Ethically Speaking: Lawyers can’t always have the best of both worlds

John E. Bernacki

Sometimes lawyers wear more than one hat, and much of the time, doing so isn’t problematic. Oftentimes, it makes sense, since obtaining a law degree shouldn’t preclude lawyers from performing other non-legal job functions. Of course, wearing multiple hats can sometimes pose ethical problems and this is especially true if it occurs during a single transaction. In that situation, it is particularly important to carefully consider the implications of performing dual roles.

For example, in Opinion 919 (April 13), the New York State Bar Association’s Committee on Professional Ethics recently considered whether a lawyer may perform both attorney functions and real estate broker functions during the same real estate transaction. In this case, the inquiring lawyer was licensed to practice law in New York State and was employed part-time as an associate broker by a real estate company, but had no ownership interest in the company.

Specifically, the inquiring attorney asked the committee: 1) whether he could serve as a real estate broker for the buyer or seller and also serve as that party’s attorney at the closing, and 2) whether he could serve as a party’s attorney at a real estate closing if asked to do so by a member of the lawyer’s real estate office who was serving as broker for one of the parties?

In regard to the first question, the committee concluded that it was not ethically permissible to serve as both a broker and lawyer for one client in the same transaction since doing so presented a conflict between the lawyer’s interests and the client’s. The committee explained that the reason the dual role was forbidden was because “a lawyer should not have a personal stake in the advice rendered, and a broker who is paid only if the transaction closes cannot be fully independent in advising the client as a lawyer.”

The committee then turned to the second inquiry, noting that the ethical issues presented were decidedly more complex. The committee explained that for this particular issue, the ethics analysis revolved around assessing whether the inquiring attorney might materially benefit from the transaction — an analysis that was more difficult to assess given that the lawyer’s position with the real estate firm was that of an employee having no ownership interest in the company.

Thus, the main issue to be determined was whether the attorney who wished to provide legal representation for a customer of the company might materially benefit from increased closings. For example, if the attorney would receive a salary bonus based on the number of annual closings completed by the company, then the necessary inquiry would require an assessment of whether the attorney’s professional judgment might be affected in light of the potential material benefit.

Accordingly, the committee concluded that: “A lawyer who is employed by a real estate office as a broker may be able to serve as a party’s attorney at a closing even if another member of his real estate office is acting as a broker for one of the parties, provided that the lawyer is not involved with the sale of the property at the broker’s office and will not materially benefit from the transaction based on his employment at that office. If the lawyer is involved as a broker or will materially benefit, then the representation is per se prohibited. If the lawyer will not materially benefit based on his employment at the broker’s office but there is a significant risk that his personal interests will adversely affect his professional judgment on behalf of the client, the lawyer may not represent the client unless he complies with Rule 1.7(b).”

In other words, it ultimately boiled down to determining what was in the best interests of the real estate company’s customer. An attorney’s role is to offer impartial advice and any relationship that has the potential to jeopardize that role is suspect. So, while attorneys can’t always have the best of both worlds, the client sometimes can — as long as its in their best interests.

The Hon. John E. Bernacki is a Pittsford Town Court Justice. His law firm, John E. Bernacki Jr. PC, is located in Pittsford. He can be reached at www.johnbernackilaw.com.