Chapter 13 Multistate Practice and Ethics

• Library: Practical Guide to Commercial Real Estate in South Carolina (SCBar) (2024 Ed.)

Chapter 13 Multistate Practice and Ethics

Mark S. Sharpe

A. Scope of Chapter

This chapter examines the South Carolina rules governing the multistate practice of law in commercial real estate transactions. Specific topics include the participation of out-of-state counsel in South Carolina commercial real estate transactions, and the ethical duties imposed on South Carolina lawyers as a result of such out-of-state counsel participation. This chapter will also address ethical and legal consequences for South Carolina lawyers arising from the multistate practice of law.

B. Introduction

1. Evolution of Real Estate Practice

South Carolina commercial real estate transactions increasingly involve one or more parties located outside of South Carolina. Frequently, these out-of-state parties may choose to be represented by counsel not admitted in South Carolina, and may or may not retain local counsel. Likewise, many South Carolina transactions may be one part of a larger, national transaction involving real estate in multiple states. Such transactions may be coordinated by lead counsel located in other states, who may or may not associate South Carolina-licensed counsel.

In many of these transactions, each party is represented by a lawyer (who may or may not be licensed in South Carolina). The concept of a single "closing attorney" does not typically apply. Because there are no unrepresented parties the public policy and consumer protection concerns are diminished. This chapter will review the rules governing the activities of out-of-state counsel in South Carolina real estate transactions, the rules governing the participation by South Carolina counsel in such transactions, and the rules governing South Carolina counsel practice in foreign jurisdictions.

2. Applicable Rules; Case Law

The basic principles governing multijurisdictional practice are set forth in Rule 5.5 of the Rules of Professional Conduct.¹ These principles have been supplemented by supreme court decisions addressing what constitutes the practice of law in the real estate context, and discussing the related obligations of participating South Carolina attorneys. In most of the decided transactional unauthorized-practice-of-law cases, the unauthorized practice of law is by laypersons—typically escrow or closing services companies, or out-of-state lawyers practicing in South Carolina without the involvement of South Carolina lawyers. There do not appear to be South Carolina decisions addressing the unauthorized practice of law context of multijurisdictional transactions where each party is represented by counsel.

3. Designated Practice of Law Tasks

The South Carolina Supreme Court has through a series of opinions designated a number of discrete segments of a residential real estate transaction that constitute the practice of law. As a result, each of those segments has to be performed or supervised by a South Carolina lawyer.² These S.C. Supreme Court opinions and the designated practice-of-law tasks are discussed more fully below. As noted elsewhere, the applicability of those opinions to multijurisdictional transactions is not clear.

4. Aiding and Abetting; Due Diligence

In the residential context, the South Carolina Supreme Court has been aggressive in enforcing the prohibition against assisting in the unauthorized practice of law. Further, the court has imposed on South Carolina real estate lawyers a due diligence obligation to ensure that there is no such unauthorized practice in a transaction in which the lawyer participates.³ This due diligence obligation requires a South Carolina lawyer participating in a residential closing to verify that each of the designated tasks deemed to be the practice of law is performed by a South Carolina lawyer. Failure to make verification results in a finding that the lawyer has assisted in the unauthorized practice of law.

5. Unenforceability of Instruments

The South Carolina Supreme Court has held that instruments prepared in violation of the unauthorized-practice-of-law rules may be unenforceable by a party that participated in or benefited from that unauthorized practice.

6. Inbound vs. Outbound Transactions

The primary focus of this chapter is on "inbound" transactions; that is, transactions in which an out-of-state lawyer seeks to provide legal services in South Carolina. Rule 5.5 also affects, however, "outbound" transactions—where a South Carolina lawyer seeks to provide legal services in or relating to a state other than South Carolina. Under Rule 5.5, a South Carolina lawyer must take care that, when providing legal services in another state, the South Carolina lawyer does not violate that other state's rules. Any such violation would, under Rule 5.5(a) and Rule 8.5,⁴ also be a direct ethical violation in South Carolina.⁵ The circumstances under which a South Carolina lawyer may practice in another state are governed by the practice-of-law rules of that other state, and are beyond the scope of this chapter.⁶

C. Rule 5.5

1. Rule 5.5 Generally

The principal South Carolina rules governing the unauthorized practice of law by lawyers⁷ and multijurisdictional practice of law are set forth in Rule 5.5 of the Rules of Professional Conduct.⁸ This rule is based on the ABA Model Rule of Professional Conduct 5.5,⁹ but as noted below South Carolina has significantly narrowed the exceptions to the general prohibition on multijurisdictional practice.

