Proposed Amendment to New York Rule of Professional Conduct Rule 1.15(d)(1)

SUMMARY

The Professional Discipline Committee (“PDC”) proposes an amendment to the New York Rules of Professional Conduct (“RPC”) rule 1.15(d)(1) to include a requirement that attorneys must reconcile a special bank account or accounts required by Rule 1.15(b)(1). The rule requires that funds belonging to another person incident to the lawyer’s practice of law be held in a banking institution within New York State that agrees to provide dishonored check and overdraft reports in accordance with the provisions of 22 NYCRR Part 1300. Such funds shall be maintained in a special account separate from any business or personal accounts of the lawyer or lawyer’s firm, and separate from any accounts that the lawyer may maintain as executor, guardian, trustee or receiver, or in any other fiduciary capacity.  A reconciliation requirement for those bank accounts is already imposed by case law. Reconciling a special bank account or accounts required by Rule 1.15(b)(1) is using a formula to ensure that an attorney’s internal records match the bank statements.

REPORT

REPORT BY THE PROFESSIONAL DISCIPLINE COMMITTEE
PROPOSING AMENDMENT TO
NEW YORK RULE OF PROFESSIONAL CONDUCT RULE 1.15 (d)(1)

 The Professional Discipline Committee (“PDC”) proposes an amendment to the New York Rules of Professional Conduct (“RPC”) rule 1.15(d)(1) to include a requirement that attorneys must reconcile a special bank account or accounts required by Rule 1.15(b)(1).[1]  A reconciliation requirement for those bank accounts is already imposed by case law. In simplest terms, reconciling a special bank account or accounts required by Rule 1.15(b)(1) is using a formula to ensure that an attorney’s internal records match the bank statements.

I. OVERVIEW

In May 2025, the PDC established a subcommittee to study cases in which respondents were charged by an Attorney Grievance Committee (“AGC”) with a failure to reconcile a special bank account or accounts required by Rule 1.15(b)(1), as well as to review reconciliation rules existing in other states. Throughout the Report, the terms “special account or accounts required by Rule 1.15(b)(1),” “trust account” and “escrow account” are used interchangeably. The subcommittee concluded that an amendment to Rule 1.15(b)(1) is necessary to explicitly state there is a duty to reconcile an escrow account, as there is no substitute for formal notice, particularly when imposing sanctions. While courts have construed a reconciliation requirement in the RPC, interpreting different rule sections for the premise, the RPC does not expressly impose the requirement. The subcommittee believes that having a separate rule giving notice to attorneys that reconciliation is required is a matter of fairness and due process.

The Second Department has aptly stated the importance of reconciliation:

A reasonably prudent fiduciary regularly reconciles their escrow records with the bank statements. An attorney who simply views an account balance without reconciling the attorney’s records with the bank statements puts client funds in the escrow account at risk should the attorney’s calculations be inaccurate or other errors in the account be present. In re Aizin, 177 A.D.3d 51, 55 (App. Div. 2^nd Dept. (2019)).

While New York courts agree that attorneys have a duty to reconcile and the goal of reconciliation is to ensure the accuracy of an attorney’s recordkeeping, detect fraud, maintain regulatory compliance, and, ultimately, to protect client funds, there is no consensus on the source of this fiduciary obligation.  Typically, a reconciliation of an escrow account involves taking the internal balance of the account and the total of the client ledger balances and reconciling those balances against the bank statement for the same period. This process, known as a three-way reconciliation because there are three totals being compared, significantly strengthens an attorney’s oversight of an escrow account. A two-way reconciliation, which does not include the balances of the client ledgers, can overlook discrepancies when internal errors or misallocations occur between client accounts – even if the total balances superficially match the bank balance.[2]

