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Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.


Rhode Island Legal Ethics

1.15   Rule 1.15 Safekeeping Property

1.15:100   Comparative Analysis of Rhode Island Rule

• Primary Rhode Island References: RI Rule 1.15
• Background References: ABA Model Rule 1.15, Other Jurisdictions
• Commentary:

1.15:101      Model Rule Comparison

RI Rule 1.15(a)-(c) follows MR 1.15(a)-(c) and the comments thereto, except that by a Supreme Court order dated December 2, 1992, "seven (7)" was substituted for "five (5)" in the last sentence of subdivision (a) and the language "as provided under Rule 1.16" was added at the end of subdivision (a). RI Rule 1.15 also contains subdivisions (d) through (g), which are not found in MR 1.15.

Subdivisions (d) through (g) establish that a lawyer or law firm shall, unless having elected not to participate by notifying the Clerk of the Supreme Court in writing of such election during the month of January each year, deposit clients' funds which are nominal in amount or to be held for a short period of time into one or more interest bearing trust account, whose interest shall be paid to the Rhode Island Bar Foundation on a quarterly basis to be used for any of the following purposes: providing legal services to the poor of Rhode Island; improving the delivery of legal services; promoting knowledge and awareness of the law; improving the administration of justice; and for the reasonable costs of administration of interest earned on client's trust accounts under the rule. Specific requirements for the program are also enumerated in more detail in the subdivisions.

Required Bookkeeping Records

RI Rule 1.16 has been added to the RI Rules and supplements RI Rule 1.15. The Rule requires a lawyer to maintain all financial records for seven (7) years after the events which they record; that lawyers shall make entries of all financial transactions in books of account; and how records should be handled with respect to missing clients and when a law firm is dissolved. RI Eth. Op. 94-9 (1994), which makes reference to RI Rule 1.16, notes that the rule sets forth an attorney's obligation to maintain certain accounts, agreements and records for a period of seven (7) years, but does not address the issue of the specific method of disposal of such records at the conclusion of that period.

1.15:102      Model Code Comparison

With regard to paragraph (a), DR 9-102(A) provides that "funds of clients ... shall be deposited in one or more identifiable bank accounts maintained in the state in which the law office is situated..." DR 9-102(B)(2) provides that a lawyer shall "[i]dentify and label securities and properties of a client ... and place them ... in safekeeping..." DR 9-102(B)(3) requires that a lawyer "[m]aintain complete records of all funds, securities, and other properties of a client..." RI Rule 1.15(a) extends these requirements to property of a third person that is in the lawyer's possession in connection with the representation.

Paragraph (b) is substantially similar to DR 9-102(B)(1), (3) and (4).

Paragraph (c) is similar to DR 9-102(A)(2), except that the requirement regarding disputes applies to property concerning which an interest is claimed by a third person as well as by a client.

Paragraphs (d)-(g) have no parallel in the Model Code and are discussed at 1.15:101, supra.

1.15:110      Rhode Island's IOLTA Plan

The equivalent of an IOLTA plan for Rhode Island is codified in subdivisions (d) - (g) as discussed at 1.15:101 above.

The amount of interest to be paid to the Bar Association under the IOLTA Plan is the interest minus any service or fees charged upon the account. RI Eth. Op. 93-93 (1993). However, a law firm may not use for other firm accounts or transfer to client accounts bookkeeping credits granted to it by the depository bank in connection to IOLTA accounts, which exceeded bookkeeping costs for the accounts. RI Eth. Op. 94-25 (1994).

Where an attorney conducts loan closings for an out-of-state lender who requires that the attorney maintain a checking account with the lender, the attorney maintains an IOLTA account in Rhode Island, the lender deposits the mortgage proceeds in the out-of-state checking account when the closings are conducted, and the lender refuses to designate this account as an IOLTA account, the proper course of action is for the attorney to withdraw the funds from the non-conforming account and to deposit them into the Rhode Island IOLTA account as soon as practicable. RI Eth. Op. 92-84 (1992).

