Summary: There is no inherent conflict for an attorney in representing a client and also serving as an escrowee pursuant to agreement between the client and an adverse party. An attorney should not, however, undertake duties as escrowee that require independent exercise of discretion since the assumption of such duties involves a conflict between the fiduciary obligations of an attorney and the nonpartisan duty of an escrowee.
Facts: Attorney X represents A in a divorce action. Another attorney represented B, the spouse in the divorce action. A separation agreement was negotiated and approved by the court when the divorce was granted. The separation agreement provided that the proceeds from the sale of jointly owned real estate would be held by Attorney X as escrowee, and disbursed by the escrowee according to the terms of the agreement. One of the terms provided that proceeds could be used to pay for repairs to a family home occupied by A. Attorney X inquires about a potential conflict between his duties as a neutral escrow agent and as a partisan lawyer with respect to two situations. The first situation involves the possibility of disagreement about the necessity for certain repairs to the family home and their cost. The second situation involves whether the funds should be placed in an interest-bearing account. The parties differ and the agreement is silent.
Discussion: The duty of Attorney X as attorney for A is the exercise of independent professional judgment on behalf of his client and to represent his client zealously, not prejudicing or damaging the client during the course of the professional relationship.
The duty of Attorney X as escrowee is to act as an intermediary pursuant to the separation agreement with obligations to parties on both sides of the transaction as distinguished from acting as an agent exclusively in the interest of and pursuant to the authority of one. Kamm's Estate v. C.I.R., 349 F.2d 953 (1965). The escrowee must be impartial and neutral between the parties.
We do not believe that there is an inherent conflict in the two roles necessitating a conclusion that an attorney should never be an escrowee where he represents one of the parties to the escrow agreement. Action by an attorney as an escrowee is a common practice, but usually the attorney-escrowee undertakes only tasks that may be described as ministerial. Even there problems may arise in the form of disputes over the existence of the underlying condition that triggers the escrowee's performance, or over the nature of the performance itself when the agreement does not address a particular problem. That is the situation here with respect to deposit of the funds in an interest-bearing account. In such a situation, the attorney-escrowee would petition the court for instructions as to how he should proceed. In a court proceeding for instructions, Attorney X can represent client A's position. As escrowee, he should take no position.
A different problem is involved where the escrowee has agreed to perform duties that involve such discretionary judgment that they can no longer be called ministerial. That would appear to be the situation with respect to the attorney's obligations with respect to repairs. The purpose of such an agreement seems incompatible with the role of an attorney for one of the parties. The parties, foreseeing the need for an independent party to resolve disputes over the need for repairs and the choices to be made with respect to the party to perform the work and the prices to pay, have agreed to abide by the decisions of a third party. We believe that Attorney X, with the general obligations of "zealous advocacy" set out in Disciplinary Rule 7 and the specific obligation under DR 7-101(A)(3) not to prejudice his client's interests, may not at the same time act in a role that requires him to take an independent and neutral position with respect to his client's interests in the very matter in which he is representing those interests. Such a neutral role might require him to violate DR 7-101(A)(3) by acting in such a way that would damage his client.
Thus, in the present inquiry, if there is dispute over the necessity or cost of repairs, Attorney X should petition the court for instructions and take no position as escrowee. He may represent A's position as his attorney. Since performance by Attorney X under the escrow agreement has already gone forward and since we are not aware of all the circumstances affecting the interests of the parties, we are unable to answer the question whether the attorney should resign as escrowee at this point. The availability of a substitute, agreed-upon escrowee would be an important consideration. The likelihood of further disputes and the duration of the escrow would be others.
Permission to publish granted by the Board of Delegates on March 15, 1983. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.