PHILADELPHIA BAR ASSOCIAIION
PROFESSIONAL GUIDANCE COMMITTEE
The Inquirer has raised five related "concerns" arising out of a single set of factual circumstances. The Committee addresses below the professional ethical issues posed in the inquiry. Advice as to the Pennsylvania substantive law applicable to escrow agents or pertaining generally to attorneys' liens is beyond the Committee's charge and the scope of this opinion.
The essential facts are these. In July 1992, the Inquirer was retained to represent the seller at closing on the sale of real estate. The owner had died the previous August, but issues concerning the ground rent were not resolved until approximately the time when the Inquirer was retained.
The Inquirer determined that the decedent's executrix, one of two surviving nieces who were the decedent's only beneficiaries, had done nothing in administering the estate beyond probating the will. No 1991 income tax return had been filed. Although due in May 1992, no inheritance tax return had been filed, either.
Because the inheritance tax had not been paid, at the closing the title company insisted that an amount sufficient to pay that tax be deducted from the sale proceeds and held in escrow. With the executrix's consent, the Inquirer agreed to serve as the escrow agent, although there was no written escrow agreement. The Inquirer did, however, confirm to the title company in writing that he was holding $8,000 in an escrow account to pay the inheritance tax and that he would provide the title company with the State Department of Revenue's clearance certificate reflecting its acceptance of the return.
Immediately after the closing, the Inquirer discussed a number of matters with the executrix. From this discussion, the Inquirer learned that the executrix had previously made an at-risk distribution of certain certificates of deposit owned by the decedent aunt at her death. Furthermore, the executrix stated that the proceeds of the real estate sale would be deposited into a checking account she maintained in the name of the estate. The Inquirer also sought during the discussion the information needed to complete the inheritance tax return. The executrix informed the Inquirer that she had relevant documents and undertook to send them and copies of the letters testamentary and the will to the Inquirer. Since then, the Inquirer has reminded the executrix numerous times, both orally and in writing, to provide the necessary information and informed her that interest was accruing on the overdue tax. These efforts have been unavailing.
1. The Inquirer states that he does not want to hold the $8,000 "in escrow indefinitely and without the prospect of being able to file the inheritance tax return." Rule 1.15 of the Pennsylvania Rules of Professional Conduct (the "Rules") concerns a lawyer's duty to safeguard property and is thus relevant here. Paragraph (a) of the rule provides, in pertinent part, as follows:
A lawyer shall hold property of clients or third persons that is in a lawyer's possession in connection with a representation separate from the lawyer's own property.
In addition, Paragraph (b) of Rule 1.15 reads as follows:
Upon receiving funds or other 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 otherwise permitted by law or by agreement with the client, 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 and, upon request by the client or third person, shall promptly render a full accounting regarding such property.
The non-binding Comment to Rule 1.15 observes that the obligations of a lawyer under the rule are independent of those arising from activity other than rendering legal services. For example, a lawyer who serves as an escrow agent is governed by the applicable law relating to fiduciaries even though the lawyer does not render legal services in the transaction.
Under these provisions, it is the Committee's opinion that, despite the Inquirer's stated concerns, unless he concludes that the State has an interest in the funds being held, or unless the Inquirer, possibly as an escrow agent, has different, superseding duties, he should continue to hold the escrow fund in a separate interest bearing trust account. Should the Inquirer conclude, however, that the State actually has an interest in the money held in the escrow fund, within the meaning of Rule 1. l5(b), then that rule requires prompt payment to the State commensurate with its interest.
2. The Inquirer questions whether he has a duty to advise the title company of the current state of the matter. As the Inquirer points out, the title company "clearly understood that an inheritance tax return would be filed, the taxes paid and proof of this would be provided to [the company]." Rule 1.6 of the Rules, pertaining to confidentiality of information, provides guidance here.
Paragraph (a) of Rule 1.6 states:
A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation, and except as stated in paragraphs (b)and (c).
Paragraph (b) of the rule is not relevant here. [*]
Paragraph (c) of Rule 1.6 permits, but does not require, disclosure of information relating to the representation to the extent the lawyer reasonably believes the disclosure is necessary, among other things,
(1) to prevent the client from committing a criminal act that the lawyer believes is likely to result in . . . substantial injury to the financial interests or property of another; [or]
(2) to prevent or to rectify the consequences of a client's criminal or fraudulent act in the commission of which the lawyer's services are being or had been used . . ..
