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Keeping Your Hands Out of the Client’s Cookie Jar
Posted in Litigation

At a recent CLE seminar, Executive Secretary of the Indiana Supreme Court Disciplinary Commission Mike Witte noted some common ethical pitfalls that tend to ensnare Indiana lawyers.

One in particular struck me, both because of its pervasiveness and seeming obviousness: the prohibition on commingling client funds. According to Mr. Witte, many Indiana attorneys simply do not realize that it is unacceptable to “borrow” client funds or otherwise commingle funds that properly belong in a client trust account with funds in the attorney’s general account. Indiana Rule of Professional Conduct 1.15 provides guidance in this area, stating that “[a] lawyer shall hold property of clients or third persons in a lawyer’s possession in connection with a representation separate from the lawyer’s own property.” (R. 1.15(a).) The rule is clear that client funds must be kept in a separate account “maintained in the state where the lawyer’s office is situated,” and that such funds must be promptly delivered to the client as soon as the client is entitled to receive the funds. (Id. R. 1.15(a), (d).)

One possible explanation for the sheer volume of Rule 1.15 cases may be that some Indiana attorneys are lulled into the mistaken understanding that it is acceptable to “borrow” client funds – even for a very short time and with every intention of promptly reimbursing the funds – for personal expenses or other reasons the attorney deems justifiable. For an example, see In re Dal Santo, 953 N.E.2d 468, 468 (Ind. 2011), in which an attorney received a 180-day suspension for, among other things, using client trust funds for personal expenses. The foregoing scenario, however, is a clear violation of the rule, no matter the attorney’s intentions. In fact, the rule provides only two rather narrow exceptions to the commingling rule.

First, an attorney may deposit his or her own funds in a client trust account sufficient to maintain a “nominal balance” in the account. (R. 1.15(b).) This rule is designed to cover any miscellaneous expenses related to the client account, though it is not clear from the case law what precisely a “nominal” amount is.

Second, the rule provides that whenever two or more persons (one of which may include the attorney) claim an interest in funds, the funds must be kept separate until the dispute is resolved. (Id. R. 1.15(e).) However, to the extent there are funds not in dispute, those funds must be promptly distributed. (Id.) For instance, if there are $500 in funds, $300 of which indisputably belong to the client, the attorney should promptly deliver the $300 to the client and set aside the disputed $200 until the dispute is resolved.

These two narrow exceptions aside, as a matter of ethical practice, Indiana attorneys should resist the temptation to slip a hand in the client’s cookie jar.

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