Source: https://www.law.cornell.edu/ethics/dc/narr/DC_NARR_1_15.HTM
Timestamp: 2016-05-03 09:46:49
Document Index: 330010714

Matched Legal Cases: ['§ 45', '§ 44', '§ 4', '§ 45', '§ 44', '§ 4', '§ 45', '§ 44', '§ 4']

1.15:100 Comparative Analysis of DC Rule
· Primary DC References: DC Rule 1.15, DC Rule 1.17 · Background References: ABA Model Rule 1.15, Other Jurisdictions
· Commentary: 1.15:101 Model Rule Comparison
Paragraph (a) of DC Rule 1.15 as originally adopted specified that funds of clients or third parties that the Rule requires be held separately from a lawyer's own funds must be deposited in an institution insured by the FDIC or (anachronistically) the FSLIC in the District of Columbia or the state in which the lawyer's or the law firm's office was located; but otherwise was the same as paragraph (a) of the Model Rule. In April 1992 paragraph (a) was supplemented by DC Rule 1.17, Trust Account Overdraft Notification, requiring that such funds be deposited only in institutions included on a list of "DC Bar Approved Depositories," which have agreed to notify Bar Counsel of overdrafts in such accounts. DC Rule 1.17 has been renumbered as Rule 1.19 pursuant to a recommendation of the DC Rule Review Committee, so as to make room for new Rules 1.17 and 1.18 corresponding to the similarly numbered Model Rules. DC Rule 1.19 has no Model Rule counterpart.
Paragraph (a) of DC Rule 1.15 and paragraph (b) of what was then DC Rule 1.17 were amended effective November 1, 1996, on recommendation of the Peters Committee, to deal with the problem that, as they previously stood, requiring that all funds of others held by a lawyer be deposited in an approved depository, they effectively prohibited legitimate, appropriate and, indeed occasionally required methods of investing such funds. The amendments established two exceptions to the requirement that funds be deposited in an approved depository: when the funds (1) are permitted to be held otherwise, by law or court order, or (2) are held by the lawyer under an escrow or similar arrangement in connection with a commercial transaction. The Peters Committee also suggested an exception where funds are held under a will, trust or other formal instrument that authorizes the lawyer to do differently; but the Court of Appeals omitted this, perhaps as already covered by the permitted-by-law exception.
Paragraph (b) of DC Rule 1.15 was identical to paragraph (b) of the Model Rule (now redesignated as paragraph (d) because of the insertion of new paragraphs (b) and (c)), except that it specified that any delivery of or accounting for property of others required to be held separately is subject to the confidentiality requirements of DC Rule 1.6.
Paragraph (c) of the DC Rule required that funds in dispute be deposited in a separate account meeting the requirements of paragraph (a), while paragraph (c) of the Model Rule (now redesignated as paragraph (e)) said only that they "shall be kept separate by the lawyer;" otherwise, the two provisions were identical. That paragraph in both of the rules originally addressed only instances where both the lawyer and another person claimed interests in the disputed funds. Paragraph (c) of the DC Rule was, however, amended effective November 1, 1996, on a recommendation of the Peters Committee that had been suggested by Bar Counsel; the amendment extended it to cover situations where funds held by the lawyer are subject to claims of two or more persons other than the lawyer. A similar broadening of the scope of the provision was made in the corresponding paragraph of the Model Rule (along with its redesignation) pursuant to the Ethics 2000 Commission's recommendation, along with the addition of a final sentence, not found in the DC Rule, requiring the lawyer promptly to distribute all portions of the property held as to which the interests are not in dispute.
The first sentence of paragraph (d) of the DC Rule, as originally adopted and as in effect until January 1, 2000, said that advances of legal fees and costs become the lawyer's property upon receipt -- which exempts them from deposit in a trust account and allows them to be commingled with a lawyer's other funds. Effective on the date indicated, that sentence was amended to provide a presumption to just the opposite effect: specifically, that advances of unearned fees and unincurred costs may be treated as property of either the client or – with client consent – the lawyer, until earned or incurred; but with the default position (absent client consent) being that they are property of the client. This provision of the DC Rule did not, in either its original form or as changed in 2000, have any counterpart in the Model Rule; however, the Ethics 2000 Commission's included a new paragraph (c) in the Model Rule, providing that the lawyer must deposit fees and expenses paid in advance into a trust account and withdraw them only as earned or incurred. The second sentence of paragraph (d) of the DC Rule, which was not changed in substance by the 2000 amendment, is to the effect that any unearned portion of the prepaid fees must be returned upon termination of the lawyer's services. This does not appear in Model Rule 1.15, but it is found in Rule 1.16(d), in both the DC Rules and the Model Rules. Along with the foregoing changes in the black letter of DC Rule 1.5(d), there was added, effective January 1, 2000, a new Comment [2], explaining that provision; the Comments that follow it were renumbered. [The history of this paragraph of DC Rule 1.15, the possible problem it presents when variant rules of other jurisdictions may be involved, and the origin of the remedial amendments that came into effect on January 1, 2000, are more fully discussed under 1.15:210 below.]
