NJ: Bright Line Rule: Unwaivable Conflicts for Dual Representation in Complex Real Estate Deals
Baldasarre v. Butler, 132 N.J. 278 (N.J. 1993)
Student Contributor: Jason Klein
NJ Underlying Real Estate Transaction
Facts: Plaintiffs inherited undeveloped land from their father and retained Defendant to act as attorney for the estate. The will directed the property to be sold and the proceeds divided between the Plaintiffs. Plaintiffs told Defendant that they wanted a price of $110,000 per lot. Defendant discussed the property with another client, DiFrancesco.
DiFrancesco wanted Defendant to represent him in the purchase of the property, despite the fact that Defendant had alerted him to the potential conflict of interest that could arise from his dual representation. After obtaining signed conflict of interest letters from both Plaintiffs (sellers) and DiFrancesco (buyer), the contract for sale was executed.
Pursuant to the contract, closing was subject to subdivision approval. During the subdivision approval process, DiFrancesco, represented by Defendant, entered into contract to sell the subject property to Messano Construction for $200,000 per lot, subject to DiFrancesco obtaining title to the property.
Defendant did not inform Plaintiffs of the Messano Construction contract, and when Plaintiffs were later informed, they brought a legal malpractice action against Defendant, and sued DiFrancesco, alleging legal and equitable fraud. They sought a rescission of their contract of sale with DiFrancesco, and compensatory and punitive damages. DiFrancesco counterclaimed, alleging tortious interference with his prospective economic advantage.
Issue: Can an attorney represent both buyer and seller in a real estate transaction?
Ruling: No. The potential for conflict in a real estate transaction is too great to permit even consensual dual representation of buyer and seller.
Lesson: The court adopted a new bright-line rule as a result of this case, prohibiting dual representation in real estate transactions because of the risk of disastrous consequences, given the inherent conflict of interest between a buyer and seller of real estate, the number of contingencies and options involved, and the large sums of money at stake.
I agree with this holding 100 percent. It is completely irresponsible for a lawyer to represent both a seller and buyer in a transaction. A lawyer is supposed to be a zealous representative of his client. He cannot represent two opposing sides with the same zest as a lawyer who is only representing one side. When a lawyer represents both sides, it seems more likely that the lawyer will most likely be representing his own interests above either clients.
While Ms. Goldberg may be correct in a general sense, I disagree with her position that a lawyer cannot ever represent both sides zealously, especially in the context of a real estate transaction.
Not every issue within the legal profession requires adversarial representation. In fact, the adversarial process can sometimes get in the way of party voice and choice (which is why mediation works so well). Furthermore, in situations that are unabashedly non-adversarial, a lawyer can competently and completely represent both parties without suffering a conflict of interest. Lawyers often play roles outside the traditional sphere of courtroom lawyering and negotiation.
Though I think that there should be a presumption that a lawyer has a conflict of interest when he/she represents both parties in a legal matter, that presumption should be rebuttable. Part of the rebuttal should require, at the very least, written, informed consent of the parties (perhaps, in addition to other factors).
I greatly concur with Mr. Hess. I don't believe that opposing counsel is needed on representation by an attorney, especially when it is transactional and non-adversarial. I don't believe that an attorney cannot handle, in good faith, both sides of a transaction. Just because both parties have retained the same attorney doesn't mean the attorney owes a greater duty to one more party then the other. It is a different story if the attorney handles both sides for monetary gain, in an instance where there is likely to be issues that need be handled between the client. But in a transaction, such as real estate, where it is mostly paperwork to be done, I don't feel that a single attorney can't handle the matter if the clients give fully informed consent. If during negotiations, etc. a conflict arises the attorney should suggest to the parties to seek independent counsel. But the parties in a simple real estate transaction should not have costs driven up to hire another attorney that most likely won't be needed anymore then if the single attorney represented both parties.
