Opinions

Ethics Opinion 359

Disposition of Missing Client’s Trust Account Monies in the District of Columbia

Following reasonable but unsuccessful efforts to locate a missing client or former client, a lawyer should presume the missing client’s trust account monies abandoned and, if the circumstances fall within D.C.’s Unclaimed Property Act, must dispose of the property as directed by that statute.

Applicable Rules

  • 1.6 Confidentiality of Information
  • 1.14 Client with Diminished Capacity
  • 1.15 Safekeeping Property

Inquiry
The D.C. Bar’s Legal Ethics Helpline regularly receives calls from lawyers seeking to learn what they can and should do with client trust account monies when the client’s whereabouts are unknown. Often, the lawyer is retiring from legal practice, his or her firm is closing, or he or she otherwise wants to close an outstanding trust account, but cannot locate the client.

Discussion
The inquiry raises questions that relate to both D.C. Rule of Professional Conduct 1.15 and the D.C. Unclaimed Property Act.

D.C. Rule 1.15
A central tenet in legal ethics is that a lawyer must safeguard property of clients and third parties that is in the lawyer’s possession as a result of a representation. D.C. Rule 1.15(a) specifically requires that a lawyer hold property of a client (or a third person), including intangible property, separate and apart from the lawyer’s own funds, in a trust account, and Comment [1] instructs that a lawyer should exercise the care of “a professional fiduciary” in managing client funds. Rule 1.15(c) requires that when a lawyer receives funds in which a client or third party has an interest the lawyer must promptly 1) notify the client or third party; and 2) deliver to the client or third person any funds or other property that the client or third person is entitled to receive except as stated in this Rule or otherwise permitted by law or by agreement with the client. Rule 1.15 is silent, however, on the specific issue of what is required or permitted if a lawyer is unable to locate a client, but is nonetheless in possession of trust funds belonging to the missing client.[1]

D.C. Unclaimed Property Act
While the Committee does not opine on questions of law outside of the Rules of Professional Conduct, we set forth our understanding of the D.C. Unclaimed Property Act for the purpose of analyzing the issues presented under the D.C. Rules of Professional Conduct. Section 103(a) of the District of Columbia Unclaimed Property Act provides that:

a. All intangible personal property …, including any income …, that is held or owing in the ordinary course of the holder’s business and has remained unclaimed by the owner for more than 3 years after it became payable or distributable is presumed abandoned.[2]

The Act by its terms applies to intangible personal property owned by individuals whose last known address is in the District of Columbia or where the holder is domiciled[3] in the District.[4]

Section 41-117 of the Act provides that “[e]very person holding funds or other property … presumed abandoned under this chapter shall report to the Mayor with respect to the property …”[5] The Act further provides that “the holder of property presumed abandoned shall send written notice to the owner, not more than 120 days or less than 60 days before filing the report, stating that the holder is in possession of property subject to this chapter.”[6] Section 41–119 requires that the holder of the abandoned property transfer such property to the Mayor upon the filing of the report required by section 41-117. After the funds are transferred, D.C. Code sec. 41-132 mandates that the lawyer is obliged to maintain “a record of the name and address of the owner for 10 years after the date the property may have become reportable.” The Act contains no exemption for lawyers.

Applying Rule 1.15 and the Unclaimed Property Act to the present inquiry, this Committee concludes that a lawyer must make reasonable efforts to locate a missing client whose last known address is in the District or where the lawyer’s principal place of business is in the District to return that client’s trust account monies. Reasonable efforts to locate a missing client might include using available internet technologies and on–line directories, sending a certified letter with return receipt requested to the client’s last known address, contacting friends or relatives, or posting a notice in a newspaper of general circulation in the vicinity of the last known address of the property owner.

Under Rule 1.15, such efforts should take place promptly after the funds become due to the client. Rule 1.15(c) states “a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive.” Typically, unused funds from the client held in trust to pay legal fees and costs are due and payable to the client when the representation concludes.[7] Funds received in settlement from a third party are typically due the client when received by the lawyer. Accordingly, the lawyer presumably has already attempted to locate the client. Prior to reporting the property as abandoned to the Mayor and tendering the property to the Mayor’s custody, however, the lawyer should undertake renewed efforts to locate the client and tender the property to the client. Indeed, under the Act, the lawyer is required to send written notice to the missing client “not more than 120 days or less than 60 days” before the transfer of the missing client’s monies to the Mayor.[8]

Given the mandatory nature of the Act’s directive and the absence of an exemption for lawyers under the Act, we conclude that a lawyer does not violate Rule 1.15 if the lawyer files the report required by the Act and similarly transfers a missing client’s funds that are deemed to be abandoned to the Mayor’s Office, when the monies have been unclaimed by a client for “more than 3 years after [they] became payable or distributable.”[9] Our conclusion is limited and rests upon our reading of the plain language of the Act. We do not mean to foreclose a lawyer from challenging the application of the Act to a particular scenario or even the Act’s general applicability to lawyers. Cf. D.C. Rule 3.4(c) (no ethics violation if lawyer disobeys obligation to a tribunal with “an open refusal based on an assertion that no valid obligation exists”).

