RI-329

February 28, 2002

SYLLABUS

When a lawyer, including a prosecuting attorney, comes into possession of funds intended to provide restitution to victims, a trust account established in accordance with the provisions of MRPC 1.15 is required.

A lawyer is not permitted to allow an independent party to be involved in the maintenance of a trust account and may not let an independent party exercise control over an account, including as a signatory.

When a lawyer does not come into possession of restitution payment, but merely allows a third party to collect restitution payments on behalf of victims, no obligations under MRPC 1.15 exist.

References: MRPC 1.15; R-7, RI-93, RI-107, RI-152, RI-280.

TEXT

A lawyer has inquired about the application of MRPC 1.15 to a contractual relationship between the prosecuting attorney and an independent corporation engaged in counseling services for individuals who have written checks on insufficient funds or closed accounts. The purpose of the contract is to provide first time offenders the opportunity to avoid prosecution by making full restitution and completing a counseling program. Upon completion of the counsel program and full payment of restitution, the program participant would avoid prosecution. The participant offender is required to pay for the cost of counseling.

In the proposed contract, payments made by participants will be mailed to a post office box maintained by the prosecuting attorney. The counseling corporation would be responsible for removing the funds from the post office box and depositing the funds into the prosecuting attorney's trust account. The counseling corporation would be compensated from funds deposited into the trust account. The counseling corporation would be responsible for all disbursements to victims and accountings, and would receive payment from such funds.

The inquiry requests specific guidance on the following questions:

1. Whether the receipt of funds at a post office box maintained by a prosecuting attorney creates an obligation under MRPC 1.15(a);
2. Whether the deposit of funds into a trust account maintained in the name of a prosecuting attorney creates an obligation under MRPC 1.15(a);
3. Whether it is ethical to permit employees of the counseling corporation to make deposits, disbursements and accountings from such a trust account; and
4. Whether the prosecuting attorney can ethically avoid the obligations of MRPC 1.15 by requiring program participants to make restitution payments directly to the counseling corporation.

MRPC 1.15(a) states:

"A lawyer shall hold property of clients or third persons that is in the lawyer's possession in connection with a representation separate from the lawyer's own property. All funds of the client paid to a lawyer or law firm, other than advances for costs and expenses, shall be deposited in an interest-bearing account in one or more identifiable banks, savings and loan associations, or credit unions maintained in the state in which the law office is situated, . . . . Other property shall be identified as such and appropriately safeguarded . . . . Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation."

Whenever a lawyer comes into possession of funds or property owned by others, such property must be kept in accordance with MRPC 1.15. Receipt of funds in a post office box owned or maintained by a lawyer would constitute possession by a lawyer of funds owned by third parties. Therefore, such funds must be kept in a trust fund established in accordance with MRPC 1.15.

The fact that there is no attorney-client relationship between the prosecuting attorney and the victim or the check writer is not relevant to the application of MRPC 1.15. MRPC 1.15 applies equally to the property of clients and non-clients. This issue is addressed in the comment to MRPC 1.15 that states:

"The obligations of a lawyer under this rule are independent of those arising from activity other than rendering legal services. For example, a lawyer who serves as an escrow agent is governed by the applicable law relating to fiduciaries even though the lawyer does not render legal services in the transaction."

The arrangement described in the inquiry – where the prosecuting attorney is holding funds for the benefit of victims – is analogous to an escrow agreement. Therefore, MRPC 1.15 would apply to the described situation. This issue was also addressed in R-7 that stated, "MRPC 1.15 is intended to protect client funds as well as non-client property in the possession of a lawyer."

Prosecutors are subject to the Michigan Rules of Professional Conduct to the same degree as other lawyers. RI-151, RI-280. Based on these precedents, we conclude that receipt of non-client funds at a post office box by a prosecuting attorney requires the same ethical considerations with respect to safekeeping property that exist in private practice.

The inquiry also asks whether the practice of allowing the independent counseling corporation to be signatories to the trust account violates MRPC 1.15. In RI-107, this Committee opined that lawyers who are not in the same firm may not share a trust account and that persons designated as signatories on a trust account must be employees of the law firm. The reasons cited for this conclusion were (1) a lawyer's obligation to maintain client confidentiality; (2) a lawyer's ethical obligation to review and reconcile bank statements; (3) potential conflicts of interest between joint owners of the trust account; and (4) the impermissible implication of affiliation that might arise from a joint account.

Since there is no attorney-client relationship in the described situation, the concern for client confidences is not an obvious consideration. Further, the prohibition against implied joint practice is not a concern.

The arrangement described does call into play concerns regarding reconciliation of accounts. In RI-7, it was stated that a lawyer has a duty to notify parties of funds received, promptly deliver the property to the proper party and render an accounting upon request. It is a lawyer's ethical obligation, therefore, to ensure that the property of clients and non-clients are accurately and promptly accounted and disbursed. This is an obligation that cannot be delegated to a party over whom the lawyer or law firm has no supervisory or employment relationship.

The proposed arrangement also involves the potential for conflicts of interest; for example, a dispute between the prosecuting attorney and the counseling corporation regarding the payment of fees or the distribution of restitution. This potentiality would counsel against the lawyer entrusting the property to a potential claimant of those funds.

Therefore, we conclude that it is a violation of MRPC 1.15 to permit an independent corporation to exercise accounting and disbursement authority over funds held in a trust account maintained by a lawyer for the safekeeping of non-client property.

Finally, the inquiry seeks input from the Committee regarding the ethical obligations of the prosecuting attorney under MRPC 1.15 if the trust fund contemplated were established by the counseling corporation, and funds were deposited directly with the counseling corporation. In this situation, the prosecuting attorney never comes into possession of property of a third party. The prosecutor has merely deferred prosecution of the offender to permit the offender to complete counseling and make complete restitution to the victim.

There are several opinions from the committee that state that it is unethical to establish mechanisms or procedures designed simply to avoid taking possession of client funds. See, e.g., RI-93. The Committee also recognized, however, that there are many lawyers who are engaged in the type of practice that do not involve the handling of funds for clients or third parties. For example, government lawyers including prosecuting attorneys are not typically involved in handling funds of third parties. When no funds are handled, there is no requirement for a lawyer to establish a trust account.

In the scenario described, the counseling corporation would be responsible for collecting funds from the individual offenders, making accounting of funds and disbursing funds to victims, governmental agencies and to themselves for costs. Since the prosecuting attorney would never have control or possession over the funds, there would be no need to establish an account for their safekeeping.

CONCLUSION

When a lawyer, including a prosecuting attorney, comes into possession of restitution payments intended, in part, to be disbursed to non-client victims, a trust account established in accordance with the provisions of MRPC 1.15 is required.

A lawyer is not permitted to allow an independent party to be involved in the maintenance of a trust account and may not let an independent party exercise control over an account, including as a signatory.

When a lawyer does not come into possession of restitution payments, but merely allows a third party to collect restitution payments and forward them to the appropriate victims, no obligation to establish a trust account exists.