Commingling in IOLTA?

 Posted on September 04, 2012 in Uncategorized

From a disciplinary petition filed today by the Commission for Lawyer Discipline against a criminal-defense lawyer (no, not me):

1. In or around November 2009, [Client] hired Respondent for representation in a federal criminal matter. [Client] paid Respondent $250,000.00 for the representation. In or around February 2010, [Client] terminated the representation and requested an accounting of the funds and a refund of any unused portion of the funds.2. Respondent failed to provide an accounting or refund the portion of the fee that had not yet been earned by him. Respondent claims that the $250,000.00 fee was a nonrefundable retainer not subject to refund. To support this contention, Respondent provides a "Agreement for Employment," ostensibly signed by both [Client] and Respondent, which states that the $250,000.00 paid was not a prepayment for services, but rather a nonrefundable retainer. [Client], however, denies that the contract provided by Respondent is the contract he actually signed. [Client] denies that he agreed that the $250,000.00 paid would be a nonrefundable retainer.3. It is undisputed, however, that Respondent deposited the funds into his IOLTA attorney trust account. This action contradicts Respondent's claim that the money was a nonrefundable retainer, as nonrefundable retainers are earned by the attorney upon receipt. However, if it can be shown that the $250,000.00 paid was in fact a nonrefundable retainer, he impermissibly comingled his own funds with those belonging in whole or in part to his clients or to other third persons when he deposited the funds into his IOLTA account.4. Respondent further contradicts his position that the fee was a true nonrefundable retainer when he attempts to show, in his response to the instant grievance, that he earned the money that was paid to him by [Client]. Petitioner denies that Respondent has shown that he performed enough work in the approximately three months he was employed by [Client] to earn all $250,000.00 paid to him.

The State Bar is not (explicitly) arguing that the fee could not have been earned on receipt. In a federal criminal case, it is easy to conceive of such a large fee being earned upon receipt. The State Bar is arguing that the fee is unconscionable and that it was not earned upon receipt.

The State Bar is also arguing that by putting a nonrefundable fee (if that is what it was) in his IOLTA (Interest on Lawyers Trust Account) account the lawyer commingled ("comingled") his funds with the client's.

That is interesting.

An IOLTA account is for clients' property-personal-injury settlements, for example, or unearned fees, or deposits made to cover expenses. It may contain the property of multiple clients, so the lawyer must keep careful records of how much of whose money is in the IOLTA account. This accounting requirement should prevent one of the evils addressed by the rule against commingling: that the lawyer might, without bad intent, spend the client's money as his own.

The other evil addressed by the rule against commingling is that the lawyer's creditors might seize or attach clients' property if it is commingled with the lawyer's property. Putting the lawyer's money in the IOLTA account puts that money beyond creditors' easy reach (and probably doesn't make the IRS particularly happy), but it doesn't bring clients' money, held in trust, within their reach.

Putting an earned fee in an IOLTA account may be a violation of the letter of the rule against commingling, and I can't think of a good reason to do it, but it doesn't implicate the reason behind the rule.

(Interestingly, while in Paragraph 3 the State Bar argues in the alternative-that the fee was not nonrefundable, and if it was it was intermingled-in Paragraph 4 it holds up the lawyer's alternative arguments-that the fee was nonrefundable, and if it was not it was earned-as evidence that the fee was not nonrefundable.)

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