II. THE CASE LAW REQUIRES RECONCILATION BUT COURTS DO NOT AGREE ON THE SOURCE OF THE OBLIGATION

Thirty years ago, one of the earliest reported cases to find a duty to reconcile was issued by the Fourth Department. Nicholas Capobianco was served with a petition by the AGC of the Seventh Judicial District charging him with violations of the New York Lawyer’s Code of Professional Responsibility[3] pertaining to his escrow account. (In re Capobianco, 219 A.D.2d 179 (App. Div. 4th Dept. 1996)). The Referee found that the Respondent consistently failed to preserve and identify client funds in his trust account, commingled his personal funds with his client funds in the trust account, used the trust account to pay for personal and business expenses, failed to maintain a running balance of his trust account activity and failed to maintain individual client ledger sheets reconciled with his trust account obligations. The Court confirmed the report of the Referee who found that Respondent violated Disciplinary Rules 1-102(A)(5) and (8) (engaging in conduct prejudicial to the administration of justice and conduct that adversely reflects on his fitness to practice law) and Disciplinary Rule 9-102(A), (B) and (C) (failing to maintain and preserve client funds and to keep records related to client funds entrusted to him).  Although the Opinion did not specify which rule violation corresponded to the failure to reconcile, all charges confirmed by the Referee were sustained. The Court suspended Mr. Capobianco for one year.

Courts in the other three Judicial Departments have attributed the failure to reconcile as a violation of both  RPC rule 8.4(h) (a lawyer is prohibited from engaging in conduct adversely reflecting on the lawyer’s fitness as a lawyer) and RPC rule 1.15(d)(2) (lawyers are required to make accurate entries of all financial transactions in their records of receipts and disbursement, in their special accounts, in their ledger books or similar records, and in any other books of account kept by them in the regular course of their practice, which entries shall be made at or near the time of the act, condition or event recorded). Neither rule mentions reconciliation but courts have read the duty into those rules. In a case decided last year, the AGC in the Second Department charged a Respondent who failed to reconcile his escrow with a violation of RPC rule 1.15(a) (prohibiting misappropriation and commingling) (See discussion of Matter of Cohn below).

Most recently, in the Second Department, the AGC commenced a disciplinary proceeding against Matthew John Cavalier, serving him with a petition containing ten charges. Matter of Cavalier, 244 N.Y.S.3d 771 (App. Div. 2^nd Dept. 2025). The first four charges alleged violations of RPC rule 1.15(a) (misappropriation of fiduciary funds from an escrow account); Charge Five alleged a violation of RPC rule 1.15(b)(1) (failure to keep funds entrusted to an attorney as a fiduciary separate) in that Mr. Cavalier deposited fiduciary funds into a personal account; Charge Six alleged a violation of RPC rule 1.15(b) (misuse of an escrow account) in that Mr. Cavalier deposited personal funds into his escrow account and made disbursements from the escrow account to pay personal or business expenses; Charge Seven alleged a violation of RPC rule 1.15(a) (prohibition against commingling) in that Mr. Cavalier commingled personal funds with fiduciary funds in his escrow account; Charge Eight alleged a violation of RPC rule 1.15(d)(2) (failure to maintain required bookkeeping records) in that Mr. Cavalier failed to make or maintain records of all deposits into and withdrawals from his escrow account showing the date, source, and description of each item deposited, and the date, payee, and purpose of each withdrawal; Charge Nine alleged a violation of RPC rule 8.4(h) (engaging in conduct adversely reflecting on ones fitness as a lawyer) in that Mr. Cavalier failed to reconcile his escrow account from September 2016 through May 2019. Charge Ten alleged a violation of RPC rule 8.4(h) based on all the allegations set forth in Charges One through Nine.

Mr. Cavalier testified that he did not reconcile his escrow account until he was asked to do so by the AGC as part of its investigation. Logically speaking, it would seem that the duty to reconcile should fall within the required recordkeeping section of Rule 1.15, which pertains to attorney escrow accounts. The Court found that Mr. Cavalier failed to keep the required records for his escrow account and that he failed to reconcile the account. The violations were separately addressed by the Court. The former was viewed as a violation of the record keeping rules found in Rule 1.15, but the latter was deemed among the professional misconduct violations found in Rule 8.4. Both the Referee and the Court agreed that charging an attorney with an 8.4(h) violation for failing to reconcile was the proper charge. The Respondent was suspended for two years.

