State Bar of Arizona Ethics Opinions

03-07: Trust Account/ADR Practice Only
12/2003

A lawyer who engages solely in alternative dispute resolution does not represent clients and, therefore, is not required to maintain a trust account in accordance with ER 1.15 and Rule 43, Rules of the Supreme Court of Arizona (Ariz. R.S.Ct.).

FACTS[1]

The inquiring attorney practices only in the area of alternative dispute resolution.  Specifically, the attorney charges hourly to conduct mediation, arbitration, and settlement services.  The inquiring attorney asks whether she must open a trust account.

QUESTION PRESENTED
 
Whether an attorney that practices only in the area of alternative dispute resolution is required to maintain a trust account in accordance with ER 1.15 and Rule 43.

RELEVANT ETHICAL RULES
 
ER 1.15.     Safekeeping Property

(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.  Funds shall be kept in a separate account maintained in the state where the lawyer's office is situated, or elsewhere with the consent of the client or third person.  Other property shall be identified as such and appropriately safeguarded.  Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation.

ER 2.4.     Lawyer Serving as Third-Party Neutral

(a)     A lawyer serves as a third-party neutral when the lawyer assists two or more persons who are not clients of the lawyer to reach a resolution of a dispute or other matter that has arisen between them.  Service as a third-party neutral may include service as an arbitrator, a mediator or in such other capacity as will enable the lawyer to assist the parties to resolve the matter.           

(b)     A lawyer serving as a third-party neutral shall inform unrepresented parties that the lawyer is not representing them.  When the lawyer knows or reasonably should know that a party does not understand the lawyer's role in the matter, the lawyer shall explain the difference between the lawyer's role as a third-party neutral and a lawyer's role as one who represents a client.            

OPINION

Ethical Rule 1.15(a) provides that "[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"  (emphasis added).  Rule 43(a), Ariz. R.S.Ct. provides that "[e]very active member of the bar shall maintain complete records of the handling, maintenance and disposition of all funds, securities and other assets of a client that have at any time come into the member's possession" (emphasis added).  Thus, the threshold question is whether an attorney who performs alternative dispute resolution services represents clients in connection with those services.

The relationship between an arbitrator or mediator and the persons hiring the mediator or arbitrator does not create an attorney-client relationship.  A relationship of client and lawyer arises when: (1) a person manifests to a lawyer the person's intent that the lawyer provide legal services for the person; and . . . (a) the lawyer manifests to the person consent to do so.  Paradigm Ins. Co. v. Langerman Law Offices, P.A., 200 Ariz. 146, 149, 24 P.3d 593, 596 (1991), citing Restatement (Third) of the Law Governing Lawyers § 14.  Neither element is present when a lawyer is retained to act as a third-party neutral.[2]  When a lawyer is engaged to provide alternative dispute resolution services, that lawyer is acting as a facilitator, evaluator, or independent decision-maker, not as an advocate for any party.  ER 2.4, cmt. 1.  Thus, not only is no attorney-client relationship created, but the services provided by the lawyer as third-party neutral are not provided "in connection with a representation."  A lawyer acting as a third-party neutral is not, therefore, required to maintain the funds paid to the lawyer for alternative dispute resolution services in a trust account, and a lawyer whose practice is exclusively as a third-party neutral is not required to open a trust account.[3]

CONCLUSION
 
Lawyers who practice alternative dispute resolution as third-party neutrals do not represent clients and thus are not required to maintain fees obtained in the course of providing such services in a trust account.

--------------------------------------------------------------------------------

[1] Formal Opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceedings.  © State Bar of Arizona 2003

[2] When the parties are not represented by counsel, however, the potential for confusion between the role of the lawyer acting as a third-party neutral and a lawyer's service as a client representative is significant, and ER 2.4 imposes a duty upon the lawyer to inform unrepresented parties that the lawyer does not represent them. ER 2.4 (b).

[3] While not expressly required by the rules, it would be wise practice for the lawyer who engages in alternative dispute resolution to maintain a separate account so as not to commingle that lawyer's funds with the funds of the parties paying for the lawyer's services before the fees are earned.