June 30, 1983
It is not unethical for an attorney in possession of an unidentifiable attorney trust account balance to retain and divide the funds remaining in the account established a number of years ago provided reasonable notice is given to all affected parties, including clients of the predecessor firm, advising them of the existence of the fund and an opportunity to establish a legitimate claim to the balance. Alternatively, the funds may be donated to the State Bar of Michigan, Client Security Fund, with a full explanation of the account's origin.
References: MCPR DR 1-102(A)(1), DR 1-103(A), DR 9-102(A) and (B); CI-752.
In January of 1967 inquirer became an employee of firm A. In January of 1969 a limited partnership of A and C was formed. Subsequently, a limited partnership of A, C and D was formed and later dissolved, and the firm of A and C, PC was organized. In 1976 named shareholder A was elected judge and the PC was discontinued.
An attorney trust account which relates back to 1967 has unidentified funds in the amount of $1,528.40. Conscientious scrutiny of books and records on more than one occasion has failed to identify ownership of the funds. Inquirer does not believe that the money in the account belongs to inquirer, and cannot trace it to any of Inquirer's clients. Former shareholder A likewise could not identify ownership of the funds. Former shareholder A has died and the estate claims a one-half interest in the trust account.
This Committee has no jurisdiction to answer questions of law, however, we will consider the ethical implications of your request.
MCPR DR 9-102 sets forth the procedures a lawyer must follow in handling client funds in a responsible manner. DR 9-102 (A) states that all client funds, "other than advances for costs and expense, " 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 With respect to the second exception, the money may be withdrawn by lawyers only when it is due the lawyer, or the firm, provided there is no dispute with the client over the lawyer's right to withdraw form the trust account. DR 9-102 (A) (2) does not specify that the lawyer must notify the client before he or she withdraws money from a trust account "belonging" to the lawyer or the firm, however, a number of courts have interpreted this action to require client notification. See In re Geralds, 402 Mich 387, 263 NW 2d 241, 242-243 (1978).
MCPR DR 9-102(B (3) is also instructive. This Rule 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 the lawyer's possession. The rationale for this accounting is grounded upon the principle that the attorney-client relationship is one of a fiduciary nature in which the lawyer acts as a trustee for the client in all client undertakings, that client funds should be protected and misunderstandings and disputes between lawyers and clients should be minimized. It is noted that DR 1-102(A)(1) states that a lawyer shall not violate a disciplinary rule, and 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 the violation.
In the absence of complete records, it is unclear whether the money remaining in the trust account belongs to unidentified clients, or to any of the law firms. The balance may represent interest earned on the account or some other unrelated client dollars. The problem presented illustrates the 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 was presented with a similar issue in CI-752 in which the firm of "A," "B," "X and "Y" maintained an attorney trust account. Lawyers "X" and "Y" withdrew form the firm and reconciled the trust account from the time Lawyer "X" joined the firm of "A," "B" and "X." Identifiable funds were transferred to a new trust account. Approximately $2,500 could not be associated with any particular client or file. On final liquidation of the firm, Lawyers "X" and "Y" inquired whether or not it was ethically appropriate to retain and divide the unaccounted for balance equally with each retaining responsibility for one-half of any future claim which may be asserted against the dormant account. In CI-752 the Committee ruled as follows:
"The committee recognizes that eventually some disposition of the fund is required, and that you are not compelled to maintain the account indefinitely. Accordingly, the Committee is of the opinion that Attorneys "X" and "Y" may retain and divide the $2,500 held in the old trust account, provided Attorneys "A" and "B" are first notified, if available, of the existence of the fund, and given a reasonable opportunity to establish a legitimate claim to the $2,500. The lawyers should also make a reasonable effort to notify former clients of "A" and "B" of the existence of the fund, and an opportunity to present their claims. The latter may be accomplished by notice in a newspaper of general circulation in the area in which the practice was conducted. The lawyers might also consider donating the fund to the State Bar of Michigan, Client Security Fund, with a full explanation of the fund's origin."
The Opinion specifically disclaimed any advice on the prospective liability of Lawyers "X" and "Y" to a party who may present a future claim to the money should the lawyers elect to retain and divide the unidentified balance.
The Committee is of the opinion that the lawyer is not required to preserve the account indefinitely and that an equitable division of the balance may be made among some or all of the lawyers who were associated together in the practice of law during the period of time giving rise to the unaccounted balance. Lawyers "B" and "D" should be notified, if available, of the existence of the fund and given a reasonable opportunity to establish a legitimate claim. Reasonable effort to notify former clients of Lawyers "A," "B," "C" and "D" of the fund's existence and an opportunity to substantiate any claims they may have should be undertaken. Notice to former clients may be published in a newspaper of general circulation in the area in which the lawyers conducted their practice. The inquirer may also consider donating the fund to the State Bar of Michigan, Client Security Fund, with a full explanation concerning the source of the donation.