| Rule 1.15.Safekeeping Property; Interest-Bearing
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Rule 1.15.Safekeeping Property; Interest-Bearing
Accounts
to be Established for the Benefit of the Client or Third Persons
or the Colorado Lawyer Trust Account Foundation;
Notice of Overdrafts; Record Keeping
(a)In connection with a representation, an attorney shall hold
property of clients or third persons that is in an attorney's
possession separate from the attorney's own
property. Funds shall be kept in a separate account maintained in the state
where the
attorney'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
attorney and
shall be preserved for a period of seven years after termination of the
representation.
(b)Upon receiving funds or other property in which a client or
third person has an interest, a lawyer shall, promptly or otherwise as
permitted by law or by agreement with the client, deliver to the client
or third person any funds or other property that the client or third
person is entitled to receive and, upon request by the client or third
person, render a full accounting regarding such property.
(c)When in the course of representation a lawyer is in
possession of property in which both the lawyer and another person claim
interests, the property shall be kept separate by the lawyer until there
is an accounting and severance of their interests. If a dispute arises
concerning their respective interests, the portion in dispute shall be
kept separate by the lawyer until the dispute is resolved.
(d)"Accounts" as used in paragraph (a) above shall mean one or
more identifiable interest-bearing, insured depository accounts;
provided, that with the consent of the client or third person whose
funds are in the account, an account maintained under subparagraph (e)
(1) below (interest is paid to the client or third person) need not be
an insured depository account, but all accounts maintained under
subparagraph (e) (2) below (interest is paid to the Colorado Lawyer
Trust Account Foundation) shall be insured depository accounts. For the
purpose of this rule, "insured depository accounts" shall mean
government insured accounts at a regulated financial institution, on
which withdrawals or transfers can be made on demand, subject only to
any notice period which the institution is required to reserve by law
or regulation.
(e)(1)Except as may be prescribed by subparagraph (2) below,
interest earned on accounts in which the funds are deposited (less any
deduction for service charges or fees of the depository institution) shall
belong to the clients or third persons whose funds have been so deposited;
and the lawyer or law firm shall have no right or claim to such interest.
(2)If not held in accounts with the interest paid to clients or
third persons as provided in (e) (1), a lawyer or law firm shall
establish a pooled interest-bearing insured depository account for funds
of clients or third persons which are nominal in amount or are expected
to be held for a short period of time in compliance with the following
provisions:
(a)No interest from such an account shall be made available to
a lawyer or law firm.
(b)The account shall include funds of clients or third persons
which are nominal in amount or are expected to be held for a short
period of time.
(c)Lawyers or law firms depositing funds in an interest-bearing
insured depository account under this subparagraph (e) (2) shall direct
the depository institution:
(i)To remit interest, net any service charges or fees, as
computed in accordance with institution's standard accounting practice,
at least quarterly, to the Colorado Lawyer Trust Account Foundation; and
(ii)To transmit with each remittance to the Colorado Lawyer
Trust Account Foundation a statement showing the name of the lawyer or
law firm on whose account the remittance is sent and the rate of
interest applied.
The provisions of this subparagraph (e) (2) shall not apply in
those instances where it is not feasible to establish a trust account
for the benefit of the Colorado Lawyer Trust Account Foundation for
reasons beyond the control of the lawyer or law firm, such as the
unavailability of a financial institution in the community which offers
such an account.
(3)Information necessary to determine compliance or justifiable
reason for noncompliance with subparagraph (e) (2) shall be included in
the annual attorney registration statement. The Colorado Lawyer Trust
Account Foundation shall assist the court in determining whether
lawyers or law firms have complied in establishing the trust account
required under subparagraph (e) (2). If it appears that a lawyer or
law firm has not complied where it is feasible to do so, the matter may
be referred to the attorney regulation counsel for investigation and
proceedings in accordance with C.R.C.P. 241.
(f)Required Bank Accounts.
Every attorney in private practice in this state shall maintain in a financial institution doing
business in Colorado, in the attorney's own name, or in the name of a partnership of
attorneys, or in the name of the professional corporation or limited liability corporation of
which the attorney is a member, or in the name of the attorney or entity by whom employed:
(1)A trust account or accounts, separate from any business and personal
accounts
and from any fiduciary accounts that the attorney may maintain as executor,
guardian,
trustee, or receiver, or in any other fiduciary capacity, into which trust
account or
accounts funds entrusted to the attorney's care and any advance payment
of fees that
has not been earned shall be deposited (except that such a trust account
shall not be
required if the attorney does not ever receive such funds); and,
(2)A business account into which all funds received for professional
services shall
be deposited.
(3)One or more of the trust accounts may be the account or accounts
described in
Rule 1.15(e)(2), known as COLTAF (Colorado Lawyer Trust Account Foundation)
accounts.
(4)Other than fiduciary accounts maintained by an attorney as executor,
guardian,
trustee, or receiver, or in any other similar fiduciary capacity, all trust
accounts, whether
general or specific, as well as all deposits slips and checks drawn thereon,
shall be
prominently designated as a "trust account." Nothing herein shall prohibit
any
additional descriptive designation for a specific trust account. All
business accounts, as
well as all deposit slips and all checks drawn thereon, shall be prominently
designated
as a "professional account," or an "office account." The COLTAF account or
accounts
shall each be designated "COLTAF Trust Account."
(5)The name of institutions in which such accounts are maintained and
identification numbers of each account shall be recorded on a statement filed
with the
annual attorney registration payment, pursuant to Rule 227(2). Such
information shall
be available for use in accordance with paragraph (g) of this Rule. For all
COLTAF
accounts, the account numbers, the name the account is under, and the
depository
institution shall be indicated on the same statement.
(6)A trust account shall be maintained only in financial institutions doing business
in Colorado which are approved by the Regulation Counsel with policy guidelines by the
Board of Trustees of the Colorado Attorneys' Fund for Client Protection, which shall
annually publish a list of such approved institutions. A financial institution shall be
approved if it shall file with the Regulation Counsel an agreement, in a form provided, to
report to the Regulation Counsel in the event any properly payable trust account instrument
is presented against insufficient funds, irrespective of whether the instrument is honored; any
such agreement shall apply to all branches of the financial institution and shall not be
canceled except on thirty-days notice in writing to the Regulation Counsel. The agreement
shall further provide that all reports made by the financial institution shall be in the following
format: (1) in the case of dishonored instrument, the report shall be identical to the overdraft
notice customarily forwarded to the depositor; (2) in the case of instruments that are
presented against insufficient funds but which instruments are honored, the report shall
identify the financial institution, the attorney or law firm, the account number, the date of
presentation for payment, and the date paid, as well as the amount of the overdraft created
thereby. Such reports shall be made simultaneously with, and within the time provided by
law for, notice of dishonor, if any; if an instrument presented against insufficient funds is
honored, then the report shall be made within five banking days of the date of presentation
for payment against insufficient funds. In addition, each financial institution approved by
the Regulation Counsel must cooperate with the COLTAF program and must offer a
COLTAF account to any attorney who wishes to open one. In addition to the reports
specified above, approved financial institutions shall agree to cooperate fully with the
Regulation Counsel and to produce any trust account or business account records on receipt
of a subpoena therefor in connection with any proceeding pursuant to C.R.C.P. 251. Nothing
herein shall preclude a financial institution from charging an attorney or law firm for the
reasonable cost of producing the reports and records required by this Rule, but such charges
shall not be a transaction cost to be charged against funds payable to the COLTAF program.
Every attorney or law firm maintaining a trust account in this state shall, as a condition
thereof, be conclusively deemed to have consented to the reporting and production
requirements by financial institutions mandated by this Rule and shall indemnify and hold
harmless the financial institution for its compliance with such reporting and production
requirement. A financial institution shall be immune from suit arising out of its actions or
omissions in reporting overdrafts or insufficient funds or producing documents under this
Rule. The agreement entered into by a financial institution with the Regulation Counsel shall
not be deemed to create a duty to exercise a standard of care and shall not constitute a
contract for the benefit of any third parties that may sustain a loss as a result of lawyers
overdrawing attorney trust accounts.
(7)A lawyer may deposit funds reasonably sufficient to pay anticipated service
charges or other fees for maintenance or operation of such account into an account
maintained under paragraph (f)(1), (f)(3), or (f)(4). Such funds shall be clearly identified in
the attorney's records of the account.
(g)Required Accounting Records. Attorneys, partnerships of
attorneys, professional corporation and limited liability corporations in
private practice in this state shall maintain in a current status and retain
for a period of seven years after the
event which they record:
(1)Appropriate receipt and disbursement records of all deposits in and
withdrawals from accounts specified in subsection (a) of this rule and
any other bank
account which concerns their practice of law, specifically identifying the
date, source
and description of each item deposited as well as the date, payee, and
purpose of each
disbursement. All trust account receipts shall be deposited intact and the
duplicate deposit slip should be sufficiently detailed to identify each item. All
trust account withdrawals shall be made only by authorized bank or wire transfer or by
check payable to a named payee and not to cash. Only an attorney admitted to
practice law
in this state or a person supervised by such shall be an authorized signatory
on a trust account; and,
(2)An appropriate record-keeping system identifying each separate trust
client, for
all trust accounts, showing the source of all funds deposited in such
accounts, the
names of all persons for whom the funds are or were held, the amount of such
funds, the description and amounts of charges or withdrawals from such accounts, and
the names of all persons to whom such funds were disbursed. A regular trial
balance of the
individual client ledgers shall be maintained and reconciled at least
quarterly with the applicable bank statements.
(3)Copies of all retainer and compensation agreements with clients; and,
(4)Copies of all statements to clients showing the disbursement of funds
to them or on their behalf; and,
(5)Copies of all bills issued to clients and,
(6)Copies of all records showing payments to any persons, not in their
regular employ, for services rendered or performed; and,
(7)All bank statements and prenumbered canceled checks; and,
(8)Copies of those portions of each client's case file reasonably
necessary for a
complete understanding of the financial transactions pertaining thereto.
(h)Type and Availability of Accounting Records. The financial books
and other records required by subsections (f) and (g) of this rule
shall be maintained in
accordance with generally accepted accounting principles, such as the accrual
method,
the cash basis method and the income tax method. Bookkeeping records may be
maintained by computer provided they otherwise comply with this Rule and
provided
further that printed copies can be made on demand in accordance with this
subsection
or subsection (g). They shall be located at the principal Colorado office of
each attorney,
partnership, professional corporation, or limited liability corporation.
(i)Dissolutions. Upon the dissolution of any partnership of
attorneys or of any professional corporation or limited liability
corporation, the former partners or shareholders shall make appropriate
arrangements for the maintenance by one of them
or by a successor form of the records specified in paragraph (g) of this Rule.
(j)Availability Of Records. Any of the records required to be kept
by this Rule shall be produced in response to a subpoena duces tecum
issued in connection with
proceedings pursuant to C.R.C.P. 251. When so produced, all such records
shall remain confidential except for the purposes of the particular proceeding and
their contents shall not be disclosed by anyone in such a way as to violate the
attorney-client privilege.
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ANNOTATIONSSource:
(a) amended and (g) to (j) added June 25, 1998, effective January 1, 1999;
(f) added June 25, 1998, effective July 1, 1999;
IP(f), (f)(3), and (f)(6) amended and adopted May 13, 1999, effective July 1, 1999;
(e)(3) corrected and effective November 9, 1999;
(f)(7) added and adopted April 18, 2001, effective July 1, 2001.
COMMENT
A lawyer should hold property of others with the care required of
a professional fiduciary. Securities should be kept in a safe deposit
box except when some other form of safekeeping is warranted by special
circumstances. 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.
Trust accounts of funds of clients or third persons held in
connection with a representation must be
interest-bearing for the benefit of the client or third person or for
the benefit of the Colorado Lawyer Trust Account Foundation where the
funds are nominal in amount or expected to be held for a short period of
time. A lawyer should exercise good faith judgment in determining
initially whether funds are of such nominal amount or are expected to be
held by the lawyer for such a short period of time that the funds should
not be placed in an interest-bearing account for the benefit of the
client or third person. The lawyer should also consider such other
factors as (i) the cost of establishing and maintaining the account,
service charges, accounting fees, and tax report procedures; (ii) the
nature of the transaction (s) involved; and (iii) the likelihood of
delay in the relevant proceedings. A lawyer should review at reasonable
intervals whether changed circumstances require further action
respecting the deposit of such funds.
Separate trust accounts may be warranted when administering estate
monies or acting in similar fiduciary capacities.
Lawyers often receive funds from third parties from which the
lawyer's fee will be paid. If there is risk that the client may divert
funds without paying the fee, the lawyer is not required to remit the
portion from which the fee is to be paid. However, a lawyer may not
hold funds to coerce a client into accepting the lawyer's contention.
The disputed portion of the funds should be kept in trust and the lawyer
should suggest means for prompt resolution of the dispute, such as
arbitration. The undisputed portion of the funds shall be promptly
distributed.
Third parties, such as a client's creditors, may have just claims
against funds or other property in a lawyer's custody. A lawyer may
have a duty under applicable law to protect such third-party claims
against wrongful interference by the client, and accordingly may refuse
to surrender the property to the client. However, a lawyer should not
unilaterally assume to arbitrate a dispute between the client and the
third party.