Paragraph (e) of DC Rule 1.15, which has no counterpart in the Model Rule, makes provision for deposit of clients' funds in an IOLTA account [discussed under 1.15:110 below].
Paragraph (f) of DC Rule 1.15, which was added effective November 1, 1996, pursuant to a recommendation of the Peters Committee, provides that a small amount of the lawyer's own funds can properly be placed in a trust account for the sole purpose of paying bank charges on that account — a provision that appeared in DR 9-102(A)(1) of the Model Code (and the corresponding DR 9-103(A)(1) of the DC Code) but had been omitted from the Model Rules. That omission was repaired by the Ethics 2000 Commission, which added a new paragraph (b) to the Model Rule that is the same in substance, though different in phrasing, from paragraph (f) of the DC Rule.
The Peters Committee also recommended, on a suggestion by Bar Counsel, that there be added to DC Rule 1.15 a prohibition against a lawyer's signing without authorization a client's name on a negotiable instrument or other document affecting a client's property rights. A new paragraph (f) and a new Comment [8] would have addressed this subject. The Court of Appeals rejected this recommendation, without explanation.
The Peters Committee also proposed a new Comment [9] for Rule 1.15 and a new Comment [1] for what was then Rule 1.17, to clarify that funds are required to be placed only in an institution that maintains federal insurance, not that they must be divided among accounts so that no single account exceeds the limits of applicable federal insurance. The Court of Appeals, however, rejected these suggestions, again without explanation.
The DC Code provisions replaced by Rule 1.15 were found in DR 9-103, which with a single exception was identical to DR 9-102 in the Model Code, but which had been renumbered in April 1982, in connection with the substantial revision of the "revolving door" provisions in DR 9-101. References below will be to the DC Code rather than the Model Code provision.
Paragraph (a) of DC Rule 1.15, like its Model Rule counterpart, expands the requirements of DR 9-103(A) and DR 9-103(B)(2) and (3) regarding segregation, safekeeping and recording of client funds and property to include funds and property of a third person in the lawyer's possession; in addition it specifies the kinds of institutions in which funds must be deposited. It also adds, like the Model Rule, a five-year record-keeping requirement (previously imposed on all D.C. lawyers by Rule XI, Section 14 of the DC Court of Appeals Rules Governing the District of Columbia Bar).
Paragraph (b) of the DC Rule similarly extends to the funds and property of non-clients the obligations imposed by DR 9-103(B)(1) and (4) with respect to funds and property of clients; and, in addition, it makes any delivery of or accounting for it subject to the confidentiality duty imposed by Rule 1.6.
Paragraph (c) of DC Rule 1.15 similarly extends DR 9-103(A)(2) to cover funds and property of non-clients.
The first sentence of paragraph (d) of DC Rule 1.15 addresses a point -- who owns fee advances -- that was not clear under the Code. The second sentence, requiring return of the unearned portion of a fee advance, is similar to DR 2-110(A)(3).
Paragraph (e) of DC Rule 1.15, regarding the Interest on Lawyer Trust Account (IOLTA) Program, is substantially the same as DR 9-103(C) of the DC Code, which was added in 1985, and which had no counterpart in the Model Code.
Paragraph (f) of DC Rule 1.15, which was added effective November 1, 1996, restores a provision that, allowing a small amount of the lawyer's own funds to be placed in a trust account in order to pay bank charges on the account, appeared in the predecessor provision in both the DC Code and the Model Code but was dropped from both the Model Rule and the DC Rule as originally adopted.
1.15:110 DC IOLTA Plan
The DC Court of Appeals adopted an Interest on Lawyers Trust Accounts (IOLTA) Program in February 1985 on petition of the DC Bar. It is described in Appendix B to Rule X of the DC Court of Appeals Rules Governing the District of Columbia Bar. (Rule X promulgates the DC Rules of Professional Conduct, which are Appendix A thereto.) It is also reflected in DC Rule 1.15(e), which specifically provides (as did its predecessor, DR 9-103(C) of the DC Code) that clients' funds that are nominal in amount or to be held for a short period may be put in interest-bearing accounts for purposes of a court-approved IOLTA Plan.
