In my lectures, I am often asked about how to properly divide a settlement check made payable to both the client and an attorney where there will be a division of that check. The inquiring attorneys are often surprised that the procedure they have used for decades is not technically correct.
Most attorneys are well aware that any such check must be deposited into a properly captioned attorney trust account.1 They may then write checks from the escrow account to the client, the law firm, others entitled to receive a portion of those funds, and any other persons or entities as directed by the client. (RPC 1.15 (b)(1)(2)&(4)) Checks may not be made payable to cash, and bank transfers may be used in lieu of checks, but only with the written authorization of the client (RPC 1.15 (e)).
The confusion concerns the endorsement procedure. Many attorneys improperly believe they can sign the client’s signature on the back of multiple recipient checks for the purpose of depositing the check into trust as long as they have the client’s permission. This simply is not correct.
The proper way to endorse a check on behalf of a client begins with the retainer agreement. The retainer must include a revocable power of attorney clause and must fully disclose the effect of the power of attorney (NYSB Op. 760). If these two requirements are met, then the attorney has the right to endorse a check on behalf of the client—but only as an agent of the client.
To properly endorse and deposit such a check into a general attorney trust account, the attorney must comply with New York State General Obligation Law which requires that the attorney, now acting as an agent for the client, disclose his identity and agency status “by writing or printing the principal’s name and signing your own name as ‘agent’ in either of the following manners: (Principal’s name) by (Your signature) as Agent, or (Your signature) as Agent for (Principal’s name).”2 The bank will require a copy of the revocable power of attorney to complete the transaction.
In conclusion, the common expediency of signing a client’s name to the back of a settlement check is incorrect. While your bank may be willing to overlook this practice, it is still wrong. I suggest that in any case where a settlement check is anticipated that the body of your retainer include a disclosure statement regarding the effect of the power of attorney the client is signing and that the physical revocable power of attorney form be made a part of the retainer as a stand-alone schedule which will remain with the retainer agreement yet can be copied for the purpose of depositing checks.3
1“Attorney Special Account,” “Attorney Trust Account,” or “Attorney Escrow Account.”
2 GOL 5-1513
3 Note that the requirement of a client endorsement can be eliminated completely by the use of a dedicated trust account that includes the client’s name and tax ID number. Most banks will allow a deposit into such an account with only the attorney’s signature as long as the client’s name is the same on the check and the trust account. However, in the average law practice, this procedure can become unworkable.