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Cardinal v. Merrill Lynch Realty/Burnet, Inc.: Minnesota Supreme Court Finds Broker Providing Closing Services Not Engaged in Unauthorized Practice of Law

In 1989 the Supreme Court of Minnesota addressed whether a real estate broker had engaged in the unauthorized practice of law. The court held that by charging a separate fee for closing services in an ordinary real residential real estate transaction which presented neither difficult nor doubtful questions, the broker did not engage in the unauthorized practice of law.

Merrill Lynch Realty/Burnet (MLRB) was a licensed real estate brokerage. In 1983, Cardinal sold a home through MLRB, which charged her a commission and a separate charge of $250 for closing services (drafting, recording and closing). In 1984, Orman sold a home through MLRB. Orman, an attorney, drafted the deed which was delivered to the buyers. Prior to closing, Orman asked if MLRB would waive the $250 closing fee. MLRB declined to waive or reduce the fee regardless of whether Orman drafted some or all of the closing documents. At closing, Orman paid the commission and the closing fee. None of the MLRB staff who attended and worked on the closings was an attorney. Cardinal and Orman sued MLRB alleging that by charging the separate closing fee, it engaged in the unauthorized practice of law. The trial court found for the plaintiffs and awarded them the amount of the closing fee less the cost of recording the closing documents. MLRB was granted accelerated review of the decision.

The Court stated that subject to certain exceptions "it is unlawful for any person . . . , except members of the bar . . . , to hold [themselves] out as qualified to give legal advice . . . or, for or without consideration, to prepare any legal document." The exceptions include: (1) anyone acting as a broker for the parties or agent of one of the parties to a sale or trade or lease of property; and (2) any person who draws, for or without a fee, farm or house leases, notes, mortgages, chattel mortgages, bills of sale, deeds. assignments, satisfactions, or any other conveyances except testamentary dispositions and instruments of trust." The court noted that the rationale for the exceptions was that public welfare does not require restraint on a person acting as an agent or broker for any party to a sale from drawing the documents incident to the transaction.

The Court also noted that in general terms, a layman is practicing law if difficult or doubtful legal questions are involved, which, to safeguard the public, reasonably demand the application of a trained legal mind. Further, the determination of what is a difficult or doubtful question is not to be made by a trained legal mind, but by the understanding of a reasonably intelligent layman who is reasonably familiar with similar transactions. The court noted that the thrust of the lawsuit was not that these transactions posed legal questions which demanded the expertise of a lawyer nor that the plaintiffs received incompetent representation, but only that by charging a separate fee for its services in connection with the documentation and closing of the transaction, MLRB engaged in the unauthorized practice of law. The court concluded that it found no evidence to support the conclusion that MLRB engaged in the unauthorized practice of law by performing the tasks indicated or by collecting a fee. Thus, the supreme court reversed the lower court decision.

Cardinal v. Merrill Lynch Realty/Burnet, Inc., 433 N.W.2d 864 (Minn. 1989).