Complete a CIRAC Memo, to My Attention As Your Supervising Attorney, Addressing the Problem

MEMO A

Complete a CIRAC memo, to my attention as your supervising attorney, addressing the problem detailed below. Please put your name, class and project number on the top of the project (in Word format) and post it to the DROPBOX (not to doc sharing). Use precedent and proper citation form. Do not cite to the case headnotes! Proper ALWD citation format is required.

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Your supervising attorney is short on cash to run the firm this month. She has a big settlement coming in of over $100,000 in the next few days, and she is entitled to $30,000 of the settlement as fees. However, the money is to be deposited into the firm’s client trust account until the client signs a final release so that the money can be disbursed to both the client and your supervising attorney.

Your supervising attorney has mentioned that she was thinking about having the funds deposited directly in the firm’s business account first, so that she could take part of the $30,000 fee immediately, and then transfer the rest of the money into the client trust account. She assumes that no harm will come to the client and that the client will really never know of the transfer.
She has asked you to see if any ethical or other rules would prevent her from following through with this plan. Please prepare a memorandum addressing this issue using appropriate precedent.

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Facts:

Law firm is experiencing a cash flow problem this month. Supervising attorney expects to receive a large settlement on a case in the next few days, of about $100,000. The legal fee due from that settlement is $30,000. However, the settlement will be deposited in the firm’s client trust account until the client signs the final release enabling the money to be dispersed to both the client and the attorney. To relieve the cash flow problem the first is suffering this month, the attorney would like to have the settlement moneys deposited into the business account rather than the trust account, so she could take her $30,000 fee immediately, then transfer the rest of the money into the client trust account. She expects that would not harm the client and the client would not even be aware.

Conclusion:

The supervising attorney, despite the need for cash flow now, and the fact that part of the settlement moneys is due her as legal fees, should not deposit the client’s settlement money into her own account, business or other, because that will be a clear violation of Pennsylvania RPC 1.15.

Issue:

Is it a violation of any Pennsylvania law or ethical rule for an attorney to put a client’s settlement money into the attorney’s own business account instead of into the client’s trust account?

Rule:

It is a violation of RPC 1.15 when a lawyer deposits a client’s settlement check into the attorney’s own business account, failing to keep such moneys separate and in a client trust account, notwithstanding the fact that a part of that settlement fund will be owed to the attorney for a contingent legal fee,

Analysis:

On the facts noted above, the attorney will be violating RPC 1.15 if she fails to deposit the client’s moneys into the client trust account.

Rule 1.15 of Pennsylvania Rules of Professional Conduct states:

“(b)A lawyer shall hold all Rule 1.15 Funds and property separate from the lawyer’s own property. Such property shall be identified and appropriately safeguarded.” Here, attorney is planning on putting the client’s check directly in a bank account with her own funds.

And (f): “When in possession of funds or property in which two or more persons, one of whom may be the lawyer, claim an interest, the funds or property shall be kept separate by the lawyer until the dispute is resolved. The lawyer shall promptly distribute all portions of the funds or property, including Rule 1.15 Funds, as to which the interests are not in dispute.” Here, the settlement moneys, likely a check, is subject to the claims of both the attorney for her fee and the client, for his net settlement. (f) requires that such a property be kept separate from the attorneys own property – therefore, it can not be put into his business account.

And (k):“All Nonqualified Funds which are not Fiduciary Funds shall be placed in a Non-IOLTA Account or in another investment vehicle specifically agreed upon by the lawyer and the client or third person which owns the funds.” Not being “nominal”, this $100,000 is a nonqualified fund, and as such, must be put into a trust account, not a business account.

In the comments to RPC 1.15, the Supreme Court notes:

“(7)Lawyers often receive funds from which the lawyer’s fee will be paid. Unless the fee is non-refundable, it should be deposited to a Trust Account and drawn down as earned… “

Case law has long supported the rule that an attorney is never to commingle a client’s moneys with his own. “The blending by an attorney of other persons' money with his own, or using it for private purposes, is condemned as a dangerous practice..” Gordon, Secretary of Banking v. Harrison, 105 Pa. Super. 513, 161 A. 608 (1932). Here, the Attorney will not be using the client’s moneys for private purposes. However, she will be “blending” the client’s money with his own when he puts the entire check into her own account, rather than in the trust account.

Conclusion: