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End-of-life notice: American Legal Ethics Library

As of March 1, 2013, the Legal Information Institute is no longer maintaining the information in the American Legal Ethics Library. It is no longer possible for us to maintain it at a level of completeness and accuracy given its staffing needs. It is very possible that we will revive it at a future time. At this point, it is in need of a complete technological renovation and reworking of the "correspondent firm" model which successfully sustained it for many years.

Many people have contributed time and effort to the project over the years, and we would like to thank them. In particular, Roger Cramton and Peter Martin not only conceived ALEL but gave much of their own labor to it. We are also grateful to Brad Wendel for his editorial contributions, to Brian Toohey and all at Jones Day for their efforts, and to all of our correspondents and contributors. Thank you.

We regret any inconvenience.

Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


New Jersey Legal Ethics

1.15   Rule 1.15 Safekeeping Property

1.15:100   Comparative Analysis of New Jersey Rule

Primary New Jersey References: NJ Rule 1.15
Background References: ABA Model Rule 1.15, Other Jurisdictions
Commentary:
NJ Commentary:

1.15:101      Model Rule Comparison

RPC 1.15 differs somewhat from the ABA Model Rule 1.15. First, paragraph (a) of RPC 1.15 requires an attorney to hold funds or property of a client, which are in his or her possession in connection with a representation, in a New Jersey financial institution. Second, paragraph (a) provides that funds of the lawyer sufficient to pay the bank charges may be deposited therein. Paragraph (a) also establishes seven years as the length of time an attorney must keep records of account funds and property, compared to five years in the Model Rule. Paragraph (b) of RPC 1.15 does not explicitly require that an accounting be given to the client, as the Model Rule does. RPC 1.15(d) was added to incorporate New Jersey’s specific recordkeeping requirements. There is no paragraph (d) in the Model Rules.

1.15:102      Model Code Comparison

There is no direct counterpart in the New Jersey RPCs.

1.15:110      New Jersey IOLTA Plan

One or more of each attorney’s trustee accounts must be an IOLTA (Interest on Lawyer’s Trust Accounts) account. New Jersey Court R. 1:21-6(a)(2) and New Jersey Court R. 1:28A-2(a). IOLTA accounts are depositories for client funds that are so nominal or being held for so short a term that they would not ordinarily generate interest. Under the IOLTA Program, governed by New Jersey Court R. 1:28A, such client funds are to be deposited together so that in the aggregate they may generate interest. This interest is then to be used to fund law-related public interest programs. See New Jersey Court R. 1:28A-1(a). In order for a financial institution to qualify as one where trust accounts generally may be deposited, the institution must agree to cooperate with the IOLTA Program. Part of that cooperation is to offer an IOLTA account to any attorney wishing to open one. New Jersey Court R. 1:21-6(a)(2). See Section 8:2-2, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000).

1.15:120      New Jersey Client Security Fund

Nearly every attorney admitted to practice law in New Jersey must pay annual fees to the Disciplinary Oversight Committee and the Lawyers’ Fund for Client Protection (“the Fund”). Rules 1:20-1(b) and (c) require the filing of an annual registration statement and payment of a sum to the Disciplinary Oversight Committee to be used for the attorney-discipline and fee-arbitration systems. Rule 1:28-2 requires payment of a sum to the Fund to be used for reimbursement to clients who have incurred financial losses due to the dishonest conduct of their attorneys. See Clients’ Security Fund of The Bar of New Jersey, 92 N.J.L.J. 113 (February 20, 1969); Proposed Clients’ Security Fund Rules, 91 N.J.L.J. 329 (May 23, 1968). Each attorney receives one annual billing notice that serves as a collection mechanism for both Rules. Each year the New Jersey Supreme Court determines the assessment amount, as well as the allocation between the Fund and the disciplinary process. See Section 4:4-1, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000).

1.15:200   Safeguarding and Safekeeping Property

Primary New Jersey References: NJ Rule 1.15(a)
Background References: ABA Model Rule 1.15(a), Other Jurisdictions
Commentary: ABA/BNA § 45:101, ALI-LGL §§ 56-58, Wolfram § 4.8
NJ Commentary: Sections 8:2-1 and 44:4-1, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000)

When a client places his funds or other property in the care of his attorney, the attorney becomes the trustee of that property and must maintain it in accordance with the client’s objectives and as required by RPC 1.15 and New Jersey Court R. 1:21-6. The attorney’s obligations are both substantive and procedural. Every attorney in private practice in the State of New Jersey is required to maintain two separate kinds of accounts, a trustee account (or accounts) and a business account. New Jersey Court R. 1:21-6(a)(1) and (2); RPC 1.15(a). An attorney may maintain other types of accounts in addition to these, including personal accounts or accounts established to fulfill a fiduciary role, such as that of executor, guardian, trustee under a particular trust instrument, or receiver. See New Jersey Court R. 1:21-6(a). Any accounts that attorneys may maintain must be kept separate from the required business and trust accounts. Id. And those two accounts, in turn, must be kept separate from each other. Id.

