Ethics Advisory Opinion No. 11-01

UTAH STATE BAR ETHICS ADVISORY OPINION COMMITTEE

Opinion Number 11-01
Issued August 24, 2011

1. ISSUE: Two interrelated issues are before the Committee: First, may an attorney representing a plaintiff in a personal injury action indemnify and hold harmless a party being released from any medical expenses and/or liens which might remain unpaid after the settlement funds are fully disbursed? Second, in a personal injury action, may an attorney request another attorney to indemnify and hold harmless a party being released from any medical expenses and/or liens which might remain unpaid after the settlement funds are fully disbursed?

2. OPINION: It is a violation of the Utah Rules of Professional Conduct and improper for a plaintiff’s or claimant’s lawyer to personally agree to indemnify the opposing party from any and all claims by third persons to the settlement funds. As it is professional misconduct for a lawyer to “knowingly assist or induce” another lawyer to violate the Utah Rules of Professional Conduct, it is improper for a lawyer to request a plaintiff’s or claimant’s attorney to indemnify or hold harmless a party being released from third party claims which may remain unpaid after the settlement funds are fully disbursed.
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Ethics Advisory Opinion No. 00-04

(Approved June 2, 2000)
Issue:
What are a lawyer’s ethical duties to a third person who claims an interest in proceeds of a personal injury settlement or award received by the lawyer?

