THURMAN'S INSIDE TIPS:
Rule 4-100 and Duty of Divorce Attorneys to Place Retainers In Trust
Professional Rule 4-100 is very important for protecting the public. One
cardinal sin of lawyers is to fail to deposit unearned fees into an attorney-client
trust account. Unfortunately, I see that this happens all of the time.
Many lawyers have a provision in their retainer agreement that says words
to the effect of "the amount you have paid as a retainer shall be
considered earned upon receipt." An unscrupulous lawyer then takes
your money and places it into their general "office account"
or, worse, into their pocket or purse and then they spend it. This is
absolutely forbidden. Besides it being unethical (the money doesn't
yet belong to them), the practical problem is that if you fire that attorney
they may not have the ability to reimburse the unused portion so that
you can hire your next attorney. Some lawyers won't volunteer to refund
your monies unless you chase them down. A letter informing them that you
intend to report them to the State Bar in seven days if your money isn't
returned should get their attention.
In my opinion, the only reason why an attorney would take unearned fees
is because they are broke or insolvent. An attorney who needs to do this
probably has problems in their personal lives, even if it is only a matter
of not properly managing their personal budgets. Often though it is a
red flag for something way more serious, like a substance abuse or mental
health problems. An attorney that needs to take unearned fees may be one
who will overbill you, since they need the dough so badly. Thus, a conflict
of interest develops the moment that take control of your funds. Feel
free to ask your attorney to demonstrate that your monies are held in
trust, and if they are not demand that they disgorge it. If they try to
stand behind the provision in their contract that says they can do this,
firmly advise them that this is not so. Any smart attorney will back down,
since no lawyer wants to be audited by the State Bar - and the State Bar
doesn't fool around. This is one behavior that gets lawyers suspended
or disbarred regularly.
Rules of Professional Conduct
Rule 4-100 Preserving Identity of Funds and Property of a Client
(A) All funds received or held for the benefit of clients by a member or
law firm, including advances for costs and expenses, shall be deposited
in one or more identifiable bank accounts labelled "Trust Account,"
"Client's Funds Account" or words of similar import, maintained
in the State of California, or, with written consent of the client, in
any other jurisdiction where there is a substantial relationship between
the client or the client's business and the other jurisdiction. No
funds belonging to the member or the law firm shall be deposited therein
or otherwise commingled therewith except as follows:
(1) Funds reasonably sufficient to pay bank charges.
(2) In the case of funds belonging in part to a client and in part presently
or potentially to the member or the law firm, the portion belonging to
the member or law firm must be withdrawn at the earliest reasonable time
after the member's interest in that portion becomes fixed. However,
when the right of the member or law firm to receive a portion of trust
funds is disputed by the client, the disputed portion shall not be withdrawn
until the dispute is finally resolved.
(B) A member shall:
(1) Promptly notify a client of the receipt of the client's funds,
securities, or other properties.
(2) 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.
(3) Maintain complete records of all funds, securities, and other properties
of a client coming into the possession of the member or law firm and render
appropriate accounts to the client regarding them; preserve such records
for a period of no less than five years after final appropriate distribution
of such funds or properties; and comply with any order for an audit of
such records issued pursuant to the Rules of Procedure of the State Bar.
(4) Promptly pay or deliver, as requested by the client, any funds, securities,
or other properties in the possession of the member which the client is
entitled to receive.
(C) The Board of Governors of the State Bar shall have the authority to
formulate and adopt standards as to what "records" shall be
maintained by members and law firms in accordance with subparagraph (B)(3).
The standards formulated and adopted by the Board, as from time to time
amended, shall be effective and binding on all members.
Pursuant to rule 4-100(C) the Board of Governors of the State Bar adopted
the following standards, effective January 1, 1993, as to what "records"
shall be maintained by members and law firms in accordance with subparagraph (B)(3).
(1) A member shall, from the date of receipt of client funds through the
period ending five years from the date of appropriate disbursement of
such funds, maintain:
(2) A member shall, from the date of receipt of all securities and other
properties held for the benefit of client through the period ending five
years from the date of appropriate disbursement of such securities and
other properties, maintain a written journal that specifies:
(a) a written ledger for each client on whose behalf funds are held that
(b) a written journal for each bank account that sets forth:
(c) all bank statements and cancelled checks for each bank account; and
(d) each monthly reconciliation (balancing) of (a), (b), and (c).
(i) the name of such client,
(ii) the date, amount and source of all funds received on behalf of such client,
(iii) the date, amount, payee and purpose of each disbursement made on
behalf of such client, and
(iv) the current balance for such client;
(i) the name of such account,
(ii) the date, amount and client affected by each debit and credit, and
(iii) the current balance in such account;
(a) each item of security and property held;
(b) the person on whose behalf the security or property is held;
(c) the date of receipt of the security or property;
(d) the date of distribution of the security or property; and
(e) person to whom the security or property was distributed.