NOTE: The applicable statute has changed since the original publication date of this opinion. See Uniform Unclaimed Property Act, MCL 567.221, et sec, which creates a presumption that property is abandoned after three years. See the statute for exceptions.
RI-38
November 30, 1989
SYLLABUS
A lawyer holding trust account funds for a missing client who cannot be located by reasonable effort, may treat the funds as abandoned property pursuant to statute, if there is no conceivable third party claim for the funds. If the client fails to make contact with the lawyer during the seven-year statutory period, and the lawyer is again unable to locate the client after making reasonable effort, the lawyer may deliver the funds to the State Board of Escheat, pursuant to statute.
A lawyer may be reimbursed from the funds held for costs and expenses incurred in locating the missing client. The lawyer has the burden of showing that the efforts to locate the client and the costs incurred are reasonable.
References: MRPC 1.5, 1.15; CI-1144; MCLA 567.11 et seq; Roebuck v. Mecosta County Road Comm'n, 59 Mich App 128, 229 NW2d 349 (1975).
TEXT
A lawyer was contacted by an out-of-state client regarding a litigation matter pending in Michigan. As the litigation concerned issues that should have been resolved during the client's previous bankruptcy, the lawyer took steps to allow the client to "reopen" the bankruptcy and resolve the pending matter. The client never recontacted the lawyer, and numerous attempts by the lawyer to contact the client were apparently futile. Letters addressed to the client at the last known place of residence were returned from the postal service. The lawyer was granted leave to withdraw by the court.
The lawyer wants to return a "modest trust account balance" to the client; there is no conceivable third-party claim to the funds. The lawyer asks about the lawyer's obligations relating to trust funds returnable to a client, when the client, after reasonable effort, cannot be located.
MRPC 1.15 concerns the creation of trust accounts, and details how the accounts are to be opened, maintained and terminated in the normal course. MRPC 1.15 does not provide for a situation where the client, after unsuccessful attempts at notification, cannot be located in order to tender the remaining balance contained in a trust account. MRPC 1.15(b) requires a lawyer to promptly notify the client when funds in which the client has an interest have been received.
Those states which have addressed this question have uniformly opined that the lawyer, after "reasonable efforts" to locate a missing client, may treat the funds as abandoned property and may tender the funds to the appropriate state office. Alabama Op 84-48; Idaho Op 121; Illinois Op 845; Maryland Op 87-18; Missouri Op 118; New Mexico Op 1983-3; North Carolina Op 372; Virginia Op 832. The burden of showing that "reasonable efforts" have been made to locate the client is on the lawyer.
The states differ, however, in the "reasonable steps" a lawyer must take to locate the client. While the MRPC does not address this issue, we believe a lawyer should take any steps reasonably indicated by the facts, including at a minimum (1) determining whether the client left a forwarding address with the U.S. Postal Service; and (2) sending a letter to the client's last known address by regular mail and by certified return receipt.
"Reasonable steps" will vary according to the stage of the case, whether other parties have a claim on a portion of the funds held, and the amount of money held. For instance, if taking steps beyond the required minimum will expend the entire amount held, other steps are not necessary. If, however, a large sum of money is held, additional steps corresponding to the balance are indicated, such as attempting to locate the client through any known relation, employer, neighbor, or friend of the client, publication of notice in locations where the client might be present, hiring an investigator, or tracking the client through the Social Security Administration.
Judgment should be used in determining methods of locating the client. If the matter for which the lawyer was hired is embarrassing to the client or of a highly private nature, it would not be prudent to contact the client's employer or neighbor. Similarly, if the fund sum is large, it should be deposited in a segregated trust account and not remain in the commingled client trust account. "Reasonable steps" should be taken not only at the time the representation is concluded, but also at the end of the dormancy period before escheat.
A lawyer may be reimbursed from the funds held for the expenses and costs of locating a missing client. The lawyer has the burden of showing such costs are reasonable. MRPC 1.5.
The Committee faced a similar inquiry in CI-1144, and mentioned state escheat laws. While the Committee is not empowered to render legal advice, we strongly suggest that lawyers in situations similar to that presented here be guided and governed by Michigan's unclaimed property statutes MCLA 567.11 et seq.
Section 5 of the Act defines terms necessary for applying the Act to lawyer trust accounts. "Property" means all personal property including money, credits, deposits, dividends, cash or stock, security deposits and other specifically defined tangible or intangible property, in the possession or under the control of a holder. A "holder" is a person having possession, custody, or control of the property of another person and includes a bailee, a trustee, a receiver or other liquidating officer, a fiduciary, a custodian or officer appointed by a court to receive, keep, handle or disburse money or other property and every other legal entity doing business in the State of Michigan. Under Section 6 of the Act, every holder of abandoned property on or before June 30 of each year shall make and file with the State Board of Escheats a report, in duplicate as of the last preceding January 1, 1989, containing a full, true and itemized statement of all abandoned property in his possession or under his control. That requirement does not apply to fiduciaries of decedent's estates and some other excepted persons, nor to property in the possession or under the control of the holder by virtue of other special contacts, expressed or implied. If the property is owned by a nonresident of the State of Michigan, the holder shall not be required to report the abandoned property provided that the holder makes a report of such abandoned property to another state. Contained within Section 7 of the act are the requirements for the specific content of the report.
"Abandoned property" is property against which a full period of dormancy has run. The period of dormancy, with the exception of travelers checks, is the full and continuous period of seven years during which an owner has ceased, failed or neglected to exercise dominion or control over the property or to assert a right of ownership or possession or to make presentment and demand for payment and satisfaction or to do any act in relation to or concerning such property. [Section 7(f)] Based upon the statute, absent a special contract between the lawyer and the person whose funds are held by the lawyer, if the seven year period of dormancy has run during which the owner has not exercised any possessory interest over the property, a lawyer holding the property is obligated to report them to the State Board of Escheats.
Therefore if there has been no contact from the client for seven or more years, and the lawyer is unable to locate the client or former client after making reasonable efforts, the lawyer may tender the property to Michigan's State Board of Escheats. A lawyer does not violate ethics rules if after reasonable but unsuccessful efforts to locate a client or former client, any funds remaining in the client's trust account are tendered to the State Board of Escheats pursuant to the statutory guidelines.
It is noted that a lawyer's responsibility concerning a record of the trust account is not necessarily extinguished upon tender to the board of escheats. MRPC 1.15 in part provides that ". . . complete records of such account funds . . . shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation."