Speaking of Ethics
In Trust Accounts We Trust
By Saul Jay Singer
After Laurie Lawyer expended hundreds of hours representing Calvin
Client in a personal injury case, and after Laurie’s firm fronted
more than $50,000 in expenses in the case, the defendant settled on
the eve of trial for $600,000. Laurie deposits the settlement check
into Firm’s trust account and prepares a final accounting as follows:
||Contingency fee as per retainer agreement
||Outstanding fees due to Cal’s medical providers as per negotiated
||Total Settlement Proceeds
||Balance Due to Calvin Client
The first inkling of trouble begins when Laurie receives a call from
Cal’s ex-wife, advising that Cal owes $15,000 for outstanding
court-ordered child support. In the days that follow, Laurie hears from
Pain Specialist, who claims that Cal had been ignoring his $1,000 invoice
for more than a year; Spiritual Healer, who claims $25,000 for providing
“spiritual guidance to help Cal deal with back pain;” the
Internal Revenue Service (IRS), which advises that Cal owes federal
income taxes and serves notice of a $10,000 lien against any trust funds
held by Laurie on Cal’s behalf; and Sam the Deli Guy, who claims
that Cal had walked out without paying for his corned beef sandwich
and diet cream soda. Sam demands payment of $15, plus unspecified damages
for “emotional distress.”
When Laurie calls Cal to ask about these various claims, he accuses
her of manufacturing lies and demands immediate receipt of “my
$600,000.” When she tries to explain the various deductions that
had to be taken against the aggregate settlement, Cal angrily replies
Laurie wasn’t entitled to any fee
because “you wore a yellow blazer at our meeting last week,
and you know how much I hate all things yellow;” and
Firm could not recoup expenses because “I
never agreed to pay expenses and, in fact, Paul Partner assured me
that my case was so strong and so large that any lawyer would happily
agree to eat the expenses.”
As to the third-party claims, a heated Cal declares that his ex-wife
had cheated on him and, therefore, was not entitled to a monthly $1,000
court-ordered payment; that he neglected to tell Laurie about Pain Specialist
because the doctor had failed to forward any invoice; that Spiritual
Healer was a charlatan, with bad breath to boot; and that the corned
beef sandwich was inedible. As to the IRS lien, Cal asserts The Steve
Martin Defense—“I forgot”—invoked during his
classic Saturday Night Live routine.
Laurie easily determines that: (1) no reasonable finder of fact could
possibly deny her fee because she “wore a yellow blazer,”
(2) the retainer agreement can entertain no interpretation other than
that Cal must pay Firm’s expenses, and (3) she will not undertake
to adjudicate the merits (vel non) of the third-party claims
and, thereby, subject herself to potential liability. She transfers
$250,000 from Firm’s trust account to its operating account, and
advises Cal that the $350,000 balance will remain protected in Firm’s
trust account pending final resolution of all third-party claims, known
and unknown, against the settlement proceeds.
Laurie is wrong on almost all counts. She has committed multiple violations
of Rule 1.15(c) of the District of Columbia Rules of Professional Conduct,
which details a lawyer’s duties when disputes arise with respect
to the ownership of trust funds under a lawyer’s control:
When in the course of a representation a lawyer
is in possession of property in which interests are claimed by the lawyer
and another person, or by two or more persons to each of whom the lawyer
may have an obligation, the property shall be kept separate by the lawyer
until there is an accounting and severance of interests in the property.
If a dispute arises concerning the respective interests among persons
claiming an interest in such property, the undisputed portion shall
be distributed and the portion in dispute shall be kept separate by
the lawyer until the dispute is resolved ….
Comment  to Rule 1.15 elaborates:
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. However,
a lawyer should not unilaterally assume to arbitrate a dispute between
the client and the third party.
But this begs the question: While Laurie “may have a duty”
to protect third-party claims, when does she actually have the affirmative
duty to do so? Moreover, if Laurie “should not unilaterally assume
to arbitrate” the dispute, how is she to decide whether the third-party
claim is a “just claim”—or just a claim?
The D.C. Bar Legal Ethics Committee provides significant guidance
on this issue in Opinion 293, which begins by drawing an important distinction
between claims against trust funds by clients and claims by third parties.
Because of a lawyer’s paramount duty of loyalty to a client, even
the mere assertion of a claim by a client constitutes sufficient grounds
to prevent a lawyer from withdrawing any disputed property, and “there
is no requirement that the dispute be genuine, serious, or bona fide.”
