Could a Nebraska lawyer represent one party to a transaction while also serving as escrow agent for all parties?

Plain-English summary

The opinion addressed a lawyer representing one side of a transaction while holding funds as escrow agent for all parties.

Former DR 5-105 permitted multiple roles only when adequate protection of each interest was obvious and every affected party consented after full disclosure. DR 4-101 protected client information, and DR 9-102 governed segregation, records, accounting, and delivery of funds.

Adopting New York City Opinion 1986-5 as guidance, the committee said the escrow agreement should identify potential conflicts and provide ways to resolve them. Suggested mechanisms included preserving the lawyer's ability to continue for the client, interpleader, or arbitration.

Some conflicts could still require resignation as escrow agent or withdrawal as counsel. Examples included asserting a client's lien against the escrow, the lawyer's own claim to funds, or a dispute in which the lawyer's interpretation or timing affected a personal fee claim.

Escrow funds had to remain in identifiable separate accounts with complete records. The committee concluded that no absolute prohibition applied but warned that the risks required careful consideration.

Currency note

This opinion was issued in 1987, before Nebraska's adoption of the 2005 Rules of Professional Conduct. Subsequent conflict, advance-waiver, escrow, trust-account, interest, interpleader, and informed-consent rules or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. The 2005 adoption date is stated in Nebraska Ethics Advisory Opinion 06-12.

Common questions

Q: Was dual service automatically prohibited?

A: No, but it required full disclosure, consent, and an obvious ability to protect all interests.

Q: What should the escrow agreement address?

A: Potential conflicts and mechanisms for resolving them, such as interpleader or arbitration.

Q: Could the lawyer pay disputed escrow funds to the lawyer personally?

A: No. The opinion required disputed funds to remain held until resolution.

Q: When might the lawyer need to resign as escrow agent?

A: When a lien, personal claim, or dispute created a conflict between neutral fund duties and the lawyer's client or personal interests.

Background and rules framework

The escrow role created duties to multiple parties and to the funds themselves, while advocacy created loyalty to one client. Consent could permit some overlap but did not eliminate nonconsentable or later-arising conflicts.

Citations and references

Former Nebraska Code of Professional Responsibility:

• Canon 9, DR 4-101, DR 5-105(A)-(C), and DR 9-102

Other opinion cited:

• New York City Opinion 1986-5

See also

• New York City Ethics Op. 1986-5: Lawyer as escrow agent
• Colorado Ethics Op. 140: Lawyer as escrow agent
• Oregon Ethics Op. 2005-55: Lawyer as escrow agent

Source

• Landing page: Nebraska lawyer ethics opinions archive
• Original PDF: Nebraska Ethics Advisory Opinion 87-4

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Nebraska Ethics Advisory Opinion for Lawyers No. 87-4

IT IS NOT, PER SE, A VIOLATION OF THE CODE OF PROFESSIONAL RESPONSIBILITY FOR THE LAWYER FOR ONE PARTY IN A TRANSACTION TO ACT AS AN ESCROW AGENT IF ALL PARTIES CONSENT AFTER FULL DISCLOSURE AND IF IT APPEARS OBVIOUS THAT THE LAWYER CAN ADEQUATELY REPRESENT THE INTERESTS OF ALL PARTIES. THE CONSENT SHOULD RECOGNIZE THE POTENTIAL FOR CONFLICTS OF INTEREST AND A MEANS TO RESOLVE THE SAME. ACTING AS ESCROW AGENT MAY GIVE RISE TO THE POTENTIAL FOR AN APPEARANCE OF IMPROPRIETY OR OTHER POTENTIAL PROBLEMS FOR THE LAWYER WHICH SHOULD BE FULLY CONSIDERED BEFORE UNDERTAKING TO ACT AS ESCROW AGENT.

QUESTION PRESENTED

May a lawyer for one party in a transaction act as an escrow agent concerning that transaction?

DISCUSSION

1. Independent Judgment. "DR 5-105 Refusing to
   Accept or Continue Employment if the Interest of Another Client May Impair the Independent Professional Judgment of the Lawyer.

   A. A lawyer shall decline proffered employment if
   the exercise of his independent professional judgment in behalf of his client will be or is likely to be adversely affected by the acceptance of the proffered employment, or if it would be likely to involve him in representing differing interests, except to the extent permitted under DR 5-105 (C).

   B. A lawyer shall not continue multiple
   employment if the exercise of his independent professional judgment in behalf of a client will be or is likely to be adversely affected by his representation of another client, or if it would be likely to involve him in representing differing interests, except to the extent permitted under DR 5-105 (C).

   C. In the situations covered by DR 5-105 (A)
   and (B), a lawyer may represent multiple clients if it is obvious that he can adequately represent the interest of each and if each consents to the representation after a full disclosure of the possible effect of such representation on the exercise of his independent professional judgment on behalf of each." (Emphasis added.)

2. Confidences and Secrets. "DR 4-101 Preservation
   of Confidences and Secrets of a Client.

   (A) 'Confidence' refers to information protected by
   the attorney-client privilege under applicable law, and 'secret' refers to other information gained in the professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client.

(B) Except when permitted under DR 4-101 (C), a lawyer shall not knowingly:

      (1)   Reveal a confidence or secret of his
  client.

      (2) Use a confidence or secret of his
  client to the disadvantage of the client.