Our conclusion that a lawyer has a duty to transfer a missing client’s funds that are deemed to be abandoned to the Mayor is supported by the D.C. Court of Appeals’ recent decision in Bergman v. District of Columbia, holding that the D.C. Rules of Professional Conduct do not trump a duly enacted D.C. statute,[10] such as the D.C. Unclaimed Property Act, especially where, as in the present case, the D.C. statute is mandatory in nature, and the D.C. professional responsibility rules are silent on the issue. Indeed, we note that substantial fines can be assessed for failure to transfer abandoned property to the Mayor under these circumstances—up to $25,000 plus 25% of the value of the abandoned property.[11]

D.C. Rule 1.6
We note that the Act can implicate client confidentiality under D.C. Rule 1.6 because the requirement to transfer a missing client’s funds to the Mayor’s office and provide identifying information for same involves disclosure of the client’s identity.[12] Of course, Rule 1.6(e)(2)(A) contains an exception for disclosures required by law. In matters where the information is required under D.C. Code 41-117, the lawyer should take care to craft the disclosure in such a way as to minimize disclosure of Rule 1.6 information.[13]

Finally, we note the possibility that the missing client might have been a minor at the time of the representation and that he or she might not learn of the trust account monies until reaching the age of majority. Pursuant to Rule 1.14 regarding clients with diminished capacity (here, by age), the lawyer should consider moving the relevant court for a protective order authorizing the continued safekeeping of the missing client’s trust account monies until three years after the client has reached the age of majority, drawing on the Act’s three-year period for deeming property abandoned.

Conclusion
A lawyer who is in possession of funds (or other intangible personal property) belonging to a client who cannot be located, and whose last known address is in the District of Columbia (or where the lawyer is domiciled in the District), must exhaust reasonable efforts to locate the client as described more particularly above. Thereafter, it is not a violation of the D.C. Rules of Professional Conduct for a lawyer in such circumstances to report to the Mayor and transfer client funds that are deemed to be abandoned as required by the D.C. Unclaimed Property Act.

Published: June 2011

[1] Rule 1.15(d) addresses the situation when a lawyer is in possession of property in which an interest is claimed by “two or more persons to each of whom the lawyer may have an obligation.” In Legal Ethics Opinion 293, the Committee clarifies that an obligation under Rule 1.15(d) arises when a third party has a “just claim” to the property that the lawyer has a duty under applicable law to protect against wrongful interference by the lawyer’s client. In such circumstances, under Rule 1.15(d), the disputed funds must be kept separate by the lawyer until there is “an accounting and severance of interests in the property.”

The Committee doubts that Rule 1.15(d) is implicated in the current inquiry. As an initial matter, the lawyer here is not protecting the funds from wrongful interference of the client; indeed, the District’s interest arises only in the absence of the client. Significantly, the interest claimed by the District is one of “custodian” and not creditor. Surrendering the property to the District is not fundamentally adverse to the interests of the client, who even years later, pursuant to the Act, can reclaim the property from the District and indeed the District is legally obligated to return such funds. A lawyer’s duty of loyalty to the client is therefore not compromised in following the Act’s directives. Such a duty is the underlying rationale for Rule 1.15(d)’s directive to the lawyer to merely “preserve” disputed funds and not to unilaterally assume to “arbitrate a dispute” between a client and a third party. (See D.C. LEO 293). Even if Rule 1.15(d) were to apply, the Act “by operation of law” constitutes a severance of the interests in the property by deeming the property “presumed abandoned.” We think, the lawyer, commits no ethical violation in complying with the Act. Of final import is the recognition that as custodian of the missing client’s funds, the lawyer effectively transfers his or her fiduciary obligation to safeguard the property to the District as required by law.

