Opening the Account

Opening the Account

Rule 1.15 works in layers, and subsection (a) is the layer the others rest on. It tells the lawyer how to build and keep the account: hold the property of clients and third persons apart from the lawyer's own, keep funds in a separate account located where the lawyer's office is, identify and safeguard property that is not money, and preserve complete records for the period the state sets.¹ The later subsections presuppose that account and govern what may go in and when anything may come out. Subsection (b) permits the lawyer's own money in the account only to pay bank service charges, and only in the amount necessary for that purpose.² Subsection (c) requires advance fees and expenses to be deposited there and withdrawn only as fees are earned or expenses incurred.³ Neither rule can work until a separate, properly placed, properly documented account exists.

Subsection (a) packs several duties into a few sentences because each one guards against a different failure. Separation keeps client dollars identifiable and beyond the lawyer's casual reach. Location ties the account to a place the client and the state can reach. Records preserve the proof, long after the money has moved, of whose dollars were whose. Safeguarding does for documents and valuables what the account does for cash, since a client's papers can be lost or misused as easily as a client's money.

These duties are independent, so one fact pattern can satisfy one and fail another. The analysis therefore runs through three questions, each taken up in its own subsection below.

A failed step is a violation in its own right. The rule speaks in commands, and nothing in its text makes a violation depend on loss to the client, so good faith does not rescue a lawyer who fails a step. The first question reaches the heart of the duty, because it asks whether the client's money is in a trust account at all.

Segregating Client Funds

A lawyer who holds property of a client or third person in connection with a representation must keep it separate from the lawyer's own property, and the rule turns that command into a banking instruction in its next sentence.⁴ The funds go into a separate account, maintained in the state of the lawyer's office unless the client or third person consents to another location.⁵ Separation thus has an affirmative half: money that belongs to someone else must go into an account built to hold it. The location requirement has its own subsection below, so the question here is only which account receives the money.

The accounts that fail this test are the lawyer's own. A firm's operating account pays rent, payroll, and vendors, and a client's settlement proceeds deposited there become indistinguishable from firm revenue and can be spent in the ordinary course of business before the client is paid. The lawyer's personal account fails for the same reason, and family-law practice states the proposition flatly: all client funds must be deposited in a client trust account, and they cannot be deposited in the attorney's personal account.⁶ Money that has passed through either account has already been mixed with the lawyer's own funds, so the trust account must be the first stop. Lawyers once kept client money in an office safe, and the modern rule replaced the safe with a bank account governed by detailed court rules on qualifying institutions, interest-bearing accounts, records, and audits.⁷

The hard case is the lawyer with a real claim to part of the money. A lawyer who expects to keep a fee out of a settlement check may be tempted to treat the check as firm revenue, and the facts below show why that treatment fails and what compliant handling looks like.

Moreno's handling tracks what state rules spell out. Maryland's rules permit a deposit of funds belonging partly to a client and partly to the lawyer into the trust account, require the lawyer to withdraw the lawyer's own portion promptly once entitled to it, and keep any portion the client disputes in the account until the dispute is resolved.⁹ The sequence protects the client at the moment of greatest risk, since a lawyer who is also a claimant has the strongest incentive to settle a disagreement by taking the money first.

Because the rule targets the lawyer's own money, one trust account may hold the funds of many clients at once. Pooling is safe because the lawyer has no personal stake in the pooled dollars, so none of the temptation that comes from mixing with the lawyer's funds is present. It is also practical, since many clients' deposits are small or short-lived, and Maryland's rules expressly allow one client's funds to be pooled in an attorney trust account with funds held for other clients.¹⁰ Pooling works only because the lawyer's records show whose dollars are whose, a duty taken up in the records subsection below. Nominal or briefly held deposits are also the funds that states typically direct into a pooled interest-bearing account, with the interest going to a state commission, a point the interest section develops later.¹¹

State rules supply the operating detail that Rule 1.15(a) leaves out, such as which financial institutions qualify and what audits and records the account requires.¹² Maryland requires deposit in an approved financial institution, and Oregon's DR 9-101(A) calls for identifiable trust accounts.¹³ An exam answer should say that the money belongs in the trust account and that local rules govern the choice of bank and the form of the account, without attempting to recite any one state's list.

Only money that belongs to a client or third person triggers the deposit duty, which is why one lawyer can bank some receipts in the operating account and must route others to trust. Maryland's rule, for example, excepts funds received as payment of fees the client owes or as reimbursement for expenses properly advanced, and it excepts an instrument made payable solely to a client or third person and transmitted directly to that person.¹⁴ In re Conduct of Balocca, the Oregon Supreme Court drew the same line from the other side: a payment of a bill for work already performed is the lawyer's money and need not go into trust, while a retainer paid before the work is the client's money until the lawyer performs the services the client agreed to pay for.¹⁵ That second category falls under Rule 1.15(c), which requires advance fees and expenses to be deposited in the trust account and withdrawn only as earned or incurred.¹⁶ A divorce retainer is the familiar example, and it may not be commingled with the lawyer's own funds.¹⁷ The advance-fee rule receives its own treatment below. The point for now is that the first test asks whose money it is when it arrives.

