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Some portions of the collection may already be severely out of date, so please be cautious in your use of this material.
Illinois Legal Ethics
1.15:100 Comparative Analysis of Illinois Rule
IRPC 1.15(a), (b) and (c) are the same as MR 1.15 but (a) has been amended to extend the period of record retention from five to seven years. IRPC 1.15(d), (e) and (f) with respect to trust funds are the same as Illinois Code 9-102(d), (e) and (f). The parallel provisions in the Illinois Code was Rule 9-102. In August 1998, IRPC 1.15 was amended to add IRPC 1.15(g) covering a lawyer's disbursement during a real estate closing of "uncleared" funds that were deposited but not collected.
[The discussion of this topic has not yet been written.]
The Interest on Lawyers Trust Accounts (IOLTA) program began in 1983 by order of the Illinois Supreme Court. Under IRPC 1.15(d), IOLTA utilizes attorney's pooled trust accounts to earn interest on nominal or short term client funds. IOLTA trust accounts are used because the amounts of money being held are so small or the holding period is so short, that any interest earned would be less than the bank charges for handling the funds and calculating the interest. The interest from the trust accounts is paid directly to the Lawyers Trust Fund, a not-for-profit corporation, which uses the funds to sponsor legal assistance and other programs benefiting the public, specifically approved by the Supreme Court of Illinois. Although the IOLTA program was initially voluntary, the Illinois Supreme Court mandated participation in 1987. IOLTA's offices are currently located at 55 East Monroe, Suite 3420, Chicago, Illinois 60603. The lawyer or law firm has the discretion to determine whether funds are nominal in amount or whether the funds will be held for a short period of time. Charges of either ethical indiscretion or professional misconduct will not result from the lawyer or law firm's judgment on what constitutes nominal or short term funds. See Rule 1.15 (d)(5). See also ARDC, Client Trust Account Handbook: A Guide to Creating and Maintaining Client Trust Accounts for Illinois Attorneys, (1997).
Ill. Sup. Ct. Rule 780. - Changed to Ill. Client Protection Plan Ill. Ct. Rule 780 (March 28, 1994).
Illinois REFA Plan
Real Estate Funds Accounts were created as a solution to problems real estate lawyers experienced in a closing situation that required the acceptance and dissemination of uncleared funds. Traditionally, Rule 1.15 required lawyers to keep client's funds in separate accounts as a safeguard measure. Accordingly under Rule 1.15, a lawyer cannot disburse funds deposited into a trust account which have not been "collected." The problem real estate lawyers experienced was that a closing could not be done without the acceptance of uncleared funds. Section (g) permits a real estate lawyer to uphold his/her 1.15 duty if, prior to closing the lawyer has established a segregated Real Estate Funds Account (REFA) to handle the receipt and disbursement of funds deposited but not collected. Section (g) also discusses an attorney's function as a closing agent according to an insured closing letter, describes what constitutes "good funds" instruments, and discusses the attorney's duty to reimburse a trust account for uncollected funds. See Rule 1.15 (g). See also ISBA, Illinois Supreme Court amends Rule 1.15 of the Illinois Rules of Professional Conduct, 44:1 ISBA Real Property Newsletter 5-6 (November 1998).
1.15:200 Safeguarding and Safekeeping Property
IRPC 1.15(a) provides that when holding either a client or a third person's property, a lawyer must keep that property separate from his own. Funds are to be kept in separate accounts, and other property should be identified and appropriately safeguarded. Rule 1.15(a). Funds held in a safe deposit box, file cabinet or desk drawer is not an acceptable way of safekeeping trust funds and has been expressly denounced by the Illinois Supreme Court which stated that "such a covert method of handling a client's funds is highly unprofessional and one which can only create suspicion and harmful inference." In re Lingle, 189 N.E.2d 342 (Ill. 1963). Also, it is not enough to open a personal account with the title "client's trust account" placed on the passbook. See In re Clayter, 399 N.E.2d 1318 (Ill. 1980). See also ARDC Client Trust Account Handbook at 7-11. The Rule is satisfied if client's funds are deposited in an account identified as a client trust account which is separate and distinct from an account in which the attorney has an interest. See In re Johnson, 552 N.E.2d 703, 711 (Ill. 1990).
