Opinion #105. Disclosure to Buyer of Attorney's Authorship of Broker's Purchase and Sale Agreement Form

Issued by the Professional Ethics Commission

Date Issued: May 17, 1990

Question

The Grievance Commission, pursuant to Maine Bar Rule 11(c)(1), has requested an advisory opinion regarding the following question.

Attorney X is a solo practitioner in rural Maine. His practice is concentrated in the area of real estate. From time to time he has been asked for general legal advice by a real estate brokerage firm. He also developed a form Purchase and Sale Contract which is used by that brokerage firm. However, Attorney X is only one of the several different attorneys in the area which have been employed by that firm.

Client Y wishes to purchase a parcel of real estate through the brokerage firm. The broker refers her to Attorney X who agrees to represent her in the purchase. At the time of employment, Attorney X does not tell Client Y that he has given legal advice to the brokerage firm, nor does he tell her that he developed the form Purchase and Sale Contract.

Later, when problems develop in the purchase of the property due to a disagreement about the meaning of certain terms of the Purchase and Sale Contract, Attorney X tells Client Y that he cannot represent her in any litigation because of a conflict with the brokerage firm.

Did Attorney X have a duty to disclose to Client Y that he had given some general legal advice to the real estate brokerage firm in the past and that he had developed the form of the Purchase and Sale Contract which the firm used?

Opinion

Maine Bar Rule 3.4(a) states:
Before accepting any professional employment a lawyer shall disclose to the prospective client his relationship, if any, with the adverse party; his interest, if any, in the subject matter of the employment; all the circumstances regarding his relationship to the parties; and any interest or connection with the matter at hand that a lawyer knows or reasonably should know would influence the client in the selection of a lawyer.

This rule, as the Reporter’s Notes point out, has no counterpart in the ABA Code, nor does it appear in the Model Rules. Other rules, of course, address various concerns involving potential conflicts but do not provide guidance to the question posed. For instance, Rule 3.4(e) states:

A lawyer shall not accept employment adverse to a former client without that client’s informed written consent if such new employment involves the subject matter of the former employment or may involve the use of confidential information obtained through such former employment.

However, its focus is on the expectations of a former client to loyalty and retention of confidences by the lawyer. These interests are not the concern of the question posed. The former client actually referred the new client to the attorney. Nor does Rule 3.4(f) apply because the facts as presented do not suggest that at the time of acceptance of his employment “the exercise of the [lawyer’s] professional judgment on behalf of the [new] client . . . [might] reasonably . . . be affected” by virtue of the prior work he had performed with the real estate brokerage firm. Indeed, consistent with Rule 3.5(c)(7) the lawyer withdrew from employment when it became foreseeable that continued representation might very well have placed him in a situation precisely envisioned by Rule 3.4(f).

The focus of Rule 3.4(a) is not on the former client’s interests, nor the lawyer’s ability to carry out his duties of loyalty and independent judgment toward the new client, but rather the need of the new client to be fully informed of all connections that the lawyer might have to the subject matter so that the client can make a fully informed decision as to whether or not to employ the lawyer even if, by any objective standard, Rules 3.4(e) and 3.4(f) are fully complied with.

The Commission concludes that under the facts presented there has not been a violation of Rule 3.4(a). This rule requires four requirements to determine if appropriate disclosure has taken place. With regard to the first requirement (disclosure of the lawyer’s relationship with the adverse party) it is not at all clear that at the time of employment either the lawyer or the new client would be expected to consider the brokerage firm to be an adverse party. While the firm was clearly involved in negotiating a transaction between its principal, the seller, and the lawyer’s prospective client, the buyer, that involvement alone is insufficient to classify the broker as an adverse party.

As to the second requirement (disclosure of the lawyer’s interest in the subject matter of the employment) the fact that the lawyer in the past drew up a form contract that happens to be used by the brokerage firm in the present transaction does not establish a sufficient interest in the subject matter of the employment.[1] The fact that a form Purchase and Sale Agreement was drawn up in the past for the broker without regard to any of the principals who at a later date simply utilize the form to memorialize the terms of their agreement does not of itself constitute an interest of the lawyer in that subsequent transaction.

