Official Magazine of the Denver Bar Association

Ethics Column ~ Use of the Client Trust Account: What Not to Do ~ By Amy DeVan

I often tell people that I went to law school because I graduated from college with a degree in history, and there was no math on the LSAT. I am not really kidding. I know math and money are not my strong points. I also tell people the practice of law is hard; handling the money should not be. Unfortunately, during my time working with the Colorado Office of Attorney Regulation Counsel, I saw far too many lawyers who — I think — had similar weaknesses and made serious missteps with their client trust accounts. It was too bad that these lawyers found themselves before disciplinary counsel not for legal mistakes but for simply mishandling third-party funds. Although we have all heard about the scandalous cases where a lawyer absconded with trust account funds and left the country, in the cases I saw, the reality was often far more mundane. Lawyers are human and they make mistakes; however, when it comes to money that doesn’t belong to you, those mistakes can turn serious quickly.

I have often talked about the top trust account mistakes, the main ways to avoid malpractice and the best ways to run a practice. For this article, I wanted to write about something a little more interesting but that was nonetheless real. Below are the five silliest mistakes I saw lawyers make when it came to handling funds and the use of the client trust account.

  1. Using the trust account as your personal bank account. As with many trust account issues that come to the attention of Attorney Regulation Counsel, I investigated a case that started with a different issue — communication. The client felt his lawyer was not adequately communicating with him about his case. As an aside, he also raised concerns with the billing. I am firmly convinced the billing would never have been raised had the client not already been upset about the communication issues (that’s a separate tip!). In talking to the lawyer about the allegations, I realized that this lawyer — who was licensed in another state and practicing in Colorado — had a trust account but no operating account. Not only was he only using one account — his trust account — for all business purposes, he was also using it as his personal bank account under the theory that, as a solo practitioner, it was all his money. In trying to resolve questions about the use of the bank account, I had to request and review months of bank statements and now know far more about this lawyer’s personal spending habits than I ever wanted to. Apart from the obvious reasons why this is a bad idea (commingling, conversion, etc.), do you really want someone in Attorney Regulation knowing how often you eat at Hooters? Just don’t do this.
  2. No debit card, no cash withdrawals. This case arose from a notification by the bank, which had inappropriately issued a debit card on a trust account. Several weeks after realizing the error, the bank notified Attorney Regulation about the use of the card on the trust account. When I spoke to the lawyer, he at first indicated he was unaware the use of the debit card was impermissible. Then, after acknowledging he had the card and had used it, he said “I know the obligations are mine as the lawyer. But in this instance I really think it’s the bank’s fault for giving me the card.” While he had a point, it was not a good one. The responsibility for knowing the Rule (in this case Rule 1.15C(a)) and following it is the obligation of the licensed professional.
  3. Reconcile! This is not exciting but it is important. The only way to know if you’ve made an error is to reconcile your books and be sure the amount in the trust account is the amount that should be there. Common theory is this should be done once per quarter; I would go further and say do it once per month. It is much easier to find and correct mistakes earlier rather than later. And because we all are human and we all make mistakes, you are better served to find and correct them yourself before a report is made to Attorney Regulation Counsel and you may no longer control the resolution.
  4. Failing to supervise staff/properly train staff regarding the trust account obligations. While this seems simple, it is often an issue that causes problems for lawyers. There is a public disciplinary case that stemmed from a lawyer who failed to adequately train and supervise his accountant who, when money ran short in the operating account, solved the problem by simply transferring the funds from trust. Both the lawyer and the accountant acknowledged that she was not well aware of trust account rules and hadn’t understood the importance of safeguarding client funds. Although there was no intent to deprive the client of the funds, that is, nevertheless, what resulted, and this lawyer received a lengthy suspension as a consequence.
  5. If you use money that isn’t yours, that’s bad. I investigated a lawyer who received advance funds as a retainer and failed to deposit them in trust, instead keeping them in his operating account and using the funds before they were earned. When I met with the lawyer, he said, “I know it wasn’t my money to use, but it’s not like I stole it,” at which point we discussed the definition of “theft” and the fact that, despite the use of the term “conversion,” essentially theft is exactly what it is. Thankfully, most lawyers know this, and this discussion is not necessary. However, lawyers often unintentionally neglect to deposit funds in the proper account and convert unearned fees. While intent matters, the mishandling of funds is a problem. Be careful where you put the funds and when you use them.

Now that I am back in the private sector, I have sympathy for lawyers and what it takes to oversee several different bank accounts and keep track of the funds in each. But sympathy only gets you so far when you are holding someone else’s funds, quite literally, in trust. If you follow disciplinary cases, you know there is no quicker way to receive a hefty penalty than to mishandle third-party funds. So know your strengths and your weaknesses and take steps to ensure the money isn’t what wakes you up in a panic at midnight. D

AmyAmy DeVan works as Conflicts and Resource Staff Counsel with the law firm of Wheeler Trigg O’Donnell LLP. She can be reached at devanamy@gmail.com. 

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