IRPC 1.15(a) is exemplified in In re Elias, 449 N.E.2d 1327 (Ill. 1986). Elias involved, in part, an attorney who deposited clients' settlement proceeds into non-trust accounts and then used the funds to pay personal and business expenses. The attorney argued that because he paid his clients their portion of the settlement immediately upon receipt of the settlement proceeds, he was never in possession of client property, and as such was not required to establish separate trust accounts for the benefit of his clients. However, the court disagreed, concluding that the requirement that the client property be held separately from attorney property is absolute:
It is manifest that this [rule] is mandatory, admitting of no exceptions for any reason. Repeatedly, this court has held that the [rule] embodies an unambiguous requirement that an attorney must establish and maintain a separate, identifiable trust account into which any and all funds belonging, in whole or in part, to clients are to be deposited regardless of the manner in which an attorney chooses to handle final disbursement of these funds. Id. at 1331.
Thus, the Court concluded that the attorney's failure to deposit the settlement proceeds in a separate, identifiable trust account resulted in commingling and conversion of client funds. Accordingly, the attorney was suspended from the practice of law for three years.
Client Trust Accounts
In Illinois, the separate and identifiable client trust account can take two forms. Usually it is a checking or savings account that is a depository for all funds belonging to clients or other persons a lawyer comes into contact with during the course of representation. Accounts typically are opened for one client if the amount of money being stored is large or being held for a long period of time. Alternatively, funds can be "pooled" especially if the amounts are nominal or are short-term funds by using the IOLTA system. See ARDC Client Trust Account Handbook (1997) at 6. The ARDC in the Client Trust Account Handbook, discusses what considerations the lawyer should evaluate in determining what type of client trust account to use. Furthermore, the booklet discusses proper client trust accounting procedures. See id. In addition, the Client Trust Account Handbook provides "practice-tips" for general procedures in opening and operating a Trust Account in Illinois. Id. at 22-26.
Attorney's Duty to Prevent Commingling and Conversion of Client Funds
Both IRPC 1.15(a) and the Illinois Supreme Court do not allow attorneys to commingle their client's funds with their own personal or business accounts. The seminal case (governed by the Illinois Code) dealing with this issue is In re Clayter, 399 N.E.2d 1318 (Ill. 1980), which the Illinois Supreme Court described as ". . . an opportunity to admonish the bar of this State that it is absolutely impermissible for an attorney to commingle funds with those of his client or with money he holds as a fiduciary." Id. at 1319. "[I]t is essential that such money be held in such a manner that there can be no doubt that the attorney is holding it only for another and that the money does not belong to him personally." Id. at 1318. Clayter involved an attorney who deposited $1,000 of client funds in a partnership bank account to which only he and his son had access. The attorney made withdrawals from the account for expenses not related to the client, but also placed $1,000 in cash in the safe located within his house. Attorney Clayter argued that placing the client funds in his personal safe prevented commingling.
The Court held that Clayter had commingled his client's earnest money with his personal funds and converted it to his personal use. Id. at 1321. The Court stressed the importance of keeping the client's funds separate from the attorney's personal accounts because not only would it endanger the security interest of the client to whom the money belonged, but also there would be a danger of the conversion of funds by operation of law; for example, in the case of the lawyer's death or insolvency the funds could easily become assets of the attorney's estate, leaving the rightful owner, the client, with only a claim of a creditor against the lawyer's estate. Id. at 1320. The Court also rejected Clayter's argument that the storage of client property in a personal safe prevented commingling, concluding that" . . . such a covert method of handling a client's funds is highly unprofessional and one which can only create suspicion and harmful inference." Id. (quoting In re Lingle, 189 N.E.2d 342 (Ill. 1963)). However, because Clayter did not evince any dishonest motive, the Court determined that censure was the appropriate sanction.
