Commingling and Lawyer

Trust AccountsPosted on 03/30/2015

Most lawyers are keenly aware of the prohibition against commingling personal

funds with IOLTA funds. However, this does not mean that a lawyer is never

allowed to deposit the lawyers own funds into the IOLTA account. In fact, there

are a number of occasions when a lawyer is allowed to do so:

1. Paying bank service charges (lawyer may deposit a nominal amount of

lawyers own funds to offset reasonably anticipated bank charges) Oregon

RPC 1.15-1(b); OSB Formal Opinion 2005-146.

2. Meeting minimum balance requirements (lawyer may deposit lawyers own

funds in an amount necessary to meet that purpose) Oregon RPC 1.15(b).

3. To cover credit card merchant fees (in an amount necessary to meet that

purpose) OSB Formal Opinion 2005-172.

4. To cover chargebacks when a bank/credit card company claws back

disputed funds previously deposited in trust. If the lawyer has already

removed the funds as earned when the dispute is submitted to the credit

card company, other clients money will be taken from trust. The lawyer is

obligated to replace that money with his/her own funds. OSB Formal

Opinion 2005-172.

5. To process credit card proceeds. In cases where a lawyers bank insists

upon a single merchant account for processing credit cards, It is not a

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violation of Oregon RPC 1.15-1 to deposit all credit card transactions into a

trust account, if the portion representing earned fees is promptly

transferred to the lawyers business account. OSB Formal Opinion No.

2005-172. In other words, if a lawyer is using a single merchant account,

which must be a trust account under OSB Formal Opinion No. 2005-172,

that merchant account will receive some deposits which are retainers or

unearned fees and costs and some deposits that are earned fees (the

lawyers own funds). The latter is not considered commingling provided

the lawyer promptly transfers the earned fees from trust.

6. To return disputed fees. If a lawyer bills a client, takes the fees, and the

client later disputes the lawyers bill, the lawyer is no longer required to

replenish the trust account but the lawyer may if he/she wishes. OSB

Formal Opinion 2005-149. (Replacing the funds will necessarily come from

the lawyers own pocket since the lawyer previously removed the earned

fees from the trust account.)

7. To rectify an error when the lawyer removed funds from the IOLTA account

by mistake. For example, lawyer writes a check on the IOLTA account

when the check should have been written on the business account. The

lawyer is obliged to correct the error and replace the funds. [More on this

below.]

8. To correct mathematical errors involving the IOLTA account. For example,

lawyer discovers that deposits and disbursements were wrongly entered in

the columns of a spreadsheet or accounting program. The lawyer is

obligated to correct the errors, and if needed, replace any missing client

funds. [More on this below.]

9. To make a client whole if client funds are removed as the result of cyber

breach, scam, fraud, or embezzlement. The lawyer is obligated to make

her clients whole. By necessity, the lawyer will be replacing client funds

with funds that belong to the lawyer. [More on this below.]

What Happens When a Mistake or Loss Occurs?

Lawyers are obliged to correct mistakes or losses and make their clients whole

(examples 7, 8, and 9 above). However, taking corrective action does not

absolve the lawyer of possible discipline action. Lawyers are accountable for the

underlying circumstances that resulted in the mistake or loss. If those

circumstances constitute a violation of the ethics rules, the lawyer may be

subject to discipline.

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When Is a Lawyer Obliged to Report a Mistake or Overdraft to the Bar?

Oregon RPC 1.15-2(l) provides:

Every lawyer who receives notification from a financial institution that any

instrument presented against his or her lawyer trust account was presented

against insufficient funds, whether or not the instrument was honored, shall

promptly notify Disciplinary Counsel in writing of the same information

required by paragraph (i). The lawyer shall include a full explanation of the

cause of the overdraft.

Thus, lawyers are only required to report errors that result in overdrafts of their

IOLTA account.

[All Rights Reserved 2015 Beverly Michaelis]

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This entry was posted in Ethics, Fees, Financial Management, IOLTA and tagged Beverly Michaelis, client trust account, lawyer trust account, mathematical errors, Oregon law practice management, Reconciliation, Recordkeeping, trust funds by beverlym. Bookmark the permalink [http://oregonlawpracticemanagement.com/2015/03/30/commingling-and-lawyer-trust-accounts/] .

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