Summary: A lawyer is not necessarily prohibited from selling a parcel of real estate to a client that the lawyer is concurrently representing in a matrimonial matter, if the client has other counsel in the real estate transaction, counsel for the other spouse in the matrimonial matter approves, and the lawyer's interest in selling the real estate does not affect his advice to his client in the matrimonial case.
Facts: A lawyer represents a woman in a divorce action who runs a successful day-care facility. His client had been conducting her business from her home, but a recent growth in enrollment prevents her from continuing to do so. As a consequence, she is looking for suitable space. In the short time since the business outgrew her home, the client has had to pay thousands of dollars for a short-term rental. The client's husband and his counsel are fully informed of this need to acquire premises for the day-care center. Thus far they seem to believe that it is better to spend marital funds to keep the wife in business than to allow the business to die.
The lawyer's own wife, a real estate broker and dealer, has recently listed a real estate parcel which is suitable for a day-care center. The lawyer is trustee and his wife and he are beneficiaries of the trust that holds title to this parcel. His client in the matrimonial case has expressed interest in buying the parcel. The lawyer asked if he can ethically proceed with negotiations on sale of the property while continuing to represent the potential buyer in the matrimonial matter.
Discussion: Three disciplinary rules need to be examined. First, DR 5-104(A) contains a prohibition on a lawyer's entering a business transaction with a client where they have differing interests and the client expects the lawyer to protect the client, "unless the client has consented after full disclosure." There seems to be no significance in the lawyer's owning the property as trustee, rather than outright, and the committee addressed the problem as though the property were his alone and with the understanding that his interest and the client's are clearly "differing." The client should have other counsel to advise her on whether to proceed toward acquiring this parcel, both as to the normal real estate aspects of the transaction and as to the possible impact of the conflict on her relationship with the lawyer.
Second, DR 5-101(A) requires the lawyer to avoid interference with his professional judgment by his own financial interests. The lawyer will need to be alert to any situation in which his interests might color his professional judgment. For example, circumstances could change so that while it was no longer in the client's interest to purchase the subject parcel, it was very much in the lawyer and his wife's interest to make the sale.
Third, DR 5-103(A) prohibits a lawyer from acquiring a proprietary interest in the subject matter of litigation. See MBA Opinion 91-1 (forbidding matrimonial lawyer's securing fee by obtaining mortgage on home still part of marital assets). It could be argued that the acquisition of cash from the marital estate in exchange for the subject parcel would violate this rule. There would be no acquisition by the lawyer, however, of an ongoing "proprietary interest in the ... subject matter of litigation ... ."
While this request presents a judgment call, it seemed to the committee that the transaction could go forward if two conditions were met. First, it is essential that the lawyer's client have other counsel advising her on the real estate transaction. If other counsel felt that it was inadvisable because of the conflicting pulls on the lawyer, that counsel would presumably advise the client not to purchase the parcel. Second, the lawyer should fully inform his adversary in the matrimonial matter of his client's desire to purchase the parcel that the lawyer owns in trust. If adverse counsel objects to matrimonial assets being spent on that parcel, that should end the matter unless a court decrees otherwise.
Permission to publish granted by the Board of Delegates on January 29, 1993. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.