The Illinois Supreme Court broadened the scope of Clayter in In re Bizar, 454 N.E.2d 271 (Ill. 1983). Bizar involved an attorney who failed to deposit client settlement funds in a client trust account, but rather placed them in a general operating account. The attorney used a majority of these funds to pay business expenses. Attorney Bizar argued that because he had returned all funds to which the clients were entitled, any sanction other than "censure" would be excessive. The Court disagreed, concluding that "[i]t is the risk of loss of the funds while they are in the attorney's possession, and not only their actual loss which the rule is designed to eliminate." Id. at 272. Therefore, while the funds were in the attorney's personal expense account, they were subject to the claims of creditors, thereby potentially making them permanently unavailable to their rightful owner, the clients. Id.
The Court's fears in both Clayter and Bizar occurred in In re Enstrom, 472 N.E.2d 446 (Ill. 1984). In Enstrom an attorney failed to deposit client funds in a client trust account, but, rather, because the two firms he was associated with suddenly dissolved, he opened a personal bank account in which he placed his client's funds. The attorney was able to disperse some of his client's funds from this account; however, he did not release all the clients funds before a levy was made by the Internal Revenue Service on the lawyer's personal account because of taxes owed by one of the defunct firm to which the attorney once was an associate. Once his account was closed, he was unable to disperse the remaining client funds. The lawyer was sued by his client and eventually the attorney paid the money he owed. The Court recognized this case was further justification for requiring attorneys to segregate funds belonging to others in a separate trust accounts because the remaining funds the attorney placed in his personal account were converted by operation of law when the IRS levied his account. Id. at 449. Because the attorney did not personally convert the funds, and since it was an isolated act of professional misconduct with no evidence of dishonest motive, the attorney was only censured. Id. at 450.
The Illinois Supreme Court also reiterated the importance of keeping client's funds safe from "extraordinary dangers" in Johnson, 552 N.E.2d 703 (Ill. 1990). Attorney Johnson placed client funds in the Icelandic consular account to protect the funds from the client's creditors. By doing so, the attorney enabled the funds to be protected by consular immunity, but at the same time, placed the funds in an account to which a foreign government possessed a great deal of control over. The Court reprimanded the attorney stating that "[A] covert method of handling a client's funds is highly unprofessional and . . . can only create suspicion and harmful inference." 552 N.E. at 709. The Court further found that by placing the funds in an account controlled by a foreign government, the attorney exposed the funds to "extraordinary dangers." Id. at 710. "[A]n attorney's obligation to protect his client's funds does not require that the attorney hide the funds from those who may have valid claims against them." Id. at 711. The Court stated that even if the claims are improper, there is no need to protect the funds by hiding them, because the law should appropriately guard against wrongful claims. Id.
The Illinois Supreme Court recognized that commingling of funds was often the first step towards conversion of client's funds by the attorney. Enstrom, 472 N.E.2d at 449. Conversion has been defined by the Illinois Supreme Court as "any unauthorized act which deprives a man of his property permanently, or for an indefinite time." See Union Stock Yard & Transit Co. v. Mallory, Son & Zimmerman Co., 41 N.E.888, 890 (Ill. 1895). Conversion of trust funds occurs when a lawyer uses those funds for a purpose other than the reason they were given and is usually characterized by the trust account being overdrawn or where the balance of the account is less than the total amount the lawyer is holding in trust. See In re Ushijima, 518 N.E.2d 73, 76 (1987); see also In re Cheronis, 502 N.E.2d 722 (Ill. 1986). Motive or intent of attorney to commingle or convert is not relevant in determining whether an attorney committed an ethical violation. In re Vrdolyak, 560 N.E.2d 840 (Ill. 1990).
In conversion cases, the Supreme Court of Illinois applies lesser punishment to the lawyer involved if mitigating factors are present. This is especially true in a particular case if the Hearing and Review Boards find no dishonest motive, the attorney cooperates fully with both the Administrator and the Hearing Board, readily produces all requested documents, and admits all improper acts which he was accused. See Cheronis, 502 N.E.2d at 727. Mitigating factors also include situations where: the attorney expresses remorse over his misdeeds and promptly corrects his actions by opening a client trust account, the attorney makes full restitution to the client, and where the attorney has performed a lot of pro bono legal work and generally has good reputation in the legal community. See id. In Cheronis, the attorney deposited client funds into his combined business and personal bank account which was used for paying business obligations. On several occasions the account was overdrawn. The Illinois Supreme Court found that the attorney commingled and converted the clients funds, but because of mitigating factors only suspended the attorney for three months. See id.
