Opinion ID: 2499315
Heading Depth: 1
Heading Rank: 6

Heading: Professional Duties as an Attorney

Text: This standard for application of the attorney exemption is consistent with and similar to the standard applied under many other states' real estate licensing statutes. See, e.g., Spirito v. New Jersey Real Estate Comm'n Dept. of Ins., 180 N.J.Super. 180, 188-89, 434 A.2d 623 (1981) (attorney may perform some activities a broker would performsuch as negotiating a contractif doing so is incidental to the practice of law and within the context of a relationship between an attorney and a client); Kan. Att'y Gen. Op. No. 94-6 (discussing and categorizing out-of-state cases and applying Spirito 's test to K.S.A. 58-3037[c]). McGrath argues he met this standard because he provided legal services to Lausier within an attorney-client relationship. Consequently, he argues, his activities are exempt from the KREBSLA license requirement. Contrary to this argument, we conclude that most cases applying this standard do not support McGrath's position and support a determination that, as a matter of law, McGrath is not entitled to share in the commission. That does not mean there is no support for McGrath's position. In applying a standard similar to that adopted in Spirito, at least one court has concluded an attorney is entitled to share in a broker's commission. E.g., Lance v. Lyman, No. 549,853, 1999 WL 557968, at ,  (Conn.Super.1999) (unpublished opinion) (denying defendant's motion to strike an attorney's claim for enforcement of a cobrokerage real estate agreement allowing for split commissions because the attorney allegedly performed [his] duties as such attorney-at-law and consequently was exempt from the licensure requirements and the restriction on his collection of a commission); cf. Queen of Angels Hospital v. Younger, 66 Cal.App.3d 359, 136 Cal.Rptr. 36 (1977) (not dealing with split of commission but allowing attorney fees to be calculated as a percentage of lease income received by client and to be paid from that income even though attorney was not a licensed broker). However, the prevailing view is that a buyer's attorney cannot share in a commission with the seller's broker. In essence, the courts adopting this prevailing view hold that fee-splitting is prohibited even if there is not a provision of the state's real estate licensing act that absolutely prohibits an attorney from splitting a brokerage commission. In other words, the attorney's request to share in the brokerage commission survives a facial interpretation of the exemption statute but fails under an as applied interpretation of the exemption statute. Often, as a starting point for analysis, courts note that the right to share in a commission originates in the contract between the seller and the seller's broker; it is the seller who is obligated to pay the commission and the seller's broker who agrees to split the commission. Many courts have found it significant that an attorney representing the buyer does not have an attorney-client relationship with or perform legal services for either the seller or the seller's broker. On this basis alone, some courts have held that the buyer's attorney is not entitled to share in the commission. E.g., Provisor v. Haas Realty, Inc., 256 Cal. App.2d 850, 855-58, 64 Cal.Rptr. 509 (1967) (noting the attorney performed no legal services for seller's broker; the only legal services were performed for the buyers); Tobin v. Courshon, 155 So.2d 785, 785-87 (Fla.1963) (locating property for a client is not within the narrow avenue through which the lawyer, not licensed as a real estate broker or salesman, may enter the ambit of the real estate broker; the court commented it was unable logically to accept the attempt of so-called client to avoid paying for legal services and instead trying to fasten that obligation on the seller); Krause v. Boraks, 341 Mich. 149, 155, 67 N.W.2d 202 (1954) (buyer's attorney did not provide his cobroker with legal services; the only service the attorney provided to the seller and the seller's broker was delivering willing buyers). Implied in the rationale of these cases is a concept that is more extensively discussed in Sherman v. Bruton, 497 S.W.2d 316, 321 (Tex.Civ.App.1973), and Matter of Roth, 120 N.J. 665, 667-69, 577 A.2d 490 (1990). These courts reason that the contractual trigger for earning a commission is producing a ready and willing buyer; in other words, the attorney is the procuring cause of the contract between the buyer and the seller. Consequently, it is this activity, which is primarily a broker's service, that is the principal activity for earning a commission. These courts hold that any legal services are incidental to providing brokerage services, not vice versa. For example, in the Texas case of Sherman, 497 S.W.2d at 321, the court took a different view of the Texas attorney exemption than the one