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.