The Illinois Supreme Court, however, will apply stiffer sanctions in cases with aggravating factors. For example, in In re Uhler, 535 N.E.2d 825 (Ill. 1989) the Court held that the attorney's conduct of commingling and converting of client's funds were aggravated because: the attorney had a precarious financial condition, he jeopardized the potential for repayment of funds to the client, the attorney committed the misconduct knowingly, he denied or ignored the client's requests for repayment, the client obtained new counsel to obtain his funds, and one of the persons jeopardized by the attorney's misconduct was a disabled adult. See id. at 828. Also present in Uhler were mitigating factors that offset some of the aggravating factors. As a result, the attorney was suspended from the practice of law for three years. Id. at 829.
Conversion also applies to interest that accrues from client trust accounts. The Illinois Supreme Court in In re Kitos, 535 N.E.2d 792 (Ill. 1989), held that an attorney commingles and converts client funds by retaining interest accruing on client's escrow account. In Kitos, the attorney placed client's funds into an escrow account and after some time learned that the account had drawn interest. Without providing the client an accounting of his services or a bill for his time, the attorney instructed the bank to release the sum equating to the interest on the account to him. The Court found that interest on an escrow account containing client funds also constitutes client property and a lawyer did not have the right to "help himself" to the accrued interest in the escrow account without the client's authority after a proper accounting of services and statement of fees owed to him was made. See id. at 796.
There have been cases, however, in which the attorney's actions in regards to the commingling and conversion of client's funds do not constitute professional misconduct.
In Vrdolyak, the office manager of the attorney's firm deposited funds in the firm's operating account after she was told by the secretary of the associate assigned to the case that the funds were "for costs." Vrdolyak, 560 N.E.2d at 848. The Court found that the attorney's connection to the office manager's mistake was tenuous. Rather, the associate responsible for the case was fully responsible for the error. "[A]n attorney cannot avoid his professional obligations to a client by simply delegating work to others, however, he can only be subject to discipline for conduct he authorized, had knowledge of, or had reason to know." Id. Since the attorney had no knowledge the funds were placed in the wrong account, the Court held that he was not guilty of professional misconduct. Id. at 849.
Similarly in In re Rosin, 620 N.E.2d 368 (Ill. 1993), the Court found that the attorney who had overdraft protection on his firm's bank account did not convert client's funds because he did not deprive the client of property permanently or for a short amount of time. Id. at 371. In Rosin, after the client endorsed an insurance draft, a settlement check was issued drawn from the attorney's firm's bank account, sometimes before there was money in the account to cover the settlement check. On several occasions the bank account was less than the amount of an outstanding check issued to a client, however, the attorney maintained a $600,000 line of credit which protected all outgoing drafts made on the account. Therefore, the Court concluded that no conversion occurred because there was always sufficient funds to cover the client's property rights. Id.
Attorney's Duty to Keep Accurate Records
In addition to the lawyer's duty to keep client's property separate and identifiable, Rule 1.15(a) also requires the lawyer keep accurate records of such accounts. Rule 1.15(a). Supreme Court Rule 769 also requires an attorney to keep accurate records. 107 Ill. 2d R. 769. Furthermore, cases where attorneys have not maintained accurate records have often led to commingling and conversion of funds. See In re Timpone, 623 N.E.2d 300 (Ill. 1993). In Timpone, because of the attorney's hectic schedule and handling of too many cases, he "cut corners," not dishonestly, but in trying to meet the demands of his arduous schedule without assistance. Id. at 306. Attorney Timpone kept few records, paid little attention to keeping proper records of time spent handling client matters, and kept no records of the amount of funds coming into his possession and to which account those funds were placed. Id. at 307. Accordingly, the Court found that it was almost inevitable in this atmosphere in which no records or accountings of transactions were made, that Timpone would commingle his clients' funds with his own accounts, and as a result Timpone would ultimately convert his client's funds to satisfy his own debt obligations. Id. The Court further held that "poor bookkeeping" is not a defense to the duty to safeguard client's property, but rather serves as evidence of a mitigating factor in determining the sanction to be imposed. Id.
