MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2021-01
Legal fees: Attorney Trust Account vs. Operating Account
You have requested an opinion responding to the following hypothetical:
Assume for the hypothetical the existence of a law firm of Maryland attorneys physically based in the District of Columbia. This law firm in hourly representation cases maintains its client retainer payments/fee advances in its operating account rather than in individual client trust accounts, and does so with prior written informed consent of its clients, consistent with D.C. Rule of Professional Conduct 1.15(e) and Comment 9 to that Rule, as well as consistent with D.C. Bar Ethics Opinion 355 (June 2010). Assume that this hypothetical law firm is considering relocating the physical location of its office from the District of Columbia to Maryland sometime in the future.
In the context of this hypothetical, you ask whether the hypothetical law firm is permitted to retain this accounting treatment of holding retainers/fee advances in its operating account, as opposed to trust accounts, with prior written informed consent if and when it were to relocate its physical office location to Maryland:
- for new clients signed up after the move to Maryland; and,
- for those then-current clients of the firm at the time of the move whose fee arrangements were set up lawfully in the District of Columbia prior to the move.
LOCATION OF OFFICE
To the extent that you believe there is a conflict between the D.C. Rule of Professional Conduct 1.15(e) and its Maryland corollary, we refer you to MARPC Rule 8.5 and Comments [2], [3], and [4] to that rule. We believe the question of which disciplinary rules control in a given matter (including for the purpose of handling retainer fees) is a fact dependent analysis that can be answered based on this rule and its comments. The remainder of this opinion assumes that you have reviewed Rule 8.5 and determined that the MARPC Rules apply.
DEPOSITING UNEARNED RETAINER FEES DIRECTLY INTO OPERATING ACCOUNTS
MARPC Rule 1.15(a) provides for the safeguarding of client property in a Title 19 trust account:
(a) An attorney shall hold property of clients or third persons that is in an attorney’s possession in connection with a representation separate
from the attorney’s own property. Funds shall be kept in a separate account maintained pursuant to Title 19, Chapter 400 of the Maryland Rules, and records shall be created and maintained in accordance with the Rules in that Chapter. Other property shall be identified specifically as such and appropriately safeguarded, and records of its receipt and distribution shall be created and maintained. Complete records of the account funds and of other property shall be kept by the attorney and shall be preserved for a period of at least five years after the date the record was created.
Per Comment 3 to Rule 1.15 quoted above, advanced fees are presumed to be the property of the client, but can be agreed to be the property of the attorney with the informed consent of the client. Comment 3 to Rule 1.15 (“Section (c) of Rule 19-301.15 (1.15) permits advances against unearned fees and unincurred costs to be treated as either the property of the client or the property of the attorney.”) That Comment goes on to instruct that “advances against fees that have not been incurred must be returned to the client as provided in Rule 19-301.16 (d) (1.16).”
Regarding the propriety of depositing unearned retainers directly into a law firm’s operating account, under MARPC Rule 1.15(c):
(c) Unless the client gives informed consent, confirmed in writing, to a different arrangement, an attorney shall deposit legal fees and expenses that have been paid in advance into a client trust account and may withdraw those funds for the attorney’s own benefit only as fees are earned or expenses incurred.
The caveat to MARPC Rule 1.15(c) makes clear that if a client gives informed consent, confirmed in writing, to a different arrangement, such agreements can be ethical under the MARPC.
MARPC Rule 1.0(f) defines “informed consent” as follows:
(f) “Informed consent” denotes the agreement by a person to a proposed course of conduct after the attorney has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.
With regard to what constitutes prior written informed consent, we caution that the Court of Appeals has held that simply including a statement in a retainer agreement that “funds will be deposited into an operating account rather than a trust account” alone, is not enough to satisfy the requirements of MARPC Rule 1.15(c). In Attorney Grievance Commission of Maryland v. Ucheomumu, 462 Md. 280; 200 A.3d 282 (2018), the Court held:
Clear and convincing evidence supports the hearing judge's conclusions that Ucheomumu violated MLRPC 1.15(a) and 1.15(c). The Attorney Engagement Agreement stated that Ucheomumu's firm would “deposit any and all” payments “in [its] general operating account, and not in a trust account.” Ucheomumu did not advise Martin to seek independent counsel to review the Attorney Engagement Agreement's statement that he would not deposit unearned funds into an attorney trust account. Ucheomumu failed to obtain Martin's informed consent not to deposit unearned funds into an attorney trust account. Martin paid Ucheomumu a total of $6,200 in payments that he either failed to deposit into, or deposited and subsequently withdrew from, his attorney trust account. Ucheomumu never earned the $6,200; thus, he violated MLRPC 1.15(a) and 1.15(c) by failing to maintain that $6,200 in his attorney trust account.
Attorney Grievance Comm'n of Maryland v. Ucheomumu, 462 Md. 280, 315, 200 A.3d 282, 302 (2018), reconsideration denied, (Dec. 12, 2018), reconsideration denied, (Jan. 18, 2019), cert. denied, 139 S. Ct. 2686, 204 L. Ed. 2d 1070 (2019).
Although it is possible to obtain informed consent, confirmed in writing from each client, in advance of depositing retainers directly into a firm’s operating account, we caution that the default position of the rule is that unearned fees are the property of the client, subject to the provisions of MARPC 1.15(a). Comment [3] to MARPC Rule 1.15 says exactly that:
[3] Section (c) of Rule 19-301.15 (1.15) permits advances against unearned fees and unincurred costs to be treated as either the property of the client or the property of the attorney. Unless the client gives informed consent, confirmed in writing, to a different arrangement, the Rule’s default position is that such advances be treated as the property of the client, subject to the restrictions provided in section (a) of this Rule. In any case, at the termination of an engagement, advances against fees that have not been incurred must be returned to the client as provided in Rule 19-301.16 (d) (1.16).
Given the Court’s past holdings and this default position, under the proposed hypothetical alternative fee arrangement, the obtaining of valid written informed consent is essential to complying with the MARPC. The Court’s decision in Ucheomumu should be reviewed and caution taken when determining the necessary substance of that consent. In the event of inadequate consent, attorneys utilizing alternative fee arrangements run the risk of disbarment. For these reasons, while we believe that it is possible to comply with the rules while using an alternative approach under 1.15(c), it is imperative that the rule requiring informed consent be adhered to for the protection of the client.
This Committee endeavors to answer questions on the Rules of Professional Conduct and cannot advise on questions of law. Obviously, the Court of Appeals acts as the final arbiter as to both the Rules of Professional Conduct, other rules and the law. While the Committee believes the answer to your question lies in the language of Rule 1.15 as we have interpreted it, and expect that where Rule 19-404 excepts other rules that it does so in cognizance of Rule 1.15, you must reach your own conclusion regarding how Rule 19-404 applies and act accordingly.
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