Opinion 2153

I. Facts

The inquirer is a lawyer who regularly represents “for sale by owner” (FSBO) real estate sellers. The inquirer wants to enter into an arrangement with an FSBO listings business. The arrangement has a FSBO seller paying the listing business a flat fee for certain services, including legal services. The inquirer is to be paid a set amount of the fee for the legal services. The FSBO seller is provided with a fee agreement between the inquirer and the FSBO seller that indicates (1) the set amount of the fee the inquirer will receive; (2) the listing business will not direct or regulate the inquirer’s professional judgment; and (3) the inquirer and FSBO seller are creating a lawyer-client relationship, complete with the accompanying confidentiality requirements. If the FSBO seller signs and returns the fee agreement, the listings business pays the set amount to the inquirer; presumably if the FSBO seller does not sign the fee agreement, the amount he paid that related to legal services is returned to him. No other financial transactions will exist between the inquirer and the listings business. The listings business will promote the bundled services package, but not through direct in-person, telephone, or real-time electronic contact.

II. Questions

Does the above arrangement violate the RPCs?

Would the arrangement cause additional violations of the RPC if the inquirer agreed with the listings business not to enter into similar arrangements with other businesses that assist FSBO sellers?

III. Discussion

1. Does the arrangement violate the RPC?

The Committee is strongly concerned that the proposed arrangement violates the RPCs as set forth below:

a. The arrangement anticipates a fixed fee agreement. RPC 1.5(a) requires that a lawyer’s fee be reasonable. Moreover, if the fee is not earned then the inquirer must consider refunding the fee. The attorney/inquirer must ensure that the flat fee is reasonable in each case.
b. Because the arrangement anticipates the inquirer making a unilateral offer to any FSBO seller with whom the listing business is willing to contract, there is a danger that RPC 1.7(a) (and RPC 1.9) may be violated prior to the attorney inquirer knowing that a conflict does in fact exist. Thus, the inquirer would need to ensure that a conflict check has taken place before representing the new client/seller and that such pre-disclosures are made to the client (so that the client is aware that the retention of the attorney’s services is contingent on no conflict being present).
c. Notwithstanding the foregoing, and the conclusion that the attorney/inquirer may be able to ensure the reasonableness of the fee and that the transaction is free of conflicts, we find the arrangement appears to run afoul of RPC 5.4(b)’s prohibition against a lawyer forming a partnership with a non-lawyer where one of the activities of the partnership is the practice of law. However, this is a legal question which the committee declines to address.
d. The lawyer is also not only receiving referrals in exchange for its involvement and cooperation with the bundled services operation, but also agreeing to be available and charging a reduced flat fee to provide incentive to the relationship, thereby making the FSBO’s business offer more lucrative for prospective clients of the FSBO. Thus, this relationship appears to run afoul of RPC 7.2(b)’s prohibition against giving of value (agreement to participate in the bundled services operation and to extend availability as well as a flat fee service) in return for referrals.
e. By engaging in this relationship or arrangement with the FSBO (whether as a joint venture, de facto partnership or not), the attorney/inquirer may be assisting the FSBO entity in the unauthorized practice of law since one part of the arrangement between the FSBO business and the attorney is the practice of law. However, this is a legal question and therefore the Committee cannot opine as whether such activity is the practice of law. Nevertheless, as only lawyers (or with respect to certain real estate documents – Limited Practice Officers) may engage in the practice of law, it must be made clear to the client/customer that FSBO business is not engaged in the practice of law or the closing of the real estate transaction.
f. Finally, this arrangement may run afoul of RPC 5.4(a)’s prohibition on sharing legal fees with a non-lawyer.

2. Would the arrangement cause additional violations of the RPC if the inquirer agreed with the listing business not to enter into similar arrangements with other businesses that assist FSBO sellers?

Because we find that the arrangement as presented by the inquirer’s first question to be in violation of the RPCs, the committee declines to reach this second issue.