Location of the Account

Rule 1.15(a) answers the location question in the same sentence that requires the account: funds must be kept in a separate account maintained in the state where the lawyer's office is situated, or elsewhere with the consent of the client or third person.¹⁹ The wording sets a geographic default and a personal exception. The account belongs in the state of the lawyer's office, and it may sit elsewhere only if the person whose money it is agrees. Nothing the lawyer decides alone satisfies the exception.

Each half of the rule has a reason. The default keeps the account in the state whose rules the lawyer practices under and within a client's easy reach. The exception follows from the fact that the protection exists for the owner of the funds, and an owner may waive a protection that exists for his or her own benefit. The waiver must be the owner's own, though. If a lawyer could supply consent on a client's behalf, any lawyer with a reason to bank elsewhere could say the client would not mind, and the default would mean nothing.

The exam version of the problem asks whether the lawyer's reason for choosing an out-of-state bank matters, and it matters only when the reason belongs to the owner of the money.

An account at a bank in the lawyer's own state satisfies this step without anyone's consent, which is why the first scene fails and the ordinary case never raises the issue. Rule 1.15(a) refers only to “the consent of the client or third person” and prescribes no form for it.²⁰ An exam answer should therefore ask whether the facts show an actual agreement by the owner of the funds, and whether that agreement came before the money was placed. State rules can add the formality the Model Rule omits. Florida's provision on holding trust funds other than in a bank or savings and loan account, for example, requires the client's written permission, received before the funds are held that way.²¹ That provision addresses a different departure from the ordinary bank account and does not itself govern out-of-state accounts, but it shows the shape consent tends to take in practice: it comes from the client, it is documented, and it comes first.

Because consent belongs to whoever owns the money, it reaches only that owner's funds. One client's agreement to an out-of-state bank authorizes that location for that client's money and does nothing to move the funds of other clients. Where the money belongs to a third person, such as a party who has deposited funds with the lawyer for a pending transaction, the third person's agreement is the one the rule requires.

Records and Other Property

The last two sentences of Rule 1.15(a) carry the duty beyond the bank balance. Property other than money must be identified as such and appropriately safeguarded, and complete records of the account funds and other property must be kept and preserved for [five years] after the representation ends.²³ These sentences supply the third question in the analysis. A trust account at the right bank in the right state still fails the rule if no one can later show what went in, what came out, and whose money it was, and a client's papers or securities can be lost or misused as easily as cash.

The records do a job the bank cannot do. A bank statement shows deposits and withdrawals, but a trust account usually holds the money of many clients at once, and only the lawyer's own records can say which dollars belong to which client. The records therefore turn a pooled account into a set of identifiable client funds, which is the condition that made pooling safe in the first place. They also let a disciplinary authority, an auditor, or a client test the handling of the account after the fact. They make possible, too, the lawyer's duty under Rule 1.15(d) to render a full accounting promptly on the request of the client or third person, since no lawyer can account for money that the lawyer's own files cannot trace.²⁴

The retention period has two features that exam facts like to test. First, the Model Rule puts the five years in brackets, which marks a number each state fills in for itself, so the safe statement is that the state sets the period and the model text suggests five years. Second, the period runs from the termination of the representation and not from any deposit, so records created in the first year of a long matter must be kept until the stated time after the whole matter ends.²⁵ The reason follows from when problems surface. A client's question about a settlement, a fee dispute, or a bar complaint often arrives long after the money has moved, and a clock that started at the deposit could let the evidence expire while the lawyer was still representing the client.

The second half of the section concerns property that is not money. Clients leave lawyers valuable documents to analyze, securities to hold for a transaction, and items that may later serve as evidence, and the rule requires that such property be identified as such and appropriately safeguarded.²⁶ In practice, the lawyer should list the items, mark them as the client's, and keep them in a secure place physically separate from the lawyer's own belongings. An office safe may serve for temporary storage of certain valuables and sensitive papers, but client securities and other valuable or negotiable documents ordinarily belong in a bank safe deposit box maintained separately for client property.²⁷ Each step answers a specific risk. Listing proves what the lawyer received, so the client can be told what is owed back. Labeling keeps the items from being mistaken for the lawyer's property or lost among the lawyer's own files, and a separate box means no one ever has to sort the client's certificates from the lawyer's papers.

State rules add operating detail around the box. Florida's trust-account rule, for example, directs a lawyer who uses a safe deposit box for trust funds or property to advise the institution that the box may include property of clients or third persons, so the bank is on notice that what is inside may not belong to the lawyer.²⁸ The usual exam error is to assume that the trust-account rules concern only cash and that a client's stock certificates can sit wherever is convenient. The rule covers other property in the same subsection that governs funds, so the question to ask of any item received in connection with a representation is whether it belongs to someone else and whether it has been labeled and secured accordingly.