Liability of Escrow Agents for Unauthorized Practice of Law under Washington's Consumer Protection Act

Introduction

The case of JACK L. BOWERS, ET AL v. TRANSAMERICA TITLE INSURANCE COMPANY (100 Wn. 2d 581, 1983) addresses critical issues surrounding the unauthorized practice of law by escrow agents in the state of Washington. This legal dispute arose when the Bowers family sold real property without securing a legal security interest, relying instead on an unsecured promissory note. Upon the purchaser's default, the Bowers sought damages from Transamerica Title Insurance Company, which had prepared the closing documents without advising them of the risks associated with an unsecured note or recommending that they obtain independent legal counsel.

The Supreme Court of Washington was tasked with determining whether Transamerica's actions constituted negligent practice of law under the Consumer Protection Act (RCW 19.86) and assessing the appropriate damages and attorney fees.

Summary of the Judgment

The Supreme Court of Washington held that Transamerica Title Insurance Company negligently engaged in the unauthorized practice of law by preparing and executing closing documents without providing adequate legal advice to the Bowers. This negligence violated the Consumer Protection Act, leading to the affirmation of the awards of damages. However, the court remanded the award of attorney fees for further consideration, indicating that the initial calculation of fees did not entirely align with statutory guidelines.

Analysis

Precedents Cited

The court referenced several key precedents to support its decision:

In re Droker (59 Wn.2d 707, 1962): Established that the preparation of legal forms constitutes the practice of law.
Washington State Bar Ass'n v. Great W. Union Fed. Sav. Loan Ass'n (91 Wn.2d 48, 1978): Reinforced that selecting and drafting legal documents is practicing law.
MATTIELIGH v. POE (57 Wn.2d 203, 1960): Held that laypersons attempting to practice law are subject to the same negligence standards as licensed attorneys.
Andersen v. Northwest Bonded Escrows, Inc. (4 Wn. App. 754, 1971): Demonstrated liability for escrow agents who fail to advise clients adequately.
HECOMOVICH v. NIELSEN (10 Wn. App. 563, 1974): Confirmed that unauthorized preparation of contracts by escrow agents results in negligence liability.

These precedents collectively establish that non-attorney escrow agents cannot perform legal tasks without incurring liability for negligence, especially when such actions result in client harm.

Legal Reasoning

The court's legal reasoning centered on two primary points:

Unauthorized Practice of Law: The court determined that Transamerica's escrow agent, Mrs. Evans, was engaged in the unauthorized practice of law by preparing legal documents without being an attorney. This violated the standards set for legal practitioners and imposed a duty to advise clients appropriately.
Consumer Protection Act Violation: By engaging in unauthorized legal activities, Transamerica also violated the Consumer Protection Act, which prohibits unfair and deceptive trade practices. The court found that such conduct not only deceived the plaintiffs but also had the potential for repetition, thereby impacting the public interest.

The court emphasized that escrow agents must either obtain proper legal advice themselves or clearly advise clients to seek independent counsel to avoid conflicts of interest and ensure informed decision-making.

Impact

This judgment has significant implications for the real estate and escrow industries in Washington:

Standard of Care: Escrow agents are held to the same standard of care as licensed attorneys when engaging in activities that constitute legal practice.
Consumer Protection: Strengthens consumer protections by holding companies accountable for deceptive practices in real estate transactions.
Operational Practices: Forces escrow companies to reassess their closing procedures and ensure compliance with legal standards, potentially increasing the need for legal oversight in their operations.
Legal Liability: Escrow agents may face increased liability risks, encouraging the hiring of qualified legal professionals or additional training for existing staff.

Complex Concepts Simplified

To aid in understanding the judgment, several complex legal concepts are clarified below:

Unauthorized Practice of Law: Refers to activities that require legal expertise being performed by individuals who are not licensed attorneys. In this case, the escrow agent prepared legal documents without legal qualifications, which is prohibited.
Consumer Protection Act (RCW 19.86): A Washington state law designed to protect consumers against unfair and deceptive business practices. It allows consumers to seek damages and attorney fees if they are harmed by such practices.
Negligence: A failure to exercise the care that a reasonably prudent person would exercise in similar circumstances. Transamerica was found negligent for not advising the plaintiffs to seek independent legal counsel.
Proximate Cause: The primary cause of an injury. The court determined that Transamerica's negligence directly caused the plaintiffs' financial loss.
Attorney Fees Calculation: The method by which the court determines the reasonable compensation for legal services provided. The court utilized a "lodestar" method, which multiplies the number of hours worked by a reasonable hourly rate, adjusted for specific factors.

Conclusion

The Supreme Court of Washington's decision in Bowers v. Transamerica Title Insurance Company underscores the critical importance of adhering to legal standards in real estate transactions. By holding escrow agents accountable for the unauthorized practice of law, the court reinforced consumer protections and established a clear precedent that non-attorney professionals cannot perform legal tasks without incurring liability. This judgment not only safeguards consumers from deceptive practices but also compels escrow companies to ensure their operations are legally compliant, ultimately fostering greater transparency and trust in real estate dealings.