NY: Attorney Escrow Accounts
FACTS: Attorney was the escrow agent for the owner of two cooperative apartments on Central Park West. Buyer deposited a total of almost three million dollars for a down payment on the two cooperative apartments in Attorney’s escrow account at ABC Bank. Before the sale of the apartments could be completed, ABC Bank was shut down and the Federal Deposit Insurance Corporation was named as receiver. As it turned out, Attorney’s escrow account at ABC Bank was not fully insured by the FDIC and Buyer was unable to recover his down payments. Buyer then brought a legal malpractice action against Attorney on the ground that Attorney negligently held his escrow account in an account that was not fully insured.
ISSUE: Did Attorney commit legal malpractice by maintaining an escrow account that was not fully insured by the FDIC at a bank that subsequently went under?
RULING: No. The Court held that (i) there is no requirement that an attorney maintain his escrow account in a fully insured bank account; and (ii) that there was no way for Attorney to have known that ABC Bank was going to go under. The Court held that Buyer had not established that Attorney had failed to exercise that degree of care, skill and diligence commonly possessed and exercised by a member of the legal profession
LESSON: Escrow accounts are not required to be fully insured by the FDIC, and so long as an attorney has no reason to believe the bank at which the account is held is in no danger of closing, the subsequent closing of that bank cannot be attributed to the liability of the attorney in a legal malpractice action.