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Confidential Consultation


Are Ethics Necessary?

Are Ethics Necessary?


“I am a recently admitted attorney, and a very busy guy.  Quite frankly, I slept through my ethics course in law school.  I mean, that stuff won’t make you money, am I right?  Anyway, I took an ethics CLE course last week (only because I had to for re-registration), and the teacher said that there are other ways to get into trouble with your escrow account besides stealing or commingling.  As I do a lot of real estate and debt collection work, and I haven’t got a clue about escrow, I got a little concerned.  Could you please tell me what else I should avoid?  And if you don’t mind, make it snappy: like I said I’m a busy guy out to make money.

— Lloyd

Dear Lloyd

Your letter was like a breath of fresh air.  Your plain-spoken honesty as to your purpose for practicing law is bracing; although the betting is now ten to one for disbarment before next fall.

At any rate, your question could be helpful to all those lawyers who actually will be around a while, so I put together a “snappy” top ten list of bad escrow thingies.  They are, in no particular order and completely anecdotal, as follows:

1] Write checks to yourself, family, and friends made out to “cash”.  The Rules clearly says that all checks must be made out to a named payee.  So this is a quick and easy way to be brought up on charges.

2] Never, ever, reconcile your escrow account.  While not knowing if there is enough money in your account (or too much money) is certainly exciting, it is also a sure-fire way to a charge of conversion, commingling, failure to maintain proper and accurate escrow records, etc.

3] Use your operating account for all checks, escrow, or not.  By doing this you violate a number of prime ethical obligations in one go, as the Rules require that you have a separate escrow account, which is properly captioned, and which segregates client funds.  This is a formula for a harsh sanction.

4] Leave the “books and records” stuff to your secretary.  This way you probably have a 50-50 chance to survive a grievance audit; assuming your secretary actually likes you enough to even try and keep your books properly.

5] Have your bank issue an ATM card for your escrow account, and be sure to take it on vacation to Vegas and to Bachelor parties in Atlantic City.  Oddly enough, this actually happens, and usually ends badly.

6] Use your escrow account for personal purposes if there is no client money in it.  This is the flip side of number 3, and almost as harmful to your professional health.

7] Write checks on your account without first making sure the deposit cleared.  If you write a check on uncollected funds, the money used to pay the check must come from other money in your escrow account.  This other money must belong to some other client as you can’t have your own money in the account.  Thus, you are converting the escrow funds of that other client.  Wait for written confirmation or call your bank to make certain deposits are cleared before you write checks against them.  Always.

8] Write post-dated checks on uncollected funds.  This is how some lawyers think they can avoid number 7.  However, asking a client to hold a $75,000 check for seven days is like handing a plump chicken to a hungry fox.

9] Blindly trust your client when he says ”trust me”.  Clients are not your friend.  They have agendas like everybody else.  When a client asks you to clear a $50,000 third party check through your escrow account and tells you it’s because he doesn’t trust the manager at his bank, make him go away.  

10] Forget that you are a fiduciary and an advocate while holding escrow for a client and a third party.  This last concept is often overlooked by lawyers; leading to many subsequent ethical violations.  Simply put, when you accept escrow you accept added responsibilities towards that escrow and all interested parties, which could put you in conflict with the desires or interests of your client[1].  These escrow responsibilities usually equal or supersede the interests of your client.  If you fail to respect those added responsibilities you open yourself up to serious grievance charges and possibly financial responsibility as well.

I will hope the above is responsive to your inquiry.  I have taken the liberty of sending my card for your Rolodex.  Please remember to call me when the charges are filed.

[1] National Union Fire Ins. Co. v. Proskauer Rose, 165 Misc. 2d 539; Entertainment & Amusements of Ohio v. Barnes, 49 Misc. 2d 316, New York Code of Professional Responsibility, Canons 5, 7 & 9.