MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2000-29
Employee’s Escrow: Proper Handling of costs paid to local counsel for expert witness expenses, etc.
You have asked for the Committee's opinion as to the treatment of fees for services rendered by expert witnesses and local counsel for accounting purposes. You report that your firm has retained local counsel, expert witnesses and court reporters to provide litigation services for a client that is bill monthly. You report that the contracts for services rendered by these third parties are with your firm and not the client and that the fees for services by these third parties are billed to the client. You inquire whether the fees charged by these third parties may be paid from the firm's operating account rather than an escrow account. You also inquire whether the accounting system must be different if the client pays his monthly bill to the firm before the firm pays the third parties.
Under Rule 1.8(e)(1), a lawyer may advance these types of litigation expenses, which, ipso facto, means that they may be paid out of the firm's operating account, not an escrow account. When a client pays a lawyer's statement that includes reimbursement for costs that are for services rendered by the lawyer and which the lawyer's contractor cannot sue the client to recover if not paid, the monies belong to the lawyer, and they need not be deposited into an escrow account for ultimate disbursement. This is to be contrasted with the arrangement whereby the client remits payment to the lawyer which includes payment of third parties' bills which the client is directly obligated to make and the lawyer is merely acting as a middleman in paying third parties. Under such circumstances, the funds must be deposited in the escrow account and then disbursed, pursuant to Rule 1.8(b).
We trust the foregoing has been responsive to your inquiry and we thank you for consulting with the Committee.