NEW YORK STATE BAR ASSOCIATION
State Bar News
Escrow Account Rules: Protect Your Practice and Avoid the Grievance Committee By Brandon Vogel
O
f his current caseload representing lawyers in front of the state’s grievance committees, attorney Scott Bush estimates that half of them involve escrow account issues. “Every time you have funds that belong to a third party or a client, those go into an escrow account not an operating account. That’s where you get in trouble; that’s comingling of funds and there’s a prohibition against that,” said Bush of Corrigan McCoy & Bush. “If you are holding funds for a client, you are a fiduciary. You know the Rule we’re talking about is [RPC] 1.15. It’s in black and white, basically everything you have to do.” His clients that appear before the Grievance Committee: (1) do not understand the rule; (2) haven’t read it; or (3) don’t care. “It’s the latter ones that are really going to get themselves in trouble,” said Bush on the CLE webinar “Escrow Accounts: The Dangers and Pitfalls.” He explained that grievance committees get involved with an attorney in one of three ways: bouncing an escrow check; holding funds for a client or third party and not turning over the funds; or stealing the money. “To be honest, there’s not much I can do for them,” said Bush about clients who steal escrow funds.
New York State Bar Association
According to Bush, the three biggest things grievance committees do not like are: being ignored after receiving a complaint; being lied to; and, above all, depriving clients of funds from escrow accounts. He said that if you have a settlement check, make sure that you have an endorsement from the client or something in writing authorizing you to deposit it on their behalf. The grievance committee wants to see that everything is in writing. With few exceptions, an escrow account has to be set up in a New York state bank. The banks are required to report any bounced checks. If the check bounces, the bank sends a letter to the Lawyers’ Fund for Client Protection, and the Lawyers’ Fund sends a letter to the grievance committee. “That’s one of the major ways that you get involved with respect to the committee,” said Bush. Attorneys will then receive notification and be asked to provide up to six months’ worth of bank statements, deposit slips and cancelled checks. In addition, the committee will pick a date and ask for proof of how much money was in the escrow account at that time. “That’s going to start the process with respect to the committee,” said Bush. Failure to respond in a timely manner will result in a notice to testify. If that fails, the committee will make an application to suspend you from practicing pending the investigation. 47
Bush noted that it’s usually small firms and solo practitioners who get into trouble. “Even if it was an interim suspension, what are you going to do? You can’t practice law. You’ve got clients. You’ve got to turn over your files. You’ve got to tell the clients what’s going on. If you can’t practice, it’s not good business.” Bush said attorneys are required to keep bank statements for seven years, but he has seen instances where some clients do not have statements from a year ago. “A lot of attorneys say, ‘Well, I rely on my staff or my accountant to keep track of this material,’” said Bush. “That’s all well and good, but you’ve got to remember one thing: they’re your client; it’s your client’s funds.” He clarified that retainer fees should go into an operating account or a separate retainer account; it is not required to go into an escrow account. “Retainers are not clients’ funds; that’s the distinction.” continued on page 48 Journal, July/August 2021
