Opinion 631NEW YORK STATE BAR ASSOCIATION Committee on Professional Ethics
Opinion #631 – 03/23/1992
Topic: Conflict of Interest: Agent for title insurer as attorney for County Resource Recovery Agency; multiple representation
Digest: Proper for lawyer serving as agent of a title insurance company to represent a County Resource Recovery Agency and offer title insurance for a bonded project if each consents after full disclosure, and no conflicting interests are present; the lawyer may accept the agency’s consent if the conditions of N.Y. State 629 are met
Code: DR 5-101; DR 5-105(C); DR 5-107; Canon 9
May a lawyer ethically represent a County Resource Recovery Agency, which is a public benefit corporation established pursuant to Title 13(D) of the Public Authorities Law, and also act as an agent for a title insurance company that has undertaken title insurance work in connection with proposed construction projects by the agency, if the agency and the title company consent to the proposed representation and the agency is given credit for the full amount of fees paid to the lawyer by the title insurance company?
The inquirer is a lawyer whose firm represents a County Resource Recovery Agency established as a public benefit corporation pursuant to Title 13(D) of the Public Authorities Law. The inquirer’s firm also serves an agent for a nationwide title insurance company. The agency was established for the purpose of building a resource recovery facility and it has executed contractual arrangements, written primarily by the agency’s bond counsel, with a vendor to build and operate the facility. The contracts obligate the agency to provide title insurance to cover the facility, naming as beneficiaries the bond holders, the vendor and the agency.The inquirer disclosed her firm’s involvement with the title insurance company and proposed to procure the required title policies on behalf of the agency from that company. As part of this disclosure, the inquirer informed the agency that her firm would be paid by the title insurance company in connection with this arrangement and that she would advise the agency of the exact amount of that fee. The inquirer will give the Resource Recovery Agency full credit for the fees related to the proposed title insurance work, thereby reducing the agency’s legal fees substantially. The agency and the title company will consent to the proposed representation.In N.Y. State 351 (1974), this Committee concluded that, consistent with DR 5-107 and DR 5-105, a lawyer may act as both agent for a title company in a real estate transaction and counsel for a party in the same transaction, “provided it is clear that there is no conflict of interest between the client and the title company, that both parties consent after the attorney makes full disclosure to both, and his client is either given credit for the amount of any fees paid to the attorney by the title company or the client expressly consents to the retention of such fee.” N.Y. State 351. In N.Y. State 576 (1986), this committee amplified N.Y. State 351 in considerable detail. While adhering to the underlying conclusion in that opinion, N.Y. State 576 conditioned such multiple representation on the following:(1) The representation must be legally proper.(2) The client must have a meaningful opportunity to realize all available savings in connection with the transaction.(3) The lawyer must disclose to the client “the amount the lawyer receives from the title company (or out of the title insurance premium) and the possible availability of such insurance at a lower cost to the client.”(4) The explanation to the client of the option to credit the lawyer’s fee by the amount received from the title company must “be particularly clear and complete,” the lawyer must “fully and fairly advise the client of the alternatives available to the client and the right of the client not to consent,” and the client must have “a reasonable time thereafter to consider the matter.”(5) Even with client consent, “the lawyer is not entitled to receive amounts from the transaction that would in the aggregate constitute an excessive fee” because of duplication of services.(6) The proposed multiple representation cannot occur, even with client consent after full disclosure, if the lawyer cannot adequately discharge his duties as an agent for the title insurance company and represent the proposed client because it is not “obvious that he can adequately represent the interest of each” within the meaning of DR 5-105(C).N.Y. State 576, at 6-9.We left it to the lawyer to determine whether “it is obvious that the lawyer can adequately represent the interests of each client” in the circumstances, except that we ruled out satisfaction of the obviousness test “[w]here exceptions to title might be negotiable or where questions otherwise arise as to whether the principal represented by the attorney-agent should accept certain exceptions to title or insist on their omission as a condition to title closing.” N.Y. State 576, at 9 n.5. See also, N.Y. State 621, at 4-5 (1991) (describing the “negotiating with himself or herself” problem in this context).The inquirer represents that no conflict of interest exists in the proposed arrangement for the resource recovery facility and that the agency will be given full credit for the fees paid to the firm by the title company even though the inquirer might, under N.Y. State 576, ethically procure a waiver of this credit from the agency. In other words, N.Y. State 576 would permit the arrangement if both clients are able to and do consent.Because the inquirer represents, and we have no reason to doubt, that all of the prophylactic requirements of N.Y. State 576 will be met, we conclude that the lawyer may ethically accept the County Resource Recovery Agency’s lawfully given consent to the proposed dual representation. In N.Y. State 629 (1992) we opined that a lawyer may accept a consent from a public entity provided that (i) the obviousness test of DR 5-105(C) can be satisfied, (ii) the lawyer is reasonably certain that the governmental entity is legally authorized to waive the conflict and all legal prerequisites to the consent have been satisfied, and (iii) the process by which the consent is granted is sufficient to preclude any reasonable public perception that the consent was provided in a manner inconsistent with the public trust. (*1)As we emphasized in N.Y. State 629 (1992), abandonment of the government cannot consent rule means increased focus on DR 5-105(C)’s obviousness test. Application of the obviousness test of DR 5-105(C) where a public entity is the client consenting to multiple representation demands a rigorous analysis of the particular facts confronted by the lawyer and a keen awareness of the heightened concern a lawyer representing a governmental body must have for the avoidance of any appearance of impropriety. Canon 9; e.g., N.Y. State 580 (1987)(“special sensitivity of the position of an attorney for a municipality and the potential to undermine public confidence in the integrity and efficiency of the legal system as it relates to municipal affairs”).On these facts the obviousness test is satisfied. The separate requirements of N.Y. State 576 and N.Y. State 351 ensure that no actual conflict of interest can exist between the client and the title company. Furthermore, N.Y. State 576 requires withdrawal from the multiple representation if any exceptions to title arise which might be negotiable. (*2) Thus, provided the other two requirements of N.Y. State 629 are satisfied, the lawyer may accept the consent.CONCLUSIONFor the reasons stated and subject to the qualifications expressed above, the question posed is answered in the affirmative.NOTES(*1) We do not determine the manner in which the entity, here a County Resource Recovery Agency, legally can consent because that is a question of law presumably governed by Title 13(D) of the Public Authorities Law and other state and county enabling legislation. That legal determination is for the inquirer to make and satisfy in accordance with the precautionary comments we made in N.Y. State 629 that the lawyer proceed “with extreme caution” and “be alert to the potentially significant pitfalls” associated with procuring a public entity’s consent.(*2) Conversely, if the situation postulated in N.Y. State 576 at n.5 arises, such that actually differing interests must be negotiated and the lawyer in effect will be forced to negotiate with herself, the obviousness test of DR 5-105(C) cannot be met and the governmental agency’s consent will not cure the conflict.