Is commingling always wrong? (Not a trick question.) There are specific instances when rules and ethics opinions permit - or require - a lawyer to place his or her own funds in the lawyer trust account.

1. Commingling and Lawyer
Trust Accounts
Posted on 03/30/2015
Most lawyers are keenly aware of the prohibition against commingling personal
funds with IOLTA funds. However, this does not mean that a lawyer is never
allowed to deposit the lawyer’s own funds into the IOLTA account. In fact, there
are a number of occasions when a lawyer is allowed to do so:
1. Paying bank service charges (lawyer may deposit a nominal amount of
lawyer’s own funds to offset reasonably anticipated bank charges) Oregon
RPC 1.15-1(b); OSB Formal Opinion 2005-146.
2. Meeting minimum balance requirements (lawyer may deposit lawyer’s own
funds in an amount necessary to meet that purpose) Oregon RPC 1.15(b).
3. To cover credit card merchant fees (in an amount necessary to meet that
purpose) OSB Formal Opinion 2005-172.
4. To cover chargebacks when a bank/credit card company claws back
disputed funds previously deposited in trust. If the lawyer has already
removed the funds as earned when the dispute is submitted to the credit
card company, other clients’ money will be taken from trust. The lawyer is
obligated to replace that money with his/her own funds. OSB Formal
Opinion 2005-172.
5. To process credit card proceeds. In cases where a lawyer’s bank insists
upon a single merchant account for processing credit cards, “It is not a
Oregon Law Practice
Management
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2. violation of Oregon RPC 1.15-1 to deposit all credit card transactions into a
trust account, if the portion representing earned fees is promptly
transferred to the lawyer’s business account.” OSB Formal Opinion No.
2005-172. In other words, if a lawyer is using a single merchant account,
which must be a trust account under OSB Formal Opinion No. 2005-172,
that merchant account will receive some deposits which are retainers or
unearned fees and costs and some deposits that are earned fees (the
lawyer’s own funds). The latter is not considered commingling provided
the lawyer promptly transfers the earned fees from trust.
6. To return disputed fees. If a lawyer bills a client, takes the fees, and the
client later disputes the lawyer’s bill, the lawyer is no longer required to
replenish the trust account but the lawyer may if he/she wishes. OSB
Formal Opinion 2005-149. (Replacing the funds will necessarily come from
the lawyer’s own pocket since the lawyer previously removed the earned
fees from the trust account.)
7. To rectify an error when the lawyer removed funds from the IOLTA account
by mistake. For example, lawyer writes a check on the IOLTA account
when the check should have been written on the business account. The
lawyer is obliged to correct the error and replace the funds. [More on this
below.]
8. To correct mathematical errors involving the IOLTA account. For example,
lawyer discovers that deposits and disbursements were wrongly entered in
the columns of a spreadsheet or accounting program. The lawyer is
obligated to correct the errors, and if needed, replace any missing client
funds. [More on this below.]
9. To make a client whole if client funds are removed as the result of cyber
breach, scam, fraud, or embezzlement. The lawyer is obligated to make
her clients whole. By necessity, the lawyer will be replacing client funds
with funds that belong to the lawyer. [More on this below.]
What Happens When a Mistake or Loss Occurs?
Lawyers are obliged to correct mistakes or losses and make their clients whole
(examples 7, 8, and 9 above). However, taking corrective action does not
absolve the lawyer of possible discipline action. Lawyers are accountable for the
underlying circumstances that resulted in the mistake or loss. If those
circumstances constitute a violation of the ethics rules, the lawyer may be
subject to discipline.
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3. When Is a Lawyer Obliged to Report a Mistake or Overdraft to the Bar?
Oregon RPC 1.15-2(l) provides:
Every lawyer who receives notification from a financial institution that any
instrument presented against his or her lawyer trust account was presented
against insufficient funds, whether or not the instrument was honored, shall
promptly notify Disciplinary Counsel in writing of the same information
required by paragraph (i). The lawyer shall include a full explanation of the
cause of the overdraft.
Thus, lawyers are only required to report errors that result in overdrafts of their
IOLTA account.
[All Rights Reserved 2015 Beverly Michaelis]
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This entry was posted in Ethics, Fees, Financial Management, IOLTA and
tagged Beverly Michaelis, client trust account, lawyer trust account,
mathematical errors, Oregon law practice management, Reconciliation,
Recordkeeping, trust funds by beverlym. Bookmark the permalink
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