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SFL Friday: Swinging Stocks, Crystal Balls and Trust Accounts

Ahhh it's Friday. Sure the Dow's down 22 percent for the week, Hal Lewis thinks Robert Cooper is suing developers on a theory first advanced by Tommy Shaw on an old Styx album, but still....it's Friday.

But then here comes intrepid reporter Julie Kay with some new worries:

Following the failure of California's IndyMac and the very real potential of other bank collapses, lawyers have been flooding bar associations with questions about whether they would be responsible for client trust accounts if a bank fails.

In response, bar associations have been posting guidance to lawyers on their Web sites, holding internal meetings on the issue and issuing formal ethics opinions.

The consensus of the bar associations is that lawyers must be cautious about where they hold clients' funds, making sure they're in Federal Deposit Insurance Corp. (FDIC)-insured, solid banks. Opinions vary on whether funds should be split up in different banks to take advantage of the $250,000 insured deposits.

According to research and interviews with a variety of bar associations, including those of California, Los Angeles, Florida and Virginia, lawyers should not worry about sanctions or disciplinary actions if a bank failure leads to the loss of client funds, provided the lawyer chooses an FDIC-insured, stable bank.

However, civil liability is another matter. A New York lawyer was once sued when a bank failed, taking client funds with it. With that in mind, bar counsel are cautioning lawyers to consult their insurance carriers and "take reasonable precautions."

"There's no specific ethics opinion concerning what to do if a bank fails," said Elizabeth Tarbert, ethics counsel for the Florida Bar. "Nevertheless, lawyers must act prudently and determine what kind of institution [they are] dealing with, what its reputation is and it's financial stability, to the extent they can. Unfortunately, sometimes bank failures are very sudden. They keep them pretty quiet."

I'm old school myself -- Centrust, Southeast, Flagler Federal -- you know, I stick with all the really solid South Florida institutions. No worries, people!

Anyway, here's exactly what ole' Hal said about Cooper's anticipatory breach theory:

Hal Lewis, a Miami lawyer involved in condo-contract disputes, doubts Cooper's claim will win.

"He's assuming facts are going to take place in the future and the developer will not be in a position to perform down the road,'' Pathman said [sic I think -- Hal works at Pathman Lewis. What can I tell you, it's the Herald]. 'He's walking a fine line. I don't think you can use the crystal-ball philosophy. You can't just look in the future and say, `Here's what I think is going to be the situation.' ''

Cooper countered that developers face financial problems because they are not closing on enough units to pay off construction loans. The developers' financial conditions will come out during the course of the litigation, he said.

Hey, I'm not sure about this theory either but Hal working in a Styx reference sure gets him points from me for creativity.

Me, I'm gonna avoid looking at the ticker for the rest of the day and head out for some satisfying water sports, followed by a very dry Gibson, straight up....alright, you convinced me -- make it two.

You all have a sparkling weekend!

Full post as published by South Florida Lawyers on October 10, 2008 (boomark / email).