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The Attorney Escrow Accounts and the Prohibition of Commingling Client Funds April 19, 2010

Posted by Herb Chestnut in Uncategorized.
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   Recently, an Illinois attorney who represents a number of DBA clients was arrested on charges of “ … unlawful financial exploitation of an elderly person for allegedly obtaining a check written payable to the 81-year-old victim.”   The case alleges that the attorney deposited a check made out to a client into his own account.  Bear in mind that this attorney has not been convicted of the allegations at this point and, under our laws is innocent until proven guilty.  However, the story here is a good opportunity to explain the reason attorney’s have escrow accounts and the prohibition against commingling funds. 

          Most states and the American Bar Association have rules which read something like the one here in Georgia: “A lawyer shall hold property of clients or third persons that is in a lawyer’s possession in connection with a representation seperate from the lawyer’s own property.  Funds shall be kept in a separate account maintained in an approved institution as defined in Rule 1.15(III)(c)(1).”  Georgia Rules of Professional Conduct.  The account referred to is called an “escrow” or “trust” account.  Its basic purpose is to create a separate depository for funds of a client or funds which contain both client and attorney funds.

          An example of the escrow account’s use would be in a situation where and insurance company issues one check which included a client’s proceeds of a settlement and attorney fees and costs.  In that situation, since the check includes client property in addition to moneys payable to the attorney, it would have to be deposited in a separate account, an escrow account, before distributed.  After the check clears the bank and the funds are verified, the attorney will disburse the funds in separate checks, one to the client and one to himself.  When handled in this manner, it is easily determined where the fund were dispersed.

          Often, a client is confused when they have to wait an additional period of time to receive settlement proceeds.  However, even though this procedure take a few extra days, it protects the client and the attorney and creates a record of each transaction which can be easily audited or checked at a later time. 

          It is fair to say that the case referenced above involved more than simply the deposit of funds into the wrong account.  According to the article, the attorney received a check in excess of $137,000 in 2006, deposited it and, at the time of the article, had not disbursed any funds to the client. 

          Generally, any check representing funds belonging jointly to a client and an attorney will have the client’s name on it.  This requires the client to endorse the check before it is deposited into the escrow account.  It is our firm’s practice to give a copy of the check which the client endorses to the client so that there is no doubt as to the amount of the check and so that the client can have a record of the funds for their file.  At disbursement, any fees, costs or other deduction from the client’s proceeds should be disclosed and the client should be given a accounting of the individual costs being assessed.  There should be a writing in the file acknowledging the distribution of the funds with a copy of this accounting being provided to the client.  When handled in this manner, all transactions are documented and easily verified if a question arises at a later date.

          Before you agree to a settlement, it is necessary to ask several questions so that there will be no unpleasant surprises when the final distribution takes place.  First, ask your attorney if there will be separate checks representing your proceeds and the fees and costs.  If so, will it be necessary to deposit your check into an escrow account.  If that will be necessary, what additional costs/fees come out of your proceeds and how long will it take for the funds to clear.

          If all proceeds are paid in one check, ask your lawyer what the net proceeds will be; that is, what will you receive after all fees, cost, medical and other expenses are paid.  Finally, request a copy of the check deposited, front and back, and ask in what account the check will be deposited.  If the answer is not an escrow of trust account, there may be problems.

          In DBA cases, the checks are generally separate so these problems may not arise.  Also in DBA cases, the client’s check is rarely sent to the attorney and there is no need for an escrow deposit.  However, if the situation arises, there should be documentation for every deduction taken.  If you have questions of your attorney, ask them.  The great majority of lawyers follow the ethical rules and will not risk losing their licence to practice by commingling funds.  Therefore, an attorney will want you to be satisfied that you are aware of the reason for every deduction from your funds so that there will be no questions in the future.

Congress considers taking over Workers’ Compensation under the Defense Base Act October 18, 2008

Posted by Herb Chestnut in Uncategorized.
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12 comments

I read recently that Congress was considering a proposal that the federal government take control of the administration, funding and all other aspects of the Defense Base Act.  While I think that we all agree that AIG is not the most efficient and fair manager of the Act, just ask anyone who has ever had a claim under the Federal Employees’ Compensation Act (FECA) how they feel about the government getting in the game.

FECA applies generally to all federal employees working in the U.S. who do not come under the Non-Appropriated Fund (NAF) extension to the Longshore and Harbor Workers’ Compensation Act (LHWCA).  Therefore, if you work for at the Post Exchange, the commisary, the golf course or anywhere else that derives its funds from sources besides Congress, you come under the NAF and the LHWCA.  Most of these workers are employed by AAFES or the Navy Exchange Service.  Practically everyone else, postal workers, employees of the DOL, federal court employees, any employee of a federal agency, come under the FECA.  The easy test is, if you are a civil servant, you have the pleasure of having coverage under the FECA.

What is so bad about the FECA you ask? 

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AIG in financial crisis, will this effect my Workers’ Compensation benefits under the Defense Base Act? – Part 2 September 17, 2008

Posted by Herb Chestnut in Uncategorized.
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We have been receiving numerous emails in response to our previous posting on the AIG crisis and its effect on Defense Base Act claims. While it appears that a potential government bailout will keep AIG’s daily operations and claims management moving normally, we have been asked a lot of “What ifs?”