Opinion: When a lawyer receives funds or property and knows a third person claims an interest in the funds or property, the lawyer must first determine whether the third person has a sufficient interest to trigger the duties stated in Rule 1.15(b). Only a matured legal or equitable claim-such as a valid assignment, a judgment lien, or a statutory lien-constitutes an interest within the meaning of Rule 1.15 so as to trigger duties to third persons under Rule 1.15. If no such interest exists, the lawyer may disburse the funds or property to the client. If such an interest exists, the lawyer must comply with the duties stated in Rule 1.15. Where the client does not have a good-faith basis to dispute the third person’s interest, the lawyer must promptly notify the third person, promptly disburse any funds or property to the third person to which that person is entitled, and render a full accounting when requested. If the client has a good-faith basis to dispute the third person’s interest, and instructs the lawyer not to disburse the funds or property to the third person, the lawyer must promptly notify the third person that the lawyer has received the funds or property and then must protect the funds or property until the dispute is resolved.
Background: Lawyers sometimes receive funds or property in which third per-sons, such as medical providers or other creditors of the lawyer’s client, claim an interest. The Office of Professional Conduct of the Utah State Bar has advised the Ethics Advisory Opinion Committee that it has received complaints from medical providers alleging that lawyers representing plaintiffs in personal injury matters have not distributed amounts from personal injury settlements or awards to reimburse them for medical services provided to the lawyer’s client. In cases of this nature, the medical provider and the patient may have agreed that the patient may defer payment for medical services until the time of a personal injury settlement or award, at which time the provider’s invoices will be paid. The medical provider may also rely on a statutory lien or an assignment. Medical providers without a statutory lien or an assignment may demand payment from funds held by the lawyer based on facts such as the client’s promise to pay the provider when a settlement or award is received or the lawyer’s use of the provider’s bill in proving damages. In other cases, non-medical service providers, sellers of goods, or judgment creditors may claim rights in funds or property in a lawyer’s possession. The Office of Professional Conduct has requested that the Committee issue a formal opinion regarding matters involving third-party claims to proceeds of a personal injury settlement or award received by a lawyer.
Analysis: Rule 1.15 of the Utah Rules of Professional Conduct specifically addresses a lawyer’s duties when safekeeping property for clients or third persons. It states, in pertinent part:
(b) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this Rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.1
Rule 1.15 does not differentiate between the duties a lawyer owes a client and those owed a third person when safekeeping property.
The rule addresses three distinct duties. First, if a client or third person “has an interest” in property or funds received by a lawyer, the lawyer must promptly notify the client or third person. Second, the lawyer must promptly deliver the funds or property to the client or third person who is “entitled to receive” the funds or property.2Third, if requested by the client or third person, the lawyer must promptly render a full accounting regarding the property. Generally, there will be no controversy surrounding who is entitled to the funds or property that the lawyer is safekeeping and application of Rule 1.15 will be simple. When a dispute exists between the client and a third person as to who is entitled to the funds or property in the lawyer’s possession, applying Rule 1.15 requires additional analysis.
Not every claim made by a third person triggers the duties expressed in Rule 1.15. Rather, these duties are triggered when the lawyer receives funds or property and the lawyer knows3that a third person “has an interest” in the property or funds. It thus becomes necessary to determine what is meant by “has an interest” under Rule 1.15. A third person who “has an interest” is different from a third person who merely claims an interest. Subsection (b) of Rule 1.15 speaks of interests that are “claim[ed].” In subsection (c) of Rule 1.15, the drafters of the rule chose the language “has an interest.” A person who “has an interest” has something stronger than a mere claim or demand for payment. This interpretation is supported by an official comment to Rule 1.15, which states:
Third parties, such as a client’s creditors, may have just claims against funds or other property in a lawyer’s custody. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client and accordingly may refuse to surrender the property to the client.4
Professors Hazard and Hodes have analyzed the significance of this comment as follows:
The fact that a third party “expects” funds held by the lawyer to be the source of payment would not justify a lawyer’s refusal to obey the instructions of his client to turn over the entire amount. The Comment to Rule 1.15 uses the phrases “just claims” and “duty under applicable law” to suggest that the third party must have a matured legal or equitable claim in order to qualify for special protection. Only in such cases may it be said that failure to recognize the third-party interest is a species of fraud upon creditors or fraud upon the rendering court.5
Only those claims that rise to the level of a “matured legal or equitable claim” constitute an “interest” and trigger the duties owed under Rule 1.15. For example, a valid assignment of the funds in question could be such a claim. Certainly, a statutory or judgment lien that attaches to the specific property or funds in question or a court order requiring that the specific property or funds be turned over to the third party is such an interest. A lawyer’s knowledge that the client owes bills, even if the lawyer knows that the creditor expects to be paid out of the proceeds of a settlement or judgment, does not give rise to such duties unless the creditor has an interest in the proceeds within the meaning of Rule 1.15.
This conclusion is consistent with prior opinions of this Committee. For example, in Opinion No. 96-03, the Committee stated that “[a]bsent dishonesty, fraud, deceit or misrepresentation, [an] attorney has no ethical obligation to honor personally the client’s agreements to pay medical providers out of a settlement or judgment.” The Committee noted that it was not addressing “agreements that expressly impose an obligation on the attorney or create a lien on the funds that are handled by the attorney.”6In a prior opinion, the Committee applied a similar approach to a lawyer’s refusal to pay for services rendered to the lawyer’s client at the lawyer’s request.7
