District of Columbia Legal Ethics
1.19 Rule 1.19 Trust Account Overdraft Notification
1.19:100 Analysis of DC Rule
· Primary DC References: DC
Rule 1.19
· Background References: Other Jurisdictions
· Commentary:
DC Rule 1.19, which has no parallel in the Model Rules, nor any predecessor in the Model Code, was originally designated as Rule 1.17. It was redesignated as Rule 1.19 in 2006 on the recommendation of the DC Rules Review Committee, in order to allow for insertion of a new Rule 1.17 dealing with sale of a law practice corresponding to the similarly designated Model Rule on that subject, as well as a new Rule 1.18 like new the Model Rule 1.18, dealing duties to prospective clients.
The Rule as originally numbered was added to the DC Rules in April 1992 on the recommendation of the DC Bar and the Board on Professional Responsibility. It imposes a requirement that, subject to specified exceptions, all trust funds in a lawyer’s possession be deposited in an institution that is listed on a list that is maintained by the Board of “D.C. Bar Approved Depositories.” In order to be so listed, a financial institution must file an undertaking with the Board on Professional Responsibility, agreeing promptly to report to the Office of Bar Counsel any instance in which an instrument that would properly be payable if sufficient funds were available has been presented and the account contained insufficient funds to pay it.
The Rule consists of seven paragraphs. Paragraph (a) imposes a general requirement that all trust funds, defined as funds required by the Rules to be segregated from the lawyer’s own funds, be deposited in one or more specially designated accounts at a financial institution, and that the accounts be given a title that includes the words “Trust Account” or “Escrow Account,” as well as the identity of the lawyer or law firm. As more fully discussed under 1.19:200, below, this paragraph is the only portion of the Rule whose disregard has been the subject of disciplinary proceedings.
Paragraph (b) of the Rule requires that the accounts be maintained only in institutions that are designated as “D.C. Bar Approved Depositories” on a list maintained by the Board on Professional Responsibility, unless the account is permitted to be held elsewhere or in a different manner by law or court order, or they’re held under an escrow or similar agreement in connection withy a commercial transaction. The latter two exceptions to the coverage of the Rule were added in 1996 pursuant to a suggestion of the Peters Committee. (The Peters Committee had also suggested a third exception, for circumstances where the lawyer has authority to hold the fund elsewhere or in different manner by a will, trust or similar formal written instrument, but the Court of Appeals did not adopt that exception, nor explain why.) If a lawyer is a member of the DC Bar but practices law elsewhere, then the DC Br Approved Depositories are required only for trust funds received by the lawyer in the District of Columbia, or received by the lawyer from or for the benefit of persons located there, or arise from transactions negotiated or consummated there.
A separate unlettered paragraph under paragraph (b) provides that to be listed as an Approved Depository, a financial institution must file an undertaking with the Board, agreeing to report promptly to the Office of Bar Counsel any instance in which an instrument drawing on the lawyer’s or law firm’s specially designated account has been presented, the payment of which would create an overdraft. That paragraph also requires that Approved Depositories, wherever located, agree to respond promptly to subpoenas from the Office of Bar Counsel.
Paragraph (c) of the Rule specifies the information to be provided in the reports by Approved Depositories that are required by paragraph (b), and the timing thereof.
Paragraph (d) provides that the establishment of a specially designated account is conclusively presumed to constitute the lawyer or law firm’s consent to the institution’s providing to Bar Counsel all reports and information required by the Rule.
Paragraph (e) disclaims any responsibility on the part of the Court of Appeals, the Bar, the Board or the Office of Bar Counsel with respect to the soundness, business practices or other attributes of any Approved Depository.
Paragraph (f) states that nothing in the Rule precludes financial institution from charging a lawyer or law firm for the reasonable cost of producing reports and records required by the Rule.
Finally, paragraph (g) defines the terms “law firm” and “financial institution” as used in the Rule.
The Rule is accompanied by no Comments. Except for the revised numbering, it was left unchanged by the 2006 revisions.