[2] D.C. Code sec. 41-103(a). Section 41-103, by its terms, applies to intangible property. Though the Act is entitled “Unclaimed Property,” its “Purpose” section speaks of “personal property” and not just “intangible personal property” (sec. 41-101), and its reporting section refers to “property, tangible or intangible, presumed abandoned” (sec. 41-117), the reference to “tangible” property appears to be limited to property contained within safe-deposit boxes or other “safekeeping repositories.” Underscoring the Act’s focus on intangible property, its “Definitions” section defines “property” as an “interest in or right in an intangible property.” (sec. 41-102(16A))

D.C. Legal Ethics Opinion 283, “Disposition of Closed Client Files,” should be consulted on questions of what can be done with tangible property, such as client files, under analogous circumstances. Opinion 283 noted that lawyers could invoke state law procedures for unclaimed property, where applicable, but also pointed out that “[t]he availability of such procedures is a matter of state law.” As with intangible property, lawyers need to determine for themselves under what circumstances tangible property is subject to the unclaimed property laws of one or more jurisdictions.

[3] “Domicile” is defined under D.C.’s Unclaimed Property Act as an individual’s principal place of business. D.C. Code sec. 41-102(6)(B). Accordingly, there may be choice of law issues involved here. The Committee notes that most jurisdictions have an unclaimed property act and that a lawyer will want to check his or her jurisdiction’s act.

[4] See D.C. Code sec. 41-104. Lawyers should be aware that if the last known address of the owner of the intangible property is in another state that also has an unclaimed property act, then that state’s unclaimed property act may apply. See D.C. Code Sec 41-104(4).

[5] D.C. Code sec. 41-117(a).

[6] D.C. Code sec. 41-117(e)(1).

[7] D.C. Rule 1.16(d).

[8] D.C. Code sec. 41-117(e)(1). The Mayor is obligated to “cause notice to be published at least once each week for 2 consecutive weeks in a newspaper of general circulation in the District,” D.C. Code sec. 41-118(a), and, if the value of the abandoned property is $50 or more, to “mail a notice to each person having an address listed who appears to be entitled to property of a value of $50 or more presumed abandoned under this chapter.” D.C. Code sec. 41-118(d).

[9] D.C. Code sec. 41-103.

[10] 986 A.2d 1208, 1230 (D.C. 2010).

[11] D.C. Code sec. 41-135. More specifically, section 41-135 provides:

(a) Any person who fails to pay or deliver property within the time prescribed by this chapter shall be required to pay interest at the rate of 1½% per month or fraction of a month on the property or value of the property from the date the property should have been paid or delivered.
 
(b) Except as otherwise provided in subsection (c) of this section, a holder who fails to report, pay, or deliver property within the time prescribed under this chapter, or fails to perform other duties imposed by this chapter, shall pay to the Mayor, in addition to the interest as provided in subsection (a) of this section, a civil penalty of $200 for each day the report, payment, or delivery is withheld, or the duty is not performed, up to a maximum of $10,000.
 
(c) A holder who willfully fails to report, pay, or deliver property within the time prescribed under this chapter, or fails to perform other duties imposed by this chapter, shall pay to the Mayor, in addition to the interest as provided in subsection (a) of this section, a civil penalty of $1000 for each day the report, payment, or delivery is withheld, or the duty is not performed, up to a maxim [sic] of $25,000, plus 25% of the value of any property that should have been paid or delivered.

[12] See D.C. Code sec. 41-117.

[13] We note that the Act’s confidentiality provision, section 41-131, states:

Any information or records required to be furnished to the Mayor as provided in this chapter shall be confidential and shall not be disclosed to any person except the person who furnished the same to the Mayor and except as provided in sections 41-118 (notice of abandoned property) and 41-123 (deposit of funds) or as may be necessary in the proper administration of this chapter alone.

The Act potentially implicates client confidentiality under Rule 1.6 because the Act’s requirement to transfer a missing client’s funds to the Mayor’s office and provide identifying information for same involves disclosure of the client’s identity. We recognize that there are situations in which the client’s name and/or the fact that the client consulted a particular attorney could be a client confidence. See, e.g. D.C. Legal Ethics Op. 312 (2002); Conn. Ethics Op. 99–35 (1999) (lawyer participating in referral program that offers services to bankruptcy clients and pays lawyer for each referral must obtain client consent before disclosing client’s name to program); Ill. Ethics Op. 97-1 (lawyer may provide bank with names of clients as potential bank customers only with clients’ consent).

Rule 1.6(e) permits disclosure of confidential information when required by law. In this situation, disclosing a client’s name is permissible because it is required by the Act. (Our conclusion might differ if another state’s unclaimed property act applied.) Nevertheless, a lawyer may consider advising his or her client that his or her identity may be divulged when the lawyer has to report it to the Mayor’s office.


June 2011