Even where a third person has a sufficient interest to invoke the duties expressed in Rule 1.15(b), a lawyer ordinarily should not simply hand over the funds or property to the third person against the client’s instructions.8The comments to Rule 1.15(b) emphasize that “a lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party.”9Where a third person has a sufficient interest to trigger the duties expressed in Rule 1.15(b) and a client in good faith instructs the lawyer not to pay the third person, the lawyer must hold the funds or property until the dispute is resolved, or, if resolution seems unlikely, interplead the funds or property. Retaining and protecting the funds will not be a violation of the lawyer’s duty to the client because, under Rule 1.15(b), the lawyer is only required to disburse to the client those funds to which the client is “entitled.” If there is a third-party “interest” within the meaning of Rule 1.15(b), the client is not “entitled” to the funds.10
To summarize, when a lawyer receives funds or property and knows a third person claims an interest in the funds or property, the lawyer must first determine whether the third person has an interest sufficient to trigger the duties expressed in Rule 1.15(b). Only a matured legal or equitable claim-such as a valid assignment, a judgment lien11or a statutory lien-constitutes a sufficient interest to trigger duties to third persons under Rule 1.15(b). If no such interest exists, the lawyer may disburse the funds or property to the client. If such an interest exists, the duties expressed in Rule 1.15 are triggered. If the client does not dispute the third person’s interest, the lawyer must promptly notify the third person, promptly disburse any funds or property to the third person to which that person is entitled and render a full accounting when requested. If the client has a good-faith basis to dispute the third person’s interest and instructs the lawyer not to disburse the funds or property to the third person, the lawyer must promptly notify the third person that the lawyer has received the funds or property and then must protect such funds or property until the dispute is resolved.12
Application: In the discussion that follows, we apply the foregoing analysis to a number of hypothetical situations posed by the Office of Professional Conduct of the Utah State Bar.
Example 1: The medical provider has a written “lien” which states that the client has agreed that the medical provider will defer payment for the medical services until the time of any settlement or award and then receive payment from the client directly from the settlement funds. In this example, the written “lien” has been sent to the lawyer.
First, the lawyer must determine whether the medical provider has a sufficient interest to trigger the duties expressed in Rule 1.15(b). Such an interest must be a matured legal or equitable claim. A valid assignment of the proceeds of a settlement or award of which the lawyer has knowledge is a sufficient interest. Whether a written “lien” creates a valid assignment must be determined under applicable law.13If it does, the lawyer must promptly notify the medical provider when the lawyer receives any settlement funds. If the client does not, in good faith, dispute the interest, the lawyer must then promptly disburse the funds to the medical provider and render an accounting if requested. If the client disputes the interest in good faith, the lawyer must protect the funds until the dispute is resolved.
Example 2: The medical provider does not have a written “lien,” but the client has informed the lawyer orally that he received the medical services from the provider. The client informs the lawyer that the client is not paying for the services. The lawyer knows the medical provider expects to be paid out of any settlement or award. The lawyer may have used the charges for the medical services to compute damages in a settlement demand for special and general pain and suffering damage.
In this situation, the medical provider does not have a matured legal or equitable claim to the settlement proceeds or any award. The medical provider might have obtained a statutory lien against the proceeds or a valid assignment of the proceeds, but evidently did not do so.14If the client instructs the lawyer to pay for the services out of the settlement proceeds, the lawyer may do so. If the client instructs the lawyer not to pay the medical provider from the proceeds, the lawyer has no duties to the medical provider and would breach a duty to the client by not following the client’s instructions.
Example 3: The client has not paid a public utility company for services for six months, and the client stalls any collection effort by promising to pay when the settlement funds come in. Now the company sends a letter to the lawyer demanding payment.
The public utility company does not have an interest within the meaning of Rule 1.15(b) and therefore the duties expressed in Rule 1.15(b) do not apply.
Example 4: A judgment creditor serves a writ of garnishment on the lawyer and obtains a garnishment lien against the client’s fund held in the trust account.
Here, the creditor has a matured legal claim in the form of a garnishment lien. The lawyer must notify the judgment creditor when the lawyer receives funds subject to the garnishment lien, and, if the client has no good-faith basis for disputing the validity of the lien, the lawyer must disburse the funds or property in the amount of the lien to the creditor and render a full accounting if requested. If the client has a good-faith basis to dispute the lien, after promptly notifying the judgment creditor that the lawyer has received the funds, the lawyer must protect the funds until the dispute is resolved.
Example 5: In a family law matter, the lawyer for one spouse accepts funds as a tender of settlement from the other spouse’s lawyer regarding past-due support payments. The receiving lawyer deposits the funds in his trust account, but refuses the settlement. The receiving lawyer then refuses to return the funds to the other lawyer, claiming the funds in the trust account are his client’s, whatever the final settlement is.
Here, the lawyer has received tendered funds subject to an express condition that the settlement proposed be accepted. The funds belong to the other party to the matter and cannot be paid to the lawyer’s client until the condition is satisfied. The lawyer should have returned the funds when the settlement was refused because the condition upon which they were received will not be satisfied.15