adopted by a different Court of Appeals panel in Elin, 720 S.W.2d at 226. As we have discussed, the Elin panel held that Texas attorney exemption was absolute. In contrast, the Sherman panel focused on the phrase services rendered by an attorney at law and noted that the phrase had not been included in the absolute exemption found in the earlier version of that statute, which was considered in Burchfield, 156 Tex. 329, 294 S.W.2d 795. The Sherman court accepted that [i]f a lawyer is employed to render legal services, [the statute] exempts him . . . even though some of the services he renders as an attorney, such as negotiations for a sale or lease, would fall within the function of a real estate broker. Sherman, 497 S.W.2d at 321-22. Even so, the court held an attorney, who was also a licensed real estate broker, could not circumvent a requirement in the real estate law requiring compensation contracts to be in writing by hiding behind the attorney exemption if the attorney primarily performed services as a broker and only incidentally provided legal services. Sherman, 497 S.W.2d at 322. In reaching this conclusion, the Sherman court focused on the nature of the contract that allowed the attorney to earn the commission. According to the parties' description of what the attorney was hired to do, the attorney was to `study the property and appraise it, expose it to the market, and find out the highest and best use and who wanted to pay the most money for it on a ground lease.' Sherman, 497 S.W.2d at 318. In exchange for those services, the client agreed to pay the attorney a commission. In closing the deal, the attorney drafted lease proposals, but, the court noted: This work was not done under any separate agreement for legal services for which a separate fee would be charged, but was incidental to plaintiff's efforts to secure a lease under the original indivisible contract of employment. Sherman, 497 S.W.2d at 322. Because the attorney acted primarily as a broker and only incidentally as an attorney, the attorney's compensation agreement had to be in writing under the Texas real estate licensing act and the attorney could not rely on the act's attorney exemption to get around the requirement. The New Jersey Supreme Court, in Roth, also noted that one earns a real estate commission by performing primarily brokerage services, meaning any legal services were subordinate to the brokerage services. Roth, 120 N.J. at 667-70, 577 A.2d 490. Roth is an attorney discipline case arising from an attorney's attempt to share in a real estate commission and to have that share credited as a reduction in the purchase price to the benefit of his client. The New Jersey Supreme Court concluded the attorney could not share in the commission. The court noted that for the New Jersey Real Estate Brokers and Salespersons Licensing Law's exemption for attorneys at law to apply, an attorney not licensed as a broker must confine any broker's services to those that are obviously minor, incidental, ancillary, and subordinate to the legal services entailed in the client's representation. Roth, 120 N.J. at 672-73, 577 A.2d 490. In determining if this test had been met, the Roth court found the manner of compensation to be highly relevant. The court noted the long-standing rule that a broker must be the efficient procuring cause of the contract between buyer and seller in order to receive a commission and concluded that a claim of entitlement to a commission is necessarily evidence of the performance of substantial brokerage services. Roth, 120 N.J. at 673, 577 A.2d 490. Thus, the court held: Common sense and ordinary experience tell us that an attorney who performs sufficient work as a broker to be entitled to a commission for those services would not be acting as a broker in a manner only incidental to the normal practice of law. Conversely, an attorney performing brokerage services that are really only incidental to his or her work as a lawyer would not be entitled to a commission because . . . those incidental services would be substantially less significant than the `activities normally associated with a real estate broker.' We therefore hold that an attorney whose actions as a broker are undertaken pursuant to the `attorney' exemption to the licensing law, N.J.S.A. 45:15-4, may perform brokerage services that are only incidental to the normal practice of law, which cannot be the basis for a claim of compensation as a broker. Roth, 120 N.J. at 673-74, 577 A.2d 490. Similar to the New Jersey standard, this court has held that a real estate broker is entitled to a commission if he or she is the efficient and procuring cause of a consummated sale. Campbell-Leonard Realtors v. El Matador Apartment Co., 220 Kan. 659, Syl. ¶ 1, 556 P.2d 459 (1976). Given that test, the reasoning of the Roth court rings true. In fact, the Listing Agreement under which McGrath asserts his right to the