The DC IOLTA Program is of the "opt-out" variety: lawyers and law firms may file a written Notice of Declaration, which excuses them from maintaining an IOLTA account, but absent such a filing, an IOLTA account is required. The interest or dividends on IOLTA accounts are required to be paid quarterly to the DC Bar Foundation, which in turn distributes grants to programs providing legal and related assistance to poor persons otherwise unable to obtain legal assistance.
1.15:120 DC Client Security Fund
Rule XII of the DC Court of Appeals Rules Governing the District of Columbia Bar provides for establishment of a Client Security Trust Fund, to "maintain the integrity and protect the good name of the legal profession by reimbursing, to the extent authorized by these rules and deemed proper and reasonable by the trustees, losses caused by dishonest conduct of members of the District of Columbia bar, acting either as lawyers or as fiduciaries (except to the extent to which they are bonded)." The Fund is managed by five trustees appointed by the Court upon nomination by the Board of Governors of the DC Bar, who are charged with considering claims for reimbursement of losses caused by the dishonest conduct of members of the DC Bar acting either as lawyers or as fiduciaries, and are given the power for this purpose to administer oaths and affirmations and subpoena documents and testimony. Appropriations to the Fund are made annually by the Board of Governors of the DC Bar in its discretion, out of revenues of the Bar: support of the Fund is one of the few uses to which the compulsory dues of members of the DC Bar may, following several membership referenda, be put. The Fund also recovers some amounts paid out in claims by pursuing its subrogation rights. The DC Bar's contributions, which average around $15,000 a year, are calculated to maintain the Fund at the level of $750,000.
· Primary DC References: DC Rule 1.15(a), DC Rule 1.17 · Background References: ABA Model Rule 1.15(a), Other Jurisdictions
· Commentary: ABA/BNA § 45:101, ALI-LGL §§ 44-46, Wolfram § 4.8 Rule 1.15(a)'s requirement that funds of clients or third persons be kept in separate accounts, and the related problems of commingling and misappropriation of funds, which are the most frequent occasions for application of Rule 1.15(a), are discussed under 1.15:300, below.
Maintenance of Records and Rendering Accounts
The requirement of DR 9-102(B) (3) that a lawyer maintain complete records of all funds, securities and other properties of the client and render appropriate accounts to the client regarding them, which is continued by DC Rule 1.15(a) and (b), was held in In re Woodard, 636 A.2d 969 (DC 1994), to have been violated by the commingling of the funds of four clients. Failure to maintain complete records was also found in In re Choroszej, 624 A.2d 434 (DC 1992), where the lawyer, who was found to have unintentionally committed misappropriation, also was unable to locate and produce financial records showing how he had handled settlement proceeds in a case. See also In re Tinsley, 582 A.2d 1192 (DC 1990), where the lawyer was seriously remiss in his duties as a conservator, failing, among other things, to pay the ward's nursing home charges, to produce rental income from the ward's estate, to file timely accounts, to attend hearings regarding the conservatorship, and to respond to requests for information from auditors and the successor conservator, in violation of DR 9-102(B) (3) and several other rules; In re Pels, 653 A.2d 388 (DC 1995), cert. denied, 117 S.Ct. 58 (1996), where there was found a "complete inability" to account for the flow of funds received on the client's behalf.
The requirements of Rule 1.15(a) regarding a lawyer's keeping of complete records of property of clients or third persons in the lawyer's possession are reinforced by Section 19(f) of DC App. Rule XI (Disciplinary Provisions), which reads as follows: (f) Required records. Every attorney subject to the disciplinary jurisdiction of this Court shall maintain complete records of the handling, maintenance, and disposition of all funds � belonging to another person � at any time in the attorney's possession, from the time of receipt to the time of final distribution, and shall preserve such records fo a period of five years after final distribution of such funds �. In re Clower, 831 A.2d 1030 (DC 2003)(per curiam) involved the imposition of a public censure for violation of both of these provision, as well as DC Rule of Professional Conduct 1.15(b), requiring that a lawyer who receives funds or property in which a client or third party has an interest promptly notify that person of the receipt, and promptly deliver to that person funds or property to funds or property to which he or she is entitled. The respondent here had received settlement funds for the client as to a portion of which a physical therapist had a claim under an authorization and assignment agreement for services rendered to the client, but although the respondent was aware of the therapist's claim, he neither notified the physical therapist of receipt of the settlement funds nor paid any part of the therapist's claim. By the time when, more than two years after receipt of the settlement funds, the claimant inquired about the matter, the respondent had disbursed all of settlement funds to others. Thus, the respondent had violated both the notice and the delivery requirements of Rule 1.15(b). The respondent's additional violation of the two provisions requiring the keeping of complete records of property or funds of another held by the lawyer turned on the fact that the records that the respondent had kept were not complete, as both of those provisions require. Respondent had disbursed funds from the settlement account not only to the client but to several persons who were not listed on a settlement and disbursement statement that the client had approved; and while respondent had kept records showing who received those disbursement, and was able to furnish a letter from the client stating that they had been made with her knowledge and approval, he had no contemporaneous written documentation of either client approval or the reasons for those disbursements. Prompt Placement in Safekeeping