Conclusion: Third-party claims to funds or property held by a lawyer, where known to the lawyer, require the lawyer’s careful attention to Rule 1.15(b). The lawyer must determine whether the third person has a matured legal or equitable claim sufficient interest to trigger the duties stated in Rule 1.15(b). If no such interest exists, the lawyer may disburse the funds or property to the client. If such an interest exists, the lawyer must comply with the duties stated in Rule 1.15(b). Where the client does not dispute the third person’s interest, the lawyer must promptly notify the third person, promptly disburse any funds or property to the third person to which that person is entitled, and render a full accounting when requested. If the client has a good-faith basis to dispute the third person’s interest, and instructs the lawyer not to disburse the funds or property to the third person, the lawyer must promptly notify the third person that the lawyer has received the funds or property and then must protect the funds or property until the dispute is resolved.
We emphasize that independent ethical considerations and principles of substantive law may govern circumstances not addressed in this opinion. A lawyer’s dishonesty, fraud, deceit or misrepresentation to a third party in connection with a client’s obtaining goods or services is a violation of Rule 8.4(c).16For example, a lawyer who knows a client intends subsequently to avoid obligations to creditors but in spite of this knowledge assists the client to obtain goods or services under false pretenses will have committed an ethical violation. Under principles of agency law, a lawyer acting as a client’s agent may become personally liable to third parties for goods or services provided to the client.
Footnotes
1.Utah Rules of Professional Conduct 1.15(b).
2.A lawyer’s violation of the ethical duty to pay over funds to third parties has been held to be a ground for discipline. See In re George McCune, 717 P.2d 701 (Utah 1986) (under former Rule of Professional Conduct II, § 3, requiring lawyers to pay or deliver money or property “to the person entitled thereto within a reasonable time,” lawyer disbarred for failing to pay over to co-counsel and court reporter funds paid by client for payment of their invoices). In Utah, a lawyer’s obligation to pay or deliver money or property to the person entitled to it is reinforced by a criminal statute, Utah Code Ann. § 78-51-42, which provides: “An attorney and counselor who receives money or property of his client in the course of his professional business and who refuses to pay or deliver the same to the person entitled thereto within a reasonable time after demand is guilty of a misdemeanor.”
3.Rule 1.15(b) does not specify what level of belief or knowledge a lawyer must have to impose the duties specified in the rule. We agree with the analysis of the State Bar of Arizona that a lawyer must have actual knowledge of a third party’s interest before acting under Rule 1.15(b). Arizona Ethics Op. 98-06 (Ariz. St. Bar June 3, 1998), (level of cognition must be inferred when not specified; comments to Rule 1.15(b) concerning “just claims,” and lawyer’s “duty under applicable law to protect” third-party claims, and lawyer’s obligation not to “unilaterally assume to arbitrate” matters between client and third party strongly infer that a lawyer must have actual knowledge of a third party’s interest before acting). Under the Rules of Professional Conduct, “knowingly,” “known,” or “knows” “denotes actual knowledge of the fact in question. A person’s knowledge may be inferred from the circumstances.” Utah Rules of Professional Conduct, Preamble, comment.
4.Utah Rules of Professional Conduct 1.15, cmt. (emphasis added).
5.Geoffrey C. Hazard, Jr. & W. William Hodes, The Law of Lawyering—A Handbook on the Model Rules of Professional Conduct § 1.15:302, at 460 (2d ed. Supp. 1994).
6.Utah Ethics Advisory Op. 96-03, 1996 WL 227377, n.1 (Utah St. Bar).
7.Utah Ethics Advisory Op. 98, 1989 WL 509364 (Utah St. Bar): “Absent dishonesty, fraud, deceit or misrepresentation, disputes resulting from the failure of an attorney to make payment for services rendered by third parties should be treated as questions of substantive law, which should be examined under traditional contract and agency doctrines, rather than questions of the ethical propriety of the attorney’s actions.”
8.In cases where a court order or statute requires a lawyer to turn funds over to a third party, such as a client’s bankruptcy trustee, the lawyer must comply with the court order or statute even if the client directs otherwise. See, e.g., 11 U.S.C. § 542(a); Utah Farm Production Credit Ass’n v. Labrum, 762 P.2d 1070 (Utah 1988) (affirming contempt sanctions against debtor’s lawyer who paid himself out of funds and released remaining funds to client in spite of court order to hold funds for client’s bankruptcy trustee).
9.Utah Rule of Professional Conduct 1.15(b), cmt.
10.See, e.g., Leon v. Martinez, 638 N.E.2d 511, 514 (NY 1994); Berkowitz v. Haigood, 606 A.2d 1157, 1158 (N.J. Super. Ct. Law Div. 1992); Herzog v. Irace, 594 A.2d 1106, 1109 (Me. 1991).
11.A judgment which has not become a lien on the proceeds of a personal injury settlement or award is not a sufficient interest under Rule 1.15(b). Kansas Ethics Op. 92-14 (Kan. St. Bar Nov. 5, 1992), www/ksbar.org/ethics.
12.This approach is similar to that adopted by numerous states in addressing the same issue. See, e.g., Alaska Ethics Op. 92-3, (Alaska St. Bar); Arizona Ethics Op. 98-06, (Ariz. St. Bar); Connecticut Informal Ethics Op. 95-20 (Conn. St. Bar), ; District of Columbia Ethics Op. 251 (D.C. St. Bar Oct. 18, 1994); Ohio Ethics Op. 95-12 (Ohio St. Bar Oct. 6, 1995); Rhode Island General Informational Op. 7 (R.I. St. Bar Apr. 10, 1997); South Carolina Bar Advisory Op. 94-20, (S.C. St. Bar); see also Restatement (Third) of the Law Governing Lawyers § 57; Lawyer’s Manual on Professional Conduct (ABA/BNA) § 45:1101-10; Irene M. Ricci, Trust Account: Client Trust Funds: How to Avoid Ethical Problems, 11 Geo. J. Legal Ethics 245, 254-55 (1998).
13.The Committee is not empowered to decide legal, as opposed to ethical, questions. Utah Ethics Advisory Opinion Comm. Rules of Proc. § III(b)(3) (1996).
14.Hospitals can create a lien on proceeds of any settlement or judgment under Utah’s Hospital Lien Law. See Utah Code Ann. §§ 38-7-1 to -8. State assistance automatically becomes a lien on any proceeds under Utah’s Medical Benefits Recovery Act. See Utah Code Ann. § 26-19-5.
15.See In re Shannon, 179 Ariz. 52, 876 P.2d 548 (Ariz. 1994) (lawyer for personal injury plaintiffs received from defendant’s counsel insurance company check for the amount of the judgment marked “full satisfaction of judgment” along with a form of satisfaction of judgment and a letter specifying that the check should be cashed only upon the return of the executed satisfaction; lawyer disciplined for violating Rule 1.15 by depositing check without executing satisfaction).
16.Rule 8.4(c) provides: “It is professional misconduct for a lawyer to: . . . (c) Engage in conduct involving dishonesty, fraud, deceit or misrepresentation.”

