Ethics Opinion No. 318
Adopted December 13, 2002
TOPIC: A lawyer, who is an employee of an aircraft title company, also representing the employer’s customers/clients
INQUIRY: May an attorney who is employed by an aircraft company as “in-house counsel” also render title opinions for customers/clients of the aircraft title company as an independent attorney who will be paid directly by the customers?
ABSTRACT: An attorney who is employed by an aircraft title company as “house counsel” may also represent the employer’s customers in rendering title opinions concerning the aircraft, provided: (1) the attorney determines that his representation of both clients concurrently will not adversely affect his representation of either, which includes a determination that the employer will not interfere with the attorney’s independent or professional judgment and that the attorney can fulfill his duties of loyalty and confidentiality to both clients; (2) the attorney discloses to the client his employer/employee relationship with the title company and discloses to both parties all limitations upon the representation; (3) both parties consent to the common representation; and (4) the attorney otherwise complies with the Rules of Professional Conduct. However, no opinion is expressed concerning whether such an arrangement constitutes the unauthorized practice of law by the aircraft title company or whether the attorney is assisting the title company in the unauthorized practice of law.
The question comes from an attorney who is contemplating becoming in-house or staff counsel for an aircraft title company. The business of the title company is to prepare abstracts of chain of title of aircraft as revealed by the records of the FAA. In addition, the company acts as an escrow agent in closing and settlement transactions relating to aircraft sales. The title company’s staff attorney is hired to provide general legal assistance and advice relating to the business of the company, including interpretation of Federal Statutes and Regulations and state laws.
The question is whether, while employed as staff counsel for the aircraft title company, the attorney may simultaneously represent third parties as an independent attorney in preparing title opinions. In most cases, the third parties would actually be customers or clients of the title company (“Clients”). The Clients may have obtained an abstract of title to a particular airplane from the title company, and/or may be using the title company as the escrow agent or closing agent in connection with the purchase of an airplane. It is assumed that the Client would directly pay the attorney any and all fees for preparing the title opinion, and that the attorney would not share such fees in any way with the title company, either directly or by a diminution of salary from the employer.
The general subject of this inquiry, a staff counsel’s simultaneous representation of his or her employer as well as a customer/client of the employer, was addressed in Oklahoma Bar Association Legal Ethics Opinion No. 309, adopted on March 27, 1998. In that Opinion, the question was whether staff counsel employed by a liability insurance carrier was permitted to represent the employer’s insured. That Opinion noted that the Oklahoma Rules of Professional Conduct (“Rules”) do not expressly address, nor do they directly prohibit, representation of an employer’s client by a staff attorney. The Opinion, however, pointed out several pitfalls and clarified the obligations arising from such representation.1
The potential for a conflict of interest in this type of dual representation exists because the attorney has a duty to exercise independent professional judgment and to afford complete loyalty to each client. See Rules 1.7, 5.4(c), and 2.1(“In representing a client, a lawyer shall exercise independent professional judgment and render candid advice.”). The determinative factor is whether the attorney can maintain professional independence. A conflict occurs if the staff attorney is under some obligation because of the terms or circumstances of his employment to protect the interests of the title company to the detriment of the Client. As stated in Opinion 309, “[a]ny policy, arrangement or practice of the [employer] which effectively limits a staff attorney’s professional judgment on behalf of the client or loyalty to the client is prohibited by the Rules.” The reverse would also be true: any obligation arising from representation of the Client which would require the attorney to protect the interests of the Client to the detriment of the title company would also create a conflict of interest. Similarly, the attorney’s own personal interest in fulfilling the expectations or desires of his primary employer and in retaining his job could, in some circumstances, limit the attorney’s professional judgment or loyalty to the Client.
Rule 1.7 outlines the parameters of common representation where the interests of two clients are adverse or where representation of one client may materially limit the attorney’s representation of another client.
Rule 1.7. Conflict of Interest: General Rule
(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:
(1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and
(2) each client consents after consultation.
(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer’s responsibilities to another client or to a third person, or by the lawyer’s own interests, unless:
(1) the lawyer reasonably believes the representation will not be adversely affected; and
(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved
Rule 1.7. Thus, there are two prerequisites to such representation. First, the attorney must perform an evaluation in each case and determine that it is reasonable to believe that representation of both clients at the same time will not adversely affect the representation of either client. Specifically, the attorney must be sure that the employer will not interfere with or attempt to control the performance of the attorney’s duties to the Client. Second, the attorney must fully disclose the circumstances of the dual representation and obtain consent from both clients.
However, if no direct conflict exists, meaning that the parties do not have adverse interests in the transaction, and no conflict arises, meaning that the attorney satisfies himself that the representation of each party will not adversely affect his representation of the other, then the staff attorney may accept representation of the Client after appropriate disclosure to, and consent from, both the title company and the Client. Rule 1.7.
