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In re Opinion 682 of the Advisory Committee on Professional Ethics

January 27, 1997

IN RE OPINION 682 OF THE ADVISORY COMMITTEE ON PROFESSIONAL ETHICS


On review of an opinion of the Advisory Committee on Professional Ethics.

The opinion of the Court was delivered by Garibaldi, J. Chief Justice Poritz and Justices Handler, Pollock, O'hern, Stein, and Coleman join in Justice GARIBALDI's opinion.

The opinion of the court was delivered by: Garibaldi

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

In re Opinion 682 of the Advisory Committee on Professional Ethics (A-32-96)

Argued October 7, 1996 -- Decided January 27, 1997

Garibaldi, J., writing for a unanimous Court.

In this matter, the Court addresses the question of whether attorney participation in a bar-related title-insurance company would create inherent conflicts of interest.

A group of New Jersey lawyers seeks to form the New Jersey Attorneys Title Corporation (NJATC), intending to operate it as a bar-related title-insurance company. Lawyers who participate in NJATC would become stockholders of the corporation. The stock, however, could never be traded and would always have a nominal value. Moreover, the corporation would not distribute dividends. Rather, attorney-stockholders, who referred clients to the company for title examination and insurance, would retain a portion of the title-insurance premium paid by the client as part of their fee for representing that client. The amount of the premium retained would be based on the work the lawyer did in relation to the title. Members would not be required to participate in underwriting decisions of NJATC. Rather, they could elect not to do so, or the company could deem that they are unqualified to do so. Title questions concerning whether a title-insurance contract should contain exceptions would be directed to NJATC's independent attorney.

The proposal further contemplates that, before referring clients to NJATC, attorneys would be required to disclose their interest in the company. In addition, attorneys would have to inform their clients that they have the option of purchasing title insurance elsewhere. Finally, attorneys would have to explain any potential conflicts of interest to their clients.

The NJATC initially asked the Advisory Committee on Professional Ethics (ACPE) to review and modify several of its opinions, so that attorneys could become full participants in a bar-related title-insurance company owned and managed by lawyers. Subsequently, the ACPE issued Opinion 682, in which it refused to alter its prior opinions, holding, instead, that attorney participation in a bar-related title-insurance company would create inherent conflicts of interest. The ACPE further held that allowing an attorney to receive part of the title-insurance premium as part of his fee for representing the client would violate Rule of Professional Conduct (RPC) 1.8(f)(2) because it results in a "circumstance which can adversely impair the lawyer's professional judgment."

The Supreme Court granted NJATC's Petition for Review.

HELD: The NJATC proposal, allowing attorney participation in a bar-related title-insurance company, would create a conflict of interest, which would be exacerbated by the premium-rate proposal.

1. A conflict of interest arises when attorneys for real-estate purchasers obtain title insurance from companies in which they own a beneficial interest, which cannot be cured even with full disclosure and consent. (pp. 7-11)

2. Even if no clear conflict arises in negotiating title insurance, the pursuit of the client's best interests requires that a lawyer exercise independent professional judgment, a task rendered difficult at best in the face of the attorney's financial interest in the title insurance company. (pp. 11-12)

3. That the NJATC's proposal includes the employment of independent counsel to resolve all questions of coverage does not resolve the conflicting interests the attorney faces. Thus, the fact that the attorney recognizes and calls attention to a potential defect or title problem affirms that there is an inherent conflict of interest. (p.13)

4. Although the ABA's position on the issue currently before the Court allows attorneys who own a portion of a title insurance company to supply title insurance to their clients if he obtains the clients' consent after full disclosure, RPC 1.7 is more restrictive than Rule 1.7 of the ABA Model Rules of Professional Conduct. Moreover, no consensus or trend had formed on the issue of dual representation in bar-related title companies in other jurisdictions. (pp. 14-16)

5. The Court does not bar further consideration of the establishment of a bar-related title company should any such proposal eliminate substantially all of the concerns expressed in this opinion and in Opinion 682. (p.17)

Opinion 682 is AFFIRMED.

CHIEF JUSTICE PORITZ and JUSTICES HANDLER, POLLOCK, O'HERN, STEIN, and COLEMAN join in ...


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