Bennion, Van Camp, Hagen & Ruhl v. Kassler Escrow, Inc.

Decision Date05 November 1981
Docket NumberNo. 47383-8,47383-8
Citation635 P.2d 730,96 Wn.2d 443
CourtWashington Supreme Court
PartiesBENNION, VAN CAMP, HAGEN & RUHL, a partnership, Respondents, v. KASSLER ESCROW, INC., a Colorado Corporation, Petitioner, and Elenor Enzler and Leann Rainwater, Defendants. *

Jones, Grey & Bayley, Charles F. Vulliet, Charles Thulin, Deborah A. Elvin, Seattle, for petitioner.

Reed, Otterstrom & Giesa, P. S., John P. Giesa, D Roger Reed, Spokane, for respondents.

DIMMICK, Justice.

Is RCW 19.62 authorizing escrow agents and other lay persons to perform certain actions with regard to real estate or personal property transactions constitutional? We hold, affirming the trial court, that the legislative action violates Const. art. 4, § 1 inasmuch as therein, the Supreme Court is given the exclusive power to regulate the practice of law.

Defendant petitioner is a registered escrow agent under the Escrow Agent Registration Act, RCW 18.44, and employs licensed escrow officers for closing real estate transactions. Petitioner closed several real estate transactions and in the process prepared documents and performed other services. Two of these transactions involved earnest money agreements specifying that the place of closing was to be the office of the plaintiff/respondent, a law firm. Respondent brought suit alleging that the escrow company had engaged in the unauthorized practice of law in violation of RCW 2.48.170, .180 and .190. Respondent sought a permanent injunction enjoining petitioner from performing any acts constituting the practice of law.

Subsequent to the filing of the action, the legislature enacted RCW 19.62 authorizing certain lay persons to perform tasks relating to real estate transactions. Specifically, the act allows escrow agents and officers to

select, prepare, and complete documents and instruments relating to such loan, forbearance, or extension of credit, sale, or other transfer of real or personal property, limited to deeds, promissory notes, deeds of trusts, mortgages, security agreements, assignments, releases, satisfactions, reconveyances, contracts for sale or purchase of real or personal property, and bills of sale ...

RCW 19.62.010(2). 1

Petitioner, in reliance upon the statute, moved to dismiss the action for injunctive relief, which motion was denied by the trial court. Respondent moved for, and the trial court granted, a partial summary judgment declaring RCW 19.62 unconstitutional.

The line between those activities included within the definition of the practice of law and those that are not is oftentimes difficult to define. Recently, in Washington State Bar Ass'n v. Great W. Union Fed. Sav. & Loan Ass'n, 91 Wash.2d 48, 586 P.2d 870 (1978), we concluded that preparation of legal instruments and contracts that create legal rights is the practice of law.

The "practice of law" does not lend itself easily to precise definition. However, it is generally acknowledged to include not only the doing or performing of services in the courts of justice, throughout the various stages thereof, but in a larger sense includes legal advice and counsel and the preparation of legal instruments by which legal rights and obligations are established. Further selection and completion of preprinted form legal documents has been found to be the "practice of law."

The services at issue here are ordinarily performed by licensed attorneys, involve legal rights and obligations, and by their very nature involve the practice of law. We thus must agree with the trial court's conclusion that the selection and completion of form legal documents, or the drafting of such documents, including deeds, mortgages, deeds of trust, promissory notes and agreements modifying these documents constitutes the practice of law.

(Citations omitted.) Great Western, at 54-55, 586 P.2d 870.

The statute in question is a direct response to our holding. We reaffirm that definition. RCW 19.62 authorizes a lay person involved with real estate transactions to "select, prepare, and complete documents and instruments" that affect legal rights. As such the statute allows the practice of law by lay persons. Petitioner requests this court to redefine the practice of law so that the conduct allowed by the statute does not constitute the practice of law. Petitioner asserts that there is a trend allowing lay persons to perform certain services such as those authorized by RCW 19.62 and our holding RCW 19.62 unconstitutional would not protect the public in any way. We disagree.

