April 9, 1986
A lawyer in possession of client funds must retain the funds in trust for the client's benefit. In the absence of instructions from the client or authority to do so, the lawyer is not required to place the funds in an interest-bearing account.
No procedure exists for the disposition of client funds which cannot be disbursed because of an inability to locate the client.
References: MCPR DR 9-102(A), DR 9-102(B); CI-752, CI-947.
A lawyer represented a client on the sale of a business and the proceeds from the sale into a trust account. After the sale of the business but before the lawyer received the funds, the client moved leaving no forwarding address and no known relatives or heirs. The lawyer has been unable to locate the client for four years; the funds remain in the trust account. The lawyer asks whether the funds should be placed in an interest-bearing account and how the lawyer should proceed regarding disposition of the funds.
MCPR DR 9-102 sets forth the procedures a lawyer must follow in handling client funds in a responsible manner. MCPR DR 9-102(A) requires that all client funds other than advances for costs and expenses 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 those which are reasonably sufficient to pay bank charges and those which belong in part to a client and in part presently or potentially to the lawyer or law firm. As to the portion of the funds belonging to the lawyer or law firm, there may be a withdrawal when due unless the right of the lawyer or law firm to receive those funds is disputed by the client, in which event, the dispute must be finally resolved before the withdrawal.
MCPR DR 9-102(B) sets forth the procedures for notification of receipt accounting for and payment of funds or other properties belonging to clients. The underlying principle supporting the provisions of MCPR DR 9-102 and the opinions interpreting it, rely upon the rationale that the lawyer-client relationship is one of a fiduciary nature in which the lawyer acts as a trustee for the client in all client undertakings. Thus, the lawyer may not withdraw what clearly belongs to the client absent the client's authorization or judicial determination and, the lawyer has a fiduciary obligation to retain for safekeeping from third parties the funds belonging to the client.
The committee has been presented with questions as to the disposition of trust accounts in the past. CI-947 (June 30, 1983) involved a trust account dating back to 1967 with unidentified funds in the amount of $1,528.40. The lawyers submitting the issue could not identify ownership of the funds except to the extent that they did not feel they, or any of their clients, had an interest in the funds. The assumption was that the funds belonged to lawyers previously associated with the firm or they represented interest earned on the account or other unrelated client dollars.
A similar issue was presented in CI-752 (August 16, 1982) in which a four-person firm maintained a lawyer trust account and subsequently dissolved the partnership. Identifiable funds were transferred to a new trust account for the new firm; however, approximately $2,500.00 could not be associated with any particular client or file. On final liquidation of the firm, two of the lawyers inquired as to whether it was ethically appropriate to retain and divide the unaccounted for balance equally with each retaining responsibility for one-half of any future claim asserted against the dormant account.
Under both circumstances, the committee recognized that eventually some disposition of each fund would be required and that the lawyer was not compelled to maintain the account indefinitely. The recommendation was made, that after notification to former clients of each firm of the existence of the fund, and an opportunity to what are clearly client funds which cannot be disbursed because of an inability to locate the client. The cited opinions offer only guidance in the method of attempting to locate and/or notify the client of the existence of the funds.
It appears that the lawyer has no alternative but to retain the funds on the client's behalf at least until such time as the funds may be legally considered abandoned. The Committee has no authority to address legal questions and therefore cannot advise you of the applicability of the escheat law of the State of Michigan once the fund has been unclaimed for seven years or more.