Ethics Opinion

Opinion 11-01

January 2011

Summary: An attorney who cannot perform the terms of an escrow arrangement because of the failure of his client, who has cut off communication, to deliver all the items promised has good cause to notify his client of his intention to withdraw. He should also notify both parties that because of the failure to consummate the settlement, unless the parties instruct him jointly concerning disposition of the items he is holding, or unless one party takes action to obtain court instructions, the attorney shall decide whether to file a bill of interpleader himself or take such other action as seems appropriate at the time.

Facts: Attorney, representing client A, negotiated the settlement of a dispute between A and business partner B, represented by counsel. The settlement required B to deliver a release of all claims against A arising out of their business venture and required A to deliver a bank check for $135,000 and a prototype of a certain process used in the business venture. The items were all to be delivered to Attorney. Attorney agreed to forward these items to A and B respectively when he had everything in hand. B delivered the executed release to Attorney, and A delivered the check but not the prototype to Attorney. Attorney has attempted to communicate with A, leaving several messages on the voice mail of A's cell phone. Attorney has also sent a certified letter to A's home, but A has not claimed it. Attorney inquires whether he should forward the bank check to B in partial consummation of the settlement, continue to make efforts to contact his client, or if he should withdraw from representation.  

Discussion: As to withdrawal, the Committee concluded that Attorney should make a final effort to gain A's cooperation, even through a personal visit to his home, before undertaking to withdraw.  If despite these additional efforts A remains unavailable, Attorney would appear to have good grounds to withdraw from the representation.  Withdrawal from representation is governed by Rule 1.16 of the Massachusetts Rules of Professional Conduct.  Rule 1.16(b) provides that, except in cases pending before a court or other tribunal, a lawyer may withdraw from representing a client "if withdrawal can be accomplished without material adverse effect on the interests of the client."  Rule 1.16(b) further provides that an attorney may withdraw from representation, even if the withdrawal may result in prejudice to the client, if   "the representation . . . has been rendered unreasonably difficult by the client," or if "other good cause for withdrawal exists."  At a minimum, A's failure to respond to Attorney's communications has made the representation unreasonably difficult within the meaning of Rule 1.16(b)(5).  It is also possible that the client's refusal to communicate indicates that the client has discharged Attorney, a mandatory ground for withdrawal under Rule 1.16(a)(3).  

Withdrawal, however, would not solve Attorney's problems because he is in possession of both the bank check delivered by A and the executed release delivered by B, both of which he agreed to hold pending completion of the settlement arrangements. This is in substance an escrow arrangement. In an escrow arrangement, the escrow agent is a fiduciary of both parties. See Kaarela v. Birkhead, 33 Mass. App. 610 (1992). As a fiduciary, the escrow agent must comply with the terms of the escrow and may, in particular cases, have other duties as well. In Matter of Discipline of Two Attorneys, 421 Mass. 619 (1996). Thus, in the present inquiry, Attorney as escrow agent undertook fiduciary obligations to both A and B with regard to the disposition of the property delivered to him in addition to the obligations that he has as A's lawyer.   

The Committee discussed a number of alternative solutions to Attorney's current dilemma.  It concluded that Attorney should not return the bank check to A and the release to B or B's lawyer because B could take the position that returning the bank check to A would be a breach of Attorney's fiduciary duties to B as escrow agent.  For instance, B could take the position that the bank check became her property when A made the check payable to her.  

In the Committee's view, Attorney's first course of action should be to follow the dictate of Rule 1.15(c) which provides:

Prompt Notice and Delivery of Trust Property to Client or Third Person. Upon receiving trust funds or other trust property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or as otherwise permitted by law or by agreement with the client or third person on whose behalf a lawyer holds trust property, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third [person is] entitled to receive.

The Committee therefore advises that Attorney should write a letter to A, informing him that he will withdraw from representation on a date certain unless A cooperates. Attorney should further inform A that on the date of withdrawal, Attorney intends to deliver to A and to B's counsel a letter, stating, in substance, the following:

I have withdrawn from representation of A. I am in possession of a bank check from A payable to B, representing a portion of the consideration for the settlement, as well as a release executed by B. I have been holding these items pending receipt of the prototype called for in the settlement, at which point I intended to forward the check and prototype to B's counsel, and the release to A. I have, however, not received the prototype.

I am writing to notify both sides to this dispute that, because I am unable to exchange the property necessary to consummate the settlement, one of the following events must occur within 30 days: (a) both parties provide me with agreed upon written instructions for the disposition of the property; or (b) one of the parties notifies me that an action has been filed in a court of competent jurisdiction seeking instructions regarding the property held by me.  Should an action be filed, I will seek to deposit the property with the court.  If one of these events does not occur, I will decide whether to file an interpleader action myself seeking instructions from a court regarding the property, safe-keep the property until either (a) or (b) occurs or take such other action as seems appropriate at the time.

Attorney should also inform A that without his cooperation, court intervention may become necessary.  That possibility might motivate him to establish contact.

The Committee further concluded that if consummation of the settlement was not possible, the safest course for Attorney was to ask for court instructions by way of a bill in interpleader and to deposit the escrowed property in court in connection therewith. In setting forth the situation, Attorney should be careful not to reveal client confidential information, mentioning only the need for the court's instructions because of the inability to consummate the settlement. If Attorney has withdrawn as A's counsel at that point, Attorney should mention that he is filing the bill as escrow agent leaving the parties to settle ownership of the property between themselves.

This advice is that of a committee without official government status.

This opinion was approved for publication by the Massachusetts Bar Association's House of Delegates on January 20, 2011.