Ethics Advisory Opinion No. 97-01

(Approved January 24, 1997)
Issue:
What is the ethical obligation of an attorney to a client or former client, when the attorney is unable to locate the client, and the attorney is holding trust funds on behalf of that client?

Opinion: The first obligation of an attorney under these circumstances is to secure the funds on behalf of the client1as against all other possible claimants. In other words, if the funds are still held in the form of a check, the attorney should take care to endorse the check and deposit it into the attorney’s trust account to insure that the funds are not eventually lost to the client simply by the passage of time or the expiration of the client’s right to negotiate the instrument.
Thereafter, the attorney should keep the client’s property in safe keeping, in conformity with the requirements of Rule 1.15 of the Utah Rules of Professional Conduct. Specifically, the attorney should keep the funds in a trust account for the client. If the sum is substantial, or if the period of time during which the lawyer will be unable to locate the client is expected to be lengthy, the funds should be placed in an interest-bearing account. A separate trust account may be warranted when administering these monies.
After securing the funds for the client, the attorney should make all reasonable, diligent efforts to locate the client. This includes contacting all last known addresses and telephone numbers, asking for forwarding addresses, and contacting third parties who are relatives, employees or friends of the client to attempt to reach the client. Under certain circumstances, it may even be appropriate for the attorney to seek the professional help of an investigator to locate the missing person. A rule of reasonableness should apply. Clearly, expending all of the money held in trust to locate the client is not warranted and violates the rule of safely keeping a client’s property. However, for large sums, spending a substantial sum of money to locate the client in order to transfer the remaining balance may be appropriate. (Attorney’s and investigators’ fees associated with the search might appropriately be paid out of the trust fund.2)
If the attorney is still unable to locate the client, then the attorney should hold the funds for a substantial period of time to see if the client or former client voluntarily makes contact with the attorney. Specifically, under Utah law, property may become abandoned or unclaimed property.3After the attorney determines that the client cannot be located, an attorney should, therefore, hold trust accounts unclaimed by a client for the time period set forth in the statute. This Committee is not authorized to decide or interpret matters of law;4thus, a further interpretation of the abandoned property statutes is not proper here.
Once the property has become abandoned and is, therefore, unclaimed property within the meaning of the Utah Code, the attorney should follow the procedure for reporting and submitting abandoned or unclaimed property set forth.5Again, the exact procedure in following this statutory provision is a matter of interpretation of law, which cannot be undertaken in this opinion.
This opinion overrules Utah Ethics Advisory Opinion No. 43, issued on March 3, 1978.
Footnotes
1.References to “client” include a person who might be considered a former client.
2.See Utah Rules of Professional Conduct 1.15 cmt., which discusses the analogous situation where an attorney “is not required to remit [to the client] the portion [of funds from a third party] from which the lawyer’s fee will be paid.”
3.Utah Code Ann. §§ 67-4a-201 to -214 (1996).
4.Ethics Advisory Op. Comm. R. Proc. § III(b)(3).
5.Utah Code Ann. §§ 67-4a-301 to -303 (1996).