1.15:120      Rhode Island Client Security Fund

The Lawyer's Fund for Client Reimbursement and its predecessors were established by the Rhode Island Bar Association to promote public confidence in the integrity of the legal profession by reimbursing losses caused by dishonest conduct of Rhode Island Lawyers occurring in the course of the attorney-client relationship. Rules of the Lawyer's Fund for Client Reimbursement [hereinafter "Fund Rules"], R 1. It is funded entirely by contributions from Rhode Island lawyers. Id. The Fund is administered by a committee of seven or fewer members of the Rhode Island Bar Association, which committee shall hold the moneys or other assets of the Fund and shall, among other duties, receive, evaluate, determine, and pay claims. Fund Rules R 2, 3. To constitute a reimbursable loss, the loss must have arisen out of and during the course of a lawyer-client or fiduciary-beneficiary relationship between the lawyer and the claimant. Fund Rules R 4(A). A claim may be filed when disciplinary action had been made public by the Supreme Court of Rhode Island against the layer causing the loss which is the subject of the claim, when disciplinary proceedings against the lawyer have been stayed and the lawyer is placed on Inactive Status by order of the Supreme Court, or where the lawyer has died or been adjudged insane or incompetent. Fund Rules R 4(B). The claim must be filed within one year from the time of the public notice of the disciplinary action, Order of Inactive Status, death, insanity or incompetence, except in the case of extreme hardship or special and unusual circumstances. Fund Rules R 4(B), (E). In order to recover, the claimant must prove by a preponderance of the evidence that the claimant's loss was a result of the lawyer's dishonest conduct. Fund Rules R 4(C).

1.15:200   Safeguarding and Safekeeping Property

• Primary Rhode Island References: RI Rule 1.15(a)
• Background References: ABA Model Rule 1.15(a), Other Jurisdictions
• Commentary: ABA/BNA § 45:101, ALI-LGL §§ 44-46, Wolfram § 4.8

Where an attorney received a check on behalf of a client and deposited this check into an all-purpose bank account, which the attorney used for client, business, and personal matters, and prior to making any disbursements of these funds to the client wrote checks on this account for unrelated business purposes and personal expenditures, the attorney violated his or her fiduciary duty. In re Sheehan, 661 A.2d 526 (R.I. 1995).

Under the anti-commingling principle of RI Rule 1.15(a), a lawyer may maintain his or her own moneys in a client trust account in order to avoid bank service charges provided, however, that the amount of the lawyer's funds may not exceed that amount which is necessary to avoid bank service charges and further provided that the funds so deposited shall not be used by the lawyer for any other purpose. RI Eth. Op. 93-57 (1993).

An attorney breached his fiduciary duty by commingling client funds and funds properly belonging to third parties into business account containing personal funds, by cashing settlement checks, and by delaying delivery of payment of client funds for inordinate and inexcusable periods, thereby violating RI Rule 1.15, which requires an attorney to segregate funds of clients or third persons in separate client account and requiring prompt delivery of funds in lawyer's possession to those parties entitled to receive those funds. In re Brown, 735 A.2d 774 (R.I. 1999). See also In re Rossi, C.A. No. 99-358-M.P. (1999).

An attorney's failure to continuously maintain client funds in a client account, after withholding funds at a real estate closing for payment of property taxes, violated the rule requiring attorneys to hold funds in their possession that belong to a client or some other person in a separate account from the attorney's own funds. In re Mocsa, 686 A.2d 927 (R.I. 1996).

Attorney's failure, when acting as guardian of estate, to properly segregate ward's funds in separate account and attorney's commingling of those funds and other funds belonging to ward with his own accounts violated Rule 1.15(a), which requires lawyers to hold property of clients or third persons that is in the lawyer's possession in connection with representation separate from lawyer's own property. In the Matter of Krause, 737 A.2d 874 (R.I. 1999).