       (3) Use a confidence or secret of his
  client for the advantage of himself or of a
  third person, unless the client consents after
  full disclosure.

(C) A lawyer may reveal:

     (1) Confidences or secrets with the
  consent of the client or clients affected, but
  only after a full disclosure to them.

(2) Confidences or secrets when
permitted under Disciplinary Rules or
required by law or court order.

     (3) The intention of his client to
  commit a crime and the information
  necessary to prevent the crime.

      (4) Confidences or secrets necessary
  to establish or collect his fee or to defend
  himself or his employees or associates
  against an accusation of wrongful conduct.

(D) A lawyer shall exercise reasonable care to

prevent his employees, associates, and others whose services are utilized by him from disclosing or using confidences or secrets of a client, except that a lawyer may reveal the information allowed by DR 4-101 (C) through an employee."

3. Appearance of Impropriety. "Canon 9 -- A Lawyer
   Should Avoid Even the Appearance of Professional Impropriety." "DR 9-102 Preserving Identity of Funds and Property of a Client.

   (A) All funds of clients paid to a lawyer or law firm,
   other than advances for costs and expenses, shall be deposited in one or more identifiable bank accounts maintained in the state in which the law office is situated and no funds belonging to the lawyer or law firm shall be deposited therein except as follows:

    (1) Funds reasonably sufficient to pay
   

   bank charges may be deposited therein.

     (2) Funds belonging in part to a client
   

   and in part presently or potentially to the
   lawyer or law firm must be deposited
   therein, but. the portion belonging to the
   lawyer or law firm may be withdrawn when
   due unless the right of the lawyer or law
   firm to receive it is disputed by the client, in
   which event the disputed portion shall not
   be withdrawn until the dispute is finally
    resolved.

(B) A lawyer shall:

    (1) Promptly notify a client of the
 receipt of his funds, securities, or other
 properties.

    (2) Identify and label securities and
 properties of a client promptly upon receipt
 and place them in a safe deposit box or
 other place of safekeeping as soon as
 practicable.

     (3) Maintain complete records of all
 funds, securities, and other properties of a
 client coming into the possession of the
 lawyer and render appropriate accounts to
 his client regarding them.

     (4) Promptly pay or deliver to the
 client as requested by a client the funds,
 securities, or other properties in the
 possession of the lawyer which the client is
 entitled to receive."

                    *****

The Bar Association of the City of New York at Opinion 1986-5, ABA/BNA Lawyers Manual on Professional Conduct, Page 901:6402 (July 14, 1986), has addressed the questions raised.

This Committee adopts the following as instructive for Nebraska lawyers considering whether to act as escrow agent:

"A lawyer may represent a client in a transaction and act as escrow agent in the same transaction if all parties consent after full disclosure. The consent should be based on cognizance of the potential conflicts of interest, and the escrow agreement should provide means for resolving any conflicts of interest. The agreement should provide that the lawyer may continue to represent his client in the event of a dispute over the funds. It should further provide that the lawyer may bring an interpleader action or submit the matter to arbitration as a means of resolving any conflict of interest. Whether the existence of or the information pertaining to an escrow account is a confidence or secret of a client is a question of law and should be decided on a case-by- case basis by the court. In this regard, a lawyer must decline to furnish such information unless the client consents or until a court orders disclosure. When a lawyer acts as escrow agent for two parties and also represents one of them, the two roles and differing duties may lead to a conflict of interests. If a lawyer is put in the position of having to assert a lien on the escrowed funds on his client's behalf, the potential for a conflict of interest is very strong, and even if the conflict is addressed by obtaining consent of the nonclient, the problem of the appearance of impropriety remains. A lawyer may be required to resign as escrow agent or decline to represent his client under these circumstances. Conflicts of interest may also arise when the lawyer has claims of his own against the escrowed funds. Even if a lawyer has a legal right to the funds, he may not ethically pay out to himself funds disputed by the client. He may retain the funds until the dispute is resolved; any undisputed portion should promptly be paid to the client. A lawyer should resign as escrow agent in cases where he is legally entitled to a portion of the fund. This is so because the potential for a conflict of interest is great where the lawyer's interpretation of the escrow agreement or his timing of distribution of the funds may directly affect the settlement of his own dispute with the client. Escrowed funds should be deposited in identifiable accounts and should be kept separate from any of a lawyer's own funds. Proper records should be maintained when more than one escrow fund is deposited in one account.
The account may be interest-bearing, but the lawyer may not retain any of the interest earned as compensation without obtaining the client's prior consent. Even with such consent there are serious risks of ethical impropriety. A lawyer may have gained a financial interest in the account which could interfere with his duty to exercise independent professional judgment on behalf of his client. He also could be in violation of the code's prohibition of collecting a clearly excessive fee. A lawyer may participate in Interest on Lawyer
Accounts programs (IOLA) in which small sums of client funds or funds held for a short period of time are deposited in interest-bearing accounts and the interest is paid to approved organizations that provide legal assistance to the poor. A lawyer must keep complete records of all escrow funds and provide a complete accounting of such funds to the client."

CONCLUSION

While there is no absolute rule barring a lawyer for a party from acting as an escrow agent after full disclosure and consent of all parties, significant risks are inherent in such activity and must be carefully considered.

Nebraska Ethics Advisory Opinion for Lawyers No. 87-4