Attorney Trust Accounts and Rule 1.15

Most people know that that stealing money is wrong – both morally and legally. And likewise, attorneys know (or should know) that when acting as a fiduciary, misappropriation – the unauthorized use of funds that belong to a client or third party – is a huge no-no and a disbarrable offense. However, even with this knowledge, attorneys are often disciplined for Rule 1.15 Safekeeping of Property violations. ¹

Unfortunately, trust account management is not a subject that is taught in law school. Therefore, many attorneys are learning about their fiduciary responsibilities through on-the-job training. This training may include instances of issues that may rear its ugly head in a few forms:

Reckless Behavior
Reckless or intentional misappropriation is more obvious. Some attorneys believe that “borrowing” entrusted funds – even for a short period of time – is appropriate. Or, in some instances, attorneys believe that if they have sufficient funds in their operating account or, if they have overdraft protection, that this behavior is acceptable. Simply put, it is not. This is the essence of misappropriation and is considered an act of “moral turpitude” by most disciplinary courts. It is a clear violation of Rule 1.15(a).

Overdrawn Accounts
Attorneys are experiencing overdrafts on their trust account and Maryland Business and Occupations and Professions Article Rules 16-605 and 16-610(b)(1)(B) requires financial institutions to notify Bar Counsel’s office of an overdraft of any attorney trust account. When this occurs, Bar Counsel, by statute, is authorized and required to investigate the circumstances surrounding the overdraft. Of special note is that the Maryland Business and Occupations and Professions Article Rule 16-606.1, enacted January 1, 2008, requires – among other things – attorneys to perform a monthly reconciliation of their attorney trust account and sets forth the types of records that an attorney should keep.

Negligence
Intentional or negligent misappropriation occurs when attorneys are not paying attention to their trust account and for a number of reasons, entrusted funds are invaded. Examples include:

1. Not having enough money in the attorney trust account to account for credit card fees or banking fees;
2. Relying on checks provided by clients that have “insufficient funds” and failing to reconcile the attorney trust account prior to writing checks against those funds;
3. Falling victim to internet scams;
4. Trusting employee(s) that misuse entrusted funds.

These instances can all be avoided with clear banking practices and proper oversight by the responsible attorney. Some attorneys will claim that they do not have the accounting or bookkeeping skills to manage their accounts and that is why these instances of negligent acts occur. Unfortunately, this rationale will not protect the responding attorney from disciplinary action. The Article 5 Rules set forth that an attorney is responsible for the acts of employees or agents of the lawyer. See Rule 5.3 (Responsibilities Regarding Nonlawyer Assistants). If however, an attorney feels that they cannot properly manage their trust account they should seek the assistance of a professional bookkeeper, certified public account, or office manager to assist with these accounting tasks. And even then, the attorney is still responsible for the oversight and management of the account.

Bad Record Keeping
In addition to the negligent acts described above, attorneys also find themselves violating Rule 1.15(a), which requires attorneys to maintain records of all receipts and disbursements from their attorney trust account for at least five (5) years after the transaction was made. Again, this is a rather simple requirement and violations can be avoided with a review of the relevant rules, clear banking practices, and attorney oversight.

Advanced Fees v. Flat Fees
Attorneys historically have misunderstood or misused flat fees in practice. Rule 1.15(c) requires attorneys to maintain unearned fees in an attorney trust account unless the client gives “informed consent, confirmed in writing” to an arrangement that allows the attorney to deposit funds into an operating account. Without this language, which should ideally be in the fee agreement, an attorney may be inadvertently misappropriating unearned fees while believing that they were entitled to the funds because it was characterized as a “flat fee” rather than an advanced fee.

Honest Mistakes
Things happen. But even the most diligent attorney who is familiar with the rules on attorney trust accounts can run afoul of the rules. Some common honest mistakes include:

1. Depositing funds into the wrong account;
2. Keeping earned funds in trust too long; and
3. Not titling account properly as required by Maryland Business and Occupations and Professions Article Rule 16-606.²

While this list is certainly not exhaustive, hopefully it will give you an idea of some of the mistakes that can occur. However, if an attorney has been diligent with their attorney trust account management responsibilities, these mistakes should be simple to correct to bring the attorney back into the land of compliance.

Dolores Dorsainvil is a Senior Staff Attorney at the D.C. Office of Bar Counsel where she investigates, and where necessary, prosecutes cases of ethical misconduct against District of Columbia lawyers. You may read more about Ms. Dorsainvil by visiting her website at www.doloresdorsainvil.com.

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¹ Rule 1.15 states, “(a) A lawyer shall hold property of clients or third persons that is in a lawyer’s possession in connection with a representation separate from the lawyer’s own property. Funds shall be kept in a separate account maintained pursuant to Title 16, Chapter 600 of the Maryland Rules, and records shall be created and maintained in accordance with the Rules in that Chapter. Other property shall be identified specifically as such and appropriately safeguarded, and records of its receipt and distribution shall be created and maintained. Complete records of the account funds and of other property shall be kept by the lawyer and shall be preserved for a period of at least five years after the date the record was created.

(b) A lawyer may deposit the lawyer’s own funds in a client trust account only as permitted by Rule 16-607 b.

(c) Unless the client gives informed consent, confirmed in writing, to a different arrangement, a lawyer shall deposit legal fees and expenses that have been paid in advance into a client trust account and may withdraw those funds for the lawyer’s own benefit only as fees are earned or expenses incurred.

(d) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this Rule or otherwise permitted by law or by agreement with the client, a lawyer shall deliver promptly to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall render promptly a full accounting regarding such property.