In Matter of Cohn, the AGC in the Second Department commenced a disciplinary proceeding against Steven Cohn, serving him with a petition containing four charges. (Matter of Cohn, 237 A.D.3d 123 (App. Div. 2nd Dept. 2025). Charge One alleged  a violation of RPC rule 1.15(a) (misappropriation of fiduciary funds from an escrow account and failing to properly review, audit and reconcile the records for an escrow account); Charge Two alleged a violation of RPC rule 5.3 (failure to supervise a non-lawyer employee); Charge Three alleged a violation of RPC rule 1.15 (a) (prohibition against commingling); and Charge Four alleged a violation of 8.4(h) (engaging in conduct adversely reflecting on ones fitness as a lawyer). Beginning in March 2020, Mr. Cohn was isolating at his home in upstate New York following the onset of the Covid-19 pandemic. An attorney would routinely pick up Mr. Cohn’s bank and bookkeeping records from his office and forward them to his home where he would  perform the monthly reconciliations. However, beginning in July 2020, that individual fell ill. Mr. Cohn instructed his paralegal to forward the July records to him in August, but she withheld certain bank materials, which created a lapse in oversight of the escrow account by Mr. Cohn. Knowing the escrow account was not subject to Mr. Cohn’s review, the paralegal committed a crime of opportunity, converting approximately $50,000 from the escrow account. The shortfall created by the theft led to a dishonored check notice issued by the bank and, subsequently, an investigation by the AGC.  To cover the deficit, Respondent deposited personal funds into the escrow account.

The AGC did not charge Mr. Cohn with any violations of the recordkeeping rules in 1.15(d). The failure to reconcile was charged as a violation of RPC rule 1.15(a), which is typically used to charge misappropriation or commingling. The Referee confirmed the charges in the petition and the Court sustained the Referee’s findings. Mr. Cohn was suspended for six months. The Court noted that Mr. Cohn’s continued failure to perform a full reconciliation of the account until he returned to the office caused a six-month delay in his discovery of the  paralegal’s theft.

In Matter of Fitzgerald, the AGC in the Second Department commenced a disciplinary proceeding against Kevin J. Fitzgerald, serving him with a petition containing five charges. Matter of Fitzgerald, 216 A.D.3d 127 (App. Div. 2nd Dept. 2023). Charge One alleged a violation of RPC rule 1.15(a) (misappropriation of client funds); Charge Two alleged a violation of RPC rule 1.15(d)(2) (failure to make accurate entries of all financial transactions related to an escrow account); Charge Three alleged a violation of RPC rule 8.4(h) (engaging in conduct which adversely reflects on the fitness to practice law) in that Mr. Fitzgerald failed to reconcile his escrow account, and even when given the opportunity to do, was unable to explain the deficiencies in his escrow account; Charge Four alleged a violation of RPC rule 1.15(b)(2) (failure to properly title an escrow account) and Charge Five alleged a violation of RPC rule 8.4(h) in that based on the conduct alleged in all the charges, he engaged in conduct adversely reflecting on his fitness to practice law. The Court found that the shortfalls in Mr. Fitzgerald’s escrow account were not due to venal conduct on his part. All charges were confirmed by the Referee and sustained by the Court. In its findings, the Court opined that, “[w]hile the attorney has the prerogative to determine how much resources he or she wishes to expend to fully reconcile his or her escrow account, he or she cannot forgo that duty to resolve the cause of the account deficiency, then claim that there is no client or third-party harm.” The Court suspended the Respondent for six months.

In Matter of Novofastovsky, the AGC in the First Department commenced a disciplinary proceeding against Ilya Novofastovsky, serving him with a petition containing five charges. Matter of Novofastovsky, 204 A.D.3d 15 (App. Div. 1st Dept. 2022). Charge One through Four alleged violations of RPC rules 1.15(a) (misappropriation of client funds) and 1.15(d)(1)(i), (ii); (2) (record keeping rules) and Charge Five alleged that Mr. Novofastovsky’s conduct described in the previous charges adversely reflected on his fitness to practice law. Mr. Novofastovsky admitted that he negligently allowed the misappropriation of client funds from his escrow account, that he failed to keep the required records in accordance with rule 1.15(d) and that he failed to reconcile all transactions in the escrow account. The AGC did not charge the failure to reconcile separately as misconduct under Rule 8.4. After the Respondent consented to discipline, the Court imposed a public censure.

