With trust accounts and client funds, beware of taking the easy way out. It could cost your law license.

The following inquiry is not uncommon:

• “Mike – I owe Former Client a small amount of money. Between the time it’ll take me to prepare and send a check, and the time and hassle of Former Client having to go to the bank, it won’t be worth it for either of us.  What should I do?”

My response is always the same: “I can’t tell you what to do or not to do.  But if it were me, I’d send my former client what I owe them.”

As of today, I have a case to cite with my response.  Granted, it’s an extreme example, but in that it resulted in a recommendation to suspend a lawyer’s law license, it might serve as helpful guidance. Especially considering that the lawyer had never been disciplined in his previous 51 years of practice.

Last week, a hearing committee of the Louisiana Attorney Disciplinary Board recommended a 2-year suspension, all suspended but 6 months, after concluding that a lawyer violated the rules by failing to properly handle client funds.  The Legal Profession Blog reported the recommendation.  Here’s what happened.

The lawyer’s bank notified Louisiana’s Office of Disciplinary Counsel (ODC) that checks drawn on the lawyer’s trust account had been presented against insufficient funds.  The ensuing investigation grew beyond the overdraft notice and revealed that, for years, the lawyer had converted client funds.

More specifically, ODC learned that, from 2012 thru 2018, the lawyer had received over $17,000 in refunds from various courts. (It’s not clear to me why the lawyer frequently received refunds from courts.)  Anyhow, the refunds represented amounts that clients had paid to the lawyer. Nevertheless, the lawyer did not inform the clients or send them their refunds.  Rather, the lawyer kept the funds in trust and tracked them in their own sub-account.  Intending to regularly maintain $100 in the sub-account, each month, the lawyer paid himself the balance that exceeded $100.

Before we continue, think back to the inquiry I described at the beginning of this post.  Got it in mind?

Okay.

Now, consider a statement from the hearing panel’s recommendation.  The lawyer claimed that

• “the fees associated with reviewing the client file and writing letters to return the checks would have exceeded the amounts received.”

The hearing committee wasn’t moved.  It concluded that the lawyer violated the trust accounting rules and, by not informing clients of their refunds, the rule that prohibits dishonest conduct. Then, the committee discussed the appropriate sanction.

As outlined by the committee, the ultimate sanction turned on the lawyer’s state of mind. The lawyer argued that his conduct was negligent.  ODC argued that it was knowing or intentional.

In the end, the committee concluded that the lawyer’s conduct fell into “a grey area between negligent and knowing, and . . . was akin to gross negligence.”  Nevertheless, while concluding that the conduct was “more knowing than negligent,” the committee found that the lawyer did not have a “conscious desire to deprive clients or others of funds.”  Still, the committee recommended a significant suspension.

In so doing, the committee made two observations that made me want to share its decision.

First, the committee criticized the fact that the lawyer “perceived the funds and having to deal with them as a nuisance or inconvenience.”  The committee wrote:

• “In the regular course of practicing law, many Louisiana practitioners encounter the inconvenient experience of receiving a refund from a clerk of court related to legal matter concluded years ago, sometime more than a decade. Most lawyers would agree that long delayed refunds to clients or third parties creates an unwelcome inconvenience. Even so, inconvenience does not excuse returning funds or property to persons to whom they belong, or at least making a diligent effort to do so.”

Second, while noting again that it did not believe that the lawyer was motived by “greed or a conscious, dishonest desire,” the committee remarked that, due to his own “laziness,” the lawyer “chose an easier, softer way than is required by the Rules of Professional Conduct and it was a violation of [the rules] to do so.”

The upshot: if you’re ever tempted to get lazy with your trust account or client funds, consider whether 6-months without practicing is worth the few minutes and dollars you’ll save.

As always, let’s be careful out there.

Trust Accounting Resources

Videos

•  Don’t Fear, Simplify.  (25 minutes)
• Basic Requirements(41 minutes)
• Contingent Fees, Referral Fees & Fee Sharing(22 minutes)
• Flat Fees, Misappropriation & Trust Account Scams(35 minutes)
• Collecting & Disbursing Funds(33 minutes)

Blog Posts

• Vermont’s rules on fees that are labeled “non-refundable” or “earned upon receipt”
• Beware the “severance payment” scam
• Reconciliation (again!) is a good thing. Plus, a tip to protect against check fraud.
• A lawyer’s professional responsibility to identify common trust account scams
• Lawyers aren’t Kramer: when it comes to trust accounting, there are no excuses
• Back to (trust account) school
• Safeguarding Client Funds: Tech Competence & Mobile Payment Apps
• Taylor Swift & Trust Accounts: Don’t Say I Didn’t Warn Ya
• Disbursing without Collected Funds
• Mobile Payments & Legal Fees
• Trust Accounting Tips
• Trust Account Scams Continue
• I. & Jack Torrance: an overview of the trust account rules
• Third-Party Claims against Client Funds
• With trust accounts, verify
• Misappropriation: Don’t.
• Misappropriation: Don’t.
• Trust Account Tuesday: Nonrefundable fees
• Teddy KGB on prompt notification and delivery
• When a third-party asserts an “interest” in funds held in trust
• Trust Account Tuesday: (generally) don’t disburse absent collected funds.
• Trust Accounting: Basic Requirements
• Trust Account Tuesday: Don’t Commingle
• Trust Accounts & ACH Transfers
• Trust Account Scams: Change in Wire Instructions? CAUTION!!!!
• Don’t overcomplicate trust accounting.