DR 9-102(B) (2)'s requirement that a lawyer put properties of the client in safekeeping as soon as practicable, which is not explicitly continued by DC Rule 1.15(a), was held to have been violated by a delay in depositing checks of the client in In re Lenoir, 585 A.2d 771 (DC 1991), where the Court explained that "place of safekeeping" as used in the rule means, with respect to funds of the client, deposit in a bank account. 1.15:210 Status of Fee Advances [see also 1.5:420]
Pertinent here is paragraph (d) of DC Rule 1.15, which has no corresponding provision in the Model Rule. As descibed under 1.15:101, above, that provision as originally adopted and as in effect until January 1, 2000, stated that advances of fees and costs become the property of the lawyer upon receipt. This meant that a DC lawyer could not keep such advances with client funds but could put them in the lawyer's operating accounts. Effective on the date indicated, however, paragraph (d) has provided presumptively just the contrary — i.e., that unearned fees and unincurred costs remain the property of the client (absent client agreement to the contrary).
The source of the original DC Rule 1.15(d) was DC Ethics Opinion 113 (1982), which addressed several issues regarding fee advances, concluding, among other things, that although the lawyer is obligated to return to a client any portion of a fee advance not actually earned, such advances are nonetheless not "funds of a client" and so subject to the requirements of DR 9-103 (the DC Code predecessor of Rule 1.15) with respect to such funds. DC Ethics Opinion 264 (1996) explicated the provision in its original form, and its application to special and general retainers. The Opinion stated that a retainer that is tied directly to the provision of legal services, rather than to ensuring the availability of the lawyer, is a "special retainer" which is earned upon provision of the services rather than upon receipt: thus, as DC Rule 1.15(d) explicitly provided, any unearned portion of the retainer must be returned to the client. In sum, a special retainer could not be nonrefundable (although the refund due on early termination of the engagement need not necessarily be strictly proportionate to the time spent). (In contrast, a "general retainer" is "paid solely for availability and a promise of exclusivity," is earned when received, and may be nonrefundable.) Nonetheless, the Opinion pointed out, DC Rule 1.15(d) stated that advances of legal fees and costs become the property of the lawyer upon receipt; in consequence, such advances could not be commingled with funds in a client trust account. The Opinion also pointed out that other jurisdictions may take the opposite approach and require that fee advances be placed in a trust account until earned; in consequence, "where several jurisdictions are involved in the representation, prudent lawyers may wish to adopt a conservative approach and segregate fee advances from both the law firm's assets and . . . assets of other clients which may be contained in a client trust account."
The revision of Rule 1.15(d) was proposed by the DC Bar's Rules of Professional Conduct Review Committee in January 1998, in order to bring the DC Rule into line with its counterparts in most other jurisdictions (and in particular the two neighboring jurisdictions, Maryland and Virginia). After exposure for comment, the Court of Appeals adopted the revision in June 1999.
Pertinent here is the requirement of paragraph (b) of Rule 1.15 (and, previously, DR 9-103(B)(4)) that a lawyer promptly pay or deliver to a client (or, under Rule 1.15(b), a third party), on demand, money or property to which the client or a third party is entitled. The applicability of that requirement to records relating to the representation is addressed in 1.15:230, below. Rule 1.15(b)'s requirement that a lawyer promptly deliver to a third person any funds or other property that the third person is entitled to receive was held in In re Ross, 658 A.2d 209 (DC 1995) to have been violated by a lawyer failing promptly to pay a third party out of the proceeds of the settlement. The predecessor provision, DR 9-103(B)(4), was held in In re Stone, 672 A.2d 1032 (DC 1995) to be violated by a lawyer's failure to refund to a client on demand money the client had advanced to pay for a transcript, where the client had paid separately for the transcript. In In re Delate, 579 A.2d 1177 (DC 1990), the Court made clear that "client," as used in DR 9-103(B)(4), means also a client's duly authorized representative.
Rule 1.15(b) requires not only prompt delivery upon demand of money or property of a client or third person held by a lawyer, but also prompt notice to the client or third person of the lawyer's receipt of the same; and this requirement has been separately enforced by disciplinary process, see In re Shaw, 775 A.2d 1123 (DC 2001) (failure to notify client's health insurer of receipt of funds on which the insurer had a lien).
