Lawyer Money in the Account

Earlier sections of this chapter dealt with what belongs in a client trust account and how to keep it. This section deals with what must stay out, and the answer is the lawyer's own money. Rule 1.15 draws the line in two steps: it bars the lawyer's funds from the account, then carves out a single exception for paying the bank's charges on the account. A third provision works in the other direction. Rule 1.15(c) requires a lawyer to deposit fees and expenses that a client has paid in advance and allows withdrawal only as the fees are earned or the expenses incurred.¹ The next section takes up advance payments. One question runs through all three provisions, whose money is this, and its answer decides whether the account is the right place for it.

The Commingling Ban

Rule 1.15 builds the ban from two subsections read together. Subsection (a) directs a lawyer to hold property of clients and third persons that is in the lawyer's possession in connection with a representation separate from the lawyer's own property.² Subsection (b) then names the one circumstance in which the lawyer's own money may enter a client trust account: the lawyer may deposit personal funds for the sole purpose of paying bank service charges on that account, and only in an amount necessary for that purpose.³ Because the rule lists one permitted purpose, every other purpose is excluded. Mixing the lawyer's funds with a client's is called commingling, and a lawyer commits it whenever personal money goes into the account for a reason subsection (b) does not allow.

State rules often state the ban directly. Maryland's Rule 16-607, quoted in Attorney Grievance Comm’n of Md. v. James, lets an attorney or law firm deposit in a trust account only the funds that Rule 16-604 requires to be deposited there or that Rule 16-607 itself permits.⁴ Maryland's permitted list runs a little longer than the Model Rule's. Besides the mixed deposits and bank charges discussed below, it allows funds expected to be advanced on a client's behalf and reimbursed by the client. For an exam, the safe statement of the Model Rule is the narrow one: bank service charges, in the necessary amount, and nothing else.

Keeping lawyer money out of the account serves a practical end. When a lawyer's dollars sit beside a client's, the account can no longer show whose dollars are whose, and the line between borrowing and taking blurs. A lawyer who withdraws what looks like his own cushion may be withdrawing a client's money, and a lawyer who takes too much can claim he took only his own. The later section on conversion shows how little such a claim helps: a lawyer who takes unearned funds from the account, even meaning to replace them, can expect a severe sanction, presumptively disbarment.⁵

The pair shows what the violation turns on. The only questions are whose money is in the account and why it was put there. The lawyer's motive and the absence of client loss do not change the answer, because the rule's test looks to purpose and contains no loss requirement. That is also why a violation can be proved from the account records alone.

A payment owned partly by the client and partly by the lawyer raises a different problem from a deposit of the lawyer's savings. One settlement check often pays the client's recovery and the lawyer's fee together, and a lawyer cannot cash half a check. Because part of the payment is the client's, the duty to keep it separate attaches to the whole, and state rules respond by permitting the deposit while limiting how long the lawyer's share may stay. Maryland allows a deposit of funds belonging partly to a client and partly, presently or potentially, to the attorney. It requires the attorney's portion to be withdrawn promptly once the attorney becomes entitled to it, and it keeps any portion the client disputes in the account until the dispute is resolved.⁷ Another state's rule says the same thing in different words. Property in which two or more persons, one of whom may be the lawyer, claim interests is treated as trust property. The lawyer's portion is withdrawn within a reasonable time after it becomes due unless the lawyer's right to it is disputed, the disputed portion stays separate until the dispute is resolved, and the lawyer promptly distributes every portion not in dispute.⁸ Model Rule 1.15(e) follows the same pattern for jointly owned funds: when a dispute arises over who is entitled to what portion, the lawyer holds the funds separate until it is resolved.⁹ A later section treats disputes in more detail.

The permission to deposit and the duty to withdraw fit together because of what happens to the lawyer's share over time. At the moment of deposit, the lawyer's interest is only a claim to part of a payment that arrived in one piece, so no lawyer money has been deliberately added to the account. Once that share is earned and undisputed, it is the lawyer's own money, and leaving it in trust makes the account hold exactly what the ban excludes. The disputed portion stays for the opposite reason: the lawyer may not take what the client contests, and the rule keeps it separate until the dispute ends.