I agree with Mr. Hess and Mr. Lieberman that a lawyer could represent both sides zealously especially in a transaction that is non-adversarial. However, I disagree that it could be done in a real estate transaction. Real-estate transactions involve the transfer of large sums of money and there are occasional problems in the transfer. Given the amount of money at stake, any adversarial relationship between the parties should result in the lawyer not representing both sides, particularly when there's potential development of the real-estate. Thus, I agree with the holding of the case.
I neither agree nor disagree with the holding of the case, but I am pleased to see a court adopting a "bright-line" rule. Over the course of my law school career, I have been hard pressed to find many bright line rules and think that many people can benefit from the clarity that a bright line rule presents. It is so often that opposing counsel in litigation will argue over the meaning and construction of a law, but that will not happen in this instance; the law is clear and it does not permit one lawyer to represent two parties in a real estate transaction.
I know that people will not agree with the above idea because law is not about applying rules easily. Rather, the law is concerned with promoting justice. So while the above idea may be controversial, I think it is fair to say that in such a case, where there is an obvious conflict of one lawyer representing two sides of a transaction, attorneys and clients will appreciate the bright line rule and will be able to avoid malpractice litigation.
I think that it makes sense that a lawyer should not represent both sides of a real estate transaction because despite that they both may have a common goal to buy and sell the same property, anything can change from the price to other circumstances. I also agree with Ms. Neuman that with such a bright line rule of prohibiting dual representation in real estate transactions because of the risk of disastrous consequences will benefit both attorneys and clients and will hopefully prevent malpractice litigation.
I do not think informed consent is enough of a safe guard. A regular person may not be able to understand why there would be a conflict in the representation. Plus, a bright line rule might be necessary because for every 100 lawyers that acts with good faith in a dual representation, there will probably be one that will take advantage of a client and the clients must be protects. It would be too difficult to analyze this situation on a case by case basis.
I agree with the bright line rule. Though Evan is right that not all client issues are adversarial, there are still "sides" and opposing interests in most transactions. Though buyer/seller situations are transactional, the two have separate interests in the sale of the property. If we have learned nothing else, we have learned that part of being a lawyer entails having foresight, and it is absolutely foreseeable that something could potentially arise during the course of the representation that makes the seemingly simple transaction become adversarial in some regard. Therefore, it only makes sense that a client have representation that serves only his/her interest whatever that may be or become.
I totally agree with the holding. Just like in other types of litigation it is a complete conflict of interest to represent both parties. It is extremely difficult, if not impossible to provide adequate representation due to the fact that a positive outcome for one side could very well mean a negative outcome for the otherwise. How do you choose which side to represent "better"?
I agree with Mr. Aronson. It is very difficult to represent both parties in a case such as this one. In general, it is a tough thing to do, so much so that the Model Rules of Professional Conduct strongly advise against it, and in cases where it is allowed, many times informed written consent is required. In reply to Mr. Aronson's rhetorical question, you dont know which side to represent better, and quite simply, if you do choose a side to better represent, you are breaching your ethical duties to the other client. In this lies the problem of representing both parties.
I disagree with the holding. I feel that an attorney could, in some cases, represent both sides without conflict. In the case above, the lawyer failed to inform the Plaintiffs of important information and that is the malpractice, not the dual representation. Had the Defendant maintained open communication and kept all parties fully informed there may not have been any problems with the real estate transaction.
We are taught in ethics to check for conflicts at the very beginning of every case that a lawyer takes on. Potential conflicts can be resolved by informed consent from both parties. However, this is one of the cases where it cannot and the court is correct in its bright-line rule which, as Ms. Neuman points out, is extremely refreshing to see as a law student as we do not see much of this.
We are taught in ethics to check for conflicts at the very beginning of every case that a lawyer takes on. Potential conflicts can be resolved by informed consent from both parties. However, this is one of the cases where it cannot and the court is correct in its bright-line rule which, as Ms. Neuman points out, is extremely refreshing to see as a law student as we do not see much of this.