In In re Clower, 831 A.2d 1030 (DC 2003)(per curiam)[which is more fully described under 1.15:200, above], the respondent had received settlement funds for the client as to a portion of which a physical therapist had a claim under an authorization and assignment agreement for services rendered to the client, but although the respondent was aware of the therapist's claim, he neither notified the physical therapist of receipt of the settlement funds nor paid any part of the therapist's claim. By the time when, more than two years after receipt of the settlement funds, the claimant inquired about the matter, the respondent had disbursed all of settlement funds to others. Thus, respondent had violated both the notice and the delivery requirements of Rule 1.15(b). In In re Kagan, 351 F.3d 1157 (DC Cir. 2003), the Court effectively adopted the report and recommendations of its Committee on Admissions and Grievances, with respect to a lawyer who, while representing the National Wildlife Foundation in a suit challenging a rulemaking by the Environmental Protection Agency (EPA), had received from EPA certain spreadsheets containing confidential business information (CBI) provided to EPA by companies in the industry effected by the rulemaking. The lawyer had sought discovery of CBI materials from EPA, and the Court had denied discovery; but the lawyer did not recognize that the spreadsheets had contained CBI and had been inadvertently produced to him by EPA until after he had read and absorbed their contents. Then, while taking care not to disclose the documents, the lawyer consulted an ethics expert who advised him, largely on the basis of DC Ethics Opinions 318 and 256, discussed immediately below, that he could properly make use of the CBI material that had inadvertently been produced to him. The Court's Committee on Admissions and Grievances, after due inquiry, concluded that the lawyer's reliance on those Opinions was reasonable, and accordingly recommended that no disciplinary action be taken. The Court's decision that led to its referral of the matter to the Committee was National Wildlife Federation v. Environmental Protection Agency, 286 F. 3d 554 (DC Cir. 2002)(en banc). In In re Bettis, 855 A.2d 282 (DC 2004), the respondent, representing a client with respect to injuries received in an automobile accident, signed an “Assignment of Benefits” from an organization that had provided medical treatment for the injuries, and returned the executed form to that organization, but after accepting a settlement offer and receiving and depositing the agreed funds, failed to disburse any funds in payment for the medical services. The Board on Professional Responsibility held that this constituted a violation of DC Rule 1.15(b), but also noted that the violation was “certainly understandable against the backdrop; of a client who never mentioned that he had received services from [the organization].”
DC Ethics Opinion 318 (2002) addressed the obligations of a lawyer in an adversary proceeding who receives a privileged document of an opposing party, not from that party or its counsel but from some other person or entity, in circumstances suggesting that the document may have been stolen or taken without authorization from the opposing party. The Opinion's analysis rested largely on the earlier Opinion 256 (described immediately below), dealing with the parallel situation where confidential documents of an opposing party are received from that party's counsel, rather than from a third person, and where they appear to have been produced inadvertently, rather than stolen. Following reasoning similar to that of that earlier Opinion, Opinion 318 concluded that the recipient lawyer would violate Rules 1.15(b) and 8.4(c) by reviewing, retaining or using the document if (i) its privileged status is reasonably apparent, (ii) the lawyer knows the document came from someone not authorized to disclose it, and (iii) the lawyer does not have a reasonable basis to conclude that the opposing party had waived the privilege with regard to the document. (As to the last of these conditions, the Opinion pointed out that waiver of the privilege could not be inferred from the mere fact that the document was in the hands of a third person.) On the other hand, if these three conditions are not met, then the receiving lawyer's obligation of zealous representation, under Rule 1.3(a), may require the lawyer to use the document on behalf of the lawyer's client. The Opinion also pointed out that in such situations, counsel for the party whose confidences were disclosed may have violated Rules 1.1(a) and (b) and 1.6(a) and (b) for failing to exercise reasonable care in preventing the disclosure. Opinion 318 specifically refrained from addressing circumstance where the information in the improperly disclosed document, though confidential, is not privileged and therefore only a "secret" and not a "confidence," as those terms are defined in Rule 1.6(b), Opinion 256, in contrast, did not differentiate between the two categories of confidential information. DC Ethics Opinion 256 (1995) addressed circumstances where a lawyer has inadvertently included documents containing client secrets or confidences in material delivered to an adversary lawyer. It concluded that where the receiving lawyer knows of the inadvertent disclosure before examining the documents, DC Rule 1.15(a) requires the receiving lawyer to return the documents to the sending lawyer (and asserted that if the receiving lawyer reads or uses the material in such circumstances, that lawyer violates Rule 8.4(c)). DC Ethics Opinion 242 (1993) discussed the obligations under DC Rule 1.15, inter alia, of a lawyer whose client provides documents that may be the property of the client's former employer. The Opinion concluded that the lawyer should, on the client's request, return the documents to the client if the client has a plausible claim to ownership of them; but as to documents about which the client has no such claim, the lawyer should return them to the employer -- unless to do so would reveal confidences protected by Rule 1.6. DC Ethics Opinion 209 (1990), interpreting DC DR 9-103(B)(4), held that a lawyer who represented more than one client on a closed matter may not give all of the files in the matter to one of the clients: the lawyer must preserve the files for the benefit of all the clients so long as destruction of the files would be detrimental to the interests of any of them. The opinion also stated that the lawyer may properly charge any client for making copies of the files for that client.