Students tend to err in one of two directions with mixed funds. Some reason that because mixed deposits are allowed, the earned share may stay in trust indefinitely, which turns a permitted deposit into continuing commingling. Others treat any mixing of lawyer and client money as an automatic violation, which overlooks that a check with two owners has to go somewhere and that the trust account is the right place for it. The mixed-funds rules come from state provisions such as Maryland's, so an exam answer should present them as the way jurisdictions apply the separation principle: deposit the whole payment, withdraw the lawyer's share promptly when earned, and leave any disputed portion in place.

Bank Service Charge Exception

The commingling ban has one exception, and it exists because a trust account costs money to run. Banks charge service fees on accounts, and on a small deposit those charges can exceed any interest the money would earn.¹¹ If only client money sits in the account, the bank can collect its fees only from client dollars. Each deduction would pull a client's balance below what the lawyer's records say the client is owed, and a later check for the full amount would come up short. Rule 1.15(b) therefore lets the lawyer absorb the cost: the lawyer may deposit the lawyer's own funds for the sole purpose of paying bank service charges on that account, but only in an amount necessary for that purpose.¹² The exception sets two limits, one on purpose and one on amount, and each has its own reason.

The purpose limit confines the deposit to paying bank service charges on the trust account itself. The word sole shuts out mixed motives, and the phrase that account shuts out fees assessed on any other account, such as the firm's operating account. The narrowness follows from the exception's reason, since protecting client balances from the account's own costs reaches no further than those costs. A deposit for any other reason, even a harmless one, leaves the lawyer's money beside the clients' with no justification.

The amount limit operates separately, because a lawyer can satisfy the purpose limit and still break this one. The deposit may be only in an amount necessary to pay the charges, so necessity acts as a cap measured against the fees the account actually incurs, and the lawyer's sense of what would be prudent or convenient does not enlarge it. The rule fixes no dollar figure, which means the question on any set of facts is whether the sum corresponds to the charges it was meant to cover. Every dollar above that amount serves no purpose the exception recognizes, and a large balance of the lawyer's own money would become a standing reserve inside the account, easy to mistake for client funds and easy to borrow against.

Okafor and Lindqvist mark the ends of the range. A deposit that tracks the charges is plainly within the rule, and a stockpile that dwarfs them is plainly outside it. Closer cases sit between, such as a deposit covering a few months of expected fees. The Model Rule sets no schedule, so an answer should reason from the necessity language and look to any local rule on point.

Some states change the mechanism altogether. Maryland's Rule 16-607 directs an attorney to do one of two things: deposit into the trust account funds to pay the fees, service charges, or minimum balance the financial institution requires, or enter into an agreement with the institution to have those fees or charges deducted from an operating account maintained by the attorney or firm.¹³ The Maryland provision differs from the Model Rule in two ways. It is framed as a duty to choose one of the methods, where the Model Rule only permits the deposit, and it names minimum-balance requirements, which the Model Rule's text does not mention. The deduction option also has its own logic: when the bank bills the operating account, none of the lawyer's money enters the trust account, so the account holds only client and third-person funds and the commingling question never arises. Under either method the charge remains the lawyer's cost and never the client's.

Students most often stretch the exception when the lawyer has a plausible-sounding reason to leave money in trust. A lawyer who has earned a fee out of a settlement and leaves the earned share in the account to cover the bank charges has not used the exception, because the amount left far exceeds the charges and the money is the lawyer's earned share of a deposited payment, which state rules require to be withdrawn promptly. Under the Model Rule the exception also gives no cover for funding the account for any reason other than the bank's own charges, however well-meant. Because the rule contains no loss requirement, a deposit that misses the exception is commingling even if the lawyer meant well and no client lost a dollar.