On review of a decision of the Advisory Committee on Professional Ethics.
For modification -- Chief Justice Wilentz and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi, and Stein. Opposed -- None.
This appeal challenges the approval by the Advisory Committee on Professional Ethics (ACPE) of the use of an "Authorization to Endorse" form (the form). When executed by the client, the form would authorize the lawyer to endorse the client's name on a draft representing the amount of the settlement in a tort action. The lawyer would then deposit the endorsed draft in his or her trust account before final distribution of the proceeds.
We conclude that except for its application in certain unusual circumstances, the foregoing procedure should not be adopted. We therefore modify the ACPE's Opinion 635.
A New Jersey law firm sought from the ACPE an advisory opinion that the firm's use of a form that it had prepared "would conform to our State's ethical requirements." According to the law firm, the form was designed for the convenience of its clients. As explained in the firm's letter of inquiry, "when our clients are in the office signing our detailed release and disbursement statement * * *, they will inquire if there is a method whereby they might avoid the inconvenience of returning to our office an additional time merely to endorse their settlement checks." In addition, "clients are often concerned about conducting such a transaction through the mail due to the necessary time lag and uncertainty of delivery."
To address those concerns, the firm developed a form that when signed by the client would allow the lawyers to endorse and deposit settlement checks into the firm's trust account. Recognizing that the form grants the law firm a power of attorney, the inquirers emphasize that the client would sign the form only after the settlement had been consummated, after the release had been executed, and after the client had signed the closing statement required by Rule 1:21-7 or Rule of Professional Conduct 1.5c. The former requires that "[u]pon
conclusion of a matter resulting in recovery, the attorney shall prepare and furnish the client with a signed closing statement * * * in the form prescribed by the Administrative Director of the Courts." The latter specifies that at the conclusion of all contingent-fee matters, "the lawyer shall provide the client with a written statement stating the outcome of the matter, and, if there is a recovery, showing the remittance to the client and the method of its determination." The law firm attached to its letter a copy of its form "Statement of Disbursements of Settlement Funds" as well as a copy of the form that is the subject of its inquiry.
Concluding that this Court's opinion in In re Conroy, 56 N.J. 279, 266 A.2d 279 (1970), was not controlling, the ACPE found nothing improper in the law firm's suggested procedure. The ACPE concluded as follows:
The requirements with respect to fee arrangements 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 [that] 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.
The ACPE distinguished In re Conroy, supra, 56 N.J. 279, 266 A.2d 279, on the basis that Conroy had included in his retainer agreement a provision giving him "full power * * * to execute any draft or check in __________ behalf and to make disbursements of the proceeds covering all medical and hospital bills and to retain ___% of the total recovered if settled and ___% if trial is had." This Court roundly disapproved of the inclusion of such a provision in a retainer agreement, 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 ...