Ethics Advisory Opinion No. 97-07

(Approved May 30, 1997)
Issue
: Is a lawyer, acting as a trustee under the United States Bankruptcy Code, required to maintain bankruptcy estate trust funds in a financial institution that complies with check-overdraft reporting requirements described in Rule 1.15?

Opinion: No. A lawyer, acting as a trustee under the United States Bankruptcy Code, is not required to maintain funds in a financial institution that complies with the check-overdraft reporting requirements of Rule 1.15, because the administration of such bankruptcy funds is not the practice of law.
Facts: Pursuant to 11 U.S.C. § 1302, the United States Trustee appointed a lawyer as a Chapter 13 trustee for the District of Utah.1As a Chapter 13 trustee, the lawyer is a fiduciary for Chapter 13 estates created upon filing a petition for relief under Chapter 13 of the Bankruptcy Code. On behalf of the Chapter 13 estate, the trustee receives money from Chapter 13 debtors. The trustee is bonded, submits regular reports and is audited on a regular basis by the United States Trustee.
Analysis: Utah Rule of Professional Conduct 1.15 now requires a lawyer to enter an agreement with any financial institution where that lawyer has client or third-party trust funds. Under the agreement, the financial institution will report any non-sufficient checks or check overdrafts to the Office of Attorney Discipline.2
However, most of the Rules of Professional Conduct govern a lawyer’s actions only in the providing of legal services or in the practice of law. For example, an attorney’s direct-mail advertising of mediation and arbitration services is not prohibited under Rule 7.3 since mediation and arbitration services are not the practice of law.3This is true of Rule 1.15. Rule 1.15 states that the rule applies only to property “in connection with a representation.” The Comment to Rule 1.15 also suggests that Rule 1.15 only applies in the practice of law.4
The administration of a Chapter 13 trust is not the practice of law. The Bankruptcy Code does not require that a bankruptcy trustee be a lawyer.5The bankruptcy trustee has no attorney-client relationship with either the debtor or with any of the creditors. The bankruptcy trustee does not act as an advocate for or represent any of the parties. Therefore, a lawyer practicing as a Chapter 13 trustee is not required to conform with the requirements of Rule 1.15 in maintaining Chapter 13 funds.
Provisions other than Rule 1.15 exist to protect Chapter 13 funds. As a bankruptcy trustee, the lawyer must be bonded.6The United States Trustee regularly audits the lawyer, and the lawyer submits periodic reports to the United States Trustee. Finally, a lawyer acting as a trustee, even a Chapter 13 trustee, is still subject to Rule 8.4 for any misconduct in the handling of trust funds.7
This opinion that Rule 1.15 does not govern the Chapter 13 trustee’s actions applies only to the supervision of bankruptcy trust funds. If the lawyer, acting as a bankruptcy trustee, also maintains a non-bankruptcy estate trust fund for a client or a third party, that fund may be subject to Rule 1.15.
Footnotes
1.Although this opinion involves a Chapter 13 trustee, the analysis and result would be the same for other bankruptcy trustees.
2.A lawyer shall hold property of clients or third persons that is in a lawyer’s possession in connection with a representation separate from the lawyer’s own property. Funds shall be kept in a separate account maintained in the state where the lawyer’s office is situated or elsewhere with the consent of the client or third person. The account may only be maintained in a financial institution which agrees to report to the Office of Disciplinary Counsel in the event any instrument in properly payable form is presented against an attorney trust account containing insufficient funds, irrespective of whether or not the instrument is honored. Other property shall be identified as such and appropriately safeguarded. Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation.
Utah Rules of Professional Conduct 1.15(a) (as amended, effective Nov. 1, 1996).
3.Utah Ethics Adv. Op. 97-03, 1997 WL 223849 (Utah St. Bar).
4.The obligations of a lawyer under this Rule are independent of those arising from activity other than rendering legal services. For example, a lawyer who serves as an escrow agent is governed by the applicable law relating to fiduciaries even though the lawyer does not render legal services in the transactions.
Utah Rules of Professional Conduct 1.15, cmt. ¶ 4.
5.11 U.S.C. § 321 (1994); In re Construction Supply Corp., 221 F. Supp. 124 (E.D. Va. 1963).
6.11 U.S.C. § 322 (1994).
7.A lawyer’s abuse of public office can suggest an inability to fulfill the professional role of attorney. The same is true of abuse of positions of private trustee, executor, administrator, guardian, agent and officer, director or manager of a corporation or other organization.
Utah Rules of Professional Conduct 8.4, cmt. ¶ 3.
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Ethics Advisory Opinion No. 96-05