Attorney's conversion of funds belonging to client's health insurer as subrogee warranted three year suspension from the practice of law because the action violated Rule 1.15(a), which requires an attorney to segregate the funds of a client or third party in a separate client account. In Re Dipippo, 745 A.2d 736 (R.I. 2000).

An attorney who commingled his own funds with those of his client’s funds in a client account was found to have violated Rule 1.15(a), which requires an attorney to keep funds that are the property of a client or of third parties in an account separate from those funds which belong to an attorney. In the Matter of A. Indeglia, 765 A.2d 444 (R.I. 2001).

Where, inter alia, an attorney commingled a monetary judgment with his business account, the proper disciplinary action was suspension until the attorney could prove to the court that he was capable of resuming the practice of law and attending to representing his clients. In re MacLean, 774 A.2d 888 (R.I. 2001).

Where an attorney obtained an arbitration award on behalf of his/her client and predecessor counsel asserted a lien on the proceeds equal to one-third of a previously rejected settlement offer, the attorney had to place the disputed funds in the client's account until the matter was resolved or pay them into the court registry in an interpleader action. RI Eth. Op. 2001-03 (2001).

1.15:210      Status of Fee Advances

An attorney may establish a procedure whereby the law firm would ask new clients to advance a certain amount of money for future expenses and costs, with the money placed in a client account and used as needed, as long as the law firm follows RI Rule 1.15 precisely, particularly Rule 1.15(d)-(g), which specifically sets forth the procedure for the deposit of client funds. RI Eth. Op. 92-45 (1992).

1.15:220      Surrendering Possession of Property; Prompt Delivery of Property of Client or Third Person

Attorney who repeatedly failed to pay medical providers promptly in personal injury actions following receipt of clients' funds was properly suspended for one year. In re Watt, 701 A.2d 319 (R.I. 1997).

Attorney's failure, when acting as guardian of estate, to promptly pay bills owed by ward violated Rule 1.15(b), which requires lawyers to promptly deliver to client or third person any funds or other property that client or third person is entitled to receive. In the Matter of Krause, 737 A.2d 874 (R.I. 1999).

Attorney's four month delay in transferring former client's funds to the client's new attorney, and admission that the attorney appropriated the funds for his own purposes violated RI Rule 1.15(a) and (b). Lisi v. Hines, 610 A.2d 113 (R.I. 1992); In re Mosca, 686 A.2d 927 (R.I. 1996).

Attorney's conversion of funds belonging to client's health insurer as subrogee warranted three year suspension from the practice of law because the action violated Rule 1.15(b), which requires payment of those funds to the client or third party entitled to receive them. In Re Dipippo, 745 A.2d 736 (R.I. 2000).

An attorney who failed to conclude making payments to his client for more than one year following receipt of those funds was in violation of Rule 1.15(b), which requires the prompt delivery of funds in a lawyer's possession to those parties entitled to their receipt. In the Matter of A. Indeglia, 765 A.2d 444 (R.I. 2001).

1.15:230      Documents Relating to Representation

There is no authority in Rhode Island on this topic.

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

• Primary Rhode Island References: RI Rule 1.15(b)
• Background References: ABA Model Rule 1.15(b), Other Jurisdictions
• Commentary: ABA/BNA § 45:101, ALI-LGL § 44, Wolfram § 4.8

RI Rule 1.15(b) imposes three duties upon a lawyer receiving funds in which a client or a third person has an interest: the duty to promptly notify, the duty to promptly deliver, and the duty to fully account. RI Eth. Op. 95-60 (1996).

Settling personal injury cases and withholding from clients amounts to cover medical liens, without paying physicians who held medical liens, and converting those funds to the attorney's own use violated the professional obligation to safeguard funds rightfully belonging to the physician, and constituted fraud and dishonesty, warranting one-year suspension from the practice of law. In re Hodge, 676 A.2d 1362 (R.I. 1996).