real estate commission at issue in this appeal stated: a) Seller agrees to pay Reece & Nichols Realtors a Broker's Administrative Commission of $175.00 and a sales commission of 6% of the selling price. . . . The commission is due and payable if BROKER or anyone else, including SELLER, produces or finds a purchaser ready, willing, and able to purchase the Property at the price and terms offered now or at the price and terms acceptable to SELLER at a later date. Seller authorizes the payment of the commission to BROKER from SELLER'S proceeds at closing. (Emphasis added.) Consequently, McGrath could have performed all manner and amounts of legal services, but he would not have been able to share in the commission if he had not produced a ready, willing, and able buyer. That action, not his providing legal services incidental to closing the sale, serves as the basis for claiming a right to split the brokerage commission with RAN. Yet, as our Court of Appeals noted in Metcalf Assocs.-2000, 42 Kan.App.2d at 428, 213 P.3d 751, an attorney is not entitled to a finder's fee because finding a property or a buyer for a property is not an activity that demands knowledge and application of legal principles. As such, it is not an activity encompassed within the practice of law. See State ex rel. Stephan v. Williams, 246 Kan. 681, 689, 793 P.2d 234 (1990) (practice of law has been explained to be `the rendition of services requiring the knowledge and application of legal principles and technique to serve the interests of another with his consent.'). An attorney may apply legal knowledge to the task of procuring a sale, but those services are incidental to the brokerage service that can be performed by a nonattorney. In other words, entitlement to a commission presupposes the performance of substantial brokerage services, not legal services. Consequently, any legal services performed by McGrath were incidental to his procuring a sale. See In re Adoption of B.C.S., 245 Kan. 182, 184, 777 P.2d 776 (1989) (defining `incidental' as meaning `casual, minor importance, insignificant, and of little consequence'). As noted by courts of other states, this conclusion is evidenced by the fact there is no additional contract between McGrath and Lausier for compensation for duties above and beyond the compensation that becomes due and owing once a willing and able buyer is procured. E.g., Sherman, 497 S.W.2d at 322. An additional consideration arises under the KREBSLA's attorney exemption because of two words in K.S.A. 2011 Supp. 58-3037(c)professional duties. An attorney's professional duties are many and varied, depending on the circumstances, but always include compliance with the Kansas Rules of Professional Conduct (KRPC) imposed by this court on all attorneys licensed in Kansas. See Preamble to KRPC (2011 Kan. Ct. R. Annot. 407). Based on considerations of professional duties, other states have held an attorney cannot share in a real estate brokerage commission. See Kentucky Bar Ass'n v. Burbank, 539 S.W.2d 312, 313 (Ky.1976) (attorney's conduct in requesting a split in the broker's commission for negotiating and drafting contracts was unethical); Roth, 120 N.J. at 677, 577 A.2d 490 (an attorney who seeks to obtain a commission for brokerage services in connection with legal services rendered in the same transaction for the same client will have violated our ethics rules); Estate of Schuldt, 428 N.W.2d 251, 258 (S.D.1988) (improper for attorney to be dually compensated as an attorney and a broker) (Henderson, J., concurring) (When a lawyer begins to hold himself out as being in the real estate business, he must obtain a real estate license.). In part, these courts determined that splitting a broker's commission violated the respective state's real estate license exemption. Therefore, the attorney's conduct was unethical under attorney discipline provisions that prohibit an attorney from representing a client if the representation will result in a violation of a law and that require an attorney to uphold the integrity of the legal profession. See Kentucky Bar Ass'n, 539 S.W.2d at 313; Roth, 120 N.J. at 678, 577 A.2d 490; see also Preamble to KRPC (2011 Kansas Ct. R. Annot. 408) (A lawyer's conduct should conform to the requirements of the law, both in professional service to clients and in the lawyer's business and personal affairs.); KRPC 1.16(a)(1) (2011 Kan. Ct. R. Annot. 