Safekeeping Funds Collected from Client to Pay Expenses
Adopted: April 19, 2013
Opinion examines a lawyer’s responsibilities when charging and collecting from a client for the expenses of representation.
Inquiry #1:
Attorney hires a court reporter to take a deposition in Client’s case. The court reporter transcribes the deposition and delivers the transcript and an invoice to Attorney. Attorney bills Client for the court reporter’s services in the amount shown on the invoice. Client gives Attorney the funds to pay the court reporter’s invoice. Attorney has not previously paid the court reporter.
May Attorney deposit the funds from Client into Attorney’s operating account and write a check on the operating account to pay the court reporter?
Opinion #1:
No. The funds collected from Client were collected for the purpose of paying a third party in connection with the performance of legal services and are, therefore, “entrusted funds.” Entrusted funds are funds belonging to someone other than the lawyer which are in the lawyer’s possession or control in connection with the performance of legal services or professional fiduciary services. Rule 1.15-1(d). Entrusted funds must be maintained separately from the property of Attorney and deposited in Attorney’s trust account in accordance with Rule 1.15-2(b).
Attorney may direct Client to write a check for the court reporter’s fee payable directly to the court reporter. Attorney would then forward the check to the court reporter without depositing the check in Attorney’s trust account. Rule 1.15 does not prohibit a lawyer who receives a check belonging wholly to a third party from delivering the check to the appropriate recipient without first depositing the check in the lawyer’s trust account. Rule 1.15, cmt. [5].
Inquiry #2:
Would the answer to Inquiry #1 change if Attorney considers payment of a court reporter to be the lawyer’s obligation?
Opinion #2:
No. It does not matter who has the obligation to pay the court reporter. If a lawyer receives funds from a client for the purpose of paying a third party, the funds are entrusted funds and must be maintained separately from the property of the lawyer in a trust account.
Inquiry #3:
Would the answer to Inquiry #1 change if Attorney is contractually obligated to pay the court reporter’s fee regardless of whether Client pays Attorney for this expense?
Opinion #3:
No. Attorney’s contractual obligations do not change the fact that Attorney is receiving entrusted funds from a client for the specific purpose of paying a third party.
Inquiry #4:
Would the answer to Inquiry #1 change if Attorney has already paid the court reporter from either his operating account or personal funds prior to receipt of Client’s funds?
Opinion #4:
Yes. Attorney has advanced the funds to pay the expenses of representation and Attorney is entitled to reimbursement from the client. Rule 1.8, cmt. [10]. The money paid by Client is not entrusted to Attorney but is owed to him. To avoid commingling client funds with the lawyer’s funds as required by Rule 1.15-2(f), Attorney must deposit Client’s payment into his operating or personal account.
Inquiry #5:
In the field of patent law, the services of patent lawyers or agents in foreign countries (“foreign agents”) are sometimes required in the course of applying for international patents for US clients. On behalf of Client, Patent Attorney arranges for foreign agent services. The foreign agent performs the required services and sends an invoice to Patent Attorney. Patent Attorney bills Client for the foreign agent’s services in the amount shown on the invoice. Client sends Patent Attorney the funds to pay the foreign agent’s invoice. Patent Attorney has not previously paid the foreign agent.
Do the answers to Inquiries #1-4 change if the funds at issue are funds received from the client to pay for the services of a foreign agent?
Opinion #5:
No.
Inquiry #6
Patent Attorney and a foreign agent routinely provide services to clients of the other lawyer upon request. The foreign agent and Patent Attorney invoice each other per client matter. The foreign agent and Patent Attorney also have a practice of arranging offsets, such that the total amount due to the foreign agent is reduced by the amount due to Patent Attorney.
When Patent Attorney receives an invoice from the foreign agent for services performed by the foreign agent for one of Patent Attorney’s clients, Patent Attorney invoices the client for the amount due for the foreign agent’s fee and collects the funds from the client.
Do these additional facts change the answer to Inquiry #5?
Opinion #6:
No.
Inquiry #7:
Under the facts in Inquiry #6, Patent Attorney collects the funds from the client for the foreign agent’s fee but does not use that money to pay the foreign agent’s fee. Instead Attorney settles the obligation to the foreign agent through offsets or, if no offset agreement can be reached, by payment from Patent Attorney.
Is this permissible?
Opinion #7:
No. If a lawyer collects money from a client for a specific purpose, the lawyer must either (1) use the money received from the client to make the payment for which the money was collected, (2) return the funds to the client, or (3) obtain the client’s consent to hold the funds in trust until earned by provision of legal services or used to pay other expenses. Rule 1.15-2.
Inquiry #8:
Under the facts in Inquiry #6, is it permissible for Patent Attorney to offset a client expense with a fee due to Patent Attorney in an unrelated matter?
Opinion #8:
Yes, provided Attorney provides Client with a full accounting and explanation of the cost of the foreign agent’s services, the offsets applied to the foreign agent’s invoice, and the amount still owed to the foreign agent or owed to Attorney by Client. If a lawyer invoices a client for a specific amount to pay a designated expense, the lawyer must use the money received from the client to pay that expense, return the funds to the client, or obtain the client’s consent to deposit the funds in the trust account. See Opinion #7. If an expense was already paid by the lawyer through offsets or the advancing of the lawyer’s funds, the lawyer may use the money received from the client to reimburse the lawyer. See Opinion #4. However, offset agreements may never be used by a lawyer to earn a profit on the expenses of representation. See Rule 1.5(a)(prohibiting the charging or collecting of an excess amount for expenses).
Inquiry #9
Would the answers to Inquiries #6-8 change if Patent Attorney considers the obligation to pay a foreign agent to be the lawyer’s obligation?
Opinion #9:
No.
Inquiry #10:
Would the answers to Inquiries #6-8 change if Patent Attorney is contractually obligated to pay for the services of the foreign agent regardless of whether Client pays Patent Attorney for those services?
Opinion #10:
No.
Inquiry #11:
Client pays Patent Attorney for the foreign agent’s fee after the foreign agent has performed services and invoiced Patent Attorney. Client terminates Patent Attorney’s representation and retains Patent Attorney #2. At the time of termination, Patent Attorney has not paid the foreign agent or used offsets to satisfy the obligation to the foreign agent. The foreign agent invoices Patent Attorney #2 for the services provided in Client’s matter. Do these additional facts or the potential for this to occur change the answers to Inquiries #5-10?
Opinion #11:
No. Patent Attorney must maintain Client’s entrusted funds in Patent Attorney’s trust account until returned to Client or until receipt of instructions for disposition from Client or Client’s new lawyer. If Client or Patent Attorney #2 instructs Patent Attorney to pay the foreign agent, Patent Attorney must do so promptly. See Rule 1.5-2(m). Similarly, if instructed to do so, Patent Attorney must transfer Client’s funds to Patent Attorney #2 for deposit in Patent Attorney #2’s trust account where they will be available to pay the foreign agent.