What if AIG Worldsource, the DBA insurance arm of AIG, declared bankruptcy? Who would pay for claimant’s medical care? Who would pay their weekly benefits?

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Fisher v. Halliburton – KBR Lawsuit Revived July 17, 2008

Posted by Herb Chestnut in Uncategorized.
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Last month, in a somewhat surprising decision, U.S. 5th Circuit Court of Appeals reversed a District Court ruling that employees of KBR could not sue their employer in tort.  The opinion involved the so-called “Good Friday Massacre” where several truck drivers employed by KBR lost their lives when attacked by insurgents.  The plaintiffs sued KBR alleging, among other things, that KBR had falsely and fraudulently induced them to come to work in Iraq with the assurances of KBR that they would be completely safe.  The U.S. military was responsible for the protection of the contractors and KBR’s defense contractors used this fact to convince the lower court to dismiss the suit.

The theory behind the dismissal was the trial judge’s opinion that the plaintiff’s could not prove their case without necessarily bringing into question the Bush Administation’s policies and strategies for protection of civilians in Iraq.  This being the case, the claims of the plaintiff’s necesarily involved “political questions” regarding the Executive branch and the Judicial branch, the courts, are prohibited from interfering in the function of the Executive branch. 

While the theory of the defense was creative, it was a very harsh result due to the the facts of the case .  The plaintiffs in the suits (four suits were consolidated and decided together) alleged that KBR had assured potential employees that they would have “[f]ull 24 hour a day U.S. military protection…” to insure safety and that employees would be “…100% safe.”  On April 8, 2004, plaintiff Kevin Smith-Idol was injured when his convoy was attacked by insurgernts.  The next day, several more trucks were sent on the same route resulting in more injuries and deaths to KBR employees.  There were allegations that the route had been closed by the military and the Army had been engaged in a 48 hour battle with over 300 insurgents.  In summary, KBR sent unarmed civilians into not only a “war zone” but an active battle.

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Five questions you should always ask your lawyer June 19, 2008

Posted by Herb Chestnut in Uncategorized.
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It is difficult enough to hire an attorney when you are familiar with the legal issue and the lawyers you deal with.  When an individual has been injured and needs a workers’ compensation or personal injury attorney for the first time, it is almost impossible to know if you are selecting the right attorney.  Ironically, in most cases, whether you have selected a good attorney will only be determined when the case is over.  The five questions below will not insure that your attorney is competent or the best lawyer for your case.  It will give you some insight into the type of attorney you are hiring.

The decision that you make in hiring an attorney will have more to do with the eventual result than any other decision you make on the claim.  Most people make this decision on the type of ad someone has in the phone book or what commercial they see or hear on television or radio.  Just because an attorney appears in these mediums is no reason to either hire or reject them.  Hire someone you feel comfortable with and confident in.  Hopefully, the suggestions above will be helpful.

Herbert J. Chestnut, Esq.

June 19, 2008

1.  How many years of experience do you have?  This seems to be an obvious question but it is amazing how infrequently it gets asked.  Experience is the key to the practice of law.  The old adage is that, with a lawyer, you pay for the grey hair.  The more experience an attorney has, the more likely that he or she has had a case similar to yours.  However, every professional must start somewhere.  If your case is assigned to a young associate, make sure that someone with experience supervises the case.

2.  What percentage of your practice is in this area of the law?  The practice of law is becoming more and more specialized.  It stands to reason that an attorney who chooses to concentrate his or her practice in a single area know that area better than one who tries to do a little of everything.  It is very difficult in this day and time to be a “jack of all trades.”  Also, relationships between opposing attorneys does play a part in the successful resolution of a case.  The more specialized an attorney is, the more likely he or she is to know the opponent if the case goes to litigation.

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The Defense Base Act – What is it and what rights does it provide? March 18, 2008

Posted by Herb Chestnut in Uncategorized.
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19 comments

The Defense Base Act (DBA) is an extension to the federal workers’ compensation program which covers longshoremen and harbor workers. The Defense Base Act covers persons employed at U.S. defense bases overseas. The Defense Base Act is designed to provide medical treatment and compensation to employees of defense contractors injured in the scope and course of employment.

WHO IS COVERED BY THE DEFENSE BASE ACT?

Generally, workers employed by American contractors performing public works for the U.S. government in U.S. territories, at U.S. military bases located outside the continental United States and in support of military aid programs within allied nations. 42 U.S.C. section 1651 (a). Also, persons who are employed overseas by welfare and morale projects such as the American Red Cross, the U.S.O. and the Salvation Army are generally covered. “Public Works” is defined in 42 U.S.C section 1651(b)(1).

TECHNICAL REQUIREMENTS & FILINGS

The initial technical requirement of the Act is to report the injury immediately to one’s immediate supervisor. Notice of the injury should also be given in writing using form LS 201. Once that is done, medical treatment is generally offered. It is the employee’s responsibility to file a claim (form LS 203) with the Office of Workers’ Compensation Programs. This is required within one year of the date of injury or the last payment of compensation, whichever is later. Other forms utilized in Defense Base Act claims may be accessed at the LHWCA Forms Page.

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