The Commission interprets the third requirement (disclosure of “all circumstances regarding his relationship to the parties”) as a modification of the first requirement and means nothing more than to require disclosure of all relevant circumstances to assist the prospective client in understanding and evaluating the relationship with the “adverse party.”

The final requirement (disclosure of “any interest or connection with the matter at hand that a lawyer knows or reasonably should know would influence the client in the selection of a lawyer”) requires more discussion. Surely all prospective clients do not have a right or need to know in advance of employment everything about their lawyer’s relationships with every person that has become in any way involved or may become involved in a contemplated transaction. Any former client has the right, in the absence of an articulable requirement to the contrary, to expect his former lawyer to respect the privacy of his previous relationship with him. Indeed, Rules 3.4(e) and 3.6(l) demand the lawyer to respect the privacy of the prior relationship in many, if not most, circumstances. In light of these expectations, the final requirement of Rule 3.4(a) must be construed to require that the lawyer make a judgment as to what interests or connections he may have had with “the matter at hand” that would be reasonably forseeably relevant to a prospective client in order for the latter to be satisfied that his chosen lawyer will be unreservedly loyal to his interests in the pending matter. If there is a reasonable likelihood that the interest or connection might affect the prospective client’s selection of the lawyer as his attorney, then disclosure must be made; but if such likelihood is not reasonably foreseeable, disclosure is not required. Recognizing that this is a “facts and circumstances” judgment which cannot be abstractly decided for all cases, the Commission is satisfied in this case that neither the lawyer’s connection (if indeed it can be called a connection at all) with the subject matter nor the fact he may have provided occasional advice to the broker on unrelated matters are of such significance that he should have known at the time of employment they would influence the prospective client’s selection of him as her lawyer. Indeed, ironically, it could be argued that disclosing this tenuous relationship to the client would likely influence her in precisely the opposite direction from which the Rule contemplates—as an attraction rather than deterrent to representation.

Rule 3.4(a), as the Reporter’s Notes suggest, reinforces an important consideration before a client and lawyer enter into an employment relationship. Not only must the lawyer be aware of a potentially adverse (current or former) client’s expectations (Rule 3.4(b) and 3.4(e)), and any self interest that will interfere with his ability to act loyally on behalf of the prospective client (Rule 3.4(f)). Under Rule 3.4(a) he also has a duty to advise the prospective client of these matters so that in situations where reasonable people might differ as to the significance of the prior relationship or self interest it is the client, not the lawyer, that makes the final judgment in the matter.

While the Rule has the laudatory purpose of requiring that potential conflict situations be analyzed from the point of view of the prospective client, a consideration present only by implication in the ABA code and most other State disciplinary codes, its broad language, notwithstanding the Reporter’s Notes, must be tempered with reason and common sense. The underlying purpose is to provide the prospective client with information that might reasonably be considered relevant at the time of hire in helping her determine whether her lawyer will be able to offer her undivided loyalty. It does not require the lawyer to engage in a tedious, lengthy and necessarily incomplete description of all his contacts with everyone that would have any relationship whatever now or in the future to the transaction. A prospective client has neither the time, stamina nor need to be subjected to such a narration. She needs information that is reasonably likely to influence her selection of the attorney. There must be a sensitive determination of what facts are relevant from the prospective client’s point of view. The Commission concludes that the mere fact the lawyer at one time drew up a form for the broker that he later uses in negotiating an agreement between a prospective buyer and a seller, or the fact he may have occasionally provided services for the broker in unrelated matters, are not such relevant information that requires disclosure.


Footnote

[1] It is unclear from the facts whether or not the agreement was executed prior to Client Y employing Lawyer X. The Commission assumes it had been executed prior to employment. If the form were simply presented for possible use by the client and her lawyer in drafting an agreement, the concerns raised by this question become extremely remote.


Enduring Ethics Opinion