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Shapiro v. McNeill, 1998 N.Y. Int. 088 (July 1, 1998).

PROFESSIONAL RESPONSIBILITY - DUTY OF CARE - NONCLIENT

ISSUE & DISPOSITION

Issue

Whether an attorney owes a legal duty to a defrauded nonclient when he disburses a client's falsely procured funds.

Disposition

No. Where there is no escrow agreement between a nonclient and an attorney, and the attorney has not knowingly misappropriated the property of the nonclient, the attorney owes no legal duty to the nonclient. An ethical violation of a duty of care to the nonclient does not in itself create a cause of action.

SUMMARY

Defendant McNeill, with the help of his accountant, David DeRosa, convinced plaintiff to invest in several mortgage investment schemes, which plaintiff later discovered were fraudulent. By the time plaintiff discovered the fraud, he had invested approximately $150,000. On two separate occasions, plaintiff made his check out to "Lloyd Bleecker as attorney" because he believed that Bleecker, as DeRosa's attorney, was handling all of the investments. DeRosa deposited all checks in Bleecker's escrow account. Upon discovery of the fraud, DeRosa was convicted for grand larceny and McNeill was granted a discharge in bankruptcy. Plaintiff sought to recover from Bleecker. The Supreme Court granted summary judgment , dismissing the complaint, holding that there was no escrow agreement between plaintiff and Bleecker and thus no basis for holding Bleecker liable to plaintiff. The Appellate Division affirmed. The Court of Appeals also affirmed.

The court held that Bleecker was not liable to Shapiro because he owed him no legal duty of inquiry or notice. First, the court held that there was no breach of a legal duty due to a violation of an attorney disciplinary rule, DR 9-102 of the Code of Professional Responsibility, by failing to contact Shapiro before disbursing the funds. DR 9-102 imposes ethical duties of notification on an attorney towards a third party nonclient when the attorney receives funds known to belong to the third party. Even if DR 9-102 had been violated, an ethical violation, by itself, does not create an actionable duty where no other cause of action would otherwise exist at law.

Second, the court held that there was no common law duty of care created by the allegation that Bleecker used his escrow account in a manner analogous to a depository bank. A bank owes a duty of inquiry to a depositor before distributing the check proceeds. This duty does not extend to nonbank creditors who accept checks, without inquiry, in payment of the debts owed by the drawer's employee. The exception to this rule is bad faith or the complete absence of clear authority on the checks which would put the defendant on notice of a some irregularity. The court found that Bleecker had good reason to believe that the checks were the property of his client and that he was not acting as the custodian of plaintiff's property. Therefore, he did not owe a duty to plaintiff to inquire before distributing the check proceeds.

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