As such—and though there could be few claims as preposterous as
Cal’s detestation of Laurie’s yellow blazer—Laurie’s
transfer of her contingency fee (and Firm’s expenses) to Firm’s
operating account was improper.
As to the third-party claims, Opinion 293 defines a just claim
that must be honored by the lawyer as one relating to the particular
funds in the lawyer’s possession, and not merely a general,
unsecured client debt. Thus, when an attachment or garnishment arising
out of a money judgment against Cal establishes a third party’s
entitlement to specific settlement proceeds in Laurie’s trust
account and is served upon her, she must protect these funds, whether
or not the order is related specifically to Cal’s case.
Despite claims by Pain Specialist, Spiritual Healer, and Sam the Deli
Guy, where none of these third parties has perfected a garnishment/attachment
of the settlement proceeds, Laurie may—indeed, she must—distribute
the “disputed” funds to her client, even in the face of
these pending claims. The same is
true with respect to the ex-wife’s claim, even though she approaches
Laurie with a court order in hand for child support, because that order
does not relate specifically to the settlement proceeds. However, as
Opinion 293 makes clear, Laurie must protect a statutory lien that applies
to the settlement proceeds in the matter she is handling. The IRS lien
in this case is such a lien, and Laurie has the duty to retain $10,000
in the trust account to satisfy it.
Notwithstanding a D.C. lawyer’s broad duty
of client loyalty, Laurie may refuse to distribute to Cal $250,000
that she and Firm claim as a contingency fee ($200,000) and outstanding
expenses ($50,000). However, she may not take distribution of these
funds until either Cal consents to such distribution or the fee and
expense dispute is adjudicated in Laurie’s favor.
While Laurie must preserve $10,000 to satisfy
the IRS lien, she need not retain any additional funds to satisfy
any of the other third-party claims.
As soon as practicable, Laurie must distribute
$240,000 to Cal, representing the $600,000 in aggregate proceeds,
less: (a) $250,000 contingency and expenses; (b) $10,000 for the IRS;
and (c) $100,000 to providers, the distribution of which Cal does
not dispute. She need not fear any additional third-party claims—even
as to perfected liens specifically against the trust funds—of
which she is unaware at the time of the distribution.
A lawyer must carefully walk the line between the duty of loyalty and
the duty to disburse client funds on the one hand, and the duty to protect
funds relating to certain third-party claims on the other hand. When
it comes to trust accounts, there will, indeed, be a significant penalty
for early withdrawal!
Legal Ethics counsel Hope C. Todd and Saul Jay Singer are available
for telephone inquiries at 202-737-4700, ext. 3231 and 3232, respectively,
or by e-mail at email@example.com.
 In re Haar, 667 A.2d 1350, 1353 (D.C. 1995).
 Laurie’s remedy is to file suit against Cal to recover her
fee (and Firm’s expenses). Such an action is subject to Rule 1.6(e)(5)
(“A lawyer may use or reveal client confidences or secrets . .
. to the minimum extent necessary in an action instituted by the lawyer
to establish or collect the lawyer’s fee.”)
 See, e.g., Comment  to Rule 1.15: “The undisputed
portion of the funds should be promptly distributed.”
 In marked distinction is the case where the lawyer has executed an
authorization and assignment pursuant to which the lawyer ratifies a
contract between the client and the medical provider to pay certain
funds in the lawyer’s possession. In such instances, the lawyer
must retain the disputed funds at issue in the trust account.
 As Opinion 293 makes clear: “to begin with, the rule [to preserve
trust funds as to which there is a ‘just claim’] does not
apply to claims of which the lawyer lacks knowledge.”
Disciplinary Actions Taken by the Board on Professional Responsibility
IN RE JAMES W. BEANE JR. Bar No. 444920. December 22, 2009. On remand
from the D.C. Court of Appeals, regarding the issue of the “appropriateness
of a negotiated discipline,” the Board on Professional Responsibility
recommends that the court reject the proposed sanction, a six-month
suspension with fitness.
IN RE ANDREW J. KLINE. Bar No. 358547. December 22, 2009. The Board
on Professional Responsibility recommends that the D.C. Court of Appeals
suspend Kline for 18 months, with the suspension stayed after nine months,
on the condition that Kline agrees to be placed on monitored probation
for two years with conditions as stated in the Board Report and Recommendation.
