Ethics Opinion 226
Service by Lawyer in Private Practice as In-House Counsel and Real Estate Broker
Lawyer in private practice may serve as part-time, salaried in-house counsel for client, while continuing to represent that client in his private practice, so long as he complies fully with applicable Rules of Professional Conduct in both capacities. He may also serve as a licensed real estate broker for a client, compensated on an hourly-fee basis, so long as his work as a broker does not cause him to violate the Rules of Professional Conduct and so long as he clearly discloses to affected parties the capacity in which he is acting and obtains informed consent where he represents two related parties in a transaction as broker and lawyer.
- Rule 1.7(b) (Waivable Conflicts of Interest)
- Rule 1.7(c)(2) (Compliance with Other Rules as Condition of Waivability of Conflicts of Interest)
- Rule 7.1(a) (False or Misleading Communications About Legal Services)
The inquirer is a lawyer engaged in private practice representing an affiliated group of real estate partnerships, corporations, and entities organized under a single operating company (for purposes of this opinion, the "XYZ Company"). There are approximately 60 such related entities for which the inquirer performs legal services, all of which have substantial common ownership. (In some cases, the percentage of ownership by the common individual owners varies, and in some cases the entities are ventures including partners not otherwise affiliated with XYZ Company.) The inquirer represents XYZ and affiliated entities chiefly in real estate transactional matters. The inquirer represents that he complies fully with Rule 1.7 in dealing with the occasional engagement that involves a conflict or potential conflict of interest between XYZ and an affiliated entity.
XYZ Company has recently asked the inquiring lawyer to perform certain "in-house" services—now performed by the inquirer as outside counsel—as a part-time employee of its regional operating company, with the title of Regional General Counsel. The inquirer would, however, also continue to represent XYZ and affiliated entities on transactional matters as outside counsel. While the inquirer would conduct his work as Regional General Counsel out of his own law offices, he would use separate business cards and letterhead and maintain separate files. The inquirer states that he would not represent an XYZ-affiliated entity in any transaction in which the XYZ regional operating company had an interest without disclosing his role as in-house counsel for the operating company and obtaining the consents required by Rule 1.7(b) and (c). He also recognizes that in some such matters, he might be barred by Rule 1.7(a) or Rule 1.7(c)(2) from undertaking representation of the XYZ-affiliated entity.
The inquirer asks whether in these circumstances he may ethically continue to represent XYZ Company and its affiliated entities in real estate transactions while serving as a part-time, salaried in-house lawyer for XYZ's regional operating company.
At the request of his client XYZ Company, the inquirer has also become licensed as a real estate broker in Maryland. (The inquirer is a member of the bar of Maryland as well as the District of Columbia Bar). He has been asked by XYZ Company to serve as broker of record in connection with third-party leasing, sale and property management activities engaged in by a Maryland entity affiliated with XYZ. In that capacity, he would supervise associate brokers and licensed salespersons, as required by Maryland law.
The inquirer would be compensated for his brokerage services by XYZ's Maryland affiliate on an hourly-fee basis, and would not receive commissions or any other compensation based on the value or success of any transaction. The inquirer might also perform legal services for XYZ-affiliated companies in some transactions in which he also served as broker of record for XYZ's Maryland affiliate. In no case, however, would the fees received by the inquirer as broker of record duplicate fees received by him for legal services performed for XYZ's Maryland affiliate. And where the inquirer served as counsel for another XYZ affiliate in a transaction where he was also broker of record for XYZ's Maryland affiliate, he would disclose his brokerage role to the affiliated company and comply with the provisions of Rule 1.7 in the event of any potential conflict of interest.
The inquirer's activities as broker of record would be performed principally in the offices of XYZ's Maryland affiliate, separate from the inquirer's law office. He would use separate stationery, business cards and telephone listings as a broker.