In order to facilitate monitoring by the Office of Attorney Ethics and the New Jersey Supreme Court, trust and business accounts must be maintained in New Jersey financial institutions. New Jersey Court R. 1:21-6(a). See also RPC 1.15(a). They must be in the name of the individual attorney, or in the name of a partnership or a professional corporation of which the attorney is a member or by which the attorney is employed. New Jersey Court R. 1:21-6(a). They are subject to detailed recordkeeping requirements. New Jersey Court R. 1:21-6(b) and (c). See also RPC 1.15(a). The records regarding the accounts must be made available to the Office of Attorney Ethics for purposes of routine audits, New Jersey Court R. 1:21-6(c), and in the event of an ethics investigation. New Jersey Court R. 1:21-6(g).

The substantive obligation is that the attorney, as trustee, use the client’s funds solely for the client’s purposes in accordance with the client’s wishes. The rule essentially mandating disbarment for knowing misappropriation cases was announced in the case that is now a shorthand for the rule, In re Wilson, 81 N.J. 451 (1979). There, an attorney failed for almost two years to turn over to his client the proceeds of the sale of a house and, in a separate matter, forged a client’s endorsement on a check payable to his client’s order, and deposited the money in his trust account, and refused to provide the money to the client. Id. at 453. The Wilson Court held that disbarment is the appropriate discipline when an attorney misappropriates trust funds or knowingly uses his client’s money as if it were his own. Id. at 453-457. In distinguishing between discipline for trust fund misappropriation and an attorney’s breach of other conduct rules, the New Jersey Supreme Court focused on the public perception of misappropriation. It explained that while the public might not perceive the wrong underlying other ethical misconduct, “[t]here is nothing clearer to the public, however, than stealing a client’s money and nothing worse.” Id. at 457. The New Jersey Supreme Court thus held that to maintain public confidence in the bar, the public and the client who has suffered from the attorney’s breach of trust had a right “to know that never again will that person be a lawyer.” Id. at 456.

The intent or mens rea required of the attorney to justify a Wilson disbarment is not necessarily to deprive the client of the trust funds permanently, but merely of (1) “taking a client’s money entrusted to [the attorney]”; (2) “knowing that it is the client’s money”; and (3) “knowing that the client has not authorized the taking.” Matter of Noonan, 102 N.J. 157, 160 (1986).

1.15:210      Status of Fee Advances [see also 1.5:420]

Absent an explicit request or understanding that the retainer be deposited in an attorney’s trust account, a general retainer fee does not have to be deposited in that attorney’s trust account. In the Matter of Stern, 92 N.J. 611, 619 (1983). If the client wants the advance deposited in the trust account, the attorney must oblige. See In the Matter of Youmans, 118 N.J. 622, 629 (1990). See Section 34:4, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000).

1.15:220      Surrendering Possession of Property

Subject to the requirement that all checks have cleared and have been credited to the attorney trust account, RPC 1.15(b) requires that an attorney promptly deliver to the client or to a third person the trust funds that such persons are entitled to receive. An attorney may not make disbursements from a trust fund to himself or others for any purpose without the consent of the person for whom the funds are held. See In re Wilson, 81 N.J. 451 (1979), stating both the basic rule and the disciplinary consequences. See Section 8:8, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000).

1.15:230      Documents Relating to Representation

Although New Jersey Court R. 1:21-6 is concerned solely with money held in trust, RPC 1.15 extends the ethical obligations to property other than money held in trust for a client or third party. Under RPC 1.15, non-cash property must be identified and kept separate from property belonging to the attorney. Records regarding such property must be kept for seven years. Id.

In Frenkel v. Frenkel, 252 N.J. Super. 214, 220 (App. Div. 1991), a client demanded his file to pursue his cause of action with new counsel. Applying RPC 1.15(b), the court held that even if the law firm holding the file was not fully paid and had asserted a retaining lien, there was no justification for refusing to deliver the file. See Section 8:13, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000).

1.15:300   Holding Money as a Fiduciary for the Benefit of Clients or Third Parties

Primary New Jersey References: NJ Rule 1.15(b)
Background References: ABA Model Rule 1.15(b), Other Jurisdictions
Commentary: ABA/BNA § 45:101, ALI-LGL § 56, Wolfram § 4.8
NJ Commentary:

Attorneys who steal or borrow escrow funds without the permission of the parties to an escrow agreement face disbarment. In re Hollendonner, 102 N.J. 21 (1985). “The parallel between escrow funds and client trust funds is obvious. So akin is the one to the other that henceforth an attorney found to have knowingly misused escrow funds will confront the disbarment rule of In re Wilson....” In re Hollendonner, supra, 102 N.J. at 28. See Section 8:12-1, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000).

1.15:400   Dispute Over Lawyer's Entitlement to Funds Held in Trust

Primary New Jersey References: NJ Rule 1.15(c)
Background References: ABA Model Rule 1.15(c), Other Jurisdictions
Commentary: ABA/BNA § 45:101, ALI-LGL §§ 56-57, Wolfram § 4.8
NJ Commentary:

RPC 1.15(c) requires a lawyer to hold property in which both the attorney and “another person” have competing interests in escrow until there is a resolution of the dispute. See Matter of Kernan, 118 N.J. 361, 368 (1990) (RPC refers to the competing interests of a lawyer “and a third party,” and it “is not clear whether these strictures also address the situation in which the client may also have a competing interest.)” See Section 8:12-2, Michels, New Jersey Attorney Ethics (Gann Law Books, Newark, 2000).