August 16, 1982
When a law practice dissolves or is liquidated, the lawyers may retain and divide unidentifiable funds deposited in a dormant client trust account established a number of years ago by the firm's predecessors, provided reasonable notice is given to all affected parties, including clients of the firm's predecessors, advising of the existence of the fund, and providing an opportunity to establish a claim to the balance.
References: MCPR DR 9-102(A) and (B); In Re Geralds, 402 Mich 387 (1978).
Two lawyers originally had a law practice together. Two other lawyers subsequently joined the firm, and the originating lawyers sold their interest to the others. The firm has now been closed.
The firm has a trust account balance of $2,500 that cannot be reconciled or traced to any particular client or file, and may have originated during participation of any of the lawyers in the practice. The monies may be owed to the law firm or to clients. Inadequate records exist prior to the sale of the originating lawyers' interests. The purchasing lawyers propose to divide the litigation from the final partnership, each lawyer taking responsibility for half of any future claim which may be asserted against the funds.
MCPR DR 9-102(A) states that all client funds, "other than advances for costs and expenses," must be deposited in "one or more identifiable bank accounts" in the state in which the lawyer's office is located, with two exceptions which are for (1) funds "reasonably sufficient to pay bank charges," and (2) funds "belonging in part to the client and in part presently or potentially to the lawyer or law firm." With respect to the second exception, the money may be withdrawn by the lawyers only when it is due the lawyer or the firm provided there is no dispute by the client over the lawyer's rights to receive monies withdrawn from the trust account. MCPR DR 9-102(A)(2) does not specify that the lawyer must notify the client before money is withdrawn from the trust account "belonging" to the lawyer or the firm, however, a number of Courts have interpreted this section to require client notification. See In Re Geralds, 402 Mich 387, 263 N.W. 2d 241, 242-43 (1978).
MCPR DR 9-102(B)(3) requires that a lawyer maintain complete records of all client funds, securities, and other properties that come into the lawyer's possession. In addition, the lawyer must "render appropriate accounts" to the client with regard to all funds, securities or properties coming into his or her possession. The rationale for this accounting requirement is grounded upon the notion that the lawyer-client relationship is one of a fiduciary nature in which the lawyer acts as a trustee for the client in all undertakings on behalf of the client, and that client funds should be protected and that misunderstandings and disputes between lawyers and clients should be minimized. It is noted that MCPR DR 1-102(A)(1) states that a lawyer shall not violate a Disciplinary Rule, and MCPR DR 1-103(A) requires that a lawyer possessing unprivileged knowledge of a violation of DR 1-102 is required to report the violation to a tribunal or other authority empowered to investigate or act upon a violation.
In the absence of complete records, it is unclear whether the $2,500.00 remaining in the old trust account belongs to unidentified clients, or to any of the lawyers. The problem presented illustrates the Code's requirement that complete and accurate records of all funds entrusted to a lawyer be maintained, and funds belonging to clients be carefully segregated and recorded.
The Committee recognizes that eventually some disposition of the fund is required, and that the lawyer is not compelled to maintain the account indefinitely. Accordingly, inquirers may retain and divide the $2,500.00 held in the old trust account, provided the other lawyers are first notified, if available, of the existence of the fund, and given reasonable opportunity to establish a legitimate claim to the $2,500.00. The inquirers should also make a reasonable effort to notify former clients of the existence of the fund, and provide an opportunity to present any claims. The latter may be accomplished by notice in a newspaper of general circulation in the area in which the practice was conducted. The lawyer might also consider donating the fund to the State Bar of Michigan Client Security Fund with a full explanation of the fund's origin.