In Matter of Silverman, the AGC in the First Department commenced a reciprocal disciplinary proceeding against Jared Silverman based on his public censure in New Jersey by Order of the New Jersey Supreme Court for violations of the New Jersey Rules of Professional Conduct.  Matter of Silverman, 194 A.D.3d 217 (App. Div. 1st Dept. 2021). When the New Jersey Office of Attorney Ethics conducted a random audit of Mr. Silverman’s escrow account a shortfall was discovered, which Mr. Silverman then failed to correct despite given the opportunity to do so. The evidence at hearing revealed that Mr. Silverman maintained inaccurate three-way reconciliations and had many other record-keeping deficiencies. The New Jersey Disciplinary Review Board issued a decision in May 2019 recommending disbarment for violating NJ RPC rules 1.8(a)(2) (improper business transaction with a client); 1.15(a) (misappropriation of client funds); 1.15(d) (record-keeping violations) and 8.4(c) (conduct involving dishonesty, fraud, deceit or misrepresentation).  NJ RPC rule 1.15(d) requires attorneys to comply with the record-keeping provisions in R. 1:21-6 of the New Jersey Court Rules. R. 1:21-6(c)(G) imposes a monthly reconciliation requirement. The New Jersey Supreme Court found that Mr. Silverman had engaged in professional misconduct, but disagreed with certain findings and the sanction recommendation. The Supreme Court found insufficient evidence that Mr. Silverman had knowingly misappropriated client funds or engaged in dishonesty, fraud, deceit or misrepresentation. Mr. Silverman was publicly censured. Mr. Silverman argued that because the Supreme Court did not cite specific violations for the other charges, they should not be sustained in New York. The First Department rejected his argument. Although the Supreme Court did not expressly find that Respondent violated NJ RPC rules 1.8(a)(2) and 1.15(d), in censuring the Respondent, it implicitly sustained those charges. Further, the First Department, which also imposed a public censure, found that Respondent’s misconduct in New Jersey would also constitute professional misconduct under the New York Rules of Professional Misconduct under RPC rules 1.8(a)(2) (improper business transaction with a client) and 1.15(d)(2); (e) (record-keeping violations). The Court did not cite Rule 8.4 as the rule violation for a failure to properly reconcile an escrow account.

In Matter of Dranov, the AGC in the First Department commenced a reciprocal disciplinary proceeding against Alexander B. Dranov based on his suspension for three months in New Jersey by Order of the New Jersey Supreme Court for violations of the New Jersey Rules of Professional Conduct. Matter of Dranov, 26 A.D.3d 26 (App. Div. 1st Dept. 2006). The AGC recommended an order suspending Mr. Dranov for three months. Respondent conceded to improper recordkeeping, commingling funds and the negligent misappropriation of client funds in the New Jersey proceeding. The First Department considered the misconduct serious misconduct under New York law. Mr. Dranov argued that the New Jersey’s bookkeeping rules are stricter than New York’s insofar as New York does not expressly require reconciliations or individual client ledgers. Since the rules are different, the Respondent argued, they should not constitute misconduct in New York. The First Department disagreed. “[A]ccurate records of escrow account are required to be kept pursuant to DR 9-102(d)[4], and the failure to maintain accurate records of these accounts is sanctionable.” Id. at 30. The First Department found the Supreme Court’s sanction too lenient and suspended Mr. Dranov for two years. The duty to reconcile is viewed by the First Department as part of an attorney’s duty to keep accurate records within RPC rule 1.15(d).

The Third Department also views the failure to reconcile as a violation of the recordkeeping rules in RPC rule 1.15. In In re Wooseok Chang, the AGC in the Third Department commenced a reciprocal disciplinary proceeding against Wooseok Chang after he was publicly reprimanded by the Commonwealth of Massachusetts Board of Bar Overseers of the Supreme Judicial Court upon his stipulation that he had violated several ethical rules of the jurisdiction.  In re Wooseok Chang, 232 A.D.3d 1197 (App. Div. 3rd Dept. 2024). Mr. Chang admitted to violating attorney escrow record-keeping requirements; communication rules regarding of the scope of the representation or rate of fee; and communication rules regarding a lawyer’s services. Respondent opposed the AGC’s motion to impose discipline due to his established misconduct in Massachusetts.