Disputes, and disciplinary proceedings, frequently arise as a result of a lawyer's failure to return a client's files on demand, as required by Rule 1.15(b) and, formerly, by DR 9-103(B)(4). See In re Stone, supra (lawyer refused to return a file to a client who had discharged him, after several promises to do so); In re Ryan, 670 A.2d 375 (DC 1996) (intentional failure to return labor certifications and supporting documents to immigration clients on request); In re Landesberg, 518 A.2d 96 (DC 1986) (refusal to turn over client's file to successor counsel on request).
DC Ethics Opinion 206 (1989) addressed at length a lawyer's obligations with respect to "dead files" of clients. The Opinion identified three general categories of files and other property the lawyer may be in possession of after an engagement is completed -- (1) valuable property of the client; (2) other property (principally originals of documents) of the client; and (3) attorney work product -- and concluded that a lawyer has an obligation to preserve and "promptly deliver" to the client documents in the first two categories, absent agreement to the contrary, and that as to the third category, the lawyer must determine whether he has any statutory or legal obligation to preserve the documents, and otherwise must be guided by the avoidance of foreseeable prejudice to the client. As a general matter, the Opinion recommended that lawyers discuss with the client the disposition of files after the conclusion of an engagement, and contact former clients before disposing of files when this was not done.
In DC Ethics Opinion 283 (1998), addressing an inquiry from a sole practitioner as to how he should dispose of files relating to representation of a former client, the Legal Ethics Committee refined somewhat the analysis in Opinion 206. As to property having intrinsic value or that directly affects valuable rights, such as securities, negotiable instruments and wills, the lawyer is bound by Rule 1.15(b) to deliver the property promptly to the client, and not destroy it. Other client property is subject not to Rule 1.15(b) but to Rule 1.16(d); as to it, as a general rule, and absent contrary understanding with the client, a five-year retention period is appropriate. The Opinion offers detailed guidance for determining what materials should be retained beyond such a period. As to non-client materials that do not "clearly or probably" belong to the client or a third party, these may be destroyed without consultation or notice. Finally, the Opinion addresses costs relating to storage or return of files, asserting that the former client can legitimately be charged not merely shipping or storage costs, but in addition for the lawyer's time involved in file review.
· Primary DC References: DC Rule 1.15(a), DC Rule 1.17 · Background References: ABA Model Rule 1.15(b), Other Jurisdictions
· Commentary: ABA/BNA § 45:101, ALI-LGL § 44, Wolfram § 4.8 Paragraph (a) of DC Rule 1.15 specifies a little more elaborately than its Model Rule counterpart the kinds of institutions in which trust funds must be deposited. It is supplemented by DC Rule 1.17 (Trust Account Overdraft Notification) -- which has no Model Rule counterpart -- requiring that such funds be deposited only in institutions included on a list of "DC Bar Approved Depositories," which have agreed to notify Bar Counsel of overdrafts in such accounts.
The purpose of the requirement that a client's or third person's funds be kept separate from the lawyer's funds, under DC Rule 1.15(a) and its predecessor DR 9-103(A), is not only to prevent the serious offense of misappropriation, but also to avoid the possibility of unintentional loss of client's funds due to circumstances beyond the control of the lawyer. In re Hessler, 549 A.2d 700, 702 (DC 1988). Thus, it seeks to ensure that the lawyer's creditors are not able to attach client property that has been commingled with the lawyer's funds. Id.; In re Velasquez, 507 A.2d 145 (DC 1986).