The obligations of a lawyer under this rule are independent of
those arising from activity other than rendering legal services. For
example, a lawyer who serves as an escrow agent is governed by the
applicable law relating to fiduciaries even though the lawyer does not
render legal services in the transaction. See Rule 1.16 (d) for
standards applicable to retention of client papers.
A "client's security fund" provides a means through the
collective efforts of the bar to reimburse persons who have lost money or
property as a result of dishonest conduct of a lawyer. Where such a
fund has been established, a lawyer should participate.
COMMITTEE COMMENT
This Rule is similar in substance to the code. See, DR 9-102.
The Rule extends the concept to monies held for the benefit of third
parties, which probably is implied under the Code.
ANNOTATION
Annotator's note.
Rule 1.15 is similar to
DR 5-103 and DR 9-102 as they
existed prior to the 1992 repeal and reenactment of the Code of
Professional Responsibility.
Relevant cases construing
DR 5-103 have been included under Rule 1.8 and cases
construing DR 9-102 have been included under Rule 1.4.
Supreme court has made the underlying ethical principle of this rule explicit: An
attorney earns a fee only when the attorney provides a benefit or service to the
client. In re Sather, 3 P.3d 403 (Colo. 2000).
Under this rule, all client funds -- including engagement retainers, advance fees, flat
fees, lump sum fees, etc., must be held in trust until there is a basis on which to conclude
that the attorney "earned" the fee. In re Sather, 3 P.3d 403 (Colo. 2000).
This rule requires that attorneys segregate client funds, including those paid as
advance fees, from the attorney's property; however, this holding is made prospective. In
re Sather, 3 P.3d 403 (Colo. 2000).
In limited circumstances, an attorney may earn a fee before performing any legal
services (engagement retainers) or the attorney and client may agree that the attorney may
treat advance fees as the attorney's property before the attorney earns the fees by
supplying a benefit or performing a service. However, the fee agreement must clearly
explain the basis for this arrangement and explain how the client's rights are protected by
the arrangement. But, under either arrangement, the fees are always subject to refund if
excessive or unearned and the attorney cannot communicate otherwise to a client. In re
Sather, 3 P.3d 403 (Colo. 2000).
Attorneys cannot enter into "non-refundable" retainer or fee agreements. In
re Sather, 3 P.3d 403 (Colo. 2000).
Failure to provide accounting with respect to fees charged and failure to
return unearned fees in conjunction with neglect of civil rights suit
warranted a 30-day suspension. People v. Fritsche, 849 P.2d 31 (Colo.
1993).
Public censure appropriate for failure by respondent to return clients'
original tax returns in a timely
manner and to inform the clients that the tax returns were in fact
missing, in addition to other conduct violating rules. People v.
Berkley, 858 P.2d 699 (Colo. 1993).
Public censure appropriate where attorney neglected and made
misrepresentations in two separate legal matters. People v. Eagan, 902
P.2d 841 (Colo. 1995).
Public censure appropriate where the attorney filed the client's
retainer in the operating account, rather than the trust account, and when
the client fired the attorney and asked for a refund on the retainer, the
attorney
wrote the client a refund check that was returned for insufficient funds.
People v. Pooley, 917 P.2d 712 (Colo. 1996).
Conduct violating this rule in conjunction with other disciplinary rules, where
mitigating factors were present, warrants public censure. People v. Davis, 950 P.2d 586
(Colo. 1998).
Commingling personal and client funds in trust account and writing 45
insufficient funds checks on trust account warrants six-month suspension where
court found that no clients complained about misuses of funds, all checks were
eventually honored, and attorney agreed to make restitution to bank for fees
and cooperated in disciplinary proceedings. Court found that 120 days would
have been insufficient in light of attorney's two prior admonitions and one
prior private censure. People v. Davis, 893 P.2d 775 (Colo. 1995).
Suspension for one year and one day appropriate when attorney neglected
to return client files upon request. People v. Honaker, 847 P.2d 640 (Colo.
1993); People v. Fager, 925 P.2d 280 (Colo. 1996).
Suspension for one year and one day is warranted for commingling and
misuse of client funds. The hearing board found that the respondent acted
recklessly, rather than knowingly, in misappropriating client funds. People v.
Zimmermann, 922 P.2d 325 (Colo. 1996).
Suspension for one year and one day appropriate where attorney violated
paragraphs (a) and (b) by not returning or accounting for client funds
held for
emergencies after the clients fired the attorney and for negligently
converting other client
funds to the attorney's own use. People v. Johnson, 944 P.2d 524 (Colo.