The Third Department construed Mr. Chang’s opposition to include the argument that “that was an infirmity of proof establishing the misconduct and that at least some of the misconduct for which respondent was disciplined does not constitute misconduct in New York.”  Id. at 1198. Specifically, the Court noted that New York does not have a precise analogue to Massachusetts Rules of Professional Conduct rule 1.15(f)(1)(E), which states:

Reconciliation Reports. For each trust account, the lawyer shall prepare and retain a reconciliation report on a regular and periodic basis but in any event no less frequently than every sixty days. Each reconciliation report shall show the following balances and verify that they are identical:

(i) The balance that appears in the check register as of the reporting date.

(ii) The adjusted bank statement balance, determined by adding outstanding deposits and other credits to the bank statement balance and subtracting outstanding checks and other debits from the bank statement balance.

(iii) For any account in which funds are held for more than one client matter, the total of all client matter balances, determined by listing each of the individual client matter records and the balance that appears in each record as of the reporting date, and calculating the total. For the purpose of the calculation required by this paragraph, bank fees and charges shall be considered an individual client record. No balance for an individual client may be negative at any time.

However, the AGC argued that New York RPC rule 1.15(d)(2) was violated by Respondent’s conduct in failing to reconcile any of his attorney escrow accounts through the three-way reconciliation process. The Third Department while acknowledging that rule 1.15(d)(2) is more general in that it simply requires lawyers to make accurate entries of all financial transactions in their records of receipts and disbursements and in their special accounts, the fact Mr. Chang failed to compare the records to his client matter balances and to generate a reconciliation report, constituted a violation of RPC rule 1.15(d)(2) because Respondent was not making accurate entries of all financial transactions. (Id. at 1199). The Court granted the motion and imposed reciprocal discipline publicly censuring the Respondent.

In sum, the case law is not uniform on how to treat the failure to reconcile a special account. It also does not provide guidance on how often a reconciliation should be performed nor does it specify a method. The consistent principle is that reconciliation is an expected escrow control and that a failure to perform it can constitute professional misconduct.

III. THE DUTY TO RECONCILE APPEARED IN SIX REPORTED CASES IN THE FIRST AND SECOND DEPARTMENTS SINCE 2025[5]

The failure to reconcile appears most frequently in cases involving the negligent misappropriation of client funds. Had the attorney been reconciling the escrow account properly, client funds likely would not have been compromised. Summaries of the four cases not previously discussed above are as follows:

Matter of Rajan, 2026 NY Slip Op 00018, 245 N.Y.S.3d 234 (App. Div. 1st Dept.) Reciprocal Discipline imposed for multiple record-keeping deficiencies, as revealed in a random audit by the New Jersey Office of Attorney Ethics. Respondent consented to a public censure in New Jersey for violating N.J. RPC 1.15(a) (negligent misappropriation of client funds) and N.J. RPC 1.15(d) (failure to comply with the record-keeping requirements of N.J. Court Rule 1:21-6). One of the deficiency findings in New Jersey was that Respondent failed to conduct proper three-way reconciliations of his attorney trust account. The First Department imposed reciprocal discipline in the form of public censure finding that the misconduct also violated New York Rules of Professional Conduct (RPC rule1.15(a) and RPC rule 1.15(b)(3)), which are essentially equivalent to N.J. RPC 1.15(a) and N.J. RPC 1.15(d), coupled with R 1:21-6 (record keeping) of the NJ Court Rules.

Matter of Calcagno, 2025 NY Slip Op 05236, 240 N.Y.S.3d 257 (App. Div. 2nd Dept.) Respondent misappropriated funds, commingled personal funds, misused the escrow account to conduct personal business, failed to keep the required record for his escrow account and failed to regularly reconcile his escrow account. Respondent defaulted. Respondent was disbarred.

