CSG Law Alert: Serving as Escrow Agent Can Be Risky
Firms often serve as escrow agents for clients, and sometimes the adversary as well — real estate closings, corporate transaction down payments, environmental clean-up and settlement agreements in litigation are just a few examples. But is your firm protected? Do you have a detailed escrow agreement that explicitly sets forth your obligations and spells out under what circumstances exactly you can disburse the funds and to whom? If all you do is put the money in your attorney trust account and follow your client’s instruction, what happens when the adversary disputes the release of funds? That is the situation that was recently addressed by the Supreme Court of New Jersey in Meisels v. Fox Rothschild LLP, 2020 WL 97718.
In that case, an intermediary entity wired funds to Fox Rothschild’s trust account in connection with a real estate deal the firm was handling. The wire transfer did not include any instructions as to how the money should be disbursed. The Supreme Court focused on two facts, (1) the funds were sent with no reference that they were on behalf of the Plaintiff and contained with no limiting instructions or conditions, and (2) plaintiff did not object to the disbursement of funds in a timely manner, and thereby dismissed the case against Fox Rothschild.
But what about a different fact scenario where your client’s adversary makes a claim to the proceeds before they are disbursed. Can you simply listen to your client and disburse the funds? In a scenario where you are acting as an escrow agent, the answer is likely no. You are certainly safer asking a Court for instructions if two parties are claiming rights to the money because you have certain fiduciary obligations as an escrow agent. If you are not acting as an escrow agent and are just holding money for your client, that is an entirely different situation. That is why best practice is to document everything in writing when you place money into your attorney trust account. You should also obtain written instructions from your client.
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