Opinion ID: 1866152
Heading Depth: 1
Heading Rank: 6

Heading: Trust Account Improprieties and Excessive Fees

Text: Respondent points to the referee's finding that there was no misappropriation of funds: However, because respondent had a claim of right to the funds, i.e., fees earned or to be earned, technical misappropriation is denied; the Director's Office concedes such allegation is not proved; and no finding of misappropriation of client funds is made. Respondent also states, citing ABA standards, that, where client funds are separately maintained, but sloppy bookkeeping makes it difficult to determine the state of the client trust account, admonition is appropriate. Standards for Imposing Lawyer Sanctions commentary to standard 4.14 (1986). Furthermore, although respondent concedes that some sanction for the improprieties is appropriate, he notes that, even where inadequate trust procedures result in misappropriation, suspension did not always follow. In re Fling, 316 N.W.2d 556, 558 (Minn.1982) (attorney did not intentionally convert funds, but misappropriation was not excused because of mismanagement; attorney required to pay retribution and allow supervision of trust account by another attorney). The director responds, citing standard 4.12, that failure to maintain a proper trust account is a serious violation: Suspension is generally appropriate when a lawyer knows or should know that he is dealing improperly with client property and causes injury or potential injury to a client. Standards for Imposing Lawyer Sanctions standard 4.12. Furthermore, the director maintains that the fees taken from the accounts amount to a depletion of client trust funds without justification. While the referee did not find misappropriation, the director notes that the withdrawals are suspect and reflect on respondent's honesty. The director submitted exhibits showing that respondent's file inventory does not reflect the hours necessary to account for the fees. With respect to the withdrawals by respondent and Gray and the failure to hold the funds in a proper trust account, respondent concedes that the procedures were inappropriate. However, respondent contends that the current status of Minnesota law as to the appropriate placement of funds used essentially for services rendered makes the 18-month suspension too severe. Respondent notes that a minority of jurisdictions allows advances for future services to be put into the attorney's business account. As authority for this proposition, respondent cites ABA/BNA Lawyers' Manual on Professional Responsibility 45:101: Funds belonging only in part or potentially to the lawyer, such as advance fees    usually must be deposited in clients' trust accounts, and may be withdrawn only when there is an accounting and severance of interests or when advanced fees are actually earned by the lawyer. A minority view permits lawyers to deposit advanced fees in their personal accounts and then refund any unearned portion at the end of the representation. In a recent edition of the Minnesota Bench & Bar, the director stated: If the fee is an advance for future services, the majority view is that it must be deposited in the trust account and withdrawn only as earned. In Minnesota, the Director's Office has taken the majority view on fees for future services. This view has also been applied in at least two lawyer discipline decisions of the Minnesota Supreme Court. In re Green, unpublished order (Minn., March 6, 1984); In re Getty, 452 N.W.2d 694 (Minn.1990). Wernz, Ethics Opinions, Bench & B. Minn., May-June, 1990, at 18. Respondent contends that Green is no authority because it is unpublished. Furthermore, he argues that language in Getty, by implication, supports his view that the Peterson funds, as services to be earned, need not be put in a trust account. In Getty, the attorney offered to represent a client for a flat fee of $10,000. A dispute arose between Getty and the client, and Getty offered to refund a portion of the funds. This court stated that there was no evidence that Getty earned the right to the $10,000 retainer, either before or after his representation. Id. at 698. Respondent relies on this court's statement that the attorney admitted that he did not place the $10,000 in trust when a dispute arose concerning the funds. Id. Respondent here contends that this language implies that the funds do not have to be placed in trust until a dispute arises. We disagree. As the director notes, it has long been the view in Minnesota that advance payments for future services are client funds until earned: Retainers are a source of confusion in many cases. Retainers which are charged to ensure the lawyer's availability for the case may, if reasonable, be non-refundable and earned at the time they are collected. Other retainers may be advances by the client to be applied to future costs and services. Such retainers are not earned at the time they are collected and should be placed in the trust account. Withdrawals should be made only as services are performed and costs incurred in behalf of the client. In all events, the exact nature of the retainer should be made clear to the client at the time the retainer is paid. Hoover, Many Ethics Complaints are Completely Avoidable, Bench & B. Minn., Feb. 1982, at 21. Minnesota has been at the forefront of trust account recordkeeping and compliance. In what the ABA/BNA Manual calls the Minnesota Model, since 1976, Minnesota has spelled out the requirements of trust accounting and recordkeeping with special emphasis on keeping the client apprised of the use and location of such funds. See Opinion No. 9, Bench & B. Minn., May-June 1976, at 58-59. It appears to this court, however, that the question of the use of the $72,500 was largely a dispute over fees. The misconduct consisted of failing to advise the client properly when withdrawals of money for attorney fees and costs were being made and to explain, justify and give accountings thereof. The referee found that respondent believed that the money placed in the Merrill Lynch account was in trust, and the director concedes that there has been no misappropriation of funds. Moreover, the amount of attorney fees was ultimately compromised after the dispute became apparent. We do feel an obligation to advise the bar that this court is getting increasingly alarmed at the numerous cases of trust account violations by lawyers of this state. The number of instances of notorious cases should have by now alerted lawyers to the seriousness of this problem. We thus can no longer treat lightly any abuse of trust accounts. Moreover, these violations are becoming increasingly costly to every lawyer in this state. Therefore, we feel compelled to advise the bar that misuse of trust accounts in the future will (1) almost invariably result in lengthy suspension at the very least and disbarment at worst and (2) that retainer fees not immediately placed in a trust account will be looked upon with suspicion. We are fully aware that there may be cases when the client's desire to have a particular attorney represent him or her will necessitate an immediate commitment. That attorney will possibly have to forego representation of other clients and might lose other business while the attorney commits him- or herself to the client now seeking representation. Such a retainer fee, if reasonable, may be immediately earned. However, the purpose of the retainer fee and the consent of the client for the payment and use thereof must be reduced to writing and approved by the client. Furthermore, attorney fees for payment of services to be performed in the future must be placed in a trust account and removed only by giving the client notice in writing of the time, amount, and purpose of the withdrawal, together with a complete accounting thereof.