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Ethics Opinion

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CI-663

August 3, 1981

SYLLABUS

    An attorney who is in possession of funds collected on behalf of a client may not withdraw from the funds any portion belonging to the lawyer that is disputed by the client.

    When there is a conflict between attorney and client about who is entitled to funds in the attorney's possession and when this conflict is not quickly and amicably resolved an attorney may properly file an action for the adjudication of the rights of all claimants.

    References: DR-9-102 (A)(2).

TEXT

As president of a corporation (which you formed for your brother-in-law) have received a federal tax assessment and a Michigan state tax assessment. You have collected certain sums of money as attorney for the corporation that have not been paid by you to the corporation. You state that demand has been made by the stockholder of the corporation, presumably on the theory that the sole stockholder is entitled to receive the funds as his/her own as distinguished from funds belonging to the corporation. The sole stockholder, who is your brother-in-law, and your sister (presumably the wife of the sole stockholder) owe you money for a personal loan to assist them in the purchase of their home, advanced to them without note or security and an additional sum advanced by you to your brother-in-law to pay withholding taxes due from the corporation.

You state that you have attempted to account to them for all funds received which accounting shoes a balance due your brother-in-law and sister $1300.00 after deducting the amounts assessed to you for non-payment by the corporation of withholding taxes. You further state that you stated to her that you would turn over to them the $1300.00 upon their execution of a mortgage for the monies you advanced to them in connection with the purchase of their home and in connection with the advancement made by you to pay withholding taxes of the corporation. This is not agreeable to your brother-in-law. You ask if you may ethically withhold the $1300.00 that you acknowledge to be due and owing pending receipt of some security for the money advanced to your brother-in-law and sister in connection with their home purchase. You also ask if you may ethically pay out of the funds that you hold the assessment levied against you for the non-payment of withholding taxes of the corporation. DR 9-102 states:

    "Preserving Identity of Funds and Property of a Client.

    "(A) All funds of clients paid to a lawyer or law firm, other than advances for costs and expenses, shall be deposited in one or more identifiable bank accounts maintained in the state in which the law office is situated and no funds belonging to the lawyer or law firm shall be deposited therein except as follows:

      "(1) Funds reasonably sufficient to pay bank charges may be deposited therein.

      "(2) Funds belonging in part to a client and in part presently or potentially to the lawyer or law firm must be deposited therein but the portion belonging to the lawyer or law firm may be withdrawn when due unless the right of the lawyer or law firm to receive it is disputed by the client, in which event the disputed portion shall not be withdrawn until the dispute is finally resolved

    "(B) A lawyer shall:

      "(1) Promptly notify a client of the receipt of his funds, securities, or other properties.

      "(2) Identify and label securities and properties of a client promptly upon receipt and place them in a safe deposit box or other place of safekeeping as soon as practicable.

      "(3) Maintain complete records of all funds, securities, and other properties of a client coming into the possession of the lawyer and render appropriate accounts to the client regarding them.

      "(4) Promptly pay or deliver to the client as requested by a client the funds, securities, or other properties in the possession of the lawyer which the client is entitled to receive."

Based on the above, you should promptly make every reasonable effort to reach a satisfactory amicable settlement and that pending that settlement you may not receive to your own use any portion of the client's funds that are in your possession until the dispute is finally resolved.

If the matter is not quickly and amicably resolved, you may properly file an appropriate action so that the rights of all claimants may be promptly adjudicated. ABA Informal Opinion 1475.

In taking such action as you may determine to be necessary, you will want to give ethical consideration to the necessity of avoiding conflicts which exist or most certainly may arise between your interests, the corporation's interest and the individual interests of your brother-in-law and your sister. Canon 5, DR 5-101.

 
     

 

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