back to Screen-Friendly page

Ethics Opinions from the Bar Association of San Francisco

INFORMAL OPINION 1973-14

If any portion of a fee or advance retainer received by an attorney or law firm would be refundable to the client if the work contemplated were for any reason not completed, the sum must be deposited in the client's trust fund (CTF). Withdrawals should be made from the CTF only as portions of the fee in fact earned within the terms of the fee arrangement, express or implied. No exception may be made in the rule merely because an advance retainer is small in amount. The sole test is refundability in the event the work for any cause is not completed.

QUESTION:

A client provides his attorney with a retainer to serve as advance payment for attorney services and costs and disbursement which may be incurred with the understanding that should the retainer exceed the cost of the work or if, for any reason, the work is not completed, unearned amounts of the retainer are to be refunded to the client.

Must the attorney deposit the retainer in a trust account or may he place the funds in his general account?

OPINION:

Rules of Professional Conduct of the State Bar of California, Rule 9 (Deering's California Codes, Rules Annotated), and American Bar Association, Code of Professional Responsibility, Canon 9, and Disciplinary Rule 9-102 fix the general requirements attending such retainers.

RPC, Rule 9, prohibits commingling of money or other property of a client with that of a member of the State bar. The pertinent portion of the rule is as follows:

"Unless the client otherwise directs in writing, he [attorney] shall promptly deposit his client's funds in a bank or trust company authorized to do business in the State of California, in a bank account separate from his own account and clearly designated as 'client's funds account' or 'trust funds account', or words of similar import."

ABA, CPR, Canon 9, states that:

"A lawyer should avoid even the appearance of professional impropriety."

ABA, Ethical Consideration 9-5 provides that:

"Separation of the funds of a client from those of his lawyer not only serves to protect the client but also avoids even the appearance of impropriety, and therefore commingling of such funds should be avoided."

DR 9-102 entitled "Preserving Identity of Funds and Property of a Client" requires that funds of clients paid to a lawyer or law firm other than advances for costs and expenses shall be deposited in one or more identifiable bank accounts maintained in the state in which the law office is situated and no funds belonging to the lawyer or law firm shall be deposited therein except as follows:

  1. Funds reasonably sufficient to pay bank charges may be deposited therein.
  2. Funds belonging in part to a client and in part presently or potentially to the lawyer or law firm must be deposited therein, but the portion belonging to the lawyer or law firm may be withdrawn when due unless the right of the lawyer or law firm to receive it is disputed by the client, in which event the disputed portion shall not be withdrawn until the dispute is finally resolved.

Leading decisional authority is found in Black v. State Bar , 57 C2d 219, 226 (1962). Construing CPR, Rule 9, the opinion states:

"Commingling is committed when a client's money is intermingled with that of his attorney and its separate identity lost so that it may be used for the attorney's personal expenses or subjected to claims of his creditors . . . The rule against commingling was adopted to provide against the probability in some cases, the possibility in many cases, and the danger in all cases, that such commingling will result in the loss of the client's money."

The factual question presented in this opinion is whether the client's retainer constitutes funds of the client or funds of the attorney. Since the understanding is that any unused portion of the retainer is to be returned to the client, it necessarily follows that the retainer fund belongs to the client and not to the attorney until it has been earned. Accordingly, it appears that any deposit of such a retainer in the attornev's general account involves commingling and is in express violation of both RPC, Rule 9, and CPR Canon 9.

It should be noted that violation of the ethics rules above cited does not depend upon a misappropriation of the client's funds, but only the commingling of the client's money with the attorney's by failure to deposit and manage the client's money in the manner designated by the rules. This issue was specifically decided in Vaughn v. State Bar, 6 CM 847, 858 (1972). It should be further noted that where the attorney withdraws from his trust account funds less than his earned fees thereby allowing portions of his earned fees to remain mixed with the funds of the client, the attorney is also guilty of commingling.

The Black case , supra , indicates that the separation of the attorney's funds from those of his client should take place "at the earliest reasonable time after his own interest became [becomes] fixed. "

Townsend v. State Bar , 36 C2d 631 (1951) presents an interesting application of Rule 9 to a contingency fee case. The attorney deposited his client's recovery in his trust account. The attorney was entitled to 40% of the recovery in keeping with his retainer agreement. The court dismissed a complaint by the client under Rule 9 and based upon the fact that the attorney had not removed his fee from the trust account. The client had disputed the amount of the fee, and, therefore, the attorney was not only justified, but was required to leave all trust funds intact.

No case was found which predicated application of the Rules of Ethics on the amount of the retainer. The only operative factor is whether the retainer constitutes funds belonging to the client. Accordingly, a retainer of $500 or less which must be earned by the attorney should be deposited in a trust account. The rules and the case law, therefore, present serious practical considerations, particularly for law firms where a relatively large number of small retainers are received everyday. The rule appears to demand that all such retainers be immediately deposited in trust accounts and when portions have been earned as fees they must immediately be withdrawn. The only guide as to withdrawal is "a reasonable time after the attorney's interest becomes fixed". Accounting problems can be burdensome.

A possible solution in avoidance of the problem would be an understanding or agreement with the client that the initial retainer (where the amount is relatively small and commensurate with services to be performed reasonably current with the receipt of the retainer) will not be refundable, but will be applied toward the work in process. The retainer immediately becomes the property of the attorney upon his receipt of it. An advance of a large sum of money for services to be rendered ordinarily will be the clear subject of a trust fund deposit.

All opinions of the Committee are subject to the following disclaimer:
Opinions rendered by the Ethics Committee are an uncompensated service of The Bar Association of San Francisco. Opinions are advisory only, and no liability whatsoever is assumed by the Committee or The Bar Association of San Francisco in rendering such opinions, and the opinions are relied upon at the risk of the user thereof. Opinions of the Committee are not binding in any manner upon the State Bar of California, the Board of Governors, any disciplinary committee, The Bar Association of San Francisco, or the individual members of the Ethics Committee.

In using these opinions you should be aware that subsequent judicial opinions and revised rules of professional conduct may have dealt with the areas covered by these ethics opinions.

Our partners at BASF Ahern Insurance Brokerage