The inquirer asks whether his performance of real estate brokerage services in the manner set forth above would be consistent with the Rules of Professional Conduct.1
1. Role as In-House Counsel
There is no per se bar to a lawyer serving as in-house counsel to a business entity, on a part-time salaried basis, while continuing to represent that entity and affiliated entities as outside counsel on a fee-for-service basis. Of course, the lawyer must comply with all provisions of the Rules of Professional Conduct in both capacities.
In particular, it is important to ensure that no client or third party is misled as to the role of the lawyer and his status as an employee of a client. Rule 7.1(a)2 The steps that the inquirer plans to take, as set forth above (separate letterhead and business cards, etc.) should go far to assure compliance with Rule 7.1(a). The lawyer should be careful to make an affirmative disclosure of his dual capacity as in-house and outside counsel whenever that fact would be of importance to another client or a third party.
The inquirer must also take care to comply fully with the provisions of Rule 1.7 (Conflicts of Interest). Thus, as the inquirer recognizes, under Rule 1.7(b), he may not be able to serve as counsel for another entity (including an XYZ-affiliated entity) in a transaction in which XYZ's regional operating company has a potential conflicting interest, without the consent of both parties after full disclosure of the possible conflict. There could even be situations in which the adverse consequences to XYZ's regional operating company from his representation of another party in a particular transaction would be serious enough that the lawyer himself might conclude that his ability zealously to represent the other party (as required by Rule 1.3) would be compromised. In such a case, representation of the other party—even with consent—would be improper. Rule 1.7(c)(2); Opinion No. 94.
2. Role as Real Estate Broker
The Rules of Professional Conduct erect no bar to a lawyer engaging in another business, separate from his or her law practice, so long as the lawyer's engagement in that other business does not result in violations of applicable provisions of the Rules. E.g., Rules 1.3 (duty of zealous representation); 1.7(b)(4) (professional judgment adversely affected by lawyer's responsibility to third party or lawyer's own financial interests; 1.8(a) (transactions with client). Moreover, where the inquirer is performing both professional roles (lawyer and broker) with respect to a single transaction, we believe that he should comply with applicable provisions of the Rules of Professional Conduct regardless of which "hat" he is wearing in particular aspects of that transaction.3
In any transaction in which the inquirer is serving as broker of record on behalf of one entity and lawyer on behalf of a related entity, he should take special care to ensure that there has been full disclosure of his dual roles to all affected parties. Rule 7.1(a). We also believe that, to assure full compliance with Rule 1.7(b), the inquirer should obtain informed consent from related entities which he represents as lawyer and broker in a particular transaction, because of the potential conflict of interest between the related entities and the potential conflict of interest created by the inquirer's financial interest in brokerage fees. While that financial interest is not as significant as it would be were the inquirer receiving a brokerage commission contingent on consummation of the transaction and tied to the transaction's value, we believe that the inquirer should obtain informed consent before proceeding.
Inquiry No. 91-8-35
Adopted March 17, 1992
1. The inquirer has made the same inquiry of the Committee on Legal Ethics of the Maryland State Bar. We do not address any question as to the rules in Maryland or, in the event of a conflict, whether the Maryland or D.C. rules should apply.
2. Rule 7.1(a) provides that “a lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s services,” and that a communication is false and misleading if, inter alia, it “omits a fact necessary to make the statement considered as a whole not materially misleading.”
3. ABA Formal Opinion 328 (June 1972) goes further, holding that a lawyer who engages in another occupation must comply with legal ethical standards in his or her other professional capacity whenever that other occupation “is so law-related that the work of the lawyer in such occupation will involve, inseparably, the practice of law.” We do not reach this broader question here, but merely hold that the Rules of Professional Conduct apply to a lawyer’s conduct in another professional capacity where he is acting in that capacity as well as his capacity as a lawyer in the same transaction or matter. We note, however, that it is important as a general matter for the inquirer to assure that clients and third parties are not misled as to whether he is providing services as a real estate broker or as a lawyer.