensed in-house staff lawyers, and even though the title company is owned by a properly licensed lawyer. MCL 450.681, MCL 500.7304.

In addition to the protections afforded the client in MRPC 1.7(b) and 1.8(a), the lawyer must not give the appearance of allowing a connection to a title insurance business to interfere with the lawyer's judgment on the sufficiency of a title insurance policy or the quality of the title transferred. MRPC 8.4(a) and (c). See MRPC 5.4(c).

A lawyer may not allow the title insurance company or its employees to communicate about the lawyer's services in violation of MRPC 7.1, and may not allow the title company to improperly solicit legal business on the lawyer's behalf. MRPC 7.2(c). A lawyer having two businesses or occupations, one of which involves the practice of law or delivery of legal services, must keep the operations of the businesses separate.