1.15 Safekeeping Property, Client Trust Accounts, Interest on Trust Accounts

(a) A lawyer shall hold property of clients or third persons that is in a lawyer’s possession in connection with a representation separate from the lawyer’s own property.

(b) (1) A lawyer shall deposit into a client trust account any advance payment of fees or retainer and any expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred, except that an advance or retainer may be placed temporarily in a non-trust account, where necessary to effectuate payment by the client's chose means (e.g., by credit card), so long as such funds are transferred promptly, and no later than two business days following receipt, into a client trust account. A lawyer shall not accept any advance payment or retainer into a non-trust account if the lawyer has any reason to suspect that the funds will not be successfully transferred into the client trust account within two business day of receipt. All such funds shall be deposited in one or more identifiable accounts maintained in the state in which the law office is situated at a financial institution authorized to do business in such state. No funds belonging to the lawyer or law firm shall be deposited therein except as follows:

(i) Funds reasonably sufficient to pay institutional service charges may be deposited therein; and

(ii) Funds belonging in part to a client and in part presently or potentially to a lawyer or law firm must be deposited therein, but the portion belonging to the lawyer or law firm may be withdrawn when due unless the right of the lawyer or law firm to receive the funds is disputed by the client; in that event the disputed portion shall not be withdrawn until the dispute is finally resolved.

(2) A lawyer shall:

(i) Promptly notify a client of the receipt of the client’s funds, securities, or other properties;

(ii) Identify and label securities and properties of a client promptly upon receipt and place them in a safe-deposit box or other place of safekeeping as soon as practicable;

(iii) Maintain complete records of all funds, securities and other properties of a client coming into possession of the lawyer and render prompt and appropriate accounts to the client regarding them, which records shall be kept by the lawyer and shall be preserved for a period of eight years after termination of the representation; and

(iv) Promptly pay or deliver to the client, as requested by the client, the funds, securities, or other properties in the possession of the lawyer which the client is entitled to receive.

(3) Unless the client directs otherwise, when a lawyer or law firm reasonably expects that client funds will earn interest or dividends for the client in excess of the costs incurred to secure such income, such funds shall be deposited in a client trust account that may be either

(i) separate trust account for the particular client or client’s matter, on which the earnings net of any transaction costs or other account-related charges will be paid or credited to the client; or

(ii) A pooled trust account with subaccounting which will provide for computation of earnings accrued on each client’s funds and the payment thereon, net of any transaction costs or other account-related charges to the client.

(4) All funds of any client held by the lawyer or law firm that are small in amount or held for a short period of time so that they cannot earn interest or dividends for the client in excess of the costs incurred to secure such income shall be deposited in an Interest on Lawyer’s Trust Account (IOLTA) account and shall be subject to the following conditions:

(i) The financial institution in which the account is established shall be authorized to do business in Maine, shall be insured by the Federal Deposit Insurance Corporation or National Credit Union Share Insurance Fund, and shall be an eligible institution selected by the lawyer in the exercise of ordinary prudence. “Eligible Institution” is one determined by the Maine Bar Foundation in accordance with Rule 6(a)(2), (3) and (4);

(ii) Funds deposited in the account shall be subject to withdrawal upon request and without delay;

(iii) Within 30 days after the opening of any IOLTA account that is to be maintained hereunder, the lawyer or law firm shall file with the Board of Overseers of the Bar an order directing the financial institution to remit any net interest or dividends that may accrue on the account to the Maine Bar Foundation, a nonprofit corporation incorporated under the laws of the State of Maine that has in force a determination letter from the Internal Revenue Service that it qualifies as an exempt organization under Section 501(c)(3) of the Internal Revenue Code of 1954 as from time to time amended;

(iv) No interest or dividends on the account shall be paid to the lawyer or law firm, and the lawyer or law firm shall not receive any direct or indirect pecuniary benefit by reason of the remittance of interest in accordance with subparagraph (iii); and

(v) The determination of whether funds are small in amount or held for a short period of time so that they cannot earn interest or dividends for the client in excess of the costs incurred to secure such income, shall rest in the sound judgment of the lawyer or law firm. No lawyer shall be charged with an ethical impropriety or other breach of professional conduct based on the good faith exercise of such judgment.

(5) A lawyer or a law firm, holding funds of the United States government that by law may not earn interest shall deposit those funds in one or more insured, non-interest bearing accounts, whether or not the lawyer or firm has made the election provided by this paragraph for other client funds.

(6) If the circumstances on which a lawyer or law firm has based a determination to deposit client funds in an account under paragraph (4) of this subdivision change, so that interest or dividends in excess of costs may reasonably be expected to be earned on such funds, the lawyer or law firm shall transfer the principal amount originally deposited to the appropriate account established under paragraph (3) of this subdivision.

(7) For purposes of this rule, the following definitions apply:

(i) “Interest or dividends in excess of costs” means the net of interest or dividends earned on a particular amount of one client’s funds over the administrative costs allocable to that amount. In estimating the gross amount of interest or dividends to be earned, the lawyer or law firm shall consider the principal amount involved; available interest or dividend rates; and the time the funds are likely to be held, taking into account the likelihood of delay in any relevant proceeding or transaction.

