RPC 1.15A, 1.3, 1.16(a), 1.4, ELC 1.2
Retired Lawyer Maintaining Trust Account To Receive Client Settlement Funds
Facts: The inquiring lawyer is a senior practitioner in a one-person office who plans to retire on December 31, 2019. He indicates that he will be an inactive member of the WSBA after his retirement. The inquirer previously settled a client's damage claims against negligent insureds with a structured settlement. Over the past several years, the defendant’s insurance company has periodically issued single checks payable jointly to the client and the attorney and mailed them to the attorney for deposit in his trust account and disbursement to the client and attorney pursuant to a written fee agreement. These payments will continue to be made for several years after the inquirer’s retirement.
After retirement, the lawyer wants to continue to receive the settlement payments, process the funds into a "trust account," issue a check to the client for the client’s share and retain the balance pursuant to a written fee agreement. According to the inquirer, the "trust" account will not be an IOLTA account.
The former lawyer does not intend to give post-retirement advice to the client or otherwise engage in the unauthorized practice of law. The attorney will limit his dealings with the former client to processing the insurer's check, which he believes does not involve the practice of law.
Question: May an inactive lawyer ethically own and operate a "trust" checking account for the sole purpose of processing settlement checks received after retirement in connection with representation of a former client?
Answer: No. An inactive lawyer may not ethically own or operate a trust account for the receipt of client funds. A lawyer who has an ongoing obligation to administer a trust account for a client’s benefit should consult with the client about the means by which that obligation will be satisfied when the lawyer decides to take inactive status.
Analysis: RPC 1.15A is applicable to all property of a client or a third person “in a lawyer’s possession in connection with representation.” RPC 1.15A(a). Proceeds from a structured settlement are in the lawyer’s possession in connection with representation and therefore, subject to RPC 1.15A. The RPCs do not authorize a lawyer to place client property in a trust account that does not comply with RPC 1.15A.
RPC 1.15A safeguards client funds and third parties by imposing procedural and substantive requirements upon the lawyer who holds client property in trust. For instance, a lawyer must provide the client with an annual accounting of funds held in trust. RPC 1.15A (e). A lawyer must promptly disburse funds to a client or other third party entitled to such funds. RPC 1.15A (f). If two or more persons claim an interest in the funds, the lawyer must disburse the undisputed portions of the funds and take reasonable actions to resolve a dispute with a third party over the funds, including, where appropriate, interpleading the disputed funds. RPC 1.15A(g). The extent of the efforts a lawyer must take to resolve a dispute depend on the amount in dispute, the availability of alternative dispute resolution and the likelihood of informal resolution. Comment 9 to RPC 1.15A. n.1 Only a lawyer admitted to practice law may be an authorized signatory on the account. RPC 1.15A(h)(9). Comment 7 to RPC 5.5 provides that the word “admitted” excludes a lawyer “ who while technically admitted is not authorized to practice, because for example, the lawyer is on inactive status.”
Because an inactive lawyer cannot be the signatory on an RPC 1.15A trust account, an inactive lawyer cannot set up an RPC compliant account to receive funds related to his representation of a party. This restriction is consistent with the fact that, while many duties imposed by RPC 1.15A are ministerial in nature, other responsibilities require the exercise of legal judgment and the ability to take legal actions. For instance, the lawyer has the responsibility to resolve third party claims to the funds and more particularly, to select and use legal processes to resolve disputes about the funds. This may require the lawyer to interplead the funds. Taking action on behalf of a client to resolve a dispute constitutes the practice of law. See GR 24(a)(4), (practice of law includes “[n]egotiation of legal rights or responsibilities on behalf of another entity or person(s).” ). Because an inactive lawyer may not engage in the practice of law, an inactive lawyer cannot satisfy the requirements of RPC 1.15A.
Additionally, the inquirer does not indicate that the client will be consulted about the future disposition of settlement proceeds. The inquirer seems to assume that the client representation ended at the time the parties entered into the settlement agreement. The Committee believes that a question arises as to whether the representation of the client in the matter continues until the last payment is received from the insurer and disbursed to the client. See RPC 1.3, Comment 4. n.2 See also RPC 1.16(a), Comment 1. n.3 Assuming the existence of an attorney client relationship, the attorney remains subject to RPC 1.4, requiring the attorney to keep the client reasonably informed about the status of the matter and to explain matters to the extent reasonably necessary to permit the client to make informed decisions regarding the representation. RPC 1.4. See also RPC 1.7(a)(2).
In sum, the Committee believes that any lawyer who unilaterally decides to open a “trust” account outside the parameters of RPC 1.15A for the purpose of continuing to receive funds related to representation is at risk of violating the RPCs. ELC 1.2 provides: “[A]ny lawyer admitted . . . to practice law in this state . . . is subject to the Rules for Enforcement of Lawyer Conduct. Jurisdiction exists regardless of the lawyer’s residency or authority to practice law in this state.”
The Committee does not intend to suggest that a lawyer with a fee arrangement such as the one described in the inquiry may not take inactive status. However, before doing so, the lawyer should, after consultation with the client, explore alternatives for receiving and disbursing to future payments in a manner that complies with the RPCs.
1. Comment 9 to RPC 1.15A states:
Under paragraph (g) the extent of the efforts that a lawyer is obligated to take to resolve a dispute depend on the amount in dispute, the availability of methods for alternative dispute resolution, and the likelihood of informal resolution.
2. RPC 1.3, Comment 4 states in part:
Unless the relationship is terminated as provided in Rule 1.16, a lawyer should carry through to conclusion all matters undertaken for a client. . . . Doubt about whether a client-lawyer relationship still exists should be clarified by the lawyer, preferably in writing, so that the client will not mistakenly suppose the lawyer is looking after the client’s affairs when the lawyer has ceased to do so. . .
3. RPC 1.16(a), Comment 1 states in part:
A lawyer should not accept representation in a matter unless it can be performed competently . . . to completion. Ordinarily, a representation in a matter is completed when the agreed-upon assistance has been concluded.