Kline negligently misappropriated and commingled entrusted funds and
“committed a significant number of serious ethical violations”
while representing a client in a litigation matter. Specifically, Kline
failed to make crucial litigation filings, and, as a result, a default
judgment was entered against his client. Without telling his client
about the default judgment, Kline negotiated settlement terms with the
adverse parties under which his client was to pay $50,000. He did not
bring these terms to his client’s attention; instead, he submitted
a draft agreement that called for the dismissal of his client’s
$7,500 contract claim but required no monetary payment from his client.
When even those terms were not acceptable to his client, Kline forged
his client’s signature on a settlement agreement containing the
terms he had negotiated; paid the adverse parties $50,000 of his own
funds; and presented the forged agreement to them as a valid settlement
agreement. Rules 1.1(a), 1.2(a), 1.3(a), 1.3(b)(1), 1.3(b)(2), 1.3(c),
1.4(a), 1.4(b), 1.4(c), 8.4(b), 8.4(c) and D.C. Bar R. XI, § 19(f).
IN RE THEODORE S. SILVA JR. Bar No. 412894. December 31, 2009. In a
consolidated reciprocal and original matter, the Board on Professional
Responsibility recommends that the D.C. Court of Appeals suspend Silva
for three years and require that he demonstrate fitness as a condition
for reinstatement, showing that he has beaten his cocaine addiction
and not used the drug during the period of his suspension. It is also
recommended that the court require the Office of Bar Counsel to publish
the discipline imposed by the Virginia State Bar Disciplinary Board
in accordance with D.C. Bar Rule XI, § 11(c). The original matter
relates to Silva’s admitted failure to complete work for a client;
his subsequent falsification of the signatures of others, including
falsely notarizing documents; and falsely advising his client and supervising
partner that work had been completed. The reciprocal discipline matter
arises out of Virginia’s public reprimand with terms based on
Silva’s guilty plea for cocaine possession in late 2002 in Arlington,
Virginia. Silva’s conviction was vacated upon his completion of
the conditions of his sentence and probation. Rules 1.3(a), 1.3(b)(1),
1.3(c), 1.4(a), 1.4(b), 8.4(b), and 8.4(c).
Disciplinary Actions Taken by the District of Columbia Court of
IN RE TOAN Q. THAI. Bar No. 439343. December 24, 2009. The D.C. Court
of Appeals suspended Thai for 60 days, with the suspension stayed after
the first 30 days in favor of probation for one year, provided that,
within the first 30 days, he files an affidavit with the Board on Professional
Responsibility and the Office of Bar Counsel certifying that he accepts
the conditions of probation. The court further ordered that as a condition
of Thai’s probation, he shall take six hours of continuing legal
education courses in both legal ethics and law office management, as
approved by the Office of Bar Counsel, within the first six months of
his probation. Finally, the court ordered that Thai pay his client restitution
in the amount of $4,500, plus interest at the usual legal rate, for
his failure to provide adequate representation in his client’s
immigration case. For purposes of restitution, interest shall be calculated
from February 24, 2003, the date his client’s deportation order
was issued. While retained to represent a foreign national in an immigration
matter before the Immigration Court, Thai failed to provide competent
representation, serve his client with skill and care, represent his
client zealously and diligently within the bounds of the law, act with
reasonable promptness in representing his client, keep his client reasonably
informed about the status of a matter and promptly comply with reasonable
requests for information, and surrender papers and property (the client
file) to which the client was entitled as soon as reasonably practicable.
Rules 1.1(a), 1.1(b), 1.3(a), 1.3(c), 1.4(a), and 1.16(d).
IN RE ELMER D. ELLIS. Bar No. 423276. December 3, 2009. In a reciprocal
matter from the United States Court of Appeals for the District of Columbia
Circuit, the D.C. Court of Appeals imposed identical reciprocal discipline
and suspended Ellis for 120 days, with reinstatement conditioned upon
the satisfaction of the continuing legal education requirements imposed
by the D.C. Circuit.
The Office of Bar Counsel compiled the foregoing summaries of disciplinary
actions. Informal Admonitions issued by Bar Counsel and Reports and
Recommendations issued by the Board on Professional Responsibility are
posted on the D.C. Bar Web site at www.dcbar.org/discipline.
Most board recommendations as to discipline are not final until considered
by the court. Court opinions are printed in the Atlantic Reporter and
also are available online for decisions issued since August 1998. To
obtain a copy of a recent slip opinion, visit www.dccourts.gov/internet/opinionlocator.jsf.