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Arkansas Legal Ethics
1.15:100 Comparative Analysis of Arkansas Rule
- Primary Arkansas References: AR Rule 1.15
- Background References: ABA Model Rule 1.15, Other Jurisdictions
The Arkansas Rule departs from the Model Rule in two ways:
1) In December 1993 the Arkansas Supreme Court modified the rule to require that an attorney annually certify that he has complied with all ethical rules concerning the maintenance of a trust account in which a client's funds are deposited.
2) In October 1994, see Per Curiam, 318 Ark. 894, 885 S.W. 2d 846 (1994), the Supreme Court further modified Rule 1.15 to incorporate a mandatory IOLTA provision.
The comparison accepted by the Arkansas Supreme Court is identical to the comparison in the Model Rules.
After first rejecting the IOLTA concept, see In re The Matter of Interest on Lawyers' Trust Accounts, 279 Ark. 84, 648 S.W.2d 480 (1983), primarily because of lack of client consent, the Court reconsidered and concluded that the public good would be advanced by the adoption of a voluntary plan to generate interest on trust accounts. In re Ark. Bar Assn. Petition for IOLTA Program, 283 Ark. 252, 675 S.W.2d 355 (1984). When the IOLTA plan was first adopted, the participating attorney was obligated to mail written notice to the client. Per Curiam of May 13, 1985, 286 Ark. 64, 689 S.W.2d 352. Subsequently the rule was amended to require only that conspicuous notice be posted in the attorney's office. Per Curiam of May 6, 1986, 289 Ark. 595, 709 S.W.2d 400. Client consent, however, is not required.
Clients do not have the right to demand withdrawal of their funds from the common trust account or the payment of interest to them. If the client's funds are more than nominal or will be held for more than a short period of time, the lawyer should consider placing the client's funds in an account that will pay the funds to the client. In deciding whether to create a special trust account for the funds of a single client, the attorney should consider the amount of interest likely to be earned, as well as the cost of establishing and administering the account, including the attorney's services. The IOLTA Foundation has stated, as a general guideline, that $50 is the minimum amount of interest that would require an individual trust account for a client, with the client receiving the interest.
After almost 10 years of operation in a voluntary format, the IOLTA program had enlisted the participation of approximately 35-40% of eligible Arkansas attorneys. At the request of the Arkansas Bar Association, see Comprehensive IOLTA, ARKANSAS LAWYER (Autumn 1993) 52, the Supreme Court revised Rule 1.15 to make the program mandatory and comprehensive effective January 1, 1995. See Per Curiam of October 17, 1994, 318 Ark. 894, 885 S.W. 2d 846. An attorney who purposefully fails to comply with the IOLTA requirement will be referred to the Committee on Professional Conduct for enforcement. Attorneys must certify on an annual basis that they have complied with the IOLTA requirement.
To reimburse clients who have suffered losses through the dishonest conduct of Arkansas attorneys, the Arkansas Supreme Court created the Client Security Fund. Per curiam, 254 Ark. 1075, 493 S.W.2d 422 (April 30, 1973). The fund was established with an initial contribution from the Arkansas Bar Association and is now supported by a portion of attorney's annual license fees. The maximum allowable claim, which was initially $5000, has been regularly increased and is now $40,000. Per Curiam of July 12, 1993, 314 Ark. 635, 858 S.W.2d 670.
Reimbursement is a matter of grace to the client, not a claim of right. Although the fund is not insurance, the Court has encouraged payment when the claim comes within the scope of the rules and sufficient funds exist. Nosal v. Neal, 318 Ark. 727, 888 S.W. 2d 634 (1994). The fund does not cover negligent acts and is not a substitute for a malpractice action. It reaches dishonest conduct of an attorney who has stolen the money or otherwise caused monetary losses to a client. Repayment requires that the attorney has been suspended or lost the license to practice law, and that no other source of repayment to the client is available. Despite the lack of a specific provision in the rules, a right of appeal does exist for a claimant seeking reimbursement from the fund. Id. (fund reimbursed claimant when attorney died before disciplinary actions commenced). The Court has also urged prompt committee action and suggested more public information and awareness of the fund's existence. No attorney may be compensated for asserting a claim against the fund.
