A few weeks ago, I blogged about the 5 Cs of ethics:
It’s difficult to remember all of the rules and their nuances. Keeping the 5 Cs in mind is easier and goes a long way towards the ultimate C: compliance.
Still, some might argue that the 5 Cs don’t address trust accounting. To me, the duty of competence includes acting competently to account for and safeguard client funds. Still, it’s true that not one of the 5 C’s specifically addresses trust account management.
Hence, the 6th C: Commingling.
I understand that most of us aren’t accountants or trained in bookkeeping. Still, we’re fiduciaries who, by virtue of our law licenses, hold money that does not belong to us. With the privilege comes responsibilities, most of which are set out in Rules 1.15 and 1.15A.
Again, I’m aware that many lawyers find the rules complicated. As I’ve previously blogged, don’t overcomplicate them. In a way, trust accounting boils down to a few key concepts.
- Money held for or on behalf of a client must be in trust.
- Money that is yours must not be in trust.
- Deliver funds that are due a client.
- At all times, know how much money is in your trust account and to whom it belongs.
In my experience, lawyers are very good at numbers 1, 3 and 4. However, #2 seems to pose problems. That’s right: lawyers aren’t the best at paying themselves.
It’s not a problem borne of evil intent. More often than not it’s a lawyer who no matter how diligent about paying clients and third parties treats paying herself as something that she’ll get to when she gets to, even if well beyond that month’s reconcilation.
While not one of evil intent, it’s still a problem. There’s a word for leaving money that you’ve earned in trust: commingling. The 6th C.
Commingling is prohibited by Rule 1.15(a). The notion that it’s misconduct isn’t new. Indeed, today’s rules can be traced back to David Hofffman’s Fifty Resolutons in Regard to Professional Deportment. He published them in 1836. Check out #26:
- “26. I will on no occasion blend with my own my client’s money. If kept distinctly as his it will be less liable to be considered as my own.”
Not only is commingling misconduct, it’s serious. In 2008, the Vermont Supreme Court reprimanded a lawyer who, without an iota of ill intent or selfish motive, commingled funds. Echoing Hoffman’s Resolution 26, the Court stated:
- “Commingling personal property with client property is a serious offense because of the likely negative consequences that may result to an attorney’s clients. As another court explained: ‘The rule against commingling has three principal objectives: to preserve the identityof client funds, to eliminate the risk that client funds might be taken by the attorney’s creditors, and most importantly, to prevent lawyers from misusing/misappropriating client funds, whether intentionally or inadvertently.’ ” (citation omitted).
The Court added:
- “In addition to the potential pecuniary harm to respondent’s clients, ‘lawyer misconduct in handling and protecting client trust accounts does injure both the public at large and the profession by increasing public suspicion and distrust of lawyers. ‘ ” (citation omitted).
I can hear you now: “but Mike, how was I supposed to know it was a violation not to pay myself right away?”
- Now you know.
- Those who don’t, won’t be excused.
As the Court noted:
- “Furthermore, while recognizing that respondent did not act selfishly, we will not
minimize his infraction merely because he was unaware that his acts violated the rules of professional conduct. ‘If a failure to understand the most central Rules of Professional Conduct could be an acceptable defense for a charged violation, even in cases of good faith mistake, the public’s confidence in the bar, and more importantly, the public’s protection against lawyer overreaching would diminish considerably.’ The prohibition against lawyers commingling private monies with client funds is a fundamental precept. ‘[M]istake about the applicability of an ethical rule cannot excuse or even mitigate misconduct when the lawyer has violated a rule fundamental to governance of the legal profession.'” (citations omitted).
There’s one exception to the rule that prohibits commingling. It’s in Rule 1.15(b):
- “A lawyer may deposit the lawyer’s own funds [into trust] for the sole purpose of paying service charges or fees on that account, but only in an amount reasonably necessary for that purpose.”
Don’t guess. Figure out what the normal charges and fees are or are likely to be and deposit that amount. Randomly tossing in $500 or $1000 could lead to discipline.
Commingling is serious. That’s why I’m assigning it the 6th C. Too many Cs? Ok. Your money is an apple. Client money is an orange. Apples and oranges don’t belong in the same bin.