July 16, 1991
All client funds in a lawyer's possession in connection with a representation must be deposited in an interest-bearing trust account separate from the lawyer's own property.
A subordinate lawyer must comply with the Michigan Rules of Professional Conduct, even if ordered to do otherwise by an employer, if there is no reasonable resolution of an arguable question of professional duty which supports the employer's directive.
A supervisor may take responsibility for a subordinate's conduct which may violate the Michigan Rules of Professional Conduct if the conduct is supported by a reasonable resolution of an arguable question of professional duty, and the subordinate lawyer acts pursuant to the direction of the supervisor.
References: MRPC 1.15, 5.2; R-7.
A legal aid organization has decided that it will not establish a client trust account. It intends to follow this procedure:
"Client money shall never be deposited in any [organization] bank account. No staff of [organization] shall ever accept any money from a client or outside legal counsel which is considered 'client funds' where the 'client funds' are cash or, the 'client funds' are in the form of a check or money order, if the check or money order is in part or in whole made payable to [organization].
"[Organization] may receive 'client funds' only if the 'client funds' are in the form of a check or money order and the check or money order is made payable to the client. In that case the following steps will be taken:
- The receptionist will record the check money order on [organization's] form and give the check/money order to the [designated organization employee]. The receptionist shall make a copy of the form and give the copy to the attorney handling the client's case.
- The [designated organization employee] shall keep the check or money order in a locked file cabinet until the attorney determines that the check or money order is to be turned over to the client.
- The attorney shall have the client come into [organization's] office to pick up the check. At that time the client shall sign [a form]. The original of the form shall be retained in the client's file and a copy shall be retained by the [designated organization employee]."
This system has been approved by the organization's Board of Directors. A lawyer employed by the organization wants to know whether this conduct violates MRPC 1.15(d)(1), and if it does, whether MRPC 5.2 requires that the lawyer refuse to cooperate.
MRPC 1.15(a) states:
"A lawyer shall hold property of client's or third persons that is in a lawyer's possession in connection with a representation separate from the lawyer's own property. All funds of the client paid to a lawyer or law firm, other than advances for costs and expenses, shall be deposited in an interest-bearing account in one or more identifiable banks, savings and loan associations, or credit unions maintained in the state in which the law office is situated, . . . . Other property shall be identified as such and appropriately safeguarded . . . ."
Thus, MRPC 1.15(a) establishes several duties: (1) to segregate property of the lawyer from property of others held by the lawyer, (2) to place into an interest-bearing trust account funds of others which are in a lawyer's possession (MRPC 1.15(d)(1) and (d)(2) set forth the types of trust accounts which may be used for this purpose.), and (3) to appropriately safeguard other property. The legal services organization is a "law firm" under the Rules. See MRPC 1.0, Terminology.
The responsibilities of a subordinate lawyer are set forth in MRPC 5.2, which states:
"(a) A lawyer is bound by the rules of professional conduct notwithstanding that the lawyer acted at the direction of another person.
"(b) A subordinate lawyer does not violate the rules of professional conduct if that lawyer acts in accordance with a supervisory lawyer's reasonable resolution of an arguable question of professional duty."
Although we do not answer questions about the conduct of someone other than the inquirer, in this instance, in order to advise the subordinate lawyer of the propriety of following the policy of the lawyer's employer, MRPC 5.2 requires a review of the legal aid organization's policy to determine whether it is a reasonable resolution of an arguable question of professional duty.
Based on the information from the inquirer, the policy followed by the organization does not comport with MRPC 1.15(a). Whether the check is made out solely to the client, or to the client and the law firm, the check is still client funds. MRPC 1.15 is intended to protect client funds in the possession of the lawyer. R-7, citing Schwartz v Cummins, ADB 159-88, 12/5/88 (settlement check must be placed in trust account); Schwartz v Davey, ADB 27-88; 44-88, 12/6/88 (funds held as fiduciary must be placed in trust account). A lawyer has a fiduciary duty to preserve assets held in trust. R-7.
There appears to be no arguable question about whether client funds are involved in the check policy before us. The legal aid organization's procedure by definition applies only to client funds. The organization clearly contemplates that it will have possession of checks for some period of time; indeed, the organization has established a logging policy which tracks the receipt and disbursement of the received checks. Once these client funds are paid to the law firm or lawyer, the requirements of MRPC 1.15 must be followed. While there may be practical difficulties in depositing funds and then withdrawing them in a few days to disburse to the client, the rule is absolute. It refers to all funds. It also refers to all lawyers, and makes no exception for legal aid organizations. An interest-bearing trust account must be used.
In fact, however, it does not matter whether the checks are labeled "client funds" or by some other designation, since by whatever name the checks are not the property of the organization, are in the organization's possession, and must be properly safeguarded. Even in the absence of MRPC 1.15 requirements, a lawyer does not fulfill fiduciary duties to maximize the client's investment by maintaining checks in a drawer or safe. The organization may not circumvent ethics duties aimed at protecting client property by establishing a procedure which provides no benefit to or adequate protection for the client's interests. Further, if the lawyer receives notice of a third party claim to the funds in the lawyer's possession, the organization's proposed procedure does not enable the lawyer to disburse funds not in dispute while separately maintaining disputed funds until the dispute is resolved. MRPC 1.15(c).
The question before us, however, is not the conduct of the employer, but rather the lawyer's responsibility in a situation where the employer's conduct does not colorably comply with MRPC 1.15. The comment to MRPC 5.2 advises, "If the question can reasonably be answered only one way, the duty of both lawyers [employer and subordinate] is clear and they are equally responsible for fulfilling it."
In a situation where the question is reasonably arguable, the supervisor may assume responsibility for making the judgment. Since someone has to decide on a course of action, that person is ordinarily the supervisor, and the subordinate may be guided accordingly. Comment to MRPC 5.2. That is not the situation here.
The question of the relationship of the legal aid organization's policy to MRPC 1.15 can be reasonably answered only one way. It does not comply. The inquirer's responsibility, therefore, is not to follow this policy.
Where the conduct of the employer violates MRPC 1.15, the subordinate has a duty to refuse to violate the rule, even when given directions to do so by the employer. If the subordinate does follow the employer's directions and violates the rule, the subordinate is responsible for violating the rule of conduct.