Can a New York lawyer move unearned client retainers from one escrow account to another lawyer's escrow account to protect them from a creditor's levy?

Plain-English summary

One lawyer (L1) represented another lawyer (L2) who owed money to a third party. Worried that L2's creditor might levy on L2's escrow account, which held unearned advance-payment retainers paid by L2's clients, the two lawyers proposed moving those funds into L1's escrow account, where L1 would hold them until L2 earned them and then disburse them as L2 directed. They asked whether that transfer was proper.

The opinion concludes the transfer would violate Rule 1.15. The funds were advance-payment retainers belonging to L2's clients until earned, and the committee assumed they were properly held that way in L2's escrow account. Because the funds belonged to persons other than L2 but were in L2's possession incident to the practice of law, they were property subject to Rule 1.15, which requires L2 to maintain client funds in L2's own escrow account. That obligation yields only to client direction (Rule 1.15(c)(4)); here no client had asked L2 to disburse funds to L1, much less all of them. Absent such direction, and so long as the funds remained unearned, L2 could not transfer them to L1 or anyone other than the clients to whom the money belonged.

The opinion treats the legal questions about whether the transfer would actually defeat a levy, or whether the funds were even leviable, as outside its ethics jurisdiction. It notes that if the proposed transfer were itself fraudulent or otherwise unlawful, Rules 1.2(d), 8.4(b), and 8.4(c) could be implicated, but because the transfer was barred by Rule 1.15 the committee did not need to reach those questions.

In practice

Under this opinion, unearned advance-payment retainers that a lawyer holds for clients stay in that lawyer's escrow account; the lawyer cannot relocate them to a different lawyer's escrow account for safekeeping against the holding lawyer's own creditors. The opinion holds that the duty to maintain such funds in the lawyer's own account, under New York's Rule 1.15 as it stood at the time of the opinion, gives way only to a directing instruction from the client whose funds they are. Whether the funds could be reached by a creditor, and whether moving them would be effective or lawful, are questions the committee declined to answer as matters of law.

Common questions

Q: Can a lawyer move client escrow funds to another lawyer's escrow account to protect them from a creditor?

A: No. The opinion concludes that Rule 1.15 requires the lawyer to keep unearned client retainers in the lawyer's own escrow account; transferring them to another lawyer's account to shield them from the holding lawyer's creditor violates the rule.

Q: Does it matter that the funds are unearned retainers rather than the lawyer's own money?

A: That is the point. Because the unearned advance-payment retainers still belong to the clients, they are property the lawyer holds in a fiduciary capacity under Rule 1.15 and must keep in the lawyer's own escrow account.

Q: Could the client direct a transfer of the funds?

A: The opinion notes the lawyer must comply with a client's request for disbursement of that client's funds under Rule 1.15(c)(4), but no client had so directed here, so the proposed transfer was not permitted.

Background and rules framework

The opinion applies New York Rule 1.15 (corresponding to Model Rule 1.15 on safekeeping property). Rule 1.15(a) makes a lawyer holding another person's funds incident to the practice of law a fiduciary who must not misappropriate or commingle them; Rule 1.15(b)(1) requires such funds to be kept in a special account in the lawyer's own name or the lawyer's firm's name; and Rule 1.15(c)(4) requires the lawyer to pay or deliver funds as the client directs. The opinion distinguishes advance-payment retainers from general retainers (citing N.Y. State 983) and notes that fraud-related conduct could implicate Rule 1.2(d) and Rule 8.4(b)-(c) (Model Rules 1.2(d) and 8.4(b)-(c)).

Citations and references

Rules of Professional Conduct:

• New York RPC 1.15(a), (b)(1), (c)(4) (safekeeping client funds; cf. Model Rule 1.15)
• New York RPC 1.2(d) (no assisting client conduct the lawyer knows is illegal or fraudulent; cf. Model Rule 1.2(d))
• New York RPC 8.4(b), (c) (illegal conduct reflecting on fitness; dishonesty, fraud, deceit; cf. Model Rule 8.4(b)-(c))

Other opinions cited:

• N.Y. State 983 (2013): distinguishing advance-payment retainers from general retainers
• N.Y. State 816 (2007): treatment of advance-payment retainers

See also

• NY State Bar Op. 1060: Delegating Escrow Sub-Account Tasks to Nonlawyer Staff
• NY State Bar Op. 1176: Nominal Own-Funds Deposit to Keep an Escrow Account Open
• NY State Bar Op. 1118: Disclosing Confidences to Collect a Fee

Source

• Landing page: https://nysba.org/ethics-opinion-996/