Detailed recommendations about Trust Accounting can be found in the ARDC's Trust Account Handbook (1997) at pp. 26-44.
1.15:210 Status of Fee Advances [see also 1.5:420]
Rule 1.15(d) requires that money advanced by client for "costs" and "expenses" be deposited in lawyer's trust account, but the question of where to deposit advanced fees, retainers, or flat or minimum fees is not addressed by the Rule. See ARDC Client Trust Account Handbook (1997) at 16-19. Retainers or advanced fees can be classified into two categories. The first is characterized as payments made to ensure the lawyer is available to handle the client's legal matters. These advanced funds are earned when paid since the lawyer is entitled to the money regardless of whether he actually does the work. Id. at 16. Therefore, because these funds are earned upon receipt, they may be deposited in the lawyer's business account.
The second type of advanced fund is characterized by the client's agreement to pay the lawyer in advance for some or all of the services the lawyer is expected to perform on a certain legal matter. In these fee situations, the specific terms of the fee agreement with the client determine whether such advanced fees are deposited in the client's trust account, or the lawyer's business account. Id. Funds that are deposited in the client trust account can only be withdrawn with notice and consent of the client. Id. The Illinois ARDC suggests to avoid ethical problems arising from the handling of advanced fees, that a lawyer not spend any part of the advanced fee that has not been earned regardless of which account the retainer is deposited. Id. at 19.
The Illinois Supreme Court has not definitely addressed the issue of whether an advanced fee equates client funds or property of the lawyer, however, in In re Taylor, 363 N.E.2d 845 (Ill. 1977), the Court found that an unearned retainer paid as consideration for expected legal services did not constitute client funds.
The IBSA also addressed this issue in an Ethics Opinion. See ISBA Op. 90-10 (January 29 1991). According to the opinion, a true "retainer fee" which is a fee paid by a client to retain an attorney to act for him, is the property of the attorney when paid. As such, the prohibition against commingling does not apply. However, funds which are paid to a lawyer as a security deposit for payment of fees in the future are not "retainers" and consequently, are not the property of the lawyer. The opinion states such fees remain the property of the client and must be segregated in a client trust account. ISBA Op. 90-10 (January 29, 1991). But see ARDC Trust Account Handbook (1997) at pp. 16-19.
The Chicago Bar Association has issued an ethics opinion regarding the obligation of an attorney to retain case files after litigation has been concluded. Docket No. 97-1. The opinion concludes that IRPC 1.15 probably does not apply to "case files" which do not have "intrinsic or unique value," at least after litigation has been concluded. Thus, IRPC 1.15 does not mandate the retention of case files.
In addition, an ISBA Opinion addresses the issue of whether a lawyer is required to return files to client. ISBA Op. 94-13 (January 1995) involved a lawyer's refusal to provide a client with investigative materials prepared in connection with the lawyer's representation. The ISBA determined that clients are entitled to attorney files containing client property, such as documents or other materials furnished by the client. However, the lawyer is entitled to make copies of such documents at his own expense.
The Illinois State Bar Association further determined that a client would probably have rights to copies of certain other documents during the normal course of representation. These other documents include correspondence between the lawyer and client, as well as between the lawyer and third parties, court papers that are filed on the client's behalf, and documents prepared by the lawyer for client's use. In contrast, clients would not be entitled to copies of internal administrative materials such as time records or conflicts of interest memoranda, or lawyer notes, drafts, legal research, factual research and investigative reports, as such files would be the property of the attorney, not the client. See ISBA Op. 94-14 (January 1995).
