MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2005-06
Whether an attorney can transfer funds from an Escrow Account at bank A to an Escrow Account at bank B when the funds in question are from client checks that have not been negotiated.
You state that in June 2003 your firm decided to transfer one of your Escrow Accounts from Bank A to Bank B. You continued that 135 checks totaling $12,518.86 drawn on Bank A have never been negotiated. You advise that the oldest of the checks was written in April 2001 and the most recent was written in May 2003. You believe that pursuant to Section 4-404 of the Commercial Law Article all of the checks are “stale” and would be dishonored by Bank A if presented for payment. You inquire about whether you can transfer the remaining funds into your new Escrow Account located at Bank B?
Your inquiry seems to present two issues, the first regarding the proper handling of “stale” checks, and the second regarding transferring funds from one bank to another. The first issue has been addressed in prior opinions. In those opinions this Committee has concluded that the proper disposition of funds such as you have described are provided for in Title 17 of the Commercial Law Article of the Maryland Annotated Code. See, Ethics Dockets 87-18 (Clients not capable of being located), 88-42 (Treatment of Stale Checks in Attorney’s Escrow Account), 89-26 (Safekeeping Client’s Funds: Funds of Unidentified Client), and 92-2 (Notification to Ex-Clients of Departure from Law Practice. Disposition of Remaining Escrow Funds.) These opinions are available at www.msba.org.
Rule 1.15(b) of the Maryland Rules of Professional Conduct sets forth a lawyer’s obligations with regards to notifying the client or third person of funds in the lawyer’s possession and of prompt delivery. In your inquiry you fail to state the steps that may have been taken to locate your clients or to advise them of the potential staleness of their checks. Assuming you have made reasonable attempts to locate your clients and have given them notice that their checks will be considered stale by Bank A, your next inquiry would be to determine whether the funds are considered abandoned property. The Committee refers you to Commercial Law, Title 17, which outlines steps to be taken if property is determined to be abandoned. If you determine that the funds in your escrow account are abandoned, you are still required to maintain records of the funds for five years after the termination of the representation, pursuant to Rule 1.15(a).
Please note that the Committee on Ethics issues advisory opinions on the proper interpretation of the Maryland Rules of Professional Conduct. It is beyond the scope of this Committee to opine on questions of law. Therefore, we are unable to advise regarding your interpretation of the Commercial Law.
Neither the Maryland Rules of Professional Conduct nor Title 16, Chapter 600 of the Maryland Rules prohibits the transfer of escrow funds from Bank A to Bank B. However, we direct your attention to Rules 16-609 and 16-610. Rule 16-609 warns that you may not receive any remuneration from Bank B for depositing the escrow funds in an account at that bank. In addition, you are prohibited from having an instrument drawn payable to cash or to bearer from the account at Bank A.
Rule 16-610 directs the financial institution to promptly notify Bar Counsel of any overdrafts in the escrow account. Unless you have written documentation from Bank A that they consider the outstanding checks to be “stale” and therefore, nonnegotiable, you run the risk of account overdrafts if the funds are withdrawn and your clients successfully negotiate the checks at a later date.
Given the above discussion, you might consider maintaining an escrow account at Bank A to cover the outstanding checks.
We trust that the foregoing has been responsive to your inquiry and we thank you for consulting with the Committee.