(ii) “Administrative costs” means that portion of the following costs properly allocable to a particular amount of one client’s funds paid to a lawyer or law firm:

(A) Financial institutional service charges for opening, maintaining, or closing an account, or accounting for the deposit and withdrawal of funds and payment of interest or dividends.

(B) Reasonable charges of the lawyer or law firm for opening, maintaining or closing an account; accounting for the deposit and withdrawal of funds and payment of interest or dividends; and obtaining information and preparing or forwarding any returns or reports that may be required by a revenue taxing agency as to the interest or dividends earned on a client’s funds.

(c) [Reserved – included in (b), above.]

(d) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.

(e) When in the course of representation a lawyer is in possession of property in which two or more persons (one of whom may be the lawyer) claim interests, the property shall be kept separate by the lawyer until the dispute is resolved. The lawyer shall promptly distribute all portions of the property as to which the interests are not in dispute.

(f) Upon termination of representation, a lawyer shall return to the client or retain and safeguard in a retrievable format all information and data in the lawyer’s possession to which the client is entitled. Unless information and data are returned to the client or as otherwise ordered by a court, the lawyer shall retain and safeguard such information and data for a minimum of eight (8) years, except for client records in the lawyer’s possession that have intrinsic value in the particular version, such as original signed documents, which must be retained and safeguarded until such time as they are out of date and no longer of consequence. A lawyer may enter into a voluntary written agreement with the client for a different period. In retaining and disposing of files, a lawyer shall employ means consistent with all other duties under these rules, including the duty to preserve confidential client information.


COMMENT

[1] A lawyer should hold property of others with the care required of a professional fiduciary. Securities should be kept in a safe deposit box, except when some other form of safekeeping is warranted by special circumstances. All property that is the property of clients or third persons, including prospective clients, must be kept separate from the lawyer’s business and personal property and, if monies, in one or more trust accounts. Separate trust accounts may be warranted when administering estate monies or acting in similar fiduciary capacities. A lawyer should maintain on a current basis books and records in accordance with generally accepted accounting practice and comply with any record keeping rules established by law or court order. See, e.g., ABA Model Financial Recordkeeping Rule.

[2] While normally it is impermissible to commingle the lawyer’s own funds with client funds, paragraph (b) provides that it is permissible when necessary to pay bank service charges on that account. Accurate records must be kept regarding which part of the funds are the lawyer’s.

[3] Lawyers often receive funds from which the lawyer’s fee will be paid. The lawyer is not required to remit to the client funds that the lawyer reasonably believes represent fees owed. However, a lawyer may not hold funds to coerce a client into accepting the lawyer’s contention. The disputed portion of the funds must be kept in a trust account and the matter shall be submitted to mandatory fee arbitration, in accordance with Rule 1.5(g) and former Maine Bar Rule 9. The undisputed portion of the funds shall be promptly distributed.

[4] Paragraph (e) also recognizes that third parties may have lawful claims against specific funds or other property in a lawyer’s custody, such as a client’s creditor who has a lien on funds recovered in a personal injury action. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client. In such cases, when the third-party claim is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client until the claims are resolved. A lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party, but, when there are substantial grounds for dispute as to the person entitled to the funds, the lawyer may file an action to have a court resolve the dispute.

[5] The obligations of a lawyer under this Rule are independent of those arising from activity other than rendering legal services. For example, a lawyer who serves only as an escrow agent is governed by the applicable law relating to fiduciaries even though the lawyer does not render legal services in the transaction and is not governed by this Rule.

[6] A lawyers’ fund for client protection provides a means through the collective efforts of the bar to reimburse persons who have lost money or property as a result of dishonest conduct of a lawyer. Participation in the Maine Lawyers’ Fund for Client Protection is a condition of continuing membership in the Maine Bar, for every member, including nonresident members and full-time Justices and Judges of the courts of Maine, and inactive members for the first three years after they reach inactive status.

[7] Subsection (f) of Rule 1.15 is derived from M. Bar R. 3.4(a)(4), as adopted by the Maine Supreme Judicial Court on August 1, 2004. The Rule is intended to provide lawyers (or their successors in the event of a cessation of practice) with a safe harbor for the retention and destruction of client files following the termination of representation. If the attorney has not returned to the client documents and data to which the client is entitled, the rule is intended to cover information and data in the lawyer’s possession to which the client is entitled under these rules, whether contained in tangible client files or other media where client information is stored. The Rule establishes two time periods for the retention and destruction of such client information and data. Records in the lawyer’s possession that have intrinsic value in the particular version, such as original signed documents, must be retained indefinitely until such time as they are clearly out of date and no longer of consequence. All other client information and data must be retained for a period of eight years from the termination of representation, after which they may be destroyed, unless subject to a court order or voluntary written agreement with the client. Eight years was selected because it is two years longer than the typical limitations period for professional malpractice actions. However, in cases where the statute of limitations for commencing professional liability actions against the lawyer is longer than six years, a lawyer would be well advised to retain such information for a minimum of two years after the expiration of the limitations period even though it is not required by the rule. This Rule is not intended to modify the lawyer’s obligations upon withdrawal from employment.

