Know All the Facts
Recent Pennsylvania legal ethics opinion illustrates why you need to monitor state laws
about heir finders and genealogical search firms.
By: Robert G. Alexander, JD, LLM
1) By identifying and locating missing and unknown heirs, reputable heir-finding firms provided a needed service, necessary for the efficient and proper administration of estates and trusts.
2) However, sloppy or non-existent procedures will, in all likelihood, lead to civil and, perhaps, criminal liability to the search firm and their agents.
3) The heir-search industry deals with a complexity of relationships, emotions and issues that can have life-altering implications for all parties involved.
Many of you may have seen the recently published public reprimand of a Pennsylvania lawyer representing an heir search firm and various potential heirs. The case highlights the need for clearly defined policies and procedures and a “best practices” approach to genealogical, heir finder services, as well as for lawyers and trust officers involved in these processes. Although the case is an ethical opinion regarding a lawyer’s services, it is a classic example of the complexity of the relationships and issues involved in the heir search industry.
In the Pennsylvania case, an attorney had represented a Utah company that was engaged in searching courthouse estate filings throughout the U.S. for decedents who die intestate and then contacting potential beneficiaries of particular estates. In exchange for a successful search, the potential heirs assigned to the Utah company one-third of the assets that the particular beneficiary received from the estate. The attorney fee was a contingent legal fee of 5 percent of any amount the Utah firm recovered. This is the realm of representation in which the attorney misconduct arose.
Where things went wrong
The attorney was retained to represent the Utah company and the estate claimants in connection with a number of estates. However, when he first undertook representation of the claimants the attorney failed to advise them that he considered the Utah company to be his primary client. Further, he neglected to inform them that he would represent the claimants and the Utah company as long as their interests were in accord, and that if developed between the Utah company and the claimants, then the attorney would withdraw his representation of both the Utah company and the claimants.
As the attorney’s representation of the claimants and the Utah company continued, conflicts developed with some of the claimants. It turns out that these conflicts were communicated to the attorney by other attorneys who were hired by some of the claimants and that these claimants were contesting the assignments to the Utah company. However, despite these communications, the attorney continued to represent the Utah company (and some of the claimants) and failed to withdraw his representation.
Unfortunately, the attorney had also represented the Utah company against former clients in a number of legal matters. The attorney had previously represented the potential claimants in the same or substantially related matters, and was currently representing the Utah company whose interests were materially adverse against these former clients.
The Pennsylvania disciplinary board for the Pennsylvania Supreme Court ruled that the attorney had violated four rules of professional conduct, and issued its public reprimand:
1) The lawyer shall promptly inform the client of any decision or circumstances with respect to which the client’s informed consent is required by these rules;
2) A lawyer shall not represent a client if the presentation involves a concurrent conflict of interest;
3) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that persons’ interests are materially adverse to the interests of the former client unless the former client gives informed consent; and
4) A lawyer shall not represent a client or, where representation has commenced, shall withdraw from the presentation of a client if the representation will result in violation of the rules of professional conduct or other law.
Note: The American Bar Association Model Rules of Professional Conduct and the rules of professional conduct in each state are substantially similar to the Pennsylvania rules. Also, other states have issued similar ethics opinions such as Florida in 1997.
As this ruling illustrates, heir searches usually involve three parties: the search firm, a lawyer or other representative who contacts potential claimants, and the claimants. Absent written, clear cut rules of conduct between each of the parties to these relationships, very serious ethical concerns will be involved, and ethical violations also give rise to claims for malpractice. Also, rules of conduct and expectations often give rise to state (and perhaps federal) civil and criminal claims against the search firms and their representatives. In the Pennsylvania case, only the attorney was involved in a state bar ethics case, but his case easily could give rise to causes of action against the attorney and the search firm.
Although search firms are not a well regulated industry, and the rules and regulations enacted by the various states that have them vary widely, Pennsylvania has a statute that regulates heir finders, but only a few states have similar statues. This is not to say that related statutes and regulations don’t exist. A quick electronic legal search of the subject matter reveals 44 statutes, 42 regulations and nearly 9,000 administrative decisions among the 50 states and the District of Columbia related to heir finder services. While most of these decisions rule in favor the search firm, they illustrate all too well the potential liability involved without clear defined rules and procedures between the search firms, attorneys, trust officers and other who contact potential claimants and the claimants themselves.
Basis for successful claims
Successful claims are based upon failure to register or follow the rules of the applicable state laws properly, or finding that a contract with claimants is void and unenforceable. Successful claims may also result from violations of related laws and regulations with respect to consumer protection, from unfair trade practices, form conflicts of interest, from failure to follow local probate court procedures, from unlawful practice of law, from extortion or coercion, from misrepresentation, overcharging of fees, breach of fiduciary responsibility, and from complaints for failure to follow applicable industry codes of ethics, such as those of the Association of Professional Genealogists, just to name a few.
By identifying and locating missing and unknown heirs, reputable heir-finding firms provide a needed service, necessary for the efficient and proper administration of estates and trusts. However, sloppy or non-existent procedures will, in all likelihood, lead to civil and, perhaps, criminal liability to the search firm and their agents.
8 keys to negating potential problems
So, what can be done to avoid all of these problems listed above? Although these recommendations are far from exhaustive, they do provide a good foundation with which to address and correct potential problems.
1) Know and follow all of the applicable statues, administrative rules and related laws for each state in which you are doing business. Consult with a local attorney who can advise you about all applicable law and issues.
2) Make sure that your agents in each state in which you do business know and understand the same rules.
3) Have your agents sign written agreements to abide by all applicable laws, rules, regulations and applicable industry standards. If possible, have your agents agree to indemnify and hold harmless your search firm from violations committed either intentionally or unintentionally by the agent.
4) Have agents sign agreements to report any possible problems to you immediately, and have them annually sign a statement under oath that they have, to the best of their knowledge, complied with all of the terms of your agreement the agent, the agreements with the potential claimants, and all applicable and state rules and regulations.
5) Make sure that your firm and agents have appropriate liability coverage in place, and document your files accordingly.
6) Make sure your agents have appropriate contracts and disclosures with potential claimants and to the extent possible, monitor agent conduct accordingly.
7) Report potential claims immediately to your insurance carriers and state regulators appropriately. You want to do everything possible to prevent liability and mitigate potential damages.
8) Regularly monitor and document your files that you have followed the above suggestions.
Lastly, keep in mind that although the industry is not well regulated and claimants have not often been successful against search firms, the range of potential liability and theories of recovery are very broad and the potential liability can be devastating. This is an industry that is receiving increasing attention by state legislators, regulatory agencies and attorneys for claimants. However, if you know the rules and are diligent in monitoring your engagements, all should be well.
About the Author:
Robert G. Alexander, JD, LLM, was the president of the National Association of Estate Planners & Councils (NAEPC) and was on the board of directors of the Estate Planning Law Specialist Board. He was the president of Alexander Law Offices SC in Milwaukee, Wisconsin, where he concentrated his practice on wealth transfer, asset protection and family business planning.
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