Fiduciary Duty to Non-Clients
Dynasty Building Corp. v. Ackerman, 376 N.J. Super. 280 (App. Div. 2005)
NJ: Attorney Trust Account Funds
Student Contributor: Michael Park
Facts: Attorney received funds from Plaintiff through an accidental wire transfer directly into his trust account. Plaintiff learned of the accidental transfer a couple weeks later and demanded that the monies be returned. Attorney insisted that the monies belonged to his client. After consulting with his client, the attorney turned the monies over to his client instead of Plaintiff. Plaintiff filed a complaint to recover the monies four years later, and was awarded a default judgment after the complaint went unanswered almost a year later. Attorney was then granted his motion to vacate the default judgment because the motion judge ruled that Plaintiff failed to give notice of the default judgment to attorney, and the complaint was barred by a six-year statute of limitations, which had run by one day.
Issue: Was the motion to vacate properly granted?
Ruling: In reversing the motion judge, the Appellate Division held that the motion to vacate the default judgment was not properly granted for the following reasons:
1) The court found there was little prejudice to the attorney as he had obviously been aware of the default judgment because he filed his motion to vacate twenty-four days later.
2) Instead of counting from the date that the monies were turned over to attorney’s client, the time started to run when the attorney breached his duty to the Plaintiff. The motion judge had started counting from the day that the funds went into the attorney’s trust fund, incorrectly concluding that was when the conversion occurred, when in fact the funds were just sitting there and no damages had been suffered.
If in fact the plaintiffs can establish that it was their funds, a fiduciary relationship developed between them and [attorney] even though he did not represent them in any matter.
Lesson: Although the plaintiff was not a client of the attorney, and it was unclear how the money had been transferred into his clients’ trust account; the attorney still owed a fiduciary duty to the Plaintiff to not touch the money.
The attorney argued that he had consulted with his client and was instructed to give the client the monies, which he did, having no reason not to believe him. However, the court reasoned that the attorney should have left the monies untouched in the trust fund account until it was discovered who the monies belonged to, instead of deciding himself who was telling the truth.
I agree with this holding. In any instance other than an attorney, i would say the court has gone too far. However, when it comes to an attorney, they have a duty of professionalism which exceeds that of the everyday business man. The excuses or justifications which may be used for a regular business can't be used to justify the actions of an attorney. I think the court is fully justified in holding the attorney to a hire standard and requiring them to uphold a fiduciary duty to a third party. An attorney should never just decide for themselves what to do in a situation such as this, and if the attorney was unsure, he should have reached out for ethical guidance.
I think this holding is an obvious one. If a lawyer accidentally receives funds from another party, he has a duty to return the funds. I think that's a basic principal that children are taught, and is a good lesson for lawyers to follow. Don't keep things that aren't yours.
Like my peers before me, I agree with the holding in this case and find it very logical. Attorneys have traditionally, as as reflected in ethrical rules, owed fiduciary duties to third parties. I think the attorney's arguement that his client instructed him to give the client the monies is wholly unpersuasive. If there was any question as to who the monies belonged to (and a question was raised when the plaintiffs demanded the monies be returned a few weeks after the accidental transer) the attorney never should have turned the monies over to his client based solely on the request of the client. Such behavior is inexplicable for an attorney, a member of society who is held to a very high professional standard.
The fact is that there are professional rules of conduct that are set out for attorneys to follow, and having such rules attorneys should be held to a higher standard. The court was justified in ruling that the attorney owed the plaintiff a fiduciary duty. Had the attorney not been aware of where the funds came from and dispensed of them before he was alerted, I feel that this particular outcome would not have been justified since not knowing who the funds belonged to he would not have been able to owe anybody a fiduciary duty