Risk Update

Risk Roundup — Escrow Agent Risk & Ex-client Claims Extortion of $1M in Fees

Posted Dan Bressler

“Serving as Escrow Agent Can Be Risky” —

  • “Firms often serve as escrow agent for clients, and sometimes the adversary as well — real estate closings, corporate transaction down payments, environmental clean-up and settlement agreements in litigation are just a few examples. But is your firm protected? Do you have a detailed escrow agreement that explicitly sets forth your obligations and spells out under what circumstances exactly you can disburse the funds and to whom? If all you do is put the money in your attorney trust account and follow your client’s instruction, what happens when the adversary disputes the release of funds?”
  • “That is the situation that was recently addressed by the Supreme Court of New Jersey in Meisels v. Fox Rothschild LLP, 2020 WL 97718. In that case, an intermediary entity wired funds to Fox Rothschild’s trust account in connection with a real estate deal the firm was handling. The wire transfer did not include any instructions as to how the money should be disbursed. The Supreme Court focused on two facts, (1) the funds were sent with no reference that they were on behalf of the Plaintiff and contained with no limiting instructions or conditions, and (2) plaintiff did not object to the disbursement of funds in a timely manner, and thereby dismissed the case against Fox Rothschild.”

“Ex-White & Case Client Says Firm Tried To Extort $1M Fees” —

  • “A San Francisco-based cosmetics company has hit White & Case LLP with a lawsuit in New York state court, accusing its former legal counsel of pursuing a ‘campaign of extortion’ against it and repeatedly threatening to disclose its confidential client information to extract nearly $1 million in exorbitant legal fees.”
  • “…Shipman Associates LLC, which does business as theBalm, claims that the law firm breached its ethical and fiduciary duties by repeatedly and unnecessarily disclosing Shipman’s privileged information, and threatening to continue to do so, in an effort to recover legal fees.”
  • “White & Case allegedly represented Shipman during the early stages of a proposed transaction from February 2016 through March 2017. At the time, the firm allegedly refused to continue representing Shipman unless it entered a new agreement under which the firm received more than double it was charging in attorney fees, according to the suit.”
  • “After two failed rounds of mediation in the fee dispute, Shipman claims that a White & Case attorney began a ‘campaign of harassment and coercion.’ The attorney allegedly sent emails to Shipman’s owners ‘boasting’ about how eager he was to examine the company’s witnesses about its proprietary information before a jury.”
  • “Then, during a hearing, when a judge asked the White & Case attorney how it could be possible the firm never sent its client an invoice, he allegedly responded that it was because the firm was summarily fired,’ even though the firm actually quit, the suit claims. He also repeated Shipman’s confidential information in open court for a second time, the suit says.”
  • “The complaint claims that the firm violated New York Rules of Professional Conduct and emphasizes that Shipman never waived and does not intend to waive its attorney-client privilege with White & Case.”