The North Carolina State Bar is considering two Proposed Formal Ethics Opinions that will have a direct impact on the practice. Proposed 2004 Formal Ethics Opinion 10, addresses the professional relationship between a seller and the buyer’s attorney when that attorney merely prepares the contractually required deed for the seller. Since the publication of the decision of the 1996 case of Cornelius v. Helms, 120 N.C. App. 172, much discussion has occurred with respect to the extent of the professional relationship created by the attorney preparing the deed for the closing on behalf of the seller. The documents in that matter that the Court determined created an attorney-client relationship were a purchase-money note and deed of trust.

This proposed opinion provides that preparation of the deed as an accommodation does not create an attorney-client relationship if proper disclosure has been made. This will be the case even when a fee is charged for the accommodation.

The opinion would require the attorney to explain to the seller prior to the execution of the deed by the seller that the attorney does not represent the seller, and cannot give legal advice to the seller other than the advice to secure legal counsel. The opinion would also provide that it is controlling to the extent that it is contrary to CPR 100 or RPC 210.

The buyers’ attorneys may still prepare a general warranty deed in the situation where there is no contractual obligation for the seller to provide one. This is so, as long as they make the additional disclosure that, in the absence of a contrary agreement between the parties, the attorney will prepare a deed that will protect the buyers’ interests and that the seller should seek legal advice. This disclosure avoids the risk of accusations of overreaching or misleading the seller.

Proposed 2004 Formal Ethics Opinion 12 addresses a potentially serious problem that we see as growing within the practice. It is a problem with significant implications for consumer protection. Several ethics opinions have touched upon the issue of the requirement for proper supervision of legal assistants. This issue continues to be of concern because the State Bar does not and should not be in the business of micromanaging a law practice. Most practitioners are well aware of the issues and clearly understand and observe the ethical requirements. However, the issues are often assumed and sometimes articulated with the issues implicitly assumed as well. The following observations may be obvious to most, but bear discussion in the public interest.

Knowledgeable, well-trained legal assistants simply do not require the degree of supervision that is required by those with less experience and training. Only the attorneys involved in working with a particular lay assistant are in a position to exercise their independent professional judgment as to just how much supervision is required. Therefore, the opinions require supervision but, properly, do not spell out just what that supervision entails.

As a result, it appears that a very few attorneys do no more than pay lip service to the supervision requirement. When this occurs, the consumer is under the impression that they are paying for professional services that in reality, they are not getting. Proposed 2004 FEO 12, would add some clarification to the requirement for supervision in the context of independent paralegals.

The opinion would make it clear that an attorney is not permitted to use an independent company that performs public record searches for real estate closings. The rationale for this determination lies in RPC 216. That opinion holds that a lawyer may use the services of a non-lawyer independent contractor to search a title provided the non-lawyer is properly supervised. That opinion also makes it clear that there is no difference between a lawyer's responsibilities when delegating tasks to an employee and to an independent contractor. The proposed opinion states that "satisfying the duty of competent representation is not possible if the non-lawyer who is performing the public records search … is employed by an independent, organized entity and is not, therefore, under the lawyer's direct authority and supervision."

It should be obvious that an attorney will never have direct control over the work of employees of a separate entity. They have this control over an independent contractor employed directly by the attorney. Intrinsic to this proposed determination by the North Carolina State Bar, is that proper supervision mandates more than the observance of certain formalities. It requires time, effort and a commitment on the part of the attorney to provide the best representation that the attorney is capable of providing to the client. If that capability is not up to the minimum standards of professionalism, the Rules of Professional Conduct mandate that the attorney should decline representation of the client.

It can be argued that an attorney may limit representation of a client by agreement. While this is certainly true, such a limitation is contingent upon proper disclosure to the client beforehand. Implicit in the requirement for disclosure is the duty to explain the risks involved in a limited representation so that the client may make an informed decision. Those seeking to obtain a competitive advantage by reducing fees as a result of limiting representation would be wise to take a lesson from the medical profession on the issue of informed consent. Most often, clients are relying on the attorney to do what is reasonably required to protect their interests. They assume that any shortcuts taken by the attorney to lower fees are relatively risk free.

Title insurance is no substitute for good title. Just because an individual insurer will relax its requirements in order to obtain more business does not mean that the attorneys that exploit those lower requirements have fulfilled their obligation to protect their clients’ interests. Proper use of non-lawyers is essential to an efficient and cost effective real property practice. However, failing to supervise them properly is no different than rubber stamping their prepared opinions. This opinion moves us a bit further along in clearly adhering to these principles. The full text of the proposed opinions follows.

Proposed 2004 Formal Ethics Opinion 10

October 21, 2004

Proposed opinion rules that the lawyer for the buyer of residential real estate may prepare the deed without creating a client-lawyer relationship with the seller provided the lawyer makes specific disclosures to the seller and clarifies her role for the seller.

Inquiry #1:

Attorney A represents Buyer for the purpose of closing on the purchase of residential real property. Seller is not represented by a lawyer. The purchase contract states that the property is to be conveyed by Seller to Buyer by a general warranty deed. If Attorney A prepares the general warranty deed as a part of her representation of Buyer, is it assumed that she also represents Seller?

