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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.

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Kentucky Legal Ethics

1.15  Rule 1.15 Safekeeping Property

1.15:100  Comparative Analysis of Kentucky Rule

1.15:101   Model Rule Comparison

In 1998, the Kentucky Supreme Court amended KRPC 1.15.  It now contains substantially the same language as MR 1.15, except that KRPC 1.15(a) includes the following sentence after the Model Rule&'s second sentence: "The separate account referred to in the preceding sentence shall be maintained in a bank which has agreed to notify the Kentucky Bar Association in the event that any overdraft occurs in the account."  KRPC 1.15 also contains paragraph (d) {KRPC 1.15(d)}: "A lawyer may deposit funds in an account for the limited purpose of minimizing bank charges. A lawyer may also participate in an IOLTA program authorized by law or court rule." MR 1.15(b) and (c) are not included in the Kentucky rule.

The commentaries of these two rules are very similar; however, MR 1.15, Comment [2] has no counterpart in the Kentucky rule commentary.  Also, MR 1.15, Comment [3] does not contain the sentence in KRPC 1.15, Comment [2] that reads "If there is a risk that the client may divert the funds without paying the fee, the lawyer is not required to remit the portion form which the fee is to be paid."  The counterpart in MR 1.15, Comment [3] reads "The lawyer is not required to remit to the client funds that the lawyer reasonably believes represent fees owed."

1.15:102   Model Code Comparison

With regard to paragraph (a) {KRPC 1.15(a)}, DR 9-102(A) provided that "funds of clients" are to be kept in an identifiable bank account in the state in which the lawyer&'s office is situated. DR 9-102(B)(2) provided that a lawyer shall "identify and label securities and properties of a client . . . and place them in . . . safekeeping . . . ." DR 9-102(B)(3) required that a lawyer "[m]aintain complete records of all funds, securities, and other properties of a client . . . ." KRPC 1.15(a) extends these requirements to property of a third person that is in the lawyer&'s possession in connection with the representation.

KRPC 1.15(b) is substantially similar to DR 9-102(B)(1), (3) {DR 9-102(B)(3)} and (4) {DR 9-102(B)(4)}.

KRPC 1.15(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.

1.15:110   Kentucky IOLTA Plan

A lawyer may participate in an IOLTA program authorized by law or by court rule.  KRPC 1.15(d). SCR 3.830, adopted in 1986, established the Kentucky IOLTA Fund, which is maintained by the Kentucky Bar Foundation, Inc., a non-profit corporation.

1.15:120   Kentucky Client Security Fund

A "client security fund" provides a means through the collective efforts of the bar to reimburse persons who have lost money or property as a result of dishonest conduct of a lawyer.  KRPC 1.15, Comment [5].  If such a fund as been established, the rules strongly encourage a lawyer to participate. KRPC 1.15, Comment [5]. SCR 3.820, adopted in 1984, established the Kentucky Clients&' Security Fund, which is overseen by a Board of Trustees appointed by the Board of Governors of the Kentucky Bar Association.

1.15:200  Safeguarding and Safekeeping Property

Property of clients or third persons that is in a lawyer&'s possession in connection with a representation must be held separately from the lawyer&'s own property.  KRPC 1.15(a)See Reeves v. Kentucky Bar Ass&'n, 60 S.W.3d 552 (Ky. 2001); Kentucky Bar Ass&'n v. Jarrett, 997 S.W.2d 456 (Ky. 1999); Heist v. Kentucky Bar Ass&'n, 951 S.W.2d 326 (Ky. 1997);  Kentucky Bar Ass&'n v. Shelburne, 931 S.W.2d 153 (Ky. 1996)KRPC 1.15(a) requires that funds be kept in a separate account maintained in the state where the lawyer&'s office is situated, or elsewhere if the client or third person consents.  Furthermore, this separate account must be maintained in a bank which has agreed to notify the Kentucky Bar Association in the event that any overdraft occurs in the account.  KRPC 1.15(a)

In Tribunal v. Collins, 961 S.W.2d 797 (Ky. 1998), the court concluded that a temporary suspension was an appropriate sanction against an attorney, where there was reasonable cause to believe that the attorney misappropriated to his own use funds held for others, and where it further appeared that reasonable cause existed to believe that unless a temporary suspension were ordered, the attorney's continued practice of law would present real and present danger to the public.  For further examples of attorneys&' misuse of funds see: Inquiry Tribunal v. Wells, 944 S.W.2d 570 (Ky. 1997); Kentucky Bar Ass&'n v. Watson, 875 S.W.2d 96 (Ky. 1994); Veal v. Kentucky Bar Ass&'n, 867 S.W.2d 190 (Ky. 1993); Kentucky Bar Ass&'n v. Watson, 862 S.W.2d 317 (Ky. 1993); Kentucky Bar Ass&'n v. Banks, 836 S.W.2d 901 (Ky. 1992); Shewmaker v. Kentucky Bar Ass&'n, 836 S.W.2d 412 (Ky. 1992); Kentucky Bar Ass&'n v. Watson, 821 S.W.2d 812 (Ky. 1992);  Bryant v. Kentucky Bar Ass&'n, 812 S.W.2d 497 (Ky. 1991); Kentucky Bar Ass&'n v. Wharton, 810 S.W.2d 510 (Ky. 1991); Dixon v. Kentucky Bar Ass&'n, 806 S.W.2d 635 (Ky. 1991); Kentucky Bar Ass&'n v. Vincent, 819 S.W.2d 313 (Ky. 1991); Kentucky Bar Ass&'n v. Richards, 796 S.W.2d 363 (Ky. 1990); Kentucky Bar Ass&'n v. Carraco, 697 S.W.2d 134 (Ky. 1985); Kentucky Bar Ass&'n v. Johnson, 687 S.W.2d 134 (Ky. 1985); Kentucky Bar Ass&'n v. Berry, 626 S.W.2d 632 (Ky. 1981); Kentucky Bar Ass&'n v. Ricketts, 599 S.W.2d 454 (Ky. 1980).