(e) When a lawyer in the course of representing a client is in possession of property in which two or more persons (one of whom may be the lawyer) claim interests, the property shall be kept separate by the lawyer until the dispute is resolved. The lawyer shall distribute promptly all portions of the property as to which the interests are not in dispute.”

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² An attorney or law firm shall maintain each attorney trust account with a title that includes the name of the attorney or law firm and that clearly designates the account as “Attorney Trust Account”, “Attorney Escrow Account”, or “Clients’ Funds Account” on all checks and deposit slips. The title shall distinguish the account from any other fiduciary account that the attorney or law firm may maintain and from any personal or business account of the attorney or law firm.

Tips on How to Deal with a Bar Counsel Complaint

For many attorneys, coming across an envelope with the return address marked “Attorney Grievance Commission ” undoubtedly brings a sinking feeling. After reading the bar complaint, an attorney’s initial reaction may be one of many: anxiety, incredulousness, fear, or even anger. Some attorneys may even view the correspondence from Bar Counsel’s office as a personal attack on their credibility and professionalism as a lawyer.  Whatever the feeling, and however the bar complaint arose,[1] with the hundreds of bar counsel complaints that are lodged every year,[2] attorneys should appreciate and understand not only the serious nature of attorney discipline investigations, but that the process can be managed.

Here are several simple tips that will guide you in responding to an inquiry from Bar Counsel should one ever become subject to a complaint:

1)      Think. Before penning an emotional response to Bar Counsel, take the time to think about the legal matter, the history of the case, and the client that filed the complaint.  Taking this time will aid an attorney in focusing on the issues involved in the complaint and may give that attorney time to give a response based on the facts rather than emotions.  An attorney may even want to take the time to review the file in its entirety to make sure that they are able to recall every detail about the underlying legal matter.

2)      Be timely. Request an extension if needed.  In its cover letter accompanying the bar complaint, Bar Counsel provides a date by which an attorney is required to respond. If for some reason, an attorney is not able to submit a timely response, that attorney may wish to request an extension of time to respond. Bar Counsel will usually grant an initial reasonable request for an extension. The attorney should confirm such a courtesy with a written correspondence. If a circumstance exists that requires a lengthy response period, because as we all know – life happens, i.e. illnesses, deaths, vacations, business or personal matters, it is prudent for an attorney to explain that in writing to Bar Counsel, and provide corroborating documents explaining the lengthy extension request.

3)      Respond. This may seem like an obvious step but there are attorneys that, even when they have not committed misconduct, stick their head in the sand in an effort to avoid dealing with the allegations made in a complaint altogether. The important fact to note is that failing to respond to a lawful inquiry from Bar Counsel is a violation of Rule 8.1 (b).[3] So, even if Bar Counsel is not able to make any findings of a violation of the Maryland Lawyers Rules of Professional Conduct (“the Rules”) in the initial bar complaint, Bar Counsel may pursue and prosecute an attorney for violating Rule 8.1(b).  No matter how distasteful the prospect of being subject to a bar complaint is, every attorney has an affirmative duty under the Rules to respond to requests for information from bar counsel authorities.

4)      Answer the allegations honestly and concisely. An attorney should provide a comprehensive and fair explanation of the facts and circumstances surrounding the allegations made in the complaint. Providing a full picture or history of the representation will assist Bar Counsel render a disposition; however, an attorney should be judicious.  Do not do “lawyer speak.” Providing a thirty (30) page response to a complaint and failing to actually address the allegations of misconduct made in the initial complaint may raise concern.

5)      An attorney should provide the documents Bar Counsel requests but should also provide relevant documents as exhibits if they corroborate an attorney’s version of events. For example, supplying Bar Counsel with a copy of a key pleading of an issue that has already been addressed by a tribunal is helpful. Taking this pro-active step saves time in the investigation process.

6)      Be diligent and comprehensive. An attorney should take the time to explain relevant areas of law as it relates to the underlying legal matter. It is important for an attorney to not assume that Bar Counsel is familiar with every practice area. Providing Bar Counsel with a copy of the applicable rule or statute that the attorney has relied on in the underlying matter is invaluable and can assist Bar Counsel in determining the validity of the bar counsel complaint.

7)      Hire counsel, if necessary.  This is a determination that can only be made by an attorney but there are benefits to hiring representation. Respondent’s counsels are usually more familiar with the attorney disciplinary process and can help navigate the system.

8)      Resolution. If the attorney can and wishes to resolve the issue with his/her client, they are welcome to while the disciplinary matter continues.  Sometimes the issue occurs as a result of a misunderstanding, or sometimes the client wants their client file returned or requests a refund. Bar Counsel will not resolve fee disputes but usually will refer the parties to a voluntary fee dispute committee for further review.

An attorney’s cooperation to a Bar Counsel investigation will contribute to a resolution of the matter in a manner which safeguards the rights of the public and protects attorneys from unfounded complaints.

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[1] Bar Counsel has many sources for bar complaints. While the majority of them come from clients, Bar Counsel also receives complaints from the courts, opposing counsel, family members, employees, neighbors, and acquaintances of lawyers. Additionally, it is also common for bar counsel authorities to initiate investigations when Bar Counsel learns information either through the media or through litigation records that would support a finding that an attorney has violated the ethical rules.

[2] The 36^th Annual Report of the Attorney Grievance Commission (July 1, 2010 through June 30, 2011) states that that 1,880 bar counsel complaints were filed.

[3] An applicant for admission or reinstatement to the bar, or a lawyer in connection with a bar admission application or in connection with a disciplinary matter, shall not:  [f]ail to disclose a fact necessary to correct a misapprehension known by the person to have arisen in the matter, or knowingly fail to respond to a lawful demand for information from an admissions or disciplinary authority, except that this Rule does not require disclosure of information otherwise protected by Rule 1.6.