1997).
Disbarment appropriate where attorney accepted fees from a number of
clients prior to terminating her legal practice, failed to inform her clients
of such termination, failed to refund clients' retainer fees, failed to place
clients' funds in separate account, and gave clients' files to other lawyers
without clients' consent. People v. Tucker, 904 P.2d 1321 (Colo. 1995).
When a lawyer accepts fees from clients and then abandons those clients
while
keeping their money and causing serious harm, disbarment is appropriate.
People v.
Steinman, 930 P.2d 596 (Colo. 1997).
Disbarment warranted where attorney intended to convert client funds,
regardless of whether attorney intended to replace the funds at some
point. Even consideration of attorney's personal and emotional problems was
irrelevant where attorney violated this rule by knowingly converting client funds, as well as
violating several other rules of professional
conduct. People v. Marsh, 908 P.2d 1115 (Colo. 1996).
Disbarment not warranted where there was mitigating evidence
concerning attorney's mental and physical disabilities. Instead, the board
imposed a three-year suspension with a condition for reinstatement that
professional medical
evidence be presented that the disabilities do not interfere with the
attorney's ability to practice law. People v. Stewart, 892 P.2d 875 (Colo.
1995).
Previously disbarred attorney who violated this rule would be forced
to pay restitution to clients as a condition of readmission. People v.
Vigil, 945 P.2d 1385 (Colo. 1997).
Conduct violating this rule, in conjunction with other disciplinary
rules,
sufficient to justify disbarment where the attorney continued to practice
law while
on suspension, repeatedly neglecting his clients and failing to take
reasonable steps to
protect clients' interests. People v. Fager, 938 P.2d 138 (Colo. 1997).
Conduct violating this rule in conjunction with other disciplinary rules
is sufficient to justify public censure. People v. Titoni, 893 P.2d 1322
(Colo. 1995);
People v. Woodrum, 911 P.2d 640 (Colo. 1996);
People v. Todd, 938 P.2d 1160 (Colo. 1997);
People v. O'Donnell, 955 P.2d 53 (Colo. 1998).
Conduct violating this rule in
conjunction with other disciplinary rules is sufficient to
justify suspension.
People v. Robinson, 853 P.2d 1145 (Colo. 1993);
People v. Wechsler, 854 P.2d 217 (Colo. 1993);
People v. Kerwin, 859 P.2d 895 (Colo. 1993);
People v. Murray, 912 P.2d 554 (Colo. 1996);
People v. Paulson, 930 P.2d 582 (Colo. 1997);
People v. Rishel, 956 P.2d 542 (Colo. 1998);
People v. Barr, 957 P.2d 1379 (Colo. 1998);
People v. Harding, 967 P.2d 153 (Colo. 1998);
In re Nangle, 973 P.2d 1271 (Colo. 1999);
In re Corbin, 973 P.2d 1273 (Colo. 1999).
Conduct violating this rule in conjunction with other
disciplinary rules is sufficient to justify disbarment.
People v. Kelley, 840 P.2d 1068 (Colo. 1992);
People v. Schindelar, 845 P.2d 1146 (Colo. 1993);
People v. Walsh, 880 P.2d 766 (Colo. 1994);
People v. Jenks, 910 P.2d 688 (Colo. 1996);
People v. Price, 929 P.2d 1316 (Colo. 1996);
People v. Mundis, 929 P.2d 1327 (Colo. 1996);
People v. Steinman, 930 P.2d 596 (Colo. 1997).
People v. Wallace, 936 P.2d 1282 (Colo. 1997);
People v. Mannix, 936 P.2d 1285 (Colo. 1997);
People v. Sousa, 943 P.2d 448 (Colo. 1997);
People v. Schaefer, 944 P.2d 78 (Colo. 1997);
People v. Clyne, 945 P.2d 1386 (Colo. 1997);
People v. Holmes, 951 P.2d 477 (Colo. 1998);
People v. Singer, 955 P.2d 1005 (Colo. 1998);
People v. Holmes, 955 P.2d 1012 (Colo. 1998);
People v. Valley, 960 P.2d 141 (Colo. 1998);
People v. Skaalerud, 963 P.2d 341 (Colo. 1998);
People v. Gonzalez, 967 P.2d 156 (Colo. 1998);
In re Bilderback, 971 P.2d 1061 (Colo. 1999);
In re Stevenson, 979 P.2d 1043 (Colo. 1999).
Conduct violating this rule is sufficient to justify disbarment.
People v. Townshend, 933 P.2d 1327 (Colo. 1997).
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