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

If a lawyer receives funds from a third party from which the lawyer&'s fee will be paid, and if there is a risk the client may divert the funds without paying the fee, the lawyer is not required to remit the portion from which the fee is to be paid.  KRPC 1.15, Comment [2].  A lawyer may not, however, hold funds to coerce a client into accepting the lawyer&'s contention.  KRPC 1.15, Comment [2].  The disputed portion of the funds should be kept in trust and the lawyer should suggest means for prompt resolution of the dispute, such as arbitration.  KRPC 1.15, Comment [2]KBA E-292 (1984) directs that an attorney may not withdraw from funds received from third parties an amount due him for fees and expenses when such fees are in dispute, and when the client does not agree to such withdrawals.  However, an attorney may offset from a judgment due his client in one case, an amount due him from a previous unrelated case, provided that there was a written contract with the client at the time of employment allowing the attorney to do so.  KBA E-233 (1980).

In Scalf v. Kentucky Bar Ass&'n, 11 S.W.3d 34 (Ky. 2000), an attorney's professional conduct violations in 18 cases, including misappropriating unearned fees of several clients and forging client's signature on insurance checks, warranted granting the attorney&'s motion for resignation under terms of disbarment.   See also Templeton v. Kentucky Bar Ass&'n, 54 S.W.3d 154 (Ky. 2001) (attorney failed to promptly return unearned portions of fees after termination of representation); Kentucky Bar Ass&'n v. Roney, 862 S.W.2d 315 (Ky. 1993).

1.15:220   Surrendering Possession of Property

The undisputed portion of funds or property that a lawyer receives should be promptly distributed to the client.  KRPC 1.15, Comment [2].  If the lawyer fears attorney fees will not be paid, or if third parties have just claims against the funds, a lawyer may have a duty to refuse to surrender the property.  KRPC 1.15, Comment [3].  This provision does not, however, give the lawyer the right or the responsibility to arbitrate a dispute between the client and the third party.  KRPC 1.15, Comment [3]

In Kentucky Bar Ass&'n v. Lococo, 54 S.W.3d 164 (Ky. 2001), an attorney's conduct in issuing a check from her escrow account that was returned for insufficient funds and in failing to file her client's suit within statute of limitations warranted a three-year suspension, in view of the fact that the attorney initially blamed her secretary for problems with the escrow account and failure to timely file the client's complaint, and nine months elapsed between the issuance of the bad check and the payee finally receiving $11,000 it was owed.

In Kentucky Bar Ass&'n v. Watson, 935 S.W.2d 610 (Ky. 1996), the court found that an attorney&'s disbarment was warranted after the attorney engaged in misconduct by failing to make disbursement to client of proceeds from sale of property and failing to make accounting of proceedings to client, as required under a court-approved settlement.

1.15:230   Documents Relating to Representation

Rule 1.15 demands that complete records of account funds and property be kept by the lawyer and preserved for a period of five years after termination of the representation.  Rule 1.15(a).

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

KRPC 1.15(b) directs lawyers to promptly notify their clients upon receiving funds or other property in which the client or a third party has an interest.  In Plummer v. Kentucky Bar Ass&'n, 997 S.W.2d 473 (Ky. 1999), an attorney was publicly reprimanded for failing to hold the property of a client that was in his possession in connection with a representation separate from his own property.  Except as otherwise permitted, once the lawyer receives funds, he or she should promptly contact the client, and deliver the funds or property to the client upon the client&'s request.  If the client chooses, the lawyer should also render a full accounting regarding the property. KRPC 1.15(b).   In Kentucky Bar Ass&'n v. Turnbull, 66 S.W.3d 697 (Ky. 2002), an attorney was suspended for five years as a result of his misconduct, which included his failure to return unearned fees, failure to promptly deliver funds, and failure to place settlement funds in an escrow account.  See also Kentucky Bar Ass&'n v. Alerding, 57 S.W.3d 297 (Ky. 2001); Knuckles v. Kentucky Bar Ass&'n, 997 S.W.2d 460 (Ky. 1999); Kentucky Bar Ass&'n v. Keesee, 973 S.W.2d 842 (Ky. 1998);  Kentucky Bar Ass&'n v. Watson, 935 S.W.2d 610 (Ky. 1996).

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

KRPC 1.15(c) provides that when a lawyer is in possession of property during the course of representation in which both the lawyer and another person claim an interest, the property must be kept separate by the lawyer until there is an accounting and severance of their interests.  If a dispute arises concerning their respective interests, the portion in dispute shall be kept separate by the lawyer until the dispute is resolved.