New York State Bar Association Clarifies Permissible Scope of Referrals Between Spouses in Related Fields
On April 30, 2018, the New York State Bar Association, Committee on Professional Ethics, issued Ethics Opinion 1150, which addressed whether any ethical limitations exist as to the ability for spouses in related industries to refer clients to one another. In the factual scenario presented to the Bar Association, a transactional real estate attorney inquired as to whether he/she could permissibly refer a matter to his/her spouse, a real estate broker, and vice versa. The inquiring attorney specified in the inquiry that he/she “and broker/spouse may not participate in their respective roles in the same real estate transaction.” The inquirer raised three questions: (1) whether a real estate attorney may accept referrals from a broker/spouse who has no personal involvement in the real estate transaction; (2) whether a real estate attorney may refer business to a broker/spouse if the attorney does not represent any party in the real estate transaction; and (3) whether a real estate attorney representing a client in the sale of property may refer the selling client to the broker/spouse in connection with an unrelated real estate transaction involving the client.
The Bar Association reached two conclusions as to these inquiries: (1) “A lawyer who is engaged in a transactional real estate practice and whose spouse is a real estate broker may receive client referrals from the lawyer’s spouse provided that the broker/spouse is not involved in the real estate transaction and the lawyer assures that the broker/spouse fully complies with rules governing solicitation by lawyers”; and (2) “A real estate lawyer may refer a client to a broker/spouse provided that the lawyer does not represent the client in the real estate transaction and, if the circumstances suggest a conflict, the lawyer obtains the informed consent of the referred client, confirmed in writing.”
A central concept, which was acknowledged by the inquiring attorney, underlies both of these conclusions: namely, that under New York ethics rules, “a lawyer may not represent a party to a real estate transaction if the attorney’s spouse is involved in the transaction.” The Bar Association accepted this concept as a given and noted that it was consistent with several New York State ethics opinions. The concept stems from Rule of Professional Conduct 1.7(a)(2), which states that “a lawyer shall not represent a client if a reasonable lawyer would conclude that . . . there is a significant risk that the lawyer’s professional judgment on behalf of a client will be adversely affected by the lawyer’s own financial, business, property or other personal interests.” The Bar Association noted that “[t]he reach of a ‘lawyer’s own financial, business, property or other personal interests’ extends to the ‘financial, business, property or other personal interests’ of the lawyer’s spouse.”
With that background in mind, with respect to the inquiring attorney’s first question, the Bar Association looked to Rule of Professional Conduct 8.4(a), which “forbids a lawyer ‘to violate or attempt to violate’ a Rule ‘through the acts of another’” – specifically, Rule 7.3, which regulates solicitation and recommendation of professional employment. In that regard, “[i]n any outreach by the broker/spouse initiated by or on behalf of the lawyer/spouse, the broker/spouse recommending the inquirer as a lawyer in a real estate transaction stands in the shoes of the inquirer as if the inquirer were personally making the outreach.” In other words, an attorney’s spouse referring clients to the attorney is obligated to follow the Rules of Professional Conduct concerning solicitation, just as the attorney would, were he/she soliciting his/her own business. However, the Bar Association drew a distinction between “an unprompted question by a person on whether the broker/spouse knows any real estate lawyers” and “the broker/spouse’s unprompted recommendation of the lawyer/spouse as a lawyer to handle a real estate transaction.”
With respect to the inquiring attorney’s second and third questions, the Bar Association noted that the Rules of Professional Conduct “set forth no categorical ban on the lawyer making such a referral,” but that “the lawyer owes ongoing duties of care and loyalty to an existing client, including the duty to exercise independent professional judgment on the client’s behalf.” These duties are implicated in situations in which “a meaningful relationship is present between the subject matter of the lawyer’s representation of the client in a particular matter and the nature of the referral the client seeks,” and may require an attorney’s consideration of “whether any conflict of interest may burden that judgment.” The Bar Association then found that a “reasonable lawyer” could conclude that a referral to a broker/spouse could implicate a conflict of interest affecting his/her judgment; however, “this conflict is subject to waiver by the referred client upon informed consent, confirmed in writing, pursuant to Rule 1.7(b).”
Given this recent decision, the simple fact that one’s spouse is not an attorney does not grant an unlimited ability to an attorney to refer clients to that spouse, and vice versa. Rather, in such situations, attorneys must be cognizant that the obligations of the Rules of Professional Conduct may be imposed on their spouses, as well, and that any referrals may require written consent by a client.