1.15:200 Safeguarding and Safekeeping Property
- Primary Arkansas References: AR Rule 1.15(a)
- Background References: ABA Model Rule 1.15(a), Other Jurisdictions
- Commentary: ABA/BNA Ñ 45:101, ALI-LGL ÑÑ 56-58, Wolfram Ñ 4.8
1.15:210 Status of Fee Advances [see also 1.5:420]
Attorneys may not permit third parties, such as title insurance companies, to audit trust accounts without the permission of the clients. See Ark. Bar Assn. Op. 96-01.
Upon termination of the relationship, the attorney must take reasonable steps to protect the client's interests. Rule 1.16(d) provides that upon termination of the relationship, the attorney should "surrender papers and property to which the client is entitled", but "may retain papers relating to the client to the extent permitted by other law." Arkansas case law recognizes that a client owns his file. Sexton Law Firm, P.A. v. Milligan, 329 Ark. 285, 948 S.W. 2d 388 (1997). An attorney may be disciplined for failure to return a client's papers and files. Cortinez v. Supreme Court Comm. on Professional Conduct, 332 Ark. 456, ___ S.W. 2d ___ (1998).
Although Arkansas recognizes a common law retaining lien to enable the attorney to collect unpaid attorney fees, see 1.8:1130, above, this remedy may be modified by the need of a successor attorney for the papers in order to complete the representation. Certainly an attorney has no basis to retain the files when the representation has been concluded or terminated and the client owes no fees. See Arens v. Committee on Professional Conduct, 307 Ark. 308, 820 S.W.2d 263 (1991). Upon a judicial finding that no fees are owed, the retaining lien should be dissolved and the files released to the client. Orsini v. Larry Moyer Trucking, Inc., 310 Ark. 179, 184-A, 839 S.W.2d 180 (1992).
1.15:300 Holding Money as a Fiduciary for the Benefit of Clients or Third Parties
- Primary Arkansas References: AR Rule 1.15(b)
- Background References: ABA Model Rule 1.15(b), Other Jurisdictions
- Commentary: ABA/BNA Ñ 45:101, ALI-LGL Ñ 56, Wolfram Ñ 4.8
Arkansas attorneys have been disciplined for violation of the requirement that clients' funds be held in a separate account. For example, an attorney who forged his clients' signatures on settlement checks and deposited them in a personal account was disbarred, despite the lack of any intent to permanently deprive the clients of their property. Weems v. Supreme Court Comm. on Prof. Conduct, 257 Ark. 673, 523 S.W.2d 900 (1975). Likewise, attorneys are responsible for the unauthorized use of clients' funds, whether intentionally or inadvertently caused. Conversion claims may be asserted against an attorney for wrongful use of clients' funds. See Tapp v. Fowler, 291 Ark. 309, 724 S.W. 2d 176 (1987).
Funds advanced by a client, regardless of whether they are for costs to be incurred, legal services to be provided or future disbursements to third parties, must go into the attorney's trust account. Funds may be withdrawn as costs are incurred and fees earned. If the attorney-client relationship is terminated prematurely, the attorney must refund any fee that has not been earned. Rule 1.16(d). On the other hand, a traditional, or general, retainer, which ensures loyalty and availability for a set period of time, is earned when received and need not go into the trust account. See John M.A. DiPippa, Lawyers, Clients and Money, 18 U. ARK. LITTLE ROCK L.J. 95, 106-110, 146-147 (1995).
In recent years middleman companies have become involved in the process by referring foreclosure files to law firms and intervening between the law firm and the mortgage company. The middleman company acts as a third party independent contractor by providing services between the law firm and the mortgage company. If the mortgage company, which is the client, and the law firm agree that upon settlement of a foreclosure action, the funds are to be forwarded to a middleman, that agreement is binding upon the law firm. On the other hand, in the absence of such an agreement, the funds are to be forwarded directly to the client. Ark. Bar Assn. Op. 95-02.
1.15:400 Dispute Over Lawyer's Entitlement to Funds Held in Trust
- Primary Arkansas References: AR Rule 1.15(c)
- Background References: ABA Model Rule 1.15(c), Other Jurisdictions
- Commentary: ABA/BNA Ñ 45:101, ALI-LGL ÑÑ 56-57, Wolfram Ñ 4.8
Arkansas has no case law or authority on this topic.