Where an attorney acts as escrow agent for the intended sale of a condominium by the attorney's client, the purchaser is unable to obtain financing and claims he is entitled to the refund of a deposit held by the attorney, and the client claims the deposit on the ground that the purchaser defaulted on the agreement, the attorney may refuse to surrender the property to the client in light of the attorney's duty to protect third party interests in the disputed property against the client's claim. RI Eth. Op. 92-21 (1992). The property should be kept in a client fund account and, if the dispute over the deposit cannot be resolved, the attorney should consider filing an interpleader action in the appropriate forum. Id.

In representing a client who was hospitalized, where a lien was recorded by the hospital and some of the hospital's claims were turned over to a collection agency, the liens were eventually discharged and an arrangement to pay the medical insurance was made, but before remittance to the client, written claims by the collection agency were received by the attorney making him/her unsure whether the hospital had been paid in full, the lawyer could refuse to surrender the property to the client without breaching an ethical obligation. RI Eth. Op. 92-47 (1992). However, dispersing the funds to the client would not be a violation of the Rules so long as the attorney properly informs the client regarding the possible problems that may arise as a consequence of an unresolved issue with the collection agency's claim for payment. Id.

Where an attorney has been instructed by his or her client to hold a check and not mail it to her, the moneys should be held in a client account in accordance with the client's wishes, but the attorney should consider the prohibition of RI Rule 1.2(d) against "engag[ing] or assist[ing] a client in conduct that the lawyer knows is criminal or fraudulent..." RI Eth. Op. 93-19 (1993). Where there was no suggestion that the attorney believed the client may have been engaged in fraudulent activity, the attorney could continue to hold the client's funds in accordance with the client's wishes. Id.

An attorney who represented one 50% owner of a property against his wife in a divorce action, and who pursued and settled a breach of contract action against a defaulting prospective purchaser of the property when the court ordered the property sold without entering a fee arrangement with the client's wife, and where the wife objected to the attorney receiving any payment from her percentage of the settlement, the attorney should keep the claimed fee separate until the dispute is resolved and the undisputed portion should be promptly tendered to the client's wife. RI Eth. Op. 92-34 (1992). Furthermore, the attorney should suggest methods of resolving the conflict to the wife's counsel, including turning for guidance to the family court that ordered the sale or resolving the matter through the fee arbitration program offered by the Bar Association. Id.

When an attorney received notice of a lien for payment of medical expenses prior to settling the client's personal injury matter for a lump sum, the attorney must notify the third party of the settlement even though he or she believes that the client actually owes only a fraction the lien amount. RI Eth. Op. 94-50 (1994). Because of the dispute over the cost of the medical expenses, the attorney, pending resolution, arbitration or interpleader should keep the portion in dispute separate. Id. See also RI Eth. Op. 95-12 (1995).

Where a secondary health insurance company pays medical bills in tortuous cases without any assurances from the attorney that the bills would be paid after recovery and the insurance company has failed to file a lien, the attorney is under no obligation to notify or pay the insurance companies upon receipt of an award or settlement. RI Eth. Op. 95-57 (1995).

An attorney who obtained a settlement for two family members involved in a serious automobile accident, one of whom requires continuous medical care, must deliver to Medicare any of the settlement funds, currently held in escrow, which it is entitled to receive. RI Eth. Op. 95-29 (1995). If the attorney reduces his or her fee, then that portion is also owed to Medicare, to the extent that the medical bills exceed the amount currently held in escrow, although the attorney is not prohibited from gifting money to his or her family members from his or her personal funds. Id.

An attorney who represented a client before an arbitrator and obtained from the client a sum of money for the arbitrator's fee, and who was subsequently discharged before the conclusion of the arbitration, should pay the arbitrator's fee once a bill is submitted unless the client has directed him or her not to pay, in which case the attorney should notify the arbitrator that he or she is in possession of these funds but should hold the amount until the dispute is resolved. RI Eth. Op. 96-33 (1996). A demand by the client for return of the funds is equivalent to a decision not to pay. Id.

Where, inter alia, an attorney commingled a monetary judgment with his business account, the proper disciplinary action was suspension until the attorney could prove to the court that he was capable of resuming the practice of law and attending to representing his clients. In re MacLean, 774 A.2d 888 (R.I. 2001).

Notification Requirement

A lawyer who is in possession of funds in which a client or third person has an interest has a duty to promptly notify the client or third person. RI Eth. Op. 93-64 (1993).

A one year delay between the receipt of funds and the notification to lien holders of possession of the property, by an attorney who knew the funds were subject to a lien, would constitute a violation of RI Rule 1.15(b). RI Eth. Op. 93-55 (1993).

An attorney who represents a husband in a divorce, where the husband agreed in writing to pay the wife one-half of the net proceeds received by him in a personal injury action, can not ignore this contract and must notify the wife when the proceeds are received. RI Eth. Op. 95-31 (1995).

An attorney must notify the opposing party and hold the overpayment in escrow when the opposing party may have overpaid the amount awarded by the court. RI Eth. Op. 93-81 (1993).

Where an attorney has notice of outstanding medical bills and has made a promise to pay the bills from the proceeds of settlement, the attorney is under an obligation to promptly notify the hospital upon receipt of the funds regardless of the fact that the hospital has not taken out a lien upon the recovery. RI Eth. Op. 94-46 (1994). However, where a medical insurance company pays medical bills without verbal or written assurances by the attorney involved in the lawsuit and without taking out a lien, the attorney is not obligated to notify the insurance company. RI Eth. Op. 95-57 (1995).

When an attorney received notice of a lien for payment of medical expenses prior to settling the client's personal injury matter for a lump sum, the attorney must notify the third party of the settlement even though he or she believes that the client actually owes only a fraction the lien amount. RI Eth. Op. 94-50 (1994). Because of the dispute over the cost of the medical expenses, the attorney, pending resolution, arbitration or interpleader should keep the portion in dispute separate. Id. See also RI Eth. Op. 95-12 (1995).

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

• Primary Rhode Island References: RI Rule 1.15(c)
• Background References: ABA Model Rule 1.15(c), Other Jurisdictions
• Commentary: ABA/BNA § 45:101, ALI-LGL §§ 44-45, Wolfram § 4.8

Where an attorney holds funds in escrow on behalf of a party who owes the attorney legal fees, the legal fees are in dispute, and the party refuses to allow the attorney to take the amount due for legal services out of the funds held in escrow, the attorney's ethical duty is to hold the disputed funds in escrow until the matter is resolved. RI Eth. Op. 91-53 (1991).

An attorney who is holding an amount of the client's money in trust for the attorney's out of pocket expenses must return the client's funds upon termination of representation despite the attorney's allegations that the client failed to pay him or her the agreed upon hourly compensation. RI Eth. Op. 94-76. In a case where an attorney retains funds with the understanding that all or a portion of those funds would be used to pay the attorney's fees. Id.

Where an attorney who has been discharged by the client before final resolution of a matter undertaken on a contingency basis, and who has not yet been compensated for legal services rendered, holds in an escrow account a substantial sum of money on behalf of the client, the attorney must keep the property separately until any dispute over fees is resolved. RI Eth. Op. 91-56 (1991).

An attorney does not have a right of set-off against client funds for the payment of outstanding legal fees and expenses and should deposit the disputed funds in a client fund account. RI Eth. Op. 92-12 (1992). If the fee dispute with the client cannot be resolved, then the attorney may consider filing an interpleader action. Id.

Where, inter alia, an attorney commingled a monetary judgment with his business account, the proper disciplinary action was suspension until the attorney could prove to the court that he was capable of resuming the practice of law and attending to representing his clients. In re MacLean, 774 A.2d 888 (R.I. 2001).