[8] Income on IOLTA Accounts is paid to the Maine Bar Foundation, a 501(c)(3) Organization, and thus is not made available to the client or third person whose funds are deposited in this type of client trust account. In determining whether client or third person funds must be deposited in an IOLTA account instead of a non-IOLTA client trust account, a lawyer should consider the following factors:

(1) the amount of interest or dividends the funds would earn during the period that they are expected to be deposited in light of (a) the amount of the funds to be deposited; (b) the expected duration of the deposit, including the likelihood of delay in the matter for which the funds are held; and (c) the rates of interest or yield at financial institutions where the funds are to be deposited;

(2) the cost of establishing and administering non-IOLTA accounts for the client or third person’s benefit, including service charges or fees, the lawyer’s services, preparation of tax reports, or other associated costs;

(3) the capability of financial institutions or lawyers to calculate and pay income to individual clients or third persons; and any other circumstances that affect the ability of the funds to earn a net return for the client or third person.

This rule should be read in connection with former M. Bar R. 6(a), which sets forth eligibility requirements of financial institutions where client funds are deposited.


Advisory Committee's Note - June 2014

Rule 1.15(b) has been amended to clarify that a lawyer can accept an advance paid by credit card or other means that requires initial deposit into the lawyer's operating account, so long as: (a) the lawyer promptly places the advanced funds into the trust account, and (b) the lawyer has no reason to believe that the funds will be meaningfully exposed to the lawyer's creditors while in the operating account or that there is any practical risk that the funds will not be successfully transferred promptly into the trust account. The Committee intends that Opinion No. 173 (Mar. 7, 2000) of the Professional Ethics Commission shall not apply to credit card payments accepted in compliance with this amendment. The Committee believes that the benefit to clients and lawyers of being able to choose payment by credit card or other means that might require temporary deposit into a lawyer's operating account warrants the slight risk that such deposit entails, since those risks can be mitigated with the controls the rule provides: the exposure in the operating account must be very short-lived, and such deposit is prohibited if the lawyer is aware of any meaningful risk to such funds from deposit into the operating account.

The Committee intends to maintain a bright line separating earned fees from unearned fees (which must be deposited into a trust account). The Committee intends the concept of a fee that is "earned, subject to refund," as described in Opinion No. 206 (Dec. 12, 2012) of the Professional Ethics Commission, to have no place in the rules. A fee that is subject to future refund if the client decides to terminate the representation or not to make use of anticipated future services is an advance, not a nonrefundable fee, and must be placed in a trust account, even though the parties think it highly likely that the future services will in fact be rendered. If the parties intend for the lawyer to treat funds as the lawyer's own before services are rendered, the lawyer must make an agreement for a nonrefundable fee that complies with Rule 1.5(h).


REPORTER’S NOTES:

Model Rule 1.15 (2002) corresponds to M. Bar R. 3.6(e). Both rules address a lawyer’s duty to account for and return clients’ property. Whether deemed an agent, an agent with fiduciary duties, or a trustee, lawyers have duties to account for and return clients’ property. In addition to these two principal duties, lawyers have certain obligations with respect to property when the rights to its ownership are in dispute. Further, lawyers have ministerial obligations with respect to recordkeeping.

Model Rule 1.15 is substantively consistent with M. Bar R. 3.6(e), as well as with the RESTATEMENT (THIRD) § 44 (safeguarding and segregating property), § 45 (surrendering possession of property) and § 46 (documents relating to a representation).

The Task Force recommended adding the requirement that records of accounts of client funds be preserved for a minimum of eight years.

The Task Force further recommended the inclusion of new subparagraph 1.15(f), which speaks to the issue of a lawyer’s retention of a client’s files. The rule requires that after representation is terminated, a lawyer must keep all information and data of the clients for a minimum of eight years (or longer if the statute of limitation for a cause of action in which such property may come into evidence exceeds six years). There is an added requirement for client records with intrinsic value (such as original, signed documents). Subparagraph (f) was recommended by the Advisory Committee on Professional Responsibility, and adopted by the Supreme Judicial Court in July, 2005.

Finally, 1.15 reflects the Maine Bar Foundation’s comprehensive review of Maine’s IOLTA (Interest on Attorney Trust Accounts) rules and the Supreme Judicial Court’s adoption of amendments to those rules. See Rules amendments at SJC-51 and 2008 ME. Rules 07. Model Rule 1.15(b) requires lawyers to establish accounts known as IOLTA accounts, which generate interest on pooled accounts made up of individual deposits which are nominal in amount or expected to be held for a short period of time and which meet the requirements of former M. Bar R. 6(a)(3). The effect is to make participation in IOLTA mandatory, and interest and dividend rates on IOLTA accounts comparable with similarly constituted bank accounts. Maine Bar Rule 6(a)(2)-(3) is the Board of Bar Overseers administrative rule regarding IOLTA accounts, and includes provisions defining bank eligibility.

After discussion, the Task Force recommended the adoption of the language and structure of Rule 1.15, with the above noted additions and modifications.