(Approved July 3, 1996)
Issue:
May a lawyer choose a law-related charitable institution other than the Utah Bar Foundation to be the recipient of trust-account interest that is generated in such nominal amounts that it is impractical to pay them to individual clients?

Opinion: Because the Utah Supreme Court’s approval of the Utah State Bar’s “interest on lawyers’ trust accounts” (IOLTA) program is specifically limited to the Bar’s original proposal to dedicate small-interest amounts to the Utah State Bar Foundation, a lawyer who remits interest to a different charitable institution would violate Rule 1.15 of the Utah Rules of Professional Conduct unless the Court specifically authorizes another recipient.
Discussion: It is well established that lawyers may not receive for their own purposes interest on clients’ funds that are held in trust for the clients.1Due to difficulties in accounting for and assigning interest payable to clients for small deposits and short deposit times, lawyers traditionally kept such funds in non-interest-bearing accounts.
The only institutions profiting by this arrangement were the financial institutions holding the funds. Accordingly, in 1983 the Utah State Bar petitioned the Utah Supreme Court to implement an IOLTA program to permit lawyers to accrue interest on clients’ trust funds that were otherwise impractical to account for and to remit those monies to the Utah Bar Foundation.
The Utah Supreme Court approved the program in In re Interest on Lawyers’ Trust Accounts.2Prior to this order of the Court, any interest earned on monies deposited in lawyers’ trust accounts had to be paid to the clients whose funds had generated the interest. There were no exceptions, even for small amounts that would require major accounting and allocation efforts.3
In the absence of such accounting, the funds had to be held in non-interest-bearing accounts, so that the lawyer would not be the beneficiary of any interest-both under the Code of Professional Responsibility (before 1988) and the Rules of Professional Conduct (after 1987).
The Supreme Court has provided a singular exception to this general rule by authorizing the Utah State Bar to implement a voluntary IOLTA program, under which clients’ funds that are nominal in amount and expected to be held for a short period of time can be channeled to an interest-bearing account, with interest payable to the Utah State Bar Foundation.
The Ethics Advisory Opinion Committee believes that the Supreme Court’s authorization is for a single exception to the general principle of Rule 1.15 and has not provided a blanket or generic exception to the rule. If an individual lawyer were to have the ability to choose a law-related charitable institution other than one designated by the Supreme Court, then that individual lawyer would be exercising a measure of control over the earned interest. Such an exercise of control would amount to the receipt of a personal benefit by the lawyer, which the ethical rules prohibit. Accordingly, the Committee concludes that, in order to avoid a violation of Rule 1.15, a lawyer would need to obtain specific Supreme Court approval of a proposal to remit trust-account interest to another charity.
Footnotes
1.In re Interest on Lawyers’ Trust Accounts, 672 P.2d 406, 407 (Utah 1983). See also Utah Rules of Professional Conduct 1.15(b) [renumbered from 1.13(b) in 1995].
2.672 P.2d 406 (Utah 1983).
3.See, e.g ., Utah Ethics Advisory Op. No. 64 (1979).