2. The Text of Rule 5.5

The text of Rule 5.5 is as follows:

(a) A lawyer shall not practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction or assist another in doing so.

(b) A lawyer who is not admitted to practice in this jurisdiction shall not:

(1) except as authorized by these Rules or other law, establish an office or other systematic and continuous presence in this jurisdiction for the practice of law; or

(2) hold out to the public or otherwise represent that the lawyer is admitted to practice law in this jurisdiction.

(c) A lawyer admitted in another United States jurisdiction, and not debarred, disbarred or suspended from practice in any jurisdiction, may provide legal services on a temporary basis in this jurisdiction that:

(1) are undertaken in association with a lawyer who is admitted to practice in this jurisdiction and who actively participates in the matter;

(2) are in or reasonably related to a pending or potential proceeding before a tribunal in this or another jurisdiction, if the lawyer, or a person the lawyer is assisting, is authorized by law or order to appear in such proceeding or reasonably expects to be so authorized;

(3) are in or reasonably related to a pending or potential arbitration, mediation, or other alternative dispute resolution proceeding in this or another jurisdiction, if the services arise out of or are reasonably related to the lawyer's representation of an existing client in a jurisdiction in which the lawyer is admitted to practice and are not services for which the forum requires pro hac vice admission; or

(4) are not within paragraph (c)(2) or (c)(3) and arise out of or are reasonably related to the lawyer's representation of an existing client in a jurisdiction in which the lawyer is admitted to practice.

(d) A lawyer admitted in another United States jurisdiction, and not debarred, disbarred or suspended from practice in any jurisdiction, may provide legal services, including through an office or other systematic and continuous presence, in this jurisdiction that:

(1) are provided to the lawyer's employer or its organizational affiliates and are not services for which the forum requires pro hac vice admission; or

(2) are services that the lawyer is authorized to provide by federal law or other law or rule of this jurisdiction.

D. Analysis of Rule 5.5 - Definition of Foreign Lawyer

The Rule 5.5 exceptions are only available to lawyers admitted to practice "generally" in another jurisdiction, meaning that the lawyer must be on active status and actually be authorized to practice in that other jurisdiction.¹⁰ Further, a lawyer seeking to rely on Rule 5.5 must not have been debarred, disbarred, or suspended from practice in any jurisdiction; such debarment, disbarment, or suspension will prohibit the lawyer from relying on Rule 5.5 even though the lawyer remains admitted in some other jurisdiction.¹¹

The ABA Model Rule includes within the concept of foreign lawyer not only lawyers licensed in other states, but also lawyers licensed in foreign countries. South Carolina's version of Rule 5.5, however, limits the concept of "foreign lawyers" to lawyers admitted in other states of the United States.

E. Analysis of Rule 5.5 - Prohibited Activities

Rule 5.5 sets forth four general prohibitions:

• First, subject to certain exceptions, a lawyer may not practice law in any jurisdiction in violation of the rules of that jurisdiction. This section not only prohibits the unauthorized practice of law in South Carolina by foreign lawyers, but also prohibits the unauthorized practice of law by South Carolina lawyers in a foreign jurisdictions.¹²

• Second, a South Carolina lawyer may not assist another in the unauthorized practice of law.¹³

• Third, a foreign lawyer may not establish an office or systematic and continuous presence in South Carolina for the practice of law.¹⁴

• Fourth, a foreign lawyer may not hold out to the public or otherwise represent that the lawyer is admitted to practice in South Carolina.¹⁵

Rule 5.5 is applicable not only to South Carolina lawyers, but also to out-of-state lawyers practicing law in South Carolina. Such lawyers—by practicing in South Carolina, subject themselves to the jurisdiction of the South Carolina Supreme Court.¹⁶ The prohibition on South Carolina lawyers assisting others in the unauthorized practice of law extends to assisting both lawyers and laypersons.¹⁷

F. Systematic and Continuous Presence

Although the mandate in Rule 5.5(b)(1)...