As to the permissive disclosure under paragraph (c) of otherwise confidential information, the Comment to the rule states in part:
Where possible, the lawyer should seek to persuade the client to take suitable action. A disclosure adverse to the client's interest should be no greater than the lawyer believes necessary to the purpose of prevention of harm.
As related by the Inquirer, it appears that the executrix does not intend to commit a criminal or fraudulent act as to either the title company or the State, but rather that she is less than diligent about performing her duties. If that is the case in the view of the Inquirer, then he may not disclose to the title company information relating to the representation. Only if the Inquirer concludes that (1) the executrix is committing a criminal or fraudulent act in the present circumstances, and (2) disclosure to the title company will prevent harm may the Inquirer disclose such information as he reasonably believes necessary to prevent the harm.
3. The Inquirer asks whether he owes "a duty to the other beneficiary to advise her that the executrix is not properly performing her duties." The answer to this question is not settled. The Inquirer has stated that he has always understood "that my client is the estate and not the executrix.
There is no provision in the Rules of Professional Conduct defining who is a lawyer's client or to whom, client or others, a lawyer owes duties in a situation such as this. In the "Scope" statement prefatory to the Rules, it is stated that "for purposes of determining the lawyer's authority and responsibility, principles of substantive law external to these Rules determine whether a client-lawyer relationship exists." The commentary to the Rules reflects, moreover, the uncertainty of who the client is in circumstances like those here. The Comment to Rule 1.7, a rule addressing conflict of interest generally, observes:
Conflict questions may also arise in . . . estate administration. In estate administration the identity of the client may be unclear under the law of a particular jurisdiction. Under one view, the client is the fiduciary; under another view the client is the estate or trust, including its beneficiaries. The lawyer should make clear the relationship to the parties involved.
Similarly, in Comment f to § 26 of the Restatement (Third) of the Law, The Law Governing Lawyers (Tentative Draft No.5), it is stated:
In trusts and estates practice, circumstances may also require a lawyer to clarify with those involved whether the client is a trust, a trustee, or its beneficiaries and similarly whether the client is an executor, an estate, or its beneficiaries. Which of those is the case depends on the circumstances.
In addition, the Comment to Rule 1.2 observes that, irrespective of who the client is defined to be, "[w]here the client is a fiduciary, the lawyer may be charged with special obligations in dealings with a beneficiary." Thus, although there may be a provision in the retention agreement identifying the parties' understanding as to who the client is, that provision is not necessarily dispositive of the issue.
In the present circumstances, which are described in the final paragraph under question 2 above, it is the Committee's view that, whatever may be the Inquirer's duties, if any, to the second beneficiary, no disclosure is yet required or appropriate. As stated in the above-quoted portion of the Comment to Rule 1.6, the Inquirer "should seek to persuade the [executrix] to take suitable action."
4. The Inquirer next asks whether disclosure to the title company or the second beneficiary of the present circumstances relating to the inheritance tax return filing would entitle the executrix to claim a breach of the duty of confidentiality owed by Inquirer. Based upon the answers to questions 2 and 3 above, the Committee's answer is that disclosure at the present time would constitute such a breach, unless the determination concerning prevention of fraudulent or criminal conduct discussed in question 2 above were made.
5. Because the estate owes Inquirer approximately $350 for work performed in preparation for filing the inheritance tax return, he asks whether he may impose an attorney's lien on the funds held in escrow. The Committee understands the inquiry to relate to whatever remains in the escrow account after payment of the inheritance tax, since the Inquirer has already undertaken to make that payment from the funds he agreed to hold as escrow agent. This inquiry concerns legal relationships, rights, and duties external to the professional ethical duties of the Inquirer. These include the duties and rights of an escrow agent and the applicability of legal principles concerning attorneys' liens. Accordingly, the Committee is not authorized to respond to this question.
* Paragraph (b) requires revelation of information relating to the representation "if necessary to comply with the duties stated in Rule 3.3." Those duties concern candor toward a tribunal and thus are not implicated here, since no tribunal is currently implicated.
Caveat: The foregoing opinion is advisory only and is based upon the facts as set forth above. The opinion is not binding on the Disciplinary Board of the Supreme Court of Pennsylvania or any court. It carries only such weight as an appropriate reviewing authority may choose to give it.