Opinion 2014

You advise that a large corporation has retained your law firm on a contingent fee basis to collect accounts receivable owed to the corporation. The corporation has asked your firm to deposit the amounts recovered in an account from which the corporation may directly withdraw funds. Your firm proposes to establish a separate bank account containing only receivables recovered on behalf of the corporation. You advise that your firm would deduct its contingent fees from the account and the corporate client would deduct the remaining receivables. A line of credit would be attached to the account to provide overdraft protection, and bank statements would be provided both to the client and the firm so that appropriate reconciliation of the account would be possible. You ask whether this approach would violate any Rules of Professional Conduct.

The committee opines that RPC 1.14 may not allow the course that you propose. RPC 1.14 requires client funds to be held in a trust account segregated from funds belonging to the lawyer, as a means of safeguarding the client’s property. It also imposes on the lawyer certain responsibilities with respect to administering the account. In the committee’s view, the arrangement you propose is inconsistent with the purposes and requirements of the rule. For example, a lawyer is required to care for client property in the lawyer’s possession as would a fiduciary. Allowing independent access to the account by the client would seem inherently incompatible with managing the account with the care of a fiduciary. Similarly, the requirement that client funds be kept separate from funds belonging to the lawyer seeks to ensure, among other things, that creditors of the lawyer are not able to attach client property as a result of its being commingled with the lawyer’s property. See In re Anonymous, 698 N.E.2d 808 (Ind.1998) (commingling of lawyer and client funds would subject clients to “unacceptable risks”, such as attachment by creditors). Thus, some sort of account making it apparent that the lawyer’s access to the funds is in a fiduciary capacity, not an ownership capacity, would seem inherent in the rule. The description of the account provided in your inquiry does not appear to contemplate any such designation. Rather, it seems simply to describe a joint account containing funds belonging to the client and to the firm, to which each has independent access. Such an account seemingly would expose client funds to the danger of attachment by creditors of the lawyer, a danger that RPC 1.14 was intended to prevent.

Moreover, in the committee’s opinion, the proposed financial arrangement would be inconsistent with the management responsibilities placed on the lawyer by RPC 1.14(b). First, it does not appear that your firm would be in a position to render appropriate accounts to the client under RPC 1.14(b)(3). This is because at any given moment your firm could not be certain of the account balance, withdrawals from the account, or the bases for them. Second, the committee concludes that the arrangement is inconsistent with RPC 1.14(b)(4), which requires the lawyer to pay to the client funds to which the client is entitled. Under the proposed arrangement, the client would pay itself from the account, without any determination by your firm that the client is entitled to the funds.

Finally, the proposal to link the account with a line of credit (presumably the client’s) anticipates overdrafts of the account. In light of the fact that the proposal contemplates independent access to the account by the client and your firm, the danger of overdrafts would be significant. But RPC 1.14 plainly does not envision management of client trust funds in a fashion that entails significant risk of overdrafts. Rather, the responsibility for control over trust account funds that the rule entrusts to the lawyer presumably is designed to avoid them. Indeed, overdraft of a lawyer’s trust account triggers notice to the Disciplinary Board and requires the lawyer to explain the circumstances leading to the deficiency. See ELC 15.4. Again, because your firm may not know of client withdrawals or the bases for them, compliance with this requirement additionally would be made extremely difficult.

Nothing in RPC 1.14 suggests that its terms are optional or that alternate means are available for holding or administering client funds. The requirements of the rule are couched in mandatory language requiring “all” client funds to be placed in a trust account and providing that the lawyer “shall” have certain responsibilities with respect to those funds. The committee previously has concluded that the terms of RPC 1.14 are mandatory and may not be waived by the client. See Informal Published Opinion 86-3. The committee adheres to that position and, for the reasons expressed above, concludes that the course proposed in your inquiry may not be permissible under RPC 1.14.