A lawyer holding excess funds in a trust account whose ownership cannot be determined after reasonable efforts to do so, ethically should dispose of the funds pursuant to Arizona's Uniform Unclaimed Property Act, A.R.S. Sections 44-301 to 44-340. [ER 1.15]
The inquiring attorney has a small amount of money in his trust account. He has been unable to determine who owns it. Inquiring attorney engaged the services of an accounting firm to completely reconstruct the trust account in an attempt to definitively credit all trust monies to the inquiring attorney's various clients. The accounting firm was able to account for all monies in the trust account except for the money at issue. The inquiring attorney does not know and believes he will never know to whom the money should be paid.
What should the inquiring attorney do with the money at issue?
Relevant Ethical Rules
ER 1.15 Safekeeping Property
(a) A lawyer shall hold property of clients or of 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.
* * * * *
A lawyer should hold property of others with the care required of a professional fiduciary.
* * * * *
All property which is the property of clients or third persons should be kept separate from the lawyer's business and personal property and, if monies, in one or more trust accounts.
* * * * *
Ariz. R.S.Ct. 43. Trust Account Verification
(a) Duty as to Client Property; Records. Every 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 which have at any time come into his possession. These records shall cover the entire time from receipt to the time of final disposition by the lawyer who owns such funds, securities and other assets. Said funds shall be maintained in a trust account, labeled as such, which shall be kept separate and apart from the lawyer's personal and business accounts. The lawyer shall preserve these records for a period of five years after final disposition by him of said funds, securities and other assets.
* * * * *
(d) Guideline Authority. The maintenance of trust accounts by members of the bar and the audit of lawyers' trust accounts as provided by this rule, shall be in accordance with minimum guidelines established by the board, which shall be printed at the conclusion of this rule.
* * * * *
State Bar of Arizona
Trust Account Guidelines
(Revised May 1, 1984)
The following have been adopted by the Board of Governors of the State Bar of Arizona as guidelines to ensure that each member is in compliance with the provisions of ER 1.15, Arizona Rules of Professional Conduct.
1. Standards of Performance.
* * * * *
(c) Internal controls within the lawyer's office must be adequate under the circumstances to safeguard funds or other property held in trust.
(d) All transactions must be recorded promptly and completely.
(e) Every lawyer engaged in the private practice of law in the State of Arizona must maintain, on a current basis, records complying with ER 1.15 and these guidelines, and such records shall be preserved for at least five years following completion of the lawyer's fiduciary obligation.
2. Requirements for Reporting to Clients and Records Maintenance.
* * * * *
(e) A monthly reconciliation of the trust account records and the bank statement shall be made.
* * * * *
Ariz. R.S.Ct. 44. Trust Accounts; Interest Thereon
* * * *
(b) Duty to Safeguard Client Property. A lawyer shall:
* * * *
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 safe keeping as soon as practicable.
3. Maintain complete records of all funds, securities, and other properties of a client coming into the possession of the lawyer and render appropriate accounts to his client regarding them.
* * * *
The Rules of Professional Conduct do not address a situation in which a lawyer has trust account funds whose ownership cannot be determined. There are no prior Arizona ethics opinions which address the question.
However, under ER 1.15 and Rules 43 and 44, Ariz. R.S.Ct., Arizona lawyers must act at all times with the care required of a professional fiduciary when maintaining or accounting for funds that belong to clients or third parties.
In dealing with such funds, a lawyer must maintain a "trust account" that is separate and apart from the lawyer's business or personal accounts. The lawyer must properly identify client funds or property, maintain complete records and render appropriate accountings. Records must be preserved for at least five years after termination of the representation or final disposition of the funds. A lawyer must also maintain an account ledger for each client or third person for whom monies have been received in trust. Trust account records and bank statements must also be reconciled on a monthly basis.
It appears that the inquiring attorney has acted as a fiduciary in maintaining his trust account and attempting to ascertain the ownership of the funds. Hiring an accounting firm to completely reconstruct his trust accounts so that all trust monies could be credited to the various clients appears to be reasonable. The audit accounted for all funds and credited them to various clients except the "small amount of money" at issue. Ultimately, the inquiring attorney should exercise his own independent judgment to determine whether "all reasonable methods" of ascertaining the funds' ownership have been exhausted. See Ariz. Op. 90-11, at page 4, (October 15, 1990) (same test for determining whether an attorney exhausted reasonable methods to locate a missing client).
Other state and local bar ethics opinions have discussed a lawyer's obligations when the clients who cannot be located have funds in the lawyer's trust account. When the lawyer cannot find the client after reasonable efforts to do so, the funds should ultimately be disposed of in accordance with state law. See, Alaska Op. 90-3 (May 17, 1990) (A lawyer may hold the missing client's trust funds in the trust account for the requisite period of time and then dispose of the funds in accordance with state law); Oregon Op. 91-48 (July 19, 1991) (The lawyer must continue to look for the client until the applicable period provided by the Uniform Disposition of Unclaimed Property Act has passed, then may surrender the property as required by the Act, and continue to take reasonable steps under the circumstances to try to locate the client and must maintain reasonable records sufficient to permit the client to make a claim for the return of the property for the period permitted by the Act); North Carolina State Bar Ethics Op. RPC 149 (January 15, 1993) (Even if the client has appeared to have abandoned trust funds, the attorney should make every effort possible to get the client to accept trust account funds, and nothing else can be done with the client's money without the client's consent except escheating it to the state treasurer pursuant to state law); Michigan Ethics Op. RI-38 (November 30, 1989) (A lawyer who has a "modest trust account balance" for a client who, after reasonable efforts, cannot be located, may be tendered to the State Board of Escheats pursuant to statute).
One state bar ethics committee has addressed the same issue now before this Committee. See, Mississippi State Bar Ethics Op. 178 (December 7, 1990). In that matter, the attorney's trust account had a balance of $500 over several years and the attorney had been unable to determine where the excess funds came from and to whom such monies properly belonged. All other trust account monies determined to belong to clients had been refunded. The $500 balance represented funds whose ownership could not be traced. the attorney asked what he should do with the excess trust account balance. The opinion, citing Rule 1.15 (a) and (b) held:
Since the attorney requesting the opinion cannot make
an accurate determination as to how or why the excess
funds were deposited in his trust account, it must be
presumed that the funds deposited in his trust account
were "funds of clients and not funds to which the attorney
would be entitled personally." If this presumption cannot
be rebutted, the excess funds never become the property
of the lawyer. Id.
The opinion further stated that since the attorney was unable to determine proper ownership of the excess funds, he was "bound as a matter of law and ethics to dispose of such funds under the provisions of the [state's] Uniform Disposition of Unclaimed Property Act . . . ." Id.
We conclude that if a lawyer has excess funds in the lawyer's trust account whose ownership cannot be determined after reasonable efforts to do so, and there is an unrebutted presumption that the excess funds were the funds of clients, the money should ultimately be disposed of pursuant to the provision of applicable state law. (See, e.g., Arizona's Uniform Unclaimed Property Act, A.R.S. §§ 44-301 to 44-340.) We also conclude that the inquiring attorney may be reimbursed out of the subject funds for reasonable expenses incurred in trying to ascertain the ownership of the funds. See Michigan Ethics Op. RI-38 (November 20, 1989) (a lawyer who, after reasonable but unsuccessful steps to locate a client with funds in trust may treat the funds as abandoned property under state law but may be reimbursed out of the funds for reasonable expenses in trying to locate the client). If the funds are tendered to the State as unclaimed property, the lawyer's obligations to keep complete records of the funds under ER 1.15 will continue for a period of five (5) years thereafter.