It is the duty of the court "to protect the public from the activity of those who, because of lack of professional skills, may cause injury whether they are members of the bar or persons never qualified for or admitted to the bar." Great Western, at 60, 586 P.2d 870. Even the simplest of conveyances may involve issues of taxation, estate planning, future interests, water rights, equitable conversion, covenants, equitable servitudes, easements, statute of frauds and contract law. As stated in Washington State Bar Ass'n v. Washington Ass'n of Realtors, 41 Wash.2d 697, 712, 251 P.2d 619 (1952) (Donworth, J., concurring), "there is no such thing as a simple legal instrument in the hands of a layman." Even escrow agents who may be well trained in certain aspects of conveyancing could face complexities that are beyond the scope of that escrow agent's knowledge. Additionally, the agent could fail to identify and address obscure issues.

A dangerous flaw of RCW 19.62 lies in the fact that it virtually gives free rein to almost anyone of any degree of intelligence to perform any task related to real property or personal property transactions. Arguably, any employee of banks, trust companies, bank holding companies, savings and loans, credit unions, insurance companies, or any federally approved agencies or lending institutions under the National Housing Act, as well as escrow agents and officers, may select, complete and prepare a host of documents in connection with any loan, closing, sale or transfer of any real or personal property.

Petitioner cites cases in Minnesota, Georgia, Wisconsin and Rhode Island as an indication of a trend upholding legislation similar to RCW 19.62. 2 Our reading of those cases, however, does not lead us to that conclusion. Petitioner's discussion of the cases does not address the distinctions in the constitutions of the various states. In addition, the statutes enacted in those states were limited in their application. No jurisdiction has upheld a statute as broad as RCW 19.62 authorizing the wholesale practice of law by a large group of lay persons.

Alternately, petitioner contends that the definition of the practice of law, as it now exists, should not be applied by this court to escrow agents. This assertion is based upon the fact that escrow agents must comply with state licensing requirements (RCW 18.44.010 et seq.) and with warning provisions notifying parties to seek legal advice if desired. RCW 19.62.010(2)(b). This argument focuses on who is performing the services rather than the nature and character of the services. This is clearly counter to prior case law. Great Western, 91 Wash.2d at 54, 586 P.2d 870; Washington Ass'n of Realtors, 41 Wash.2d at 699, 251 P.2d 619. In addition, if the agent is practicing law, a license and warning does not satisfy RCW 2.48.170, .180, and .190. 3 Such agent is not held to the high standards of conduct and competence required of an attorney. See Code of Professional Responsibility, EC 3-3 4-even though the statute attempts to require a similar standard. 5

The statute fails to consider who is to determine whether such agents and employees of banks, etc., are possessed of the requisite skill, competence and ethics. Only the Supreme Court has the power to make that determination through a bar examination, yearly Continuing Legal Education requirements, and the Code of Professional Responsibility. The public is also protected against unethical attorneys by a client's security fund maintained by the Washington State Bar Association.

Petitioner further contends that even if the court finds that the activities authorized by RCW 19.62 are the practice of law, the services rendered are within an exception to the general prohibition against lay persons practicing law. We have recognized this exception when a party to a legal document selects, prepares or drafts the document or represents himself in court proceedings. Both of these exceptions are based upon a

belief that a layperson may desire to act on his own behalf with respect to his legal rights and obligations without the benefit of counsel.

The "pro se" exceptions are quite limited and apply only if the layperson is acting solely on his own behalf.

Great Western, 91 Wash.2d at 57, 586 P.2d 870. See also Code of Professional Responsibility EC 3-5. 6 The

instant statute also attempts to establish this exception by specific language. RCW 19.62.010(2)(a), (b).

Petitioner asserts that it falls within this "pro se" exception because as escrow agent it was a party to the documents and it charged no additional fees for the service. The interest of an escrow agent in the real estate transaction is not substantial enough to allow the services performed by it to fall within the exception. See State Bar of Arizona v. Arizona Land Title and Trust Co., 90 Ariz. 76, 366 P.2d 1 (1961); Oregon State Bar v. Security Escrows, Inc., 233 Or. 80, 377 P.2d 334 (1962). The petitioner in performing the services authorized by the statute was not acting solely on its own behalf. Simply stating the proposition does not make it accurate. Petitioner may have had a substantial interest in insuring the documents were correct but it did not have a substantial interest in the transaction itself. Petitioner relies heavily upon the fact that no additional charges were made for the services. Petitioner relies on the holding in Great Western to support this aspect of...

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