We are submitting herewith two ethical questions which are somewhat similar in nature which the hope that you might render an opinion to guide us in our course of action. In the first instance, we represented a client who counterclaimed in an action brought by her landlord. Since both the counterclaim as well as the landlord’s action were dependent upon a decision from the Rent Office, an administrative agency, it was agreed by counsel for both sides that the rent be paid to our firm and to be held in escrow until the decision was obtained from the Rent Office. After this decision was finally obtained, counsel for both sides agreed upon a very fair settlement. This settlement took into account, in a large measure, the money that had been received for many months in escrow.
Our client was and is receiving assistance from the Department of Welfare. Accordingly, the Department of Welfare filed with us a copy of an assignment of our client’s interest. Regrettably, our client did not make all of the payments of rent, which, as aforesaid, we were to keep in escrow, We asked her to do so yet it seems that she used relief money that was allocated for rent for other purposes. In passing, it should be noted that our fee, which was a contingent one, is to come out of the escrow monies pursuant to verbal agreement with our opposing attorney.
Our problem in substance is this: if we apprise the Welfare Department that our client failed to make proper allocation of relief funds, our client stands some likelihood of losing her relief budget. She might also be charged with welfare fraud. We have advised our client of these facts and she concedes that she has not allocated the welfare funds properly. We do have the right at this time to advise the Welfare Department of the full facts in view of the possibility that this may injure our client as aforementioned, and might result in a breach of the confidential relationship between our office and the client?
A further question that has come up in connection with an occasional client we represent, who is receiving public assistance, is: if the client is insistent that the Department of Welfare should not know of their possible claim to money, are we ethically obliged to our client to participate in this non-disclosure to Welfare which might be, in our estimate, fraud on the Department of Welfare?
The attorneys for the tenant under the given circumstances are under two separate duties: first, the duty imposed by the attorney-client relationship and second, the fiduciary duty imposed on them as escrow agents on behalf of the tenant (their client), the landlord and the Welfare Department, as assignee of the tenant’s interest in the escrow fund.
As to the first duty, we believe the attorneys for the tenant should again insist that the tenant immediately pay into the escrow fund all monies due from the tenant under the terms of the escrow arrangement for past periods of time and all monies as they become payable in the future. If the tenant is able but unwilling to do this, her attorneys should withdraw from the case, of, Canons of Professional Ethics Sections 15 (last two sentences) and 16.
If the tenant is unwilling or unable to make good her past defaults to the escrow fund, then the duty of the attorneys as escrow agents comes into play. As to this second duty, we believe under such circumstances the attorneys, acting as escrow agents for both the landlord and the tenant and also, because of the assignment, for the Welfare Department, should immediately disclose the true facts relating to the escrow fund to all said three interested parties. The attorneys, as stakeholders, should not permit “any manner of fraud or chicane” which continued silence would constitute, of. Canon 15. The agreed settlement of the litigation was based in large measure on the assumption that the escrow arrangement would be faithfully executed.
The disclosure of the fact that the tenant had not made the expected payments into the escrow fund would not constitute a violation of Canon 37 which requires the preservation of a client’s confidences. This omission by the tenant was in no sense a communication to or a confidence reposed in the attorneys as the tenant’s attorneys. It was a fact occurring after these attorneys had assumed fiduciary duties under the escrow agreement to the landlord, as well as to the tenant, and relating solely to the escrow fund.
The facts in the cases considered in Opinion No. 88 of the Committee of the Association of the Bar and in Opinion No. 413 of our Committee are distinguishable from those in this case.
Dated: April 9, 1959.