Can limited practice officers in a law firm's escrow department be signatories on the accounts used to sign escrow disbursement checks for real estate closings?

Plain-English summary

The inquiry asked whether limited practice officers (LPOs) employed by a law firm within an escrow department may be signatories on accounts under RPC 1.15A(h)(9) for the purpose of signing escrow disbursement checks and wire authorizations when closing real estate transactions. An LPO is a closing officer certified by the Washington Supreme Court under Rule 12 of the Admission to Practice Rules, with disciplinary rules distinct and separate from the RPCs that govern lawyers.

The opinion assembles the governing rules. It states that it is professional misconduct for a lawyer to violate the RPCs through the acts of another (RPC 8.4(a)); that a lawyer must deposit and hold in a trust account escrow and other funds held incident to a real estate closing (RPC 1.15A(a), (c)(1)); and that only a lawyer admitted to practice law may be an authorized signatory on trust accounts (RPC 1.15A(h)(9)). It reviews Informal Opinion 2053 (a lawyer who provides non-legal services in the course of a law practice remains subject to the RPCs) and Informal Opinion 2060 (the RPCs do not apply to an escrow company per se, but do govern a lawyer employed by both an escrow company and a law firm).

The opinion then quotes Formal Opinion 187 (1990) at length. Under Op 187, a lawyer who acts as an escrow agent in connection with the lawyer's profession must comply with the trust-account rule (then RPC 1.14), whether or not the lawyer has registered as an escrow agent. But a lawyer may operate an escrow business "totally independent from and unrelated to" the law practice, and in that case the escrow-account rule does not apply; Op 187 gives the example of a registered escrow company staffed by LPOs qualified under APR 12 to discharge the escrow functions. The separation must be "physical, financial, substantive and practical": separate and physically distinct offices, financial independence, no cross-referrals between the law office and the escrow company, no representation that escrow customers receive a lawyer's expertise, and no holding out as a lawyer in connection with the escrow business. Where a lawyer runs both a law practice and an escrow business without a true separation, the trust-account rule applies to all of the lawyer's trust accounts.

In practice

Under the framework this opinion assembles, whether an account used for escrow disbursements is governed by the trust-account rules turns on the relationship between the escrow operation and the law practice. The opinion states that only a lawyer may be an authorized signatory on a trust account and that a lawyer must hold real-estate-closing escrow funds in a trust account, while Formal Opinion 187 provides that those rules reach a lawyer's escrow activity only when the escrow business is not truly separate (physically, financially, substantively, and practically) from the law practice. Op 187 expressly contemplates a genuinely separate escrow company using LPOs to discharge the escrow functions. The published opinion sets out these rules and the Op 187 separation test as its analysis.

Common questions

Q: Can a limited practice officer be an authorized signatory on a law firm's trust account?

A: The opinion states that under RPC 1.15A(h)(9) only a lawyer admitted to practice law may be an authorized signatory on a trust account, and that a lawyer must hold escrow funds held incident to a real estate closing in a trust account.

Q: When do the trust-account rules apply to a lawyer's escrow business?

A: Under Formal Opinion 187, quoted in the opinion, the rules apply when a lawyer acts as an escrow agent in connection with the law practice; they do not apply if the escrow business is truly separate, physically, financially, substantively, and practically, from the law practice.

Q: What does a "separation in fact" between a law practice and an escrow business require?

A: Per Formal Opinion 187, physically distinct and separate offices, financial independence, no cross-referrals between the two, no representation that escrow customers receive a lawyer's expertise, and the lawyer not holding out as a lawyer in connection with the escrow business.

Q: Are limited practice officers governed by the lawyer Rules of Professional Conduct?

A: The opinion notes that LPOs are certified under APR 12 and have their own disciplinary rules distinct and separate from the RPCs that govern lawyers, and that Formal Opinion 187 contemplates a separate escrow company staffed by LPOs to discharge escrow functions.