The attorney must disclose to both parties all limitations upon the representation and the disclosures must provide the parties, and particularly the employer’s Client, with all the information needed to give an informed consent to the representation. Rules 1.2, 1.4(b), 1.7. The disclosures must include the nature and scope of the representation, and must specifically relate that an employer/employee relationship exists between the title company and the staff attorney. Opinion 309. The lawyer’s disclosures must include an explanation of the implications of the common representation and the advantages and risks involved, including the possible effect of the employment on the attorney’s exercise of independent professional judgment. Rule 1.7. For example, the attorney should explain, if the attorney’s title opinion will be based upon the abstract of title prepared by the attorney’s employer, that the attorney may not be in a position to ethically attack the accuracy of the abstract. The discussion should include a complete disclosure of any policies or practices of the company that would impact upon the rendering of a title opinion and should provide the Client with an opportunity to evaluate the need for representation free of any potential conflict. It should also include a disclosure that the attorney will have to withdraw from representation if a conflict of interest arises by, for example, the parties becoming involved in a legal dispute arising out of the business relationship. Rule 1.16(a)(1). While the Rules do not require it, the Legal Ethics Committee recommends that the attorney’s disclosures be made in writing. If the disclosures are full and complete, then the parties may consent to the common representation. Rules 1.2 and 1.7. The consent does not have to be in writing, and can be manifested by the Client’s act of retaining the attorney after a full disclosure has been made.
The inquiry specifically asks whether the attorney may act as an “independent” attorney in representing the Client. This raises another matter related to disclosure. Rules 7.1 and 7.5 provide that a lawyer may not make a false or misleading communication about the lawyer or the lawyer’s services. This means that the lawyer may not imply, by use of letterhead or otherwise, that the lawyer is, or works for, a law firm that is independent from the title company. Opinion 309; see also, FL Eth. Op. 98-3, 1998 WL 1012898 *1 (Fla.St.Bar Assn.)(in-house attorneys may not state or imply that they are independent); OH Adv. Op. 95-14, 1995 WL 813802 (Ohio Bd.Comm.Griev.Disp.)(insurance company attorneys may not represent themselves as outside counsel); In re Petition of Youngblood, 895 S.W.2d 322, 331 (Tenn. 1985)(holding out of an in-house attorney as a separate and independent law firm is unethical and deceptive). Therefore, although the representation by the staff attorney of the title company’s Clients does not create per se irresolvable conflicts of interest, the attorney must be sure the Client understands that the attorney is not, in fact, “independent,” but is employed by the title company.
The duty of confidentiality is also an area of potential conflict. Confidential information obtained from one client may not be divulged to the other without express authorization. Rule 1.6.
If a conflict arises during representation, or if any other circumstance arises which causes the representation to violate the Rules of Professional Conduct or other law, the staff attorney would be required to withdraw from the representation. Rule 1.16(a)(1).
It is assumed for purposes of this opinion that the title company cannot itself issue title opinions or title insurance, and this assumption raises the possibility that the proposed arrangement would enable the title company to do indirectly what it is not allowed to do directly. Rule 5.5(b) prohibits an attorney from assisting a person who is not a member of the bar in the performance of activity that constitutes the unauthorized practice of law. Thus, at the very least, the terms of employment of the attorney by the title company must be such that the title company is not involved in the practice of law. The title company should not offer the attorney’s services to its Clients as part of a package business arrangement and should not interfere with the attorney’s professional judgment. Additionally, any fees generated by preparing title opinions may not be shared with the title company. Having said that, however, the Legal Ethics Committee is aware that there is a split of opinion among the states concerning whether an insurance company may, in any case, utilize staff counsel to represent insureds without engaging in the unauthorized practice of law. The majority opinion is that such practice does not violate Rule 5.5(b), see, e.g., AK Eth. Op. 99-3 1999 WL 1494993 (Alaska Bar.Assn.Eth.Comm.); NY Eth. Op. 519, 1980 WL 19218 (N.Y.St.Bar.Assn.Comm.Prof. Eth.), but Oklahoma has not addressed the issue. The Legal Ethics Committee has no jurisdiction to determine whether specific activity constitutes the unauthorized practice of law, and thus expresses no opinion concerning whether an aircraft title company that allows its staff counsel to provide legal services to the company’s clients is engaged in the unauthorized practice of law or whether the staff attorney is assisting in the unauthorized practice of law.
1. One potential area of conflict arises in the insurer/insured dual representation context but does not arise on these facts. A liability insurer typically owes its insured, under the insurance agreement, a duty to provide and pay for the defense of the insured in any lawsuit relating to a covered claim. As a result, when an insurance company staff attorney represents an insured, the staff attorney is compensated for his services by the insurance company and not by the insured. That is not the case here, where the attorney is to be paid separately and directly by the Client for the services rendered and Rule 1.8(f) is therefore not implicated. This distinction indicates that there may be even fewer potential conflicts in this circumstance than in the insurer/insured dual representation context that has been conditionally approved in Opinion 309.