Opinion ID: 1241955
Heading Depth: 2
Heading Rank: 1

Heading: Governing Principles. The Commission concluded the respondent had violated DR 9-102(A) and DR 9-102(B)(3). In pertinent part, DR 9-102 provides:

Text: (A) All funds of clients paid to a lawyer or law firm, including advances for costs and expenses, except retainer fees paid on a regular and continuing basis, shall be deposited in one or more identifiable interest-bearing trust accounts maintained as set forth in DR 9-102(C).... No funds belonging to the lawyer or law firm shall be deposited in trust accounts except as follows: .... (2) Funds belonging in part to a client and in part presently or potentially to the lawyer or law firm must be deposited therein, but the portion belonging to the lawyer or law firm may be withdrawn when due unless the right of the lawyer or law firm to receive it is disputed by the client, in which event the disputed portion shall not be withdrawn until the dispute is finally resolved. (B) A lawyer shall: .... (3) Maintain complete records of all funds, securities, and other properties of a client coming into the possession of the lawyer and render appropriate account to the client regarding them. We begin our analysis by determining the type of fee involved in this case. In Apland, we discussed the difference between a general retainer and a special retainer. We noted that a general retainer is a fee for agreeing to make legal services available when needed during a specified time period. Apland, 577 N.W.2d at 54. It is a form of an option contract and the fee is earned by the attorney when paid regardless of whether or not he actually performs any services for the client. Id. Therefore, a general retainer cannot be deposited in a trust account. Id. at 55 (If it is the lawyer's money, placing it into a trust account would violate the anti-commingling rule.). In contrast, [a] special retainer covers payment of funds for a specific service. If the client and the attorney agree that the attorney shall receive the special retainer payment in advance of performing the services, then the payment is commonly referred to as an `advance fee payment.' Id. [F]ee advances are not earned when paid, and therefore must be deposited into the trust account. Id. (emphasis added). Such [f]unds remain the property of the client until the attorney earns them. Id. at 56; accord Iowa Supreme Ct. Att'y Disciplinary Bd. v. Kadenge, 706 N.W.2d 403, 408 (Iowa 2005) (all advance fee payments other than general retainer fee payments are refundable and must be placed in a client trust account). These requirements are incorporated in the new Iowa Rules of Professional Conduct and the client trust account rules. See Iowa R. of Prof'l Conduct 32:1.15(c) (A lawyer shall deposit in a client trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred.); Iowa Ct. R. 45.7(1), (3) (defining advance fees and requiring deposit of advance fee into the client trust account). There are several strong policy reasons behind these requirements. This approach (1) preserve[s] the client's property from the reach of the lawyer's creditors, (2) preserve[s] the client's property from possible misappropriation by the lawyer, and (3) enable[s] the client to realistically dispute a fee where the funds are already in the lawyer's possession by disallowing a self-help resolution by the lawyer and instead preserving the disputed funds intact until the dispute is resolved. Apland, 577 N.W.2d at 56 (quoting Lester Brickman, The Advance Fee Payment Dilemma: Should Payments Be Deposited to the Client Trust Account or to the General Office Account?, 10 Cardozo L.Rev. 647, 667 (1989)). The third policy consideration is further supported by DR 9-102(B)(3), which we determined requires that lawyers accepting advance fee payments must notify their clients in writing of the time, amount, and purpose of any withdrawal of the fee together with a complete accounting. Id. at 59; accord Iowa Ct. R. 45.7(4) (same); see also Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Herrera, 560 N.W.2d 592, 594 (Iowa 1997) (An attorney may not, in the absence of express direction by the client, withdraw funds from the trust account in order to pay attorney fees.). In addition, the Apland court discussed the concept of a flat fee. A flat fee `embraces all work to be done, whether it be relatively simple and of short duration, or complex and protracted.' Apland, 577 N.W.2d at 56 (quoting ABA Comm. on Ethics and Professional Responsibility, Informal Op. 1389 (1977)); accord Iowa Ct. R. 45.10(1) (defining flat fee). A flat fee is nothing more than an advance fee payment which ... must be deposited in a client trust account. Apland, 577 N.W.2d at 56; accord Iowa Ct. R. 45.10(2); Kadenge, 706 N.W.2d at 408 (special retainers and flat fees paid in advance must be maintained in a trust account until the fee has been earned). [P]resuming the flat fee is fair, the attorney is entitled to the entire amount when he or she completes the necessary services. Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Sullins, 648 N.W.2d 127, 134 (Iowa 2002) (emphasis added). This rule, however, does not prohibit discharge or withdrawal of an attorney from a case involving a flat fee payment prior to the case's completion. In those instances, the refundable portion of the fee, if any, depends upon whether the fee was reasonable for all of the services performed prior to the attorney's discharge or withdrawal. Apland, 577 N.W.2d at 58; accord Iowa Ct. R. 45.10(3). B. Application to Facts. There is no dispute that the fee arrangement in this case involved a flat fee. Although there was no written contract, the evidence establishes Piazza agreed to provide a defense to Alberto-Portillo in state or federal court for a set amount of money regardless of whether the work was short and simple or complex and protracted. See Apland, 577 N.W.2d at 56. Therefore, the $5000 payment constituted an advance fee that had to be deposited in Piazza's client trust account. See id. at 55-56 (stating a flat fee is an advance fee and requiring all advance fees to be placed in client trust account); accord Kadenge, 706 N.W.2d at 408 (same); Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Frerichs, 671 N.W.2d 470, 477 (Iowa 2003) (As a special retainer, the advance fee must be placed in a client trust account and withdrawn only for completed services.). The respondent contends it would have been improper for him to deposit a fee he had already earned in his trust account. This argument overlooks the fact that it is the nature of the fee that controls its disposition. An advance fee, by definition, constitutes a fee paid in advance of services to be rendered and must be deposited in a client trust account. See Apland, 577 N.W.2d at 56; Kadenge, 706 N.W.2d at 408; accord Iowa Ct. R. 45.7(3). At the time the initial payment was received by Piazza, no fee had been earned. Piazza cannot rely upon his own determination that he had earned the advance fee by the time an opportune moment came to deposit it the fee. Nor can he ignore this court's prior determination that a flat fee is an advance fee that is earned when the services are completed and therefore requires deposit in a client trust account coupled with a contemporaneous accounting to the client prior to withdrawal of such fees from the trust account. See Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Kennedy, 684 N.W.2d 256, 260 (Iowa 2004) (Until services are complete, it is possible that at least a portion of the [flat] fee `would need to be refunded to the client in the event the attorney-client relationship is terminated before the services were rendered.' (quoting Frerichs, 671 N.W.2d at 476)); Alec Rothrock, The Forgotten Flat Fee: Whose Money Is It and Where Should It Be Deposited?, 1 Fla. Coastal L.J. 293, 348 (1999) (Since flat fees are always subject to refund, they are not `earned' until corresponding services are performed.) [hereinafter Rothrock]. As we have previously noted, [w]e think such a rule not only protects lawyers from potentially unethical conduct, but it also protects the client's interests. Apland, 577 N.W.2d at 59. Attorneys may, however, set in the fee agreement reasonable milestones when their interest in portions of the fee becomes fixed, such that they may ... withdraw a corresponding amount of fees from the trust account. Rothrock, 1 Fla. Coastal L.J. at 355; accord Alec Rothrock, On Retainers, Flat Fees, and Commingling, 26 Colo. Law. 83, 84 (1997) ([F]lat fees ... should start out in a trust account but must be transferred to the operating account as they are earned, with reasonable promptness.); see Iowa R. of Prof'l Conduct 32:1.15(c) (A lawyer shall deposit in a client trust account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred.). There is no evidence of such an agreement here. Based upon the above analysis, we conclude the Board has established, by a convincing preponderance of the evidence, the respondent violated DR 9-102(A) (failing to put client funds in trust account) and DR 9-102(B)(3) (failing to render an accounting to client). Because Piazza failed to comply with DR 9-102, he necessarily has violated DR 9-103(A), requiring an attorney to maintain books and records sufficient to demonstrate compliance with DR 9-102. We now turn to the other rules the Board contends the respondent violated. Iowa Code of Professional Responsibility DR 1-102(A) provides that a lawyer shall not ... engage in conduct involving dishonesty, fraud, deceit or misrepresentation...; engage in conduct that is prejudicial to the administration of justice; [or] engage in any other conduct that adversely reflects on the fitness to practice law. Iowa Code of Prof'l Responsibility DR 1-102(A)(4), (5), and (6). We have previously held that failure to place advance fee payments in a client trust account constitutes a violation of these rules. See Kadenge, 706 N.W.2d at 408 (We have made abundantly clear a lawyer `misappropriates client funds in violation of DR 1-102(A)(3), (4), (5) and (6) when special retainers and flat fees paid in advance are treated as money belonging to the lawyer and not maintained in a trust account until the fee has been earned.' (quoting Frerichs, 671 N.W.2d at 475)). Under the flat fee agreement between Piazza and Alberto-Portillo, Piazza was not entitled to a fee until his work was completed. We conclude, therefore, that the Board has established, by a convincing preponderance of the evidence, that Piazza deposited unearned fees in his office account in violation of DR 1-102(A)(4), (5) and (6). [2]