Monday, November 20, 2006

Penalty for Early Withdrawal

by Mike Frisch

Classic misappropriation in violation of Rule 1.15 involves the unauthorized use of funds entrusted to the lawyer for eventual payment to the client or a third party. But what if the funds are advanced fee payments that the lawyer holds in trust to pay herself when earned? Courts have treated such premature withdrawals as misappropriation but have tended to view the conduct as somewhat less blameworthy than the more classic form. An example may be found in a decision of the Michigan Attorney Discipline Board in Grievance Administrator v. Boffman.

The client had paid a $5000 retainer to the attorney that obligated the lawyer to perform 50 hours of legal services. Three months later, the client discharged the lawyer and sought a refund. After the lawyer repaid a portion of the fee, the dissatisfied client filed a lawsuit and a grievance against the lawyer.

The hearing panel concluded that the fee advance was a "general retainer" and thus exempt from Rule 1.15 duties. The Board held otherwise but noted that "a prior contrary decision of the Board and the fact that many respected and thoughtful practicioners have divergent views" on the proper handling of fee advances justified a prospective ruling. To the extent that fee agreement was unclear, the ambiguity must be construed against the party who drafted it. In the future, fee advances must be escrowed and held in trust until earned.

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