Can a lawyer have a personal injury client sign a power of attorney to endorse the settlement draft and deposit it in the trust account?

Plain-English summary

A law firm proposed using an "Authorization to Endorse" form, signed by clients when they came in to execute a release and disbursement statement at the settlement of litigation, to let the attorneys endorse the settlement draft for deposit in the trust account and disburse the proceeds after full disclosure. The point was to spare the client a return trip or a mail delay in endorsing the draft. The Committee was directed to the Supreme Court's decision in In re Conroy, which had "unqualifiedly disapproved" a retainer-embedded power of attorney that let an attorney execute drafts and make disbursements.

The Committee distinguished Conroy. Here, the power of attorney was to be executed at the client's request, with the client's consent and knowledge, after settlement had been consummated and after the client had signed the closing statement required by R. 1:21-7 or RPC 1.5(c). It explained the framework of contingent-fee closing statements (R. 1:21-7 and RPC 1.5(c)), the written-fee-basis requirement of RPC 1.5(b), and the attorney's statutory lien under N.J.S.A. 2A:13-5 that explains why settlement drafts are made jointly payable to client and attorney. Because the closing statement makes the client aware of the recovery before any authorization is signed, the Committee saw nothing improper in the procedure.

Currency note

The Committee's Opinion 635 was later modified by the Supreme Court in Matter of ACPE Opinion 635, 125 N.J. 181 (1991), and superseded by a Notice to the Bar, 136 N.J.L.J. 1638 (1994). This opinion was issued in 1989, before New Jersey's adoption of the 2004 revisions to the Rules of Professional Conduct. Treat this page as historical context, not current guidance. Verify against current rules and the superseding Notice to the Bar before relying on any specific rule or procedure mentioned here.

Common questions

Q: Did the Committee allow attorneys to endorse a client's settlement draft?

A: Per the opinion as originally issued, yes, where the client executed an authorization at the client's own request and with consent after settlement and after signing the closing statement. Note that this opinion was later modified and superseded.

Q: How did the Committee distinguish In re Conroy?

A: In Conroy the power of attorney was embedded in the retainer agreement before any settlement. Here, the authorization was executed after settlement and after the client signed the closing statement, so the client already knew the recovery amount.

Q: Why are settlement drafts made payable to both client and attorney?

A: The opinion explained that under N.J.S.A. 2A:13-5 the attorney has a lien on the client's recovery; the payor names the attorney on the draft to ensure that lien is satisfied.

Background and rules framework

The opinion construes NJ RPC 1.5(b) (written communication of the fee basis when the lawyer has not regularly represented the client) and RPC 1.5(c) (extending the contingent-fee closing-statement requirement); Model Rule 1.5. It also relies on Court Rule R. 1:21-7 (contingent fees and closing statements) and N.J.S.A. 2A:13-5 (the attorney's charging lien), and on the Supreme Court's decision in In re Conroy.

Citations and references

Rules of Professional Conduct:

• MR 1.5 / NJ RPC 1.5(b), 1.5(c) (written fee basis; contingent-fee closing statements)

Court Rules:

• R. 1:21-7 (contingent fees; closing statements)

Statutes:

• N.J.S.A. 2A:13-5 (attorney's lien on a client's action and recovery)

Cases:

• In the Matter of John S. Conroy, III, 56 N.J. 279 (1970), disapproval of a retainer-embedded power of attorney

See also

• NJ ACPE Op. 644: Nonrefundable Retainers
• NJ ACPE Op. 659: Client Waiver of Trust-Account Interest
• NJ ACPE Op. 663: Purchasing a Client's JUA Judgment at a Discount

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp635-1.html
• Issuing authority: New Jersey Supreme Court Advisory Committee on Professional Ethics, via the NJ Courts Supreme Court Committees page

Original opinion text

Reproduced from a full-text mirror of the official opinion for research purposes. The linked official source controls.

