I am on the CBA Ethics Committee as a volunteer. I was counsel to the CBA from 1982-2021. In that time, my colleagues and I saw a constant flow of problems with client trust accounts, and I’m not talking about thefts. We certainly had those, but I always considered those to be in a separate category- and it was one that we knew how to deal with. Ethics inquiries and grievance allegations about client trust accounts increased to what felt like a daily basis. I was frustrated. In 2007, I asked my friend John J. Mueller, an attorney and CPA, to prepare CLE materials on trust accounts. Those materials eventually became a book, Lawyers’ Trust Accounts, and the CBA published about 3,000 copies.
Most trust account questions arise after the fact, often when a client asks, “Where’s my money?” Our normal analysis was to ask: (1) Does the attorney have a trust account? (2) Were the funds in question deposited into that account? (3) Has the account been maintained in compliance with Prof. Cond. R.1.15 (a)? (4) Has there been a commingling of client and lawyer funds?
However, a recent inquiry raised the issue of where the client funds should have been deposited in the first place,1 and, further, whether the attorney’s handling of the matter constituted a breach of fiduciary duties. The attorney who called was a domestic relations practitioner who routinely holds proceeds from the sale of a marital residence in an Interest on Lawyers’ Trust Account (IOLTA), pending a final agreement between the parties or a court order as to property division. Such an agreement or order could take months and may not occur in a predictable time frame.
The trust account rule requires a lawyer to “maintain funds of clients or third persons that cannot earn any net income for the clients or third persons in an interest-bearing trust account that is established in an eligible depository institution,”2 per the Ohio Revised Code. Revised Code §4705.09 (A) requires attorneys to “deposit all client funds held that are nominal in amount or are to be held by the attorney for a short period of time” in an IOLTA. However, “nominal in amount” and “a short period of time” are not defined terms. Nevertheless, RC §4705.09 (A)(3) provides cover for the attorney: “The determinations of whether funds held are nominal or more than nominal in amount and of whether funds are to be held for a short period or longer than a short period of time rests in the sound judgment of the particular attorney. No imputation of professional misconduct shall arise from the attorney’s exercise of judgment in these matters.” 3
Thus, an attorney who holds the not-so-nominal sum of $500,000, belonging to a client, for the not-so short time period of three months, may not be subject to a professional misconduct charge in Ohio.4 But does that attorney have any exposure to a professional liability claim? Comment 7 to Prof. Cond. R. 1.15 states that “A lawyer’s fiduciary duties are independent of the lawyer’s employment at a particular firm or the rendering of legal services ...”
The Supreme Court of Georgia addressed a lawyer’s fiduciary duties regarding the handling of real estate proceeds, although the question presented arose in a slightly different context. The Formal Advisory Board of the State Bar of Georgia had rendered an opinion on the following question: “May a lawyer participate in a non-lawyer entity created by the lawyer for the purpose of conducting residential real estate closings where the closing proceeds received by the entity are deposited in a non IOLTA interest bearing trust account rather than an IOLTA account?” The board concluded that because the closing proceeds are not nominal in amount, but are to be held for only a short period of time, the funds must be deposited into an IOLTA compliant account. The Supreme Court of Georgia granted review of the board’s proposed opinion.5
The Court adopted the board’s opinion “to the extent it is in accord with the rule that attorneys must place client closing proceeds that are nominal or held for a short period of time in an lOLTA account. We clarify that closing proceeds that are more than nominal in amount or that will be deposited for more than a short period of time must be placed in a non-IOLTA interest-bearing account with interest payable to the client.”6 This holding has the force of law in Georgia.
During my first 20 years as counsel to the CBA, I was fortunate to have trial attorney Gates T. Richards as my mentor. Gates, who is retired, was a longtime member of both the Ethics and Grievance Committees. We collaborated on many CLE programs. When Gates emphasized in his client trust account lectures, “You could be sued for malpractice! You could lose your law license! You could face criminal charges!” even the end-of-the-year CLE attendees, who were sitting in the back row, looked up from reading their newspapers!
Yes, safeguard your client’s funds. Yes, maintain your IOLTA timely and as required by the rules. No, don’t commingle your funds with client funds. But do consider, in each circumstance, what your duty is regarding your handling of those particular funds.
Edwin W. Patterson III retired as General Counsel for the CBA in 2021 and now serves on the Ethics Committee.
1. Interest earned on funds deposited in an IOLTA, less reasonable service charges, is remitted to the Treasurer of State for a legal aid fund and does not benefit any individual client. RC §4705.10 (A)(3) (a).
2. Prof. Cond. Rule 1.15 (h)(l ). (Emphasis added.)
3. Compare: Mann v. Skidmore, 2 Misc.3d 50, 774 N.Y.S.2d 252 (2003).
4. But see: In re Hilson, 448 Mass. 603,615, 863 N.E.2d 483,493 (2007): “Because the respondent had reason to know that he would be holding the money in trust for a significant period of time pending an appeal, he should not have held the money in his IOLTA account, but in an interest-bearing account.”
5. Formal Advisory Opinion 04-01, 280 Ga. 227,626 S.E.2d 480 (2006).
6. 280 Ga. at 229, 626 S.E.2d at 482. (Emphasis added.) Advisory opinions which are approved or modified by the Supreme Court of Georgia are “binding on all members of the State Bar.” State Bar Rule 4-403 (e)