Opinion #1:

No. Attorney A may prepare the deed as an accommodation to the needs of her client, the buyer, without becoming the lawyer for Seller. Prior to the execution of the deed by Seller, Attorney A must explain to Seller that her client is Buyer, that she does not represent Seller, and that she cannot give legal advice to Seller other than the advice to secure legal counsel. Rule 4.3(a). To the extent that this opinion is contrary to CPR 100 or RPC 210 (Opinion #3), this opinion controls.

This situation is distinguishable from the situation addressed in 2002 FEO 6 which holds that a lawyer for a plaintiff may not prepare the answer to a complaint for an unrepresented adverse party to file pro se because the lawyer may not give legal advice to an unrepresented adverse party. An answer to a complaint, unlike a deed, is an adversarial document that sets forth the defendant's legal position without regard to the interests of the plaintiff. A deed, on the other hand, does not represent the unilateral interests of the seller because the buyer is the specific and intended beneficiary of the deed even though the buyer is not a signatory on the deed. Therefore, as long as the lawyer clarifies her role and does not give the seller legal advice, the lawyer may prepare the deed to further the interests of her client, the buyer. See, e.g., 2003 FEO 7 ("[T]he purpose and goals of the engagement determine the identity of the client, not the signatory on the document prepared by the lawyer.) Note, however, that preparing documents for the seller other than a deed may mislead the seller as to the lawyer's role and raise a presumption that the lawyer has duties to the seller. See, e.g., Cornelius v. Helms, 120 N.C. App. 172, 461 S.E. 2d 338 (1995), disc. rev. denied, 342 N.C. 653, 467 S.E. 2d 709 (1996).

Inquiry #2:

As in the above inquiry, Attorney A represents Buyer for the purpose of closing on the purchase of residential real property; however, there is no contractual obligation between Seller and Buyer obligating Seller to convey the real property to Buyer by a general warranty deed. May Attorney A prepare a general warranty deed as a part of her representation of Buyer?

Opinion #2:

Yes, subject to the disclosure requirements set forth above and the further requirement that Attorney A inform Seller that, in the absence of a contrary agreement between the parties, she will prepare a deed that will protect the interests of her client and, therefore, Seller should seek legal advice. This disclosure avoids the risk of overreaching or misleading Seller. See Rule 8.4(c).

Inquiry #3:

If the legal fee for preparing the deed is allocated to Seller do the responses to the prior inquiries change?

Opinion #3:

No, provided Attorney A makes the disclosures required in Opinion #1 above and follows the requirements of Rule 1.8(f). Rule 1.8(f) permits a lawyer to accept compensation for a representation from someone other than the client provided the client gives informed consent, there is not interference with the lawyer's professional judgment or the client-lawyer relationship, and the confidentiality of client information is protected.

Proposed 2004 Formal Ethics Opinion 12

October 21, 2004

Proposed opinion rules that a lawyer who is closing a real estate transaction may not use the services of a company that employs paralegals to perform the public records search on the title to the property.

Inquiry #1:

Attorney A has a residential real estate practice with a small support staff. Attorney A would like to hire ABC Company, an independent company that performs public record searches to gather evidence of title for real estate closings. ABC has paralegal employees who perform the public records searches or it hires independent paralegals to search the public records. For each closing, ABC would provide the title notes to Attorney who would then certify title to a title insurance company. Attorney A would close the transaction. After the closing conference, ABC would update the title, provide the updated title notes to Attorney A, and record the documents.

May Attorney A employ an organized entity, such as ABC, to perform a public records search for a real estate closing?

Opinion #1:

No. The duty of a lawyer when delegating tasks to a nonlawyer was addressed in 2002 Formal Ethics Opinion 9. The opinion states the following:

As is the case with any task that a lawyer delegates to a nonlawyer, competent practice requires that the lawyer determine that delegation is appropriate after having evaluated the complexity of the transaction, the degree of difficulty of the particular task, the training and ability of the nonlawyer, the client's sophistication and expectations, and the course of dealings with the client. Rule 1.1 and Rule 5.3.

RPC 216 holds that a lawyer may use the services of a nonlawyer independent contractor to search a title provided the nonlawyer is properly supervised. The opinion makes clear that there is no distinction between a lawyer's professional responsibilities when delegating tasks to a nonlawyer employee and when delegating tasks to a nonlawyer independent contractor. However, satisfying the duty of competent representation is not possible if the nonlawyer who is performing the public records search, in order to provide information upon which the lawyer will base her opinion on title, is employed by an independent, organized entity and is not, therefore, under the lawyer's direct authority and supervision.

Inquiry #2:

Does it matter if a title insurance company to which Attorney A provides a title opinion owns ABC?

Opinion #2:

The answer to this question requires an interpretation of N.C. Gen. Stat. A758-26-5(a). The Ethics Committee cannot provide an opinion on an issue of law.

Inquiry #3:

Does it matter if there is common ownership of the title insurance company and ABC?

Opinion #3:

See opinion #2 above.

Inquiry #4:

Does it matter if Attorney A has a financial interest in ABC?

Opinion #4:

No.