DC Rule 1.15(a), like its predecessor DR 9-103(A), effectively forbids both misappropriation and commingling. The DC Court of Appeals has defined misappropriation as "any unauthorized use of a client's funds entrusted to [the lawyer], including not only stealing but also unauthorized temporary use for the lawyer's own purpose, whether or not he derives any personal gain or benefit therefrom." In re Harrison, 461 A.2d 1034, 1036 (DC 1983). Misappropriation is essentially a per se violation, of which improper intent is not an element. Id.; In re Choroszej, supra, 624 A.2d at 436; In re Evans, 578 A.2d 1141, 1142 (DC 1990); In re Reed, 679 A.2d 506 (DC 1996). Once the balance in a trust account falls below the amount that is held in trust, misappropriation has occurred. Id. In the disciplinary framework, "In virtually all cases of misappropriation, disbarment will be the only remedy unless it appears that the misconduct resulted from nothing more than simple negligence." In re Addams, 579 A.2d 190, 191 (DC 1990) (en banc); In re Buckley, 535 A.2d 863 (DC 1987) (disbarment, not two-year suspension, is the proper sanction for knowing misappropriation); In re Pels, supra (lawyer disbarred for reckless, though not intentional, misappropriation); In re Ray, 675 A.2d 1381 (DC 1996) (simple negligence in misappropriation warrants six-month suspension); In re Reed, 679 A.2d 506 (DC 1996) (same). According to In re Anderson, 778 A.2d 330, 339 (DC 2001), [T]he central issue in determining whether a misappropriation is reckless is how the attorney handles entrusted funds, whether in a way that suggests the unauthorized use was inadvertent or the result of simple negligence, or in a way that reveals either an intent to treat the funds as the attorney's own or a conscious indifference to the consequences of his behavior for the security of the funds. In In re Utley, 698 A.2d 1167 (DC 1997), the conservator of an estate had paid herself a fee and two annual commissions before obtaining required court approval, and had also mistakenly paid herself the same fee twice and then delayed repaying the fee for 21 months despite notification from an auditor and repeated requests from the court. On review of the report and recommendation of the Board on Professional Responsibility, the issues were whether the circumstances constituted misappropriation and whether any misappropriation resulted from more than simple negligence -- issues that the court termed "questions of law concerning 'ultimate facts' and therefore subject to de novo review." Id. at *8. Finding that the circumstances did constitute misappropriation and amounted to more than simple negligence, the court, following Addams, supra, ordered disbarment. The court also adopted the Board's conclusion that the respondent's conduct had also violated Rule 1.15(b) and Rule 8.4(d) (conduct seriously interfering with the administration of justice).
The prohibition of DR 9-103(A) against misappropriation has been held to apply to a lawyer acting in a fiduciary capacity, even in the absence of an lawyer-client relationship (so that there were not, literally, client funds involved). In re Burton, 472 A.2d 831, 835, cert. denied, 469 US 1071 (1984) (court-appointed trustee); In re Burka, 423 A.2d 181 (DC 1980) (conservator of estate). Rule 1.15(a), it may be noted, speaks of property of a third party as well as of a client; but it speaks of such property being held "in connection with a representation."
Rule 1.15(a), like its predecessor DR 9-103(A), also prohibits commingling of funds of a lawyer with funds of a client or third party, and although this is a less grave offense than misappropriation, the Court of Appeals has taken an "increasing[ly] harsh view as to [its] seriousness." In re Millstein, 667 A.2d 1355, 1356 (DC 1995) (censure imposed for commingling funds); In re Ross, supra (30-day suspension for commingling funds and failure to pay settlement proceeds promptly to a third party); In re Hessler, supra, 549 A.2d at 703 (warning that "in future cases of even 'simple commingling,' a sanction greater than public censure may well be imposed"). The Court of Appeals has held, however, that the rule against commingling did not apply in a case where a lawyer was one of the sellers of property in a transaction in a jurisdiction where he was not admitted to practice (a fact of which the lawyer was aware), who deposited escrow funds in connection with the sale of the property in his personal account, paying interest to the purchaser. In re Confidential, 664 A.2d 364 (DC 1995). The rule was there inapplicable, the court held, because the lawyer was not acting as a lawyer.
DC Ethics Opinion 251 (1994) ruled that a lawyer is required to hold settlement proceeds if the lawyer reasonably believes that a third party has a just claim to a portion of the funds that the client disputes. The undisputed funds should be promptly disbursed.