Background and rules framework

The opinion interprets Washington RPC 1.15A (safekeeping of property, including trust-account requirements; the counterpart to Model Rule 1.15), specifically RPC 1.15A(a) and (c)(1) (a lawyer must hold real-estate-closing escrow funds in a trust account) and RPC 1.15A(h)(9) (only a lawyer may be an authorized signatory), together with RPC 8.4(a) (misconduct to violate the rules through another's acts; the counterpart to Model Rule 8.4(a)). It relies on Formal Opinion 187, decided under the predecessor trust-account rule (RPC 1.14), for the "separation in fact" test that distinguishes a lawyer's law-practice escrow activity from a genuinely separate escrow business.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.15 / Washington RPC 1.15A(a), (c)(1), (h)(9) (trust-account requirements; only a lawyer may be an authorized signatory)
• Model Rule 8.4(a) / Washington RPC 8.4(a) (violating the rules through the acts of another)

Statutes and regulations:

• Chapter 18.14 RCW (Escrow Agent Registration Act); WAC 308-128E-011
• Admission to Practice Rule 12 (certification of limited practice officers)

Other opinions cited:

• WSBA Formal Opinion 187 (1990): the "separation in fact" test for when the trust-account rule applies to a lawyer's escrow activity
• WSBA Informal Opinion 2053 (2004): a lawyer providing non-legal services in a law practice remains subject to the RPCs
• WSBA Informal Opinion 2060 (2004): the RPCs govern a lawyer employed by both an escrow company and a law firm

See also

• WA Ethics Op. 2143: Facsimile Signature Stamp on Trust-Account Checks
• WA Ethics Op. 1157: Nonlawyer Signature Stamp on Trust-Account Checks
• WA Ethics Op. 938: Lawyer-Owned Escrow Company and Referrals

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1589

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Advisory Opinion: 2151
Year Issued: 2007
RPC(s): RPCs 1.15A, 8.4, Formal Ethics Opinion 187
Subject: Limited practice officers as signatories on accounts for the purpose of escrow disbursement

QUESTION May limited practice officers, who are employed by a law firm within an escrow department, be signatories on accounts under RPC 1.15A(h)(9) for the purpose of signing escrow disbursement checks and wire authorizations when closing real estate transactions?

RULES, DEFINITIONS, AND HISTORY Limited Practice Officers A limited practice officer is a person certified as a closing officer under Rule 12 of the Admission to Practice Rules. A limited practice officer is certified by the Washington State Supreme Court. Since July 1, 2002, the Washington State Bar Association assumed responsibility for administering the Limited Practice Officer program. While certified as a limited practice officer, a person may select, prepare, and complete documents in a form previously approved by the Limited Practice Board for use in closing a loan, extension of credit, sale, or other transfer of real or personal property. Limited Practice Officers have their own Disciplinary Rules distinct and separate from the Rules of Professional Conduct governing lawyers in the State of Washington. Escrow Account As defined by Blacks Law Dictionary, an escrow account is a bank account generally held in the name of the depositor and an escrow agent which is returnable to the depositor or paid to a third person on the fulfillment of one or more escrow conditions. For example, funds for payment of real estate taxes are commonly paid into an escrow account of a bank-mortgagee by mortgagor. Rules of Professional Conduct of the Washington State Bar It is professional misconduct for a lawyer to, through the acts of another, violate the Rules of Professional Conduct. See RPC sec. 8.4(a). A lawyer must deposit and hold in a trust account funds, including escrow and other funds held by a lawyer incident to the closing of any real estate property. See RPC secs. 1.15A(a), (c)(1). Only a lawyer admitted to practice law may be an authorized signatory on trust accounts. See RPC sec. 1.15A(h)(9). Informal Ethics Opinion #2053 In 2004, the RPC Committee opined that a lawyer may provide non-legal services in the course of a law practice. However, the provision of those services will still be subject to the requirements and obligations of the Rules of Professional Conduct. The facts of this case include planning by a lawyer to operate an escrow business as part of the performance of the lawyers professional duties. Informal Ethics Opinion #2060 In 2004, it was opined that the RPCs do not apply to an escrow company per se but that the RPCs apply to lawyers licensed or admitted for any purpose to practice in the State of Washington. Thus, the conduct of a lawyer who is employed by both a licensed escrow company and who is also employed by a law firm is governed by the RPCs. Formal Ethics Opinion #187 In 1990, the RPC Committee opined as follows:

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 lawyers professional life. Accordingly, any lawyer who acts as an escrow agent in a real estate or personal property transaction in connection with the lawyers 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 lawyers 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 lawyers 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.