Disposition of Unidentified Funds
Adopted: April 12, 1996
Opinion rules that when a law firm receives funds that are not identified as client funds, the firm must investigate the ownership of the funds and, if it is reasonable to conclude the funds do not belong to a client or a third party, the firm may conclude that the funds belong to the firm.
Inquiry:
Law Firm received a check for $3,700 made out to Attorney A, a member of the firm, and Fire Insurance Company. The check is a payment from the liquidation of National Insurance Company which filed for bankruptcy approximately eight to ten years ago. Attorney A and the other lawyers in Law Firm are unable to determine whether the funds represented by the check belong to a client, to a third party, or to the firm. They have inquired of the chief deputy liquidator's office, the office of the court where National's bankruptcy action was filed, and Fire Insurance Company, but to no avail. The lawyers believe that the most logical explanation for the payment is as follows: when National went bankrupt, Law Firm made an uninsured motorist claim for a client under the client's insurance policy with Fire Insurance Company. The claim was settled and Fire Insurance Company required the client to sign a subrogation agreement for the amount of the settlement. Using that agreement, Fire Insurance Company filed a proof of claim with the bankruptcy court. If the check is being paid in satisfaction of this claim in the bankruptcy proceeding, the proceeds of the check would belong to Fire Insurance Company and not to the client or third party.
Fire Insurance Company would like to split the check with Law Firm. May Law Firm conclude that the funds do not belong to a client and share the check with Fire Insurance Company?
Opinion:
Yes, if Law Firm has made a reasonable effort to investigate the background of the check to determine whether the check belongs to a client or a third party and, having undertaken that investigation, now has a good faith belief that the check does not belong to a client or a third party. See Rule 10.1(c).