Can a lawyer let a bank extend immediate credit to one client based on a multiple-client escrow account, or based solely on the lawyer's own creditworthiness on a single closing?

Plain-English summary

The committee considered two bank products offered to attorney customers. In the first, a bank would provide immediate credit, in the form of cashier's or certified checks, based on the lawyer's creditworthiness and the balance in a multiple-client escrow account. The committee held this impermissible under DR 9-102: if a check bounced, the bank would be protected by the pooled deposits, so the funds of one client would be used to benefit another, which is an impermissible conversion. It cited opinions from Pennsylvania, North Carolina, and South Carolina reaching the same result.

In the second arrangement, an "attorney exchange account" held the proceeds of a single closing, and the bank would provide immediate credit relying solely on the lawyer's personal creditworthiness. Because no other clients' funds were involved and no funds of the lawyer were deposited in the escrow account, the committee found no impermissible commingling under DR 9-102 or the four Judicial Departments' trust-account rules. It characterized this service as tantamount to the lawyer lending funds to the client or guaranteeing funds advanced by the bank. In litigated matters such an arrangement is barred by DR 5-103(B); in non-litigated matters there is no express prohibition, so the committee held it is not per se unethical for a lawyer to let the bank use the lawyer's creditworthiness to extend credit to a client on a single-closing account.

The committee conditioned the second arrangement on compliance with DR 5-104(A), which bars a business transaction with a client where the parties have differing interests and the client expects the lawyer's protective judgment, unless the client consents after full disclosure. It explained that the lawyer and client have potentially differing interests: if the payer's check is not made good, the bank may proceed against the lawyer, who would seek indemnification from the client. The committee said the lawyer should enter the arrangement only where confident the client understands the ramifications and the potential conflict, including that the lawyer might have to withdraw later, and that adequate disclosure depends on the client's sophistication and may be impossible to achieve in some situations. It answered the first question no and the second yes, subject to those qualifications.

Currency note

This opinion was issued in 1989, under New York's former Code of Professional Responsibility, which New York replaced with the Rules of Professional Conduct in 2009 (safekeeping of client property now appears at Rule 1.15 and business transactions with a client at Rule 1.8(a)). 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: Can a lawyer back a client's bank credit with a pooled escrow account?

A: No. The committee held that using a multiple-client escrow account to secure one client's credit would use other clients' funds and amount to an impermissible conversion under DR 9-102.

Q: Can the lawyer use only his own creditworthiness on a single closing?

A: Yes, with conditions. Because no other client funds are involved, the committee held it is not per se unethical, but the arrangement is treated as a loan or guarantee to the client and requires the client's consent after full disclosure under DR 5-104(A).

Q: Is this allowed in litigated matters?

A: No. The committee noted that a lawyer's lending or guaranteeing funds to a client in a litigated matter is prohibited by DR 5-103(B); the second arrangement was approved only outside the litigation context.

Background and rules framework

The opinion interpreted the New York Code provisions on preserving client property and avoiding commingling (DR 9-102), the bar on financial assistance to a client in litigation (DR 5-103(B)), and business transactions with a client where interests differ (DR 5-104(A)). The closest Model Rule analogues are Rule 1.15 (safekeeping of client funds and property) and Rule 1.8 (business transactions with and financial assistance to a client).

Citations and references

Rules of Professional Conduct:

• MR 1.15 (safekeeping property; trust accounts)
• MR 1.8(a) (business transactions with a client); MR 1.8(e) (financial assistance in litigation)
• NY DR 5-103(B); DR 5-104(A); DR 9-102

Other opinions cited:

• Pa. Op. 85-172 (1986); N.C. Op. 358 (1984); S.C. Op. 20-78 (1980): using pooled escrow funds to secure one client's obligation is improper
• Washington Op. 177: a lawyer may permit a bank to use the lawyer's creditworthiness for a client on a single-closing account

See also

• NY State Bar Op. 626: Real estate multiple representation and fees
• NY State Bar Op. 601: A settlement bonus paid by the adverse party

Source

• Landing page: https://nysba.org/opinion-600/