Saturday, June 26, 2021

May, Shall And The Rule Against Commingling

The Michigan Attorney Discipline Board reversed a hearing panel order dismissing disciplinary charges, holding that the allegations of misconduct were sufficiently pleaded to withstand a motion to dismiss.

Respondent’s argument that the complaint fails to state a claim is based on her unique reading of MRPC 1.15(g), which provides: “Legal fees and expenses that have been paid in advance shall be deposited in a client trust account and may be withdrawn only as fees are earned or expenses incurred.” This provision was added to our Rule 1.15 in 2005 after a similar provision was added to the Model Rule in 2002 “because of reports that ‘the single largest class of claims made to client protection funds is for the taking of unearned fees.’” Annotated Model Rules of Professional Conduct (9th ed, 2019), p 274. The paragraph was added to clarify that unearned fees are client property, and are therefore required to be held in a trust account in accordance with MRPC 1.15(d).

As to the commingling charge

respondent asserts that she is allowed to leave earned funds in her IOLTA for as long as she wants, first because of a purported difference between the Michigan and Model rules, and also because of an odd, almost tautological “argument” that fees aren’t earned until they are removed from the trust account.

Nope

First, the verbiage in the Michigan rule simply does not lead to a different application of the anti-commingling rule. Whether the language of MRPC 1.15(g) said advance fees “may be withdrawn from a trust account only when earned,” or “are to be withdrawn only when earned,” or “shall be withdrawn only when earned,” it is clear that unearned fees must remain in a trust account until they are earned, at which point MRPC 1.15(d) requires that they be removed. This is how we have consistently interpreted MRPC 1.15, as have courts throughout the country.

The board cites Maryland law

This is not an isolated holding in Maryland. See, e.g., Attorney Grievance Comm’n of Maryland v Johnson, 472 Md 491, 537-38; 247 A3d 767, 795 (2021) (quoting McLaughlin’s reference to the consistency with which the Court has held that failure to withdraw earned fees is commingling). In sum, Maryland has a rule like ours in relevant respects and its cases hold that earned fees must be withdrawn from the trust account so as to avoid commingling.

And concludes

The core principle of MRPC 1.15 is that a lawyer must hold his or her own funds separate from that of clients or third persons. Subsection (g) is a specific example of a kind of client property. It would be absurd to construe the rule such that paragraph (g) would eviscerate paragraph (d) by allowing earned fees belonging to the lawyer to remain in a trust account indefinitely. Neither the plain language of the rule nor canons of construction support reading MRPC 1.15(g) as modifying MRPC 1.15(d)’s broad and unequivocal prohibition against commingling. Nothing in MRPC 1.15(g) suggests that it deals comprehensively and exclusively with earned and unearned fees, thereby displacing the general anti-commingling rule. It merely says that unearned fees must be placed in trust and may only be removed when earned.

(Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2021/06/the-michigan-attorney-discipline-board-reversed-a-hearing-panel-order-dismissing-disciplinary-charges-holding-that-the-alleg.html

Bar Discipline & Process | Permalink

Comments

This summary lacks facts that might be salient. The concepts seem too ambiguous. What is the marker as to when fees are earned? when time is expended? when a bill/invoice is sent? How long after they are earned must the fees be removed? - same day? within a week? a month?

Posted by: Lewis Siegel | Jul 1, 2021 3:41:44 PM

There are cases that deal with the issue of how promptly must an attorney remove earned fees. That is a tricky question not addressed here given the attorney's position - that fees can stay in the trust account indefinitely - that the court squarely rejects.

Posted by: Michael Frisch | Jul 3, 2021 3:17:49 AM

Post a comment