NYSBA 1987-05-04

Can a New York lawyer keep the interest a client's settlement check earns between the day it is deposited and the day it clears?

Short answer: The opinion concluded that a lawyer may not retain the interest earned on a client's settlement check between the date of deposit into an escrow account and the date the check clears; that interest is compensation for acting as escrow agent, which N.Y. State 532 held per se improper, and it belongs to the client.

Disclaimer: Advisory only. Not binding precedent.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official ethics opinion. The original opinion (linked at the bottom of this page) is the authoritative source for any reliance.

NY State Bar Ethics Opinion 582: Interest on the escrow float before a settlement check clears

Short answer: The opinion concluded that a lawyer may not keep the interest a client's settlement check earns between the date it is deposited in escrow and the date it clears; that interest is compensation for serving as escrow agent and belongs to the client.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.

View original opinion

Plain-English summary

A lawyer proposed an interest-bearing escrow account used only for personal-injury settlement checks. The lawyer would issue the client a check for the client's full settlement share on the date the settlement check "cleared," and would pay the client interest only from the clearing date until the client's check was charged to the account. The lawyer would keep the interest the funds earned during the float, the gap between deposit of the settlement check and the date it cleared. No personal funds would be commingled, clients would sign a written agreement, and the lawyer would file IRS Form 1087 for significant interest.

The committee held the proposal improper. It relied on N.Y. State 532 (1981), which concluded that a lawyer may not take the interest earned on escrowed funds as compensation for serving as escrow agent, calling any such arrangement per se improper under Canons 5 and 9, EC 2-17, EC 2-18, EC 5-3, EC 9-5, EC 9-6, DR 2-106(A), and DR 9-102(A) and (B). Under the proposed arrangement, the interest the lawyer would retain was "clearly" compensatory for the lawyer's service as escrow agent, so N.Y. State 532 controlled.

The committee acknowledged the limited exception recognized in N.Y. State 532: a lawyer may, with the client's consent, retain interest on client funds that are to be promptly and routinely disbursed where the interest allocable to any one client is small relative to the bookkeeping expense of computing it. That exception did not apply here, because the lawyer was already willing to calculate each client's interest on a daily basis from the date the settlement money became available; the committee saw no reason the same calculation could not run from the date of deposit. The question was answered in the negative.

Currency note

This opinion was issued in 1987, before New York replaced the Code of Professional Responsibility with the Rules of Professional Conduct in 2009 (safekeeping of client and third-party property now appears at Rule 1.15, and fees at Rule 1.5). The treatment of nominal or short-held funds has since been shaped by New York's IOLA program, which post-dates this opinion. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Could the lawyer keep the interest earned while the settlement check was still clearing?

A: No. The committee concluded that interest earned during the float was compensation for acting as escrow agent, which N.Y. State 532 held per se improper, so it could not be retained.

Q: Did the client's written consent cure the arrangement?

A: No. The committee treated the practice as per se improper following N.Y. State 532; client agreement did not make it permissible.

Q: When can a lawyer keep interest on promptly disbursed client funds?

A: Only in the narrow situation N.Y. State 532 described, where the interest allocable to any one client is small relative to the bookkeeping cost of computing it. The committee held that exception did not apply here because the lawyer was already calculating daily interest and could do so from the deposit date.

Background and rules framework

The opinion interpreted DR 9-102(A) and (B) on identifying, preserving, and accounting for client funds held in trust, together with DR 2-106(A) on fees, applied to a lawyer acting as escrow agent. The closest current Model Rule analogues are Rule 1.15 (safekeeping property) and Rule 1.5 (fees).

Citations and references

Rules of Professional Conduct:

MR 1.15 (safekeeping property of clients and third persons)
MR 1.5 (fees)
NY DR 9-102(A), DR 9-102(B); DR 2-106(A)

Other opinions cited:

N.Y. State 532 (1981): a lawyer may not take escrow-account interest as compensation for serving as escrow agent; per se improper

Source

Landing page: https://nysba.org/opinion-582/