124 N.J.L.J. 1420 (1989); modified, Matter of ACPE Opinion 635, 125 N.J. 181 (1991); superseded, Notice to the Bar, 136 N.J.L.J. 1638, 3 N.J.L. 852 (1994).

OPINION 635

Use of Authorization to Endorse Forms in Personal Injury Matters

A law firm proposes to use an Authorization to Endorse form which it has prepared. It is proposed to have the clients execute the form when they come to the law firm's offices to execute a release and disbursement statement, incident to the settlement of litigation, in order to permit the attorneys to endorse for deposit the settlement draft made payable to the client and to deposit the proceeds in the attorneys' trust account following full disclosure to the client. This is in response to a client's query as to whether there is a method whereby the client may avoid the inconvenience of returning to the law firm's office to endorse the settlement draft or that of the time lag involved if such instruments are sent to them by mail, and in that way expedite disbursement of the settlement proceeds.

Our attention was directed to our Supreme Court's opinion, In the Matter of John S. Conroy, III, 56 N.J. 279 (1970), in which the attorney included in his retainer agreement a provision giving him "full power...to execute any draft or check in (client's) behalf and to make disbursements of the proceeds covering all medical and hospital bills and to retain __% of the total received if settled, and __ % if trial is had."

The Court decided at page 282 of its opinion as follows:

We pause at this point to make clear that we consider employment by members of the bar of the type of retainer and power of attorney described above to be highly improper. The practice of insurance carriers or other settlors in drawing settlement checks in the joint names of the attorney and the claimants is to protect and preserve the interests of all three parties to the transaction. The form of retainer in question facilitates the subversion of that purpose and is unqualifiedly disapproved.

This inquiry presents a different factual situation than that presented in the Conroy matter. Here, the inquirers propose to use the power of attorney, at the request and with the consent of the client, to permit them to endorse the client's name on the check or draft for the amount of settlement and to deposit the check in the attorneys' trust account to facilitate disbursement of the proceeds. The power of attorney authorizing this procedure is to be executed at the request and with the consent and knowledge of the client after settlement has been consummated, and after the client has signed the closing statement as required by R. 1:21-7 or RPC 1.5(c), as the case may be.

R. 1:21-7 relating to contingent fees requires that in matters where the client's claim for damages is based upon the alleged tortious conduct of another, contingent fee arrangements are required to be in writing in the form prescribed by the Administrative Director of the Courts and signed by both the attorney and client. It also requires that upon the conclusion of the matter, resulting in a recovery, the attorney shall prepare and furnish the client with a signed closing statement, likewise in the form prescribed by the Administrative Director of the Courts.

RPC 1.5(c) in effect extends the contingent fee rule to all other matters with respect to which contingent fees are agreed upon, except it does not provide for percentage limitations on the attorney's fees.

RPC 1.5(b) provides:

When the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated in writing to the client before or within a reasonable time after commencing the representation.

In all litigated matters, the attorney who appears in the cause for the party who institutes the action, or maintains the third-party claim, or counterclaim or cross-claim, has a lien for compensation upon his client's action which attaches to a verdict or judgment in his client's favor, which lien is not affected by any settlement between the parties before or after judgment or final order. N.J.S.A. 2A:13-5.

It is because of the attorney's lien that checks or drafts made to satisfy a judgment or to complete a settlement are made jointly payable both to the clients and the attorney who handled the matter. The payor includes the attorney's name on the draft or check to insure that the attorney's lien is satisfied.

The requirements with respect to fee agreements and closing or written statements showing the remittance to the client and the method of its determination make the client aware of the amount of the recovery which the client is entitled to receive. If after that has been done, the client for his own convenience executes a written authorization permitting his attorney to endorse the settlement draft or check received in settlement of the matter or in satisfaction of a judgment and to deposit same in the attorney's trust account for the sole purpose of disbursing the funds in accordance with the closing statements, we see nothing improper in such a procedure.