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Abstract

An escrow agent is someone who holds money or property in trust for others under agreed terms until a transaction is completed, or a dispute is resolved. Although institutional depositaries are widely available, clients frequently ask their lawyers to serve as escrow agents in connection with transactions in which the lawyer represents the client. In fact, lawyers are generally permitted to serve as escrow agents with respect to clients' transactions so long as all parties involved knowingly consent to the arrangement. This is true both under agency law and as a matter of lawyers' professional responsibility.

Unlike a lawyer who owes fiduciary duties only to the lawyer's client, however, an escrow agent owes fiduciary duties to all parties to the escrow agreement. These include (1) a duty to strictly comply with the escrow agreement's terms; (2) a duty to impartially perform the escrow function; (3) a duty of disclosure, the extent or scope of which varies by state; and (4) a duty to safeguard entrusted funds or property.

A lawyer-escrow agent who breaches any of these duties may face liability under a variety of theories. Therefore, a lawyer who agrees to fill the dual role of escrow agent tempts noteworthy professional risk in the process risk that extends beyond potential liability to the lawyer escrow agent's client. In some circumstances, a lawyer acting as an escrow agent may be liable to the client for legal malpractice. This creates the possibility that a lawyer's wrongdoing as an escrow agent will not be covered by the lawyer's professional liability insurance policy. This Article examines the professional liability challenges lawyer-escrow agents face in their dual roles in a practical fashion intended to be useful to courts and lawyers alike.

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