DC Ethics Opinion 36 (1977) addressed three questions relating to handling of a client's funds during real estate transactions, under DC DR 9-102 (subsequently renumbered DR 9-103). The Opinion concluded that commingling of funds of several clients in a single account is permissible, even though such funds may not be commingled with the funds of a lawyer or law firm; that it is not ethically impermissible to allow the balance in a common client account to exceed on occasion the FDIC insurance limit -- that doing so would not necessarily constitute "neglect" within the meaning of DR 6-101(A)(3); and that it is not impermissible to place proceeds of a settlement in an interest-bearing account. (The Opinion treated as a matter of law, beyond the ethics committee's competence to address, the question of to whom, between the buyer and seller, any such interest belongs.) 1.15:400 Dispute Over Lawyer's Entitlement to Funds Held in Trust
· Primary DC References: DC Rule 1.15(c) · Background References: ABA Model Rule 1.15(c), Other Jurisdictions
· Commentary: ABA/BNA § 45:101, ALI-LGL §§ 44-45, Wolfram § 4.8 Although charges of misappropriation in the District of Columbia have mainly arisen under Rule 1.15 (a), there have been several reported cases involving “a dispute . . . between several persons claiming an interest” in property held by a lawyer, and so falling under Rule 1.15(c). In at least three of these cases the lawyer holding the funds and the client were the persons with claims on those funds. In In re Haar, 667 A.2d 1350, 1353 (DC 1995)(Haar I), the Court stated that “the rule is unambiguous: an attorney may not withdraw a portion of . . . deposited funds when the attorney’s right to receive that portion is “disputed” by the client. And in In re Haar, 698 A.2d 412, 417-18 (DC 1997)(Haar II), the Court made clear that when the dispute concerns the lawyer’s entitlement to funds that potentially belong to the client, a lawyer who withdraws the funds before the dispute is settled commits misappropriation. Thus, in In re Midlen, 885 A.2d 1280 (DC 2005), a lawyer whose original retainer agreement with the client authorized him to deduct his fees from royalties that he received on behalf of the client, and who continued to deduct his fees in this manner after the client told him not to, but who wound up taking no more from the royalties than he was entitled to, was found nonetheless to have committed misappropriation. However, the Court, while recognizing that “When an attorney is found to have committed misappropriation, the discipline required is almost invariably disbarment if the attorney acted intentionally or recklessly in appropriating client funds,” id. at 1288, went on to say that recklessness requires proof at a minimum that the attorney handled funds “in a way that reveals . . . conscious indifference to the consequences of his behavior for the security of the funds,” id. (quoting In re Anderson, 778 A.2d 330 at 339 (DC 2001)). Given that the respondent’s conduct in the particular circumstances of this case, as briefly decribed above, showed negligence but not the “heightened culpability” required for disbarment, the Court did not accept the Board’s recommendation of disbarment, but adopted instead a suspension for eighteen months.
DC Ethics Opinion 127 (1983) addresses the withdrawal of attorney's fees from a trust account established to receive the proceeds of a settlement, concluding that DR 9-103(A) permits a lawyer to withdraw a portion of such a trust account in payment of his fee only when the fee is due and the right of the lawyer to receive the fee is not disputed by the client. It would violate DR 9-103(A) for the lawyer to make withdrawals from such an account to pay his own expenses before the lawyer's fee was due even if the amounts withdrawn were less than the undisputed amount of the agreed fee.
DC Ethics Opinion 293 (1999) offers guidance in the application of Rule 1.15 in circumstances where the lawyer holds funds that are claimed both by the client and by one or more third parties and the lawyer is unsure about the validity of the third party's claim or of his client's dispute of that claim. The Opinion points out that the lawyer's obligation in these circumstances differs from the obligation where there is a dispute between the lawyer and the client over ownership of the property, even though Rule 1.15(c) treats the two circumstances in identical terms. Where the dispute is between the lawyer and the client, the lawyer's duty of loyalty prevents the lawyer from withholding for her own use any of the disputed property until it is absolutely clear that the dispute is resolved. And as the court held in In re Haar, supra, 667 A.2d at 1353, "There is no requirement that the dispute be 'genuine,' 'services,' or 'bona fide.'" On the other hand, Comment [4] refers to third parties having just claims against the property held by the lawyer; and the Opinion interprets this as meaning that "unlike the claims of a client, which need not be even superficially justified in order to stop the lawyer from making distribution, the claims of the third party must rise to a higher level."
The Opinion goes on to express the view that the distinction between "just claims" that the lawyer must honor and other third party claims that the lawyer is not obliged to honor lies in the distinction between a specific claim that binds the lawyer and mere assertions of the client's general unsecured obligations. The Opinion then lists the following examples of such a "just claim": (1) any final money judgment against the lawyer's client regardless of whether the judgment is related to the facts of the law suit; (2) a statutory lien that applies to the proceeds of the suit; and (3) a contractual agreement joined in by the lawyer and his client to pay certain client expenses in consideration of the supplier's agreement to forebear collection action during the pendency of the lawsuit. The Opinion points out that the last of these cateegories, commonly known in this jurisdiction as an "Authorization and Assignment," is frequently used in contingent fee personal injury matters.