Capitol Report

Capitol Report

February 18, 2019

This is a status report provided by the New Jersey State Bar Association on recently passed and pending legislation, regulations, gubernatorial nominations and/or appointments of interest to lawyers, as well as the involvement of the NJSBA as amicus in appellate court matters.

NJSBA’s amicus seeks clarity on a potential duty to unknown, undisclosed third parties

The New Jersey State Bar Association participated as amicus curaie on the issue of whether the turnover of funds at the client’s direction breached a duty to an unknown, undisclosed third party later laying claim to such funds. The case, Meisels v. Fox Rothschild LLP, Docket No. A-3519-15T4, is on appeal to the Supreme Court, where the NJSBA seeks reversal of a part of the Appellate Division’s decision that such turnover could create a claim of conversion against the law firm. The brief was drafted by NJSBA members Diana Manning (also an NJSBA trustee), Benjamin J. DiLorenzo, and Ann Marie Effingham, all of Bressler Amery Ross. 

At issue is the convergence of the Rules of Professional Conduct (RPC)—in particular 1.2 regarding a duty to honor a client’s instruction and 1.15 regarding the safekeeping of property and a duty to turn over a client’s funds or property to the party with an interest in such funds or property. The question before the Supreme Court is whether such a disbursement of funds rises to the level of conversion where there is an undisclosed third party purporting to claim an interest in those funds.

In Meisels, Fox Rothschild received $2.5 million in funds for its client, Eliyah Weinstein, by a non-party company, Rightmatch, Ltd. Meisels alleged that Rightmatch wired those funds to be used as part of a real estate transaction to which Meisels was a party. Though Meisels admits never having contacted Fox Rothschild or the attorney handling the matter, he alleged that Fox Rothschild disbursed the funds in accordance with its client, Weinstein. Five years later, Meisels and others affiliated with him sued Fox Rothschild, alleging multiple claims, including conversion and breach of fiduciary duty under RPC 1.15. The trial court granted summary judgment to the defendant law firm. The Appellate Division held that the trial court properly dismissed the breach of fiduciary duty claim, but that Meisels could pursue a conversion claim based on the distribution of the $2.5 million at Weinstein’s direction.

“The paramount obligation of all attorneys is to honor the instructions of the client,” said the NJSBA. “Codified in RPC 1.2, and weaved throughout the Rules of Professional Conduct, this guiding principle requires attorneys to follow client instructions, even if the attorney views the client’s direction as ill-advised.”

The association argued that the duty to honor a client’s wishes under RPC 1.2 does not require an affirmative obligation on the part of an attorney to “investigate whether a competing claim exists prior to disbursement” of the client’s own funds, held for the client’s benefit separate from the law firm’s funds. A client’s interest should not be jeopardized “in favor of an amorphous and undefined duty to search out the existence of any competing claims to funds held for the benefit of the client.” Arguing that RPC 1.15 does not apply here, the association further pointed out that even the Appellate Division acknowledged that Meisels’ identity was undisclosed to defendants and, therefore, “his undisclosed status dooms his claim.”

For these reasons, the NJSBA argued that the funds held under RPC 1.2 in a trust account are not under the “dominion or control” of the law firm such that the disbursement of those funds is a conversion. “Funds deposited into a trust account are neither an attorney’s nor a law firm’s property, and the mere presence of these funds in a trust account is not an act of dominion or control over funds by the attorney. They are at all times the property of the client, who controls their use and/or disbursement,” said the NJSBA in its brief.

The matter has not yet been scheduled for oral argument

 

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