Formal Opinion 187
(1990)
Deposit of Escrow Funds by a Lawyer Acting as Agent
The question presented is whether a lawyer who acts as an escrow agent must deposit escrow funds in an interest-bearing "IOLTA" account pursuant to RPC 1.14 or a non-interest-bearing account pursuant to WAC 308-128E-011. We are of the opinion that:
1. Lawyers who hold escrowed funds in the performance of their professional duties as lawyers are subject to RPC 1.14 with respect to all escrowed funds, whether or not the lawyer is a registered escrow agent.
2. A lawyer may establish a business as a registered escrow agent in compliance with the Escrow Agent Registration Act which is separate from and unrelated to the lawyer’s law practice. Funds held as a part of an escrow business which is separate from and unrelated to the lawyer’s law practice are subject to WAC 308-128E-011 and not to RPC 1.14.
3. A lawyer does not avoid the requirements of RPC 1.14 by registering as an escrow agent where the escrow business is in fact a part of or related to the lawyer’s law practice.
RPC 1.14(a) requires that funds of clients paid to a lawyer
be deposited in one or more interest-bearing trust accounts. For pooled accounts where deposits are either nominal in amount or expected to be held for a short period of time, RPC 1.14(c)(1) requires that interest (net of certain amounts) be paid to The Legal Foundation of Washington. Most funds
escrowed in connection with a closing transaction are expected to be held for a short period of time.
RPC 1.14(d) provides:
Escrow and other funds held by a lawyer incident to the closing of any real estate or personal property transaction are client funds subject to this rule regardless of whether the lawyer, the law firm, or the parties view the funds as belonging to clients or nonclients.
The Rules of Professional Conduct apply to lawyers who are engaged in their professional responsibilities as lawyers. The scope of these activities is broad, and the Rules are intended to reach all aspects of a lawyer’s professional life. Accordingly, any lawyer who acts as an escrow agent in a real estate or personal property transaction in connection with the lawyer’s profession as a lawyer must comply with RPC 1.14. This is so whether or not the lawyer has registered as an escrow agent under The Escrow Agent Registration Act, Chapter 18.14 RCW, or has established an escrow company which has registered.
We recognize, however, that a lawyer may engage in businesses which are totally independent from and unrelated to a law practice. In such a business, the lawyer is not relying on his or her qualification to practice law either to bring in customers or to discharge the functions of the unrelated business. While various of the Rules of Professional Conduct may apply to unrelated businesses, such as, for example, RPC 8.4 (prohibiting certain kinds of conduct), we believe the escrow account rules of RPC 1.14 are not intended to apply to funds held by persons engaged in a business unrelated to a law practice merely because the person is also qualified to practice law. For example, a person qualified to practice law may have no law practice whatsoever, but may operate an escrow company which is registered under the Escrow Agent Registration Act and which has Limited Practice Officers qualified under Rule 12 of the Admission to Practice Rules to discharge the escrow functions. RPC 1.14 would not require use of an interest-bearing account in that case.
Similarly, a lawyer with a law practice may also engage in the business of acting as a registered escrow agent, and if there is a separation in fact between the two businesses, RPC 1.14 will not apply. The separation must be physical, financial, substantive and practical. For example, the law office and the escrow office must be physically distinct and separate. The businesses must be financially independent of each other. The escrow company cannot be a mere adjunct to the lawyer’s law practice, obtaining referrals from, or making referrals to, that law office. The escrow company may not represent to its customers and prospective customers in any way that they will receive the benefits of a lawyer’s expertise. A lawyer engaged in an escrow business complying with WAC 308-128E-011 may not hold himself or herself out to be a lawyer in connection with that business’s activities.
Where a lawyer is engaged in both a law practice and an escrow business but a true separation and independence of the two businesses is not maintained, then RPC 1.14 will apply to all of the lawyer’s trust accounts.