Matter of Stutman, 2025 NY Slip Op 04655, 240 N.Y.S.3d 246 (App. Div. 2nd Dept.) Respondent repeatedly overdisbursed funds from his escrow account on behalf of multiple client matters causing misappropriation of other client funds and a shortage in the escrow account ranging from $25 to $15,277.54. The court found that these defalcations occurred in large part due to the Respondent over-disbursing funds, failing to properly reconcile his escrow account, and failing to verify that client funds were on deposit prior to disbursing funds on the matter, thereby causing the invasion of other client funds. Charge Three alleged that Respondent engaged in conduct adversely reflecting on his fitness as a lawyer by failing to reconcile his escrow account in violation of rule 8.4(h). The court suspended Respondent for six months.

Matter of Pitkowsky, 2025 NY Slip Op 01372, 236 A.D.3d 47, 228 N.Y.S.3d 709 (App. Div. 2nd Dept.) Respondent was charged with misappropriating funds entrusted to him and failing to keep adequate escrow records. Charge Six alleged that based on the factual specifications of charges one through five, between December 2018 and December 2019, the respondent engaged in conduct adversely reflecting on his fitness as a lawyer by failing to reconcile the escrow account, in violation of rule 8.4 (h) of the Rules of Professional Conduct. Respondent failed to maintain amounts which he was required to maintain of client funds. The court publicly censured Respondent.

IV. PROPOSED RECONCILIATION RULE AND COMMENT

The proposed amendment would codify the expectations set forth in the case law and establish a uniform baseline standard, giving attorneys due notice. The PDC’s proposed rule is as follows:

Proposed Rule 1.15(d)(1)(ix):

A lawyer shall prepare and retain a three-way reconciliation report of all special accounts or other accounts required by Rule 1.15(b)(1) not less frequently than every 60 days.  Each reconciliation report shall demonstrate identical balances among: 1) the general ledger balance; 2) the aggregate of all individual client ledger balances; and 3) the adjusted bank statement balance from the financial institution holding each special account or other account required by Rule 1.15(b)(1). A three-way reconciliation report is not required for months which do not contain banking transaction activity.

The proposed Comment to Rule 1.15(d)(1)(ix) is as follows:

The three-way reconciliation process requires that funds held for each client in individual client ledgers be totaled and compared to the total of the general ledger or other record which records all deposits into and withdrawals from a special account or other account required by Rule 1.15(b)(1) and the bank statement balance adjusted by adding deposits not yet credited to the account and deducting uncleared checks. The aggregation of all individual client ledgers should equal the total of the general ledger or other record which records all deposits and withdrawals in the account and the adjusted bank statement balance. While a lawyer must prepare and maintain three-way reconciliation reports not less frequently than every 60 days, lawyers should note that banks may allow only 30 days from statement date to notify the bank of errors.

V. TIMING OF THE RECONCILIATIONS

New York disciplinary decisions are silent on the required frequency of reconciliations and whether they should be two-way or three-way reconciliations. The ABA Model Rules on Client Trust Account Records – Comment Rule 1 Recordkeeping Generally provide guidance on the frequency of conducting reconciliations.  Specifically in paragraph 5 of the Comment Rule 1, it states: “Quarterly reconciliation is recommended only as a minimum requirement; monthly reconciliations is the preferred practice given the difficulty of identifying an error (whether by the lawyer or the bank) among three months’ transactions.”

Reconciliation timing requirements in other states:

The PDC therefore proposes to set a clear minimum standard to end any confusion. A three-way reconciliation should be the standard. Considering the potential increase in costs to a law firm, particularly a small law firm, having to perform reconciliations each month, the recommendation is to mandate reconciliations no less frequently than 60 days. Attorneys should be encouraged to perform the reconciliations monthly, in accordance with national guidance and New York best-practice materials, which emphasize that more frequent reconciliations reduce the difficulty of identifying bank errors, bookkeeping errors, and unauthorized transactions, and that three-way reconciliation strengthens oversight by confirming the general ledger, the aggregate of client ledgers, and the adjusted bank balance match.

VI. CONCLUSION

We respectfully urge the proposed amendment to RPC Rule 1.15(d)(1) and proposed Comment to the new rule to provide fair notice to New York attorneys that three-way reconciliation of an attorney escrow account is required and should be performed not less frequently than every 60 days.

Professional Discipline Committee
Kathryn Donnelly, Chair

Subcommittee:
Kathryn Donnelly, Esq.
Eugene Gormakh, Esq.
Brian Kerr Esq.