1.19:101 Model Rule Comparison
There is not and has never been any provision in the Model Rules corresponding to DC Rule 1.19.
1.19:102 Model Code Comparison
There is no provision in the Model Code comparable to DC Rule 1.19.
1.19:200 Disciplinary Enforcement of Rule 1.19
The principal disciplinary significance of DC Rule 1.19 lies in its providing to Bar Counsel notice of threatened and actual overdrafts on trust funds, giving rise to disciplinary action for misappropriation under Rule 1.15(a); see, e.g., In re Davenport, 794 .2d 602, 604 (DC 2002), where the court noted that Bar Counsel’s investigation of the respondent’s handling of trust funds was triggered by notice from the bank where the funds had been deposited pursuant to what was then Rule 1.17. A failure by a lawyer to comply with the fundamental requirement of paragraph (a) of the Rule, that all trust funds be deposited in specially designated accounts in a financial institution, however, is itself a disciplinary offense. There do not appear to have been any cases in which a lawyer was disciplined solely for a violation of Rule 1.19(a) (or, as it was previously designated, 1.17(a)), but there are a number of cases in which the lawyer was disciplined for commingling or misappropriation, under Rule 1.15(a) [see 1.15:300, above] or one of the other paragraphs of Rule 1.15, and in connection therewith, found to have violated this Rule as well. The connection between the two Rules is, indeed, often unavoidable: if a lawyer has put trust funds that are in the lawyer’s possession into an operating account, then there has been a violation not only of the obligation under Rule 1.15(a) to keep the trust funds separate from other funds, but also the obligation under this Rule to put the trust funds into a separate account that meets the requirements of DC Rule 1.19.
Thus, in In re Anderson, 778 A.2d 330 (DC 2001), the respondent had deposited funds received in a settlement of a personal injury case into a checking account that was the sole account he used in his practice, and had then disbursed the client’s share of the settlement to the client but neglected to pay an outstanding claim of the doctors who had provided medical treatment to the client. He ultimately paid the doctors in full, but in the interim had allowed the balance in the account to fall below the level required to satisfy the doctors’ claim. He was held to have committed commingling and misappropriation in violation of Rule 1.15(a), failed to notify and deliver funds to a third-party claimant in violation of Rule 1.15(b), and failed to designate a trust or escrow account in violation of then-Rule 1.17(a).
In In re Bernstein, 774 A.2d 309 (DC 2001), where the principal disciplinary charges related to the charging of an excessive and unlawful fee [as more fully recounted under 1.5:730, above], the respondent had also deposited a settlement check in a business checking account in which he also maintained his own funds, and so was found to have violated both Rule 1.15(a) and then-Rule 1.17(a).
In In re Bettis, 855 A.2d 282 (DC 2004), the respondent was found to have violated Rule 1.5(c) by failing to put a contingent fee agreement in writing, Rule 1.15(b) by failing to pay a claim for medical expenses out of the proceeds of a settlement, and then-Rule 1.17(a) by failing to designate the account into which the settlement proceeds were deposited as an escrow or trust account. This case may have provided an indication of the relative seriousness, for disciplinary punishment purposes, of a violation of then-Rule 1.17 and current Rule 1.19. The Court observed that even taken together, the three violations, in the factual setting of this case, would not have called for a major disciplinary sanction, and the Court declined to accept the Board’s recommendation of a thirty-day suspension with a fitness review before reinstatement as being too harsh since it would amount to a de facto suspension of a year-and-a-half or longer while the respondent’s fitness was established. In place of this sanction, the Court imposed a public censure and a two-year period of probation during which the respondent’s practice would be monitored.
Other cases in which a respondent was found to have violated then-Rule 1.17(a) as well as Rule 1.15(a) include In re Edwards, 870 .2d 90, 92-93 (DC 2005); In re Graham, 795 .2d 51 (DC 2002); In re Marshall, 762 A.2d 530, 531 (DC 2000); In re Johnson-Ford, 746 A.2d 308 (DC 2000); In re Diuguid, 689 A.2d 1223 (DC 2000).