Opinion 94-24
(November 1994)
You have asked our advice as to your ethical responsibilities under the following circumstances:
You represented a husband and wife in a personal injury matter who were delinquent in their mortgage. The mortgage company declined your request to forbear on the foreclosure action based upon [your] assurances that all arrearages owed at the time of the recovery [would] be protected and paid in full. Subsequently, the mortgage company did agree, however, to stay the sheriff's sale based upon [your] representation that the clients have a personal injury claim with an arbitration scheduled on .... Thereafter, a recovery was effected on the clients' behalf, but the client husband has advised you that the clients do not wish to satisfy the mortgage arrearages, and has directed that the funds be relinquished to them.
The safekeeping of property is governed by Rule 1.15, which provides in part:
(b) 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.
(November 1994)
You have asked our advice as to your ethical responsibilities under the following circumstances:
You represented a husband and wife in a personal injury matter who were delinquent in their mortgage. The mortgage company declined your request to forbear on the foreclosure action based upon [your] assurances that all arrearages owed at the time of the recovery [would] be protected and paid in full. Subsequently, the mortgage company did agree, however, to stay the sheriff's sale based upon [your] representation that the clients have a personal injury claim with an arbitration scheduled on .... Thereafter, a recovery was effected on the clients' behalf, but the client husband has advised you that the clients do not wish to satisfy the mortgage arrearages, and has directed that the funds be relinquished to them.
The safekeeping of property is governed by Rule 1.15, which provides in part:
(b) 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 comment to Rule 1.15 states:
Third parties, such as a client's creditors, may have just claims against funds or other property in a lawyer's custody. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client, and accordingly, may refuse to surrender the property to the client. However, a lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party.
The obligations of a lawyer under this 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.
While the question of whether you assumed a responsibility to act as an escrow agent or to otherwise protect the mortgage company's deficiency is a legal question for your determination, it does not appear to the Committee that you have assumed any such responsibilities.
Third parties, such as a client's creditors, may have just claims against funds or other property in a lawyer's custody. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client, and accordingly, may refuse to surrender the property to the client. However, a lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party.
The obligations of a lawyer under this 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.
While the question of whether you assumed a responsibility to act as an escrow agent or to otherwise protect the mortgage company's deficiency is a legal question for your determination, it does not appear to the Committee that you have assumed any such responsibilities.
Therefore, in the absence of legal responsibility to the mortgage company, Rule 1.15 requires that you surrender the funds to the clients.
In making this determination, you may wish to contrast Dayhar v. Grzandziel, 599 A.2d 217, 410 Pa. Super. 85 (1991) where the lawyer, acting with the personal injury client's authorization, agreed to protect the fees of one of the client's medical care providers. Under those circumstances, the client's later withdrawal of his authorization to pay the fees did not negate the lawyer's obligation to the provider. In so holding, the Supreme Court noted that Rule 1.15 would have permitted the lawyer to withhold sufficient funds to protect the provider's fees.
The Philadelphia Bar Association's Professional Guidance Committee provides, upon request, advice for lawyers facing or anticipating facing ethical dilemmas. Advice is based on the consideration of the facts of the particular inquirer's situation and the Rules of Professional Conduct as promulgated by the Supreme Court of Pennsylvania. The Committee's opinions are advisory only and are based upon the facts set forth. The opinions are not binding upon the Disciplinary Board of the Supreme Court of Pennsylvania or any other Court. They carry only such weight as an appropriate reviewing authority may choose to give it.