An Illinois Appellate Court in Ross v. Wells, 127 N.E.2d 519 (Ill. App. 1st Dist. 1955) considered the issue of whether an attorney may keep a file to secure the payment of a retaining lien. The Court ultimately held that an attorney in response to subpoena to produce records as to the services rendered was not entitled to refuse to obey the subpoena on the ground that he had an attorney's lien and that production of such records would destroy the benefits of his lien. In Ross the attorney brought suit against his clients for payment of services. During discovery, the attorney refused to disclose file documents relating to type of services he rendered and amount of time he spent on those services, stating that if he divulged such information that his retaining lien would have no benefit. Id. at 520. The Appellate Court recognized that "a lawyer should be protected in his retaining lien until he is paid and should not be compelled to produce and surrender records and papers upon which such lien in any suit, except in situations where a suit is brought by the attorney to recover his fees." Id. at 521. In such a case, like this one, records and papers which reflect the rendered services and time spent are material and their disclosure is warranted. Id. In addition, the Court found that disclosure of documents and papers is consistent with the lawyer's duty to make full and complete disclosure of all his transactions involving his client. Id. This duty is of greater importance than the protection of a retaining lien. Id. Therefore, the Court commanded the production of the requested documents.
The Chicago Bar Association has issued an ethics opinion regarding the obligation of an attorney to retain case files after litigation has been concluded. Docket No. 97-1. The opinion concludes that IRPC 1.15 probably does not apply to "case files," which do not have "intrinsic or unique value," at least after litigation has been concluded. Thus, IRPC 1.15 does not mandate the retention of case files.
In addition, an ISBA ethic opinion addresses the issue of whether a lawyer is required to return files to a client. ISBA 94-13 involved a lawyer's refusal to provide a client with investigative materials prepared in connection with the lawyer's representation. The ISBA determined that clients are entitled to attorney files containing client property, such as documents or other materials furnished by the client. However, the lawyer is entitled to make copies of such documents at his own expense.
The ISBA further determined that the client would probably have rights to copies of certain other documents during the normal course of representation. These other documents include correspondence between the lawyer and client, as well as between the lawyer and third parties, court papers that are filed on the client's behalf, and documents prepared by the lawyer for the client's use. In contrast, clients would not be entitled to copies of or access to internal administrative materials such as time records or conflicts of interest memoranda, or lawyer notes, drafts, legal research, factual research and investigative reports, as such files would be the property of the attorney, not the client. Of course, this rule is inapplicable in a case involving the retention of client papers or property for the purpose of asserting a common law or statutory retaining lien. See ISBA 94-14.
1.15:300 Holding Money as a Fiduciary for the Benefit of Clients or Third Parties
Rule 1.15(b) states an attorney has a duty to render an accounting of property being held by the attorney upon request by the client or third person. Rule 1.15(b). In addition, Rule 1.15 requires an attorney to notify the client of the receipt of funds and promptly deliver those funds to the client. Id. Therefore, an attorney must render an accounting of funds to a client before he can seek payment for fees and expenses properly due him. In re Solomon, 515 N.E.2d 52 (Ill. 1987). Supreme Court Rule 769 also requires an attorney to keep accurate records. 107 Ill. 2d R. 769.
In Solomon, the attorney disbursed settlement amounts requested by the client and then deposited the remainder in a business account as he believed they were properly due him as payment for fees and expenses. At various times, the account fell below the amount initially deposited by the attorney. In addition, the lawyer did not have an internal accounting at the time he retained the balance of the settlement check, nor did he render an accounting to the client. The Illinois Supreme Court recognized that "there is a distinction between failure to pay an amount when there has not been a determination that an amount is owed, and an attorney using funds for personal purposes to which the client has a legitimate interest before it is determined whether in fact the client does have an interest in those funds." Solomon, 515 N.E.2d at 54. In this case, the attorney was well aware of his duties to account to the client even if his clients did not make a formal request for one. Furthermore, the attorney knew that his duty to account was independent of any claim to all or party of the funds as payments for fees or expenses, and he knew he must account for all proceeds before seeking payment of fees or expenses properly due him. Therefore, the Court found him in violation of ethical rules and suspended him for a nine months. Id. at 56-57.
