The conduct is not easily explainable. A law firm is hired to become escrow agent for a real estate venture, and to earn fees while preparing and filing mortgages. Inexplicably, the law firm simply stops filing the mortgages. The result is predictable.
TSR Group, LLC v Levitin 2016 NY Slip Op 31322(U) July 13, 2016 Supreme Court, New York County Docket Number: 651356/2015 Judge: Eileen A. Rakower. The judge explains breach of fiduciary duty in the escrow holding situation.
“This action arises from a business venture between plaintiff, TSR Group, LLC (“TSR” or “plaintiff’) and non-parties Stuart Bienenstock, Judah Bloch, and Ariel Gantz, involving the acquisition, renovation, stabilization, and conversion of commercial real estate in New Jersey into residential condominiums. Plaintiff alleges that defendants Jeffrey Levitin, Esq., and Levitin & Associates, P.C. (collectively, “defendants”) released from escrow approximately $2.1 million of plaintiff’s funds and delivered such funds to defendants’ other clients or third parties without plaintiff’s authorization and without ensuring that mortgages over certain properties were recorded on behalf of plaintiff equal to the full amount of plaintiff’s loan and investment. Plaintiff asserts causes of action for breach of fiduciary duty, breach of contract, fraud, negligent misrepresentation, conversion, legal malpractice, conspiracy, aiding and abetting tortious conduct, failure to return property following bailment, negligence, and accounting.”
“An escrow is generally defined as a written instrument entrusted by a grantor to a third party agent or trustee who, in accordance with instructions, subsequently delivers the instrument to the grantee once certain conditions are met. See 99 Commercial St., Inc. v. Goldberg, 811 F. Supp. 900, 905 (S.D.N.Y. 1993). Although the strict definition limits the subject of escrow to written instruments, money deposited with a third person and to be delivered to the beneficiary upon the happening of an event or the performance of a condition may also be treated as an escrow, with the same rules of other escrow agreements applying. 55 N.Y. Jur. 2d Escrows§ 2; Falk v. Goodman, 7 N.Y.2d 87 (1959); Matter of Burton, 200 A.D.2d 324, 327 (1st Dept. 1994) (“When parties to a real estate transaction agree that the lawyer of one party or another will hold money in escrow it is not either party’s money to disburse at will.”). No precise form of words is necessary to constitute an escrow; conversely, calling a transaction an escrow does not make it one. Farago v. Burke, 262 N.Y. 229, 233 (1933). An escrow agreement requires: (a) an agreement as to the subject matter and delivery of the instrument or funds; (b) a third-party depositary; ( c) delivery of the instrument or funds to a third party depositary, to be held conditioned upon the performance of some act or occurrence of some event; and (d) relinquishment of the instrument or funds by the grantor. See Menkis v. Whitestone Sav. & Loan Ass ‘n, 78 Misc. 2d 329, 330-31 (Nassau Cnty. Dist. Ct. 197 4 ). An escrow agreement does not have to be in writing. Russell v. Demandville Mortgage Corp., 815 N.Y.S.2d 496 (Kings Cnty. Sup. Ct. 2006). Generally, whether an escrow has been created depends on the intention of the parties, which is a question of fact. Clark v. Gifford, 1833 WL 3077 (N.Y. Sup. Ct. 1833). An escrow agent has contractual duty to comply with the escrow agreement, and additionally becomes a trustee of anyone with a beneficial interest in the trust with the duty not to deliver the escrow to anyone except upon strict compliance with the conditions imposed. Takayama v. Schaefer, 240 A.D.2d 21, 25, 669 N.Y.S.2d 656, 659 (1998) (internal citations and quotations omitted); Animalfeeds Int’! Inc. v. Banco Espirito Santo E Comercial De Lisboa, 420 N.Y.S.2d 954, 957 (Sup. Ct. 1979) (“An escrow agreement, while imposing a fiduciary relationship, and assuming some of the characteristics of a trust, is in essence a contractual undertaking[.]”); Grinblat v. Taubenblat, 107 A.D.2d 735, 736 (2d Dept. 1985) (escrow agent is charged with duty not to deliver escrow funds except upon strict compliance with conditions imposed and is subject to damages for his failure to so act). The purpose of an escrow is to assure the carrying out of an obligation already contracted for and in furtherance of the obligation the promisor deposits money, goods, or documents to an escrow agent who agrees to part with it only on a specified condition. Nat ‘l Union Fire Ins. Co. Pittsburgh, Pa. v. Proskauer Rose Goetz & Mendelsohn, 634 N.Y.S.2d 609, 614 (Sup. Ct. 1994), ajf’d sub nom. Nat’! Union Fire Ins. Co. of Pittsburgh, Pennsylvania v. Proskauer, Rose Goetz & Mendelsohn, 227 A.D.2d 106 (1st Dept. 1996). Upon delivery of the subject of the escrow to the escrow agent, “the escrow agent becomes the fiduciary of both parties and owes them the highest kind of loyalty.” Muscara v. Lamberti, 133 A.D.2d 362, 363 (2d Dept. 1987). ”
“As noted above, it is well settled that an escrow agent owes the parties to the transaction a fiduciary duty. Greenapple v. Capital One, NA., 92 A.D.3d 548, 549 (1st Dept. 2012); Talansky v. Schulman, 2 A.D.3d 355, 359 (1st Dept. 2003). As a fiduciary, the escrow agent has a strict obligation to protect the rights of the parties for whom the agent acts as escrowee. Grinblat v. Taubenblat, 107 A.D.2d 735, 736 (2d Dept. 1985). An escrow agent “can be held liable for breach of the escrow agreement and breach of fiduciary duty as escrowee.” Takayama v. Schaefer, 240 A.D.2d 21, 25 (2d Dept. 1998) (internal citations omitted). “