535) (a lawyer shall not represent a client . . . if: [1] the representation will result in violation of the rules of professional conduct or other law). More significantly, these courts have focused on conflict of interest concerns. Conflict of interest complications arise, the courts noted, because in a commission-split situation the fee of a buyer's attorney would be paid by the seller under an agreement the seller has made with the seller's broker, meaning a third party would pay the attorney's fee. This potential conflict is exacerbated by the attorney's personal interest in the outcome of the transaction and is heightened where the attorney acts as an agent for the buyer because the attorney earns a higher fee if his or her client, the buyer, pays more for the property. Hence, the attorney's personal benefit irreconcilably clashes with that of his or her client. In finding this inherent conflict prevents the attorney from ethically making claim to the commission, the courts cited rules of professional conduct that correspond with KRPC 1.7(a)(2) (2011 Kan. Ct. R. Annot. 484) and KRPC 1.8 (2011 Kan. Ct. R. Annot. 494). KRPC 1.7(a)(2) provides that [a] concurrent conflict of interest exists if: . . . (2) there is a substantial risk that the representation of one or more clients will be materially limited. . . by a personal interest of the lawyer. According to KRPC 1.8(f) (2011 Kan. Ct. R. Annot. 495), [a] lawyer shall not accept compensation for representing a client from one other than the client. See Roth, 120 N.J. at 677, 577 A.2d 490; Estate of Schuldt, 428 N.W.2d at 258. These statements in KRPC 1.7 and KRPC 1.8 are followed by exceptions and qualifications that may allow an attorney to continue representation of a client despite a conflict. Both the New Jersey and South Dakota Supreme Courts recognized similar exceptions in their attorney discipline rules, yet both courts adopted a blanket rule prohibiting an attorney who does not have a real estate license from receiving all or a portion of a real estate commission. Roth, 120 N.J. at 676, 577 A.2d 490; Estate of Schuldt, 428 N.W.2d at 258-59. The New Jersey court found the conflict was unacceptable. Roth, 120 N.J. at 677, 577 A.2d 490. Similarly, the South Dakota court, after noting that under South Dakota's equivalent to KRPC 1.8, an arrangement may normally pass muster if the client is given a reasonable opportunity to seek the advice of independent counsel, declined to limit its holding to allow for this possibility. The court concluded that [a]n attorney should be an attorney first and foremost, not broker, and that dual employment as an attorney and a broker put the attorney's economic interests ahead of his promised loyalty to this client. Estate of Schuldt, 428 N.W.2d at 259. The South Dakota Supreme Court also expressed concerns about the reasonableness of the attorney fee. Estate of Schuldt, 428 N.W.2d at 259. Obviously, this is a fact-based determination; yet, it seems the odds will be high for this concern to arise in Kansas as well because there is not an inherent tie between the reasonableness of the sales price for real estate and an attorney's services related to the sale. See KRPC 1.5 (2011 Kan. Ct. R. Annot. 470) (fees). We note there are other potential issues under the KRPC. For example, KRPC 5.4(a) (2011 Kan. Ct. R. Annot. 593), prohibits splitting a legal fee with a nonattorney. This provision would be violated if the attorney is a seller's broker sharing a fee with the buyer's broker, and it arguably is violated if the attorney is the buyer's broker. Further, in some cases, as noted by RAN, there will be a conflict between the duties of an attorney to maintain his or her client's confidences and a broker's duty of disclosure under the Brokerage Relationships in Real Estate Transaction Act, K.S.A. 58-30,101 et seq. See KRPC 1.6 (2011 Kan. Ct. R. Annot. 480) (confidentiality of information). In summary, the very nature of the basis for a claim to a real estate commission being the efficient and procuring cause of a consummated salemeans an attorney asserting a claim to a brokerage commission has performed primarily brokerage services. Even if legal services were performed, when an attorney claims a right to a brokerage commission, by default those legal services are incidental to the ultimate activity that produces the commission. While an attorney acting within the realm of an attorney-client relationship may perform some of the same services as would a real estate broker, those brokerage-type services must be incidental or ancillary to the performance of legal services for an attorney to fall within the attorney exemption under K.S.A. 2011 Supp. 58-3037(c). And, because of the inherent tension between a claim for fees arising from a real estate commission and the duties of an attorney under the KRPC, an attorney may not be separately compensated for brokerage services through the payment of a real estate commission. Consequently, K.S.A. 2011 Supp. 58-3037(c), the attorney exemption to the KREBSLA does not exempt an attorney from the prohibition in K.S.A. 2011 Supp. 58-3062(a)(10) against splitting a fee with a nonlicensee because the commission is not earned by primarily performing services encompassed within and incidental to the practice of law, within the context of an attorney-client relationship, and in a manner consistent with the attorney's professional duties.