IRPC 1.15(b) (formerly Illinois Code Rule 9-102(a)) also requires a lawyer to "promptly notify the client or third person" upon receipt of funds or property in which the client or third person has an interest. The lawyer should make reasonable efforts to notify the client or third person of the receipt of property, which of course, is often quite difficult. For example, ISBA Op. 845 (November 8, 1983) involved a law firm that had obtained a judgment on behalf of a foreign corporation, and had received several payments from the defendant on behalf of its client. However, the corporation dissolved and the firm was unable to locate a representative of the client corporation. In its advisory opinion, the ISBA gave the following description of what constituted "reasonable efforts" in such a situation:
Depending on the amount of funds involved, reasonable efforts would likely include such things as: sending a certified letter, return receipt requested, to a known individual associated with the corporation at the last available address, with instructions for the post office to forward and with a request that the return receipt show the address where delivered; asking the post office to provide a forwarding address; contacting the Secretary of State of the state of incorporation for names and addresses of officers and/or directors; hiring a skip tracing service; and/or hiring a private detective.
If, after the lawyer has made all reasonable efforts to locate the client, and the client still cannot be found, the lawyer must continue to hold the funds in a client trust account. The lawyer should then comply with the provisions of the Uniform Disposition of Unclaimed Property Act, which presumes abandonment of property held in a fiduciary capacity. Id.
The Illinois Supreme Court in In re Walner, 519 N.E.2d 903 (Ill. 1988) discussed the attorney's duty of notice under Rule 1.15(b). In Walner, the attorney had difficulty locating his clients after he received settlement agreements and settlement funds. The attorney attempted, to no avail, to make contact with each client by phone and by written documentation sent to the client's last known address. In one case, the attorney had power of attorney to settle for the client, however, in another case, the attorney did not have authority to settle on behalf of the client. The Court determined that the attorney acted with proper authority in settling on behalf of the client who gave him power of attorney. Id. at 908. Furthermore, the Court held that in regards to the actions the attorney took in attempting to find the clients who had virtually disappeared, the attorney acted diligently and "exhausted all avenues of information," thereby, satisfying his duty to notify the client of the settlement. Id. However, to the extent the attorney did not take immediate steps to notify the client of the settlement of the claim once the client resurfaced, the attorney committed professional misconduct. Id.
In addition to notification, IRPC 1.15(b) states that "a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third party is entitled to receive . . ." The strict application of this rule was demonstrated in In re Webb, 475 N.E.2d 523 (Ill. 1985). The case involved attorney Webb's representation of a client in the settlement of a contract dispute. The client sent Webb funds to satisfy the settlement agreement. However, Webb failed to notify the opposing party that the funds were in his possession. Moreover, he failed to transfer the funds altogether. As a result of the conversion, the opposing party placed a levy against the client's business, and the client was forced to incur additional legal fees. Webb claimed that the conversion of funds was the result of error, and not malice. The Illinois Supreme Court agreed, and chose not to disbar Webb, even though it concluded that conversion of funds did take place. Instead, Webb was subject to suspension until restitution of the funds was made.
There are instances, however, in which an attorney's actions are justified in delaying the delivery of client's funds and do not constitute a violation of Rule 1.15(b)). The Court in In re Cassidy, 432 N.E.2d 274 (Ill. 1982), held that where an attorney reasonably believed his client was not entitled to receive any funds in his possession because of superior lienholders rights, his actions in delaying the client's receipt of the funds was not an ethical violation. Id. at 276. In Cassidy, liens maintained by two insurance agencies and the dispute that arose from those liens, tied up a portion of the client's settlement obtained from a personal injury suit. Consequently, the portion of the settlement money remained in the attorney's account for over two years. Because of the competing lienholders interest, the attorney did not believe his client had any valid legal claim to this portion of his settlement check, and therefore, the attorney believed he could not immediately distribute the funds to his client. The Court agreed and found discipline unwarranted.
Similarly, attorneys must make reasonable efforts to locate a client when excess funds remain in the client trust account due to the inability of the lawyer to disperse those funds prior to the disappearance of the client. If the client cannot be located and the funds remained unclaimed by the client for five years, under the Uniform Disposition of Unclaimed property Act, 765 ILCS secs. 1025/1 et seq. (West 1992), the funds are presumed abandoned and the lawyer may remit the funds to the Illinois Unclaimed Property Division. See ISBA Op. 845 (Nov. 8, 1983); see also ARDC Client Trust Account Handbook (1997) at 19-20.