Risk Update

Lawyer Escrow Risk, Consulting Conflicts & Million Dollar [sic] Sanction

A bit of everything has caught my eye recently. First, an interesting reminder about financial risk and professional responsibility with regard to managing client funds: “What Lawyers Must Know Before Acting As Escrow Agents” —

  • “There is a strong case to be made that the moment an attorney agrees to serve as an escrow agent for a client, the attorney assumes some of the most important obligations attorneys are charged with in the legal profession. All too often, however, an attorney who serves as an escrow agent for a client is unaware of these obligations.”
  • “All too often, attorneys readily agree to serve as an escrow agent for a client without giving it a second thought, in order to facilitate the client’s payment of outstanding legal fees from the escrowed funds — entirely unaware of their potential obligations to third parties under the rules. Before taking on this role, attorneys should first evaluate whether or not any third persons who are not clients can claim or have claimed an ownership interest in the funds to be escrowed (for instance, any secured or contractual creditors that the client might have may have priority to the escrowed funds), and the duties that the attorney could owe to such third persons as an escrow agent.”
  • “Before agreeing to serve as an escrow agent for a client, attorneys should also consider that if, and to the extent that, such third persons exist, an attorney might be required to act contrary to the client’s interests, and his or her law firm’s interests, with respect to the escrowed funds.”

Next, an interesting story about the evolution of conflicts standards in other industries in the general news. In this case, consulting: “McKinsey Broke the Rules, Now It Wants to Rewrite Them” —

  • “A federal bankruptcy judge has authorized McKinsey & Co. to devise industry conflict-of-interest guidelines, even as the firm recently has paid $32.5 million to settle allegations that its undisclosed conflicts tainted its own bankruptcy work.”
  • “The surprising move by Judge David Jones of Houston will allow the big consulting firm to craft a conflicts protocol that will be used in a current chapter 11 case, Colorado coal miner Westmoreland Coal Co., and could serve as a model for all bankruptcy practitioners, including law firms and financial advisers.”
  • “In court papers, Judge Jones approved McKinsey’s request to develop new disclosure guidelines, saying: ‘The court hopes that the protocol to be developed by McKinsey will lead to a comprehensive national standard for all professionals.”

Finally, not the sort of title you read every day (and perhaps best accompanied by a certain sitcom’s theme music, or questions about who will own the movie rights to this story): “$1 Million Sanction Over Wilmette Condo Lawsuits Ordered By Judge” —

  • “A Cook County judge ordered a Wilmette man and his attorney to pay more than $1 million in sanctions amid years of legal wrangling among residents at a lakefront condominium.”

  • “Marshall Spiegel, a resident of the condo, and his attorney John Xydakis engaged ‘simply obscene’ and ‘egregious conduct’ by filing a serious of frivolous or false lawsuits during a legal battle over the condo association’s boards and its rules, according to Circuit Judge Margaret Brennan, who granted four sanctions orders on March 29.”

  • “Xydakis, of River Forest, said the ruling was retaliation against him for seeking to disqualify Brennan over a series of private conversations between the judge, her clerk and one of the opposing party’s attorneys. He said the judge’s phone records he obtained through a Freedom of Information Act request and the billing records of attorney Eugene Murphy show improper private conversations.”