Vt. R. Prof. Cond. 1.15
Comment
[1] A lawyer should hold property of others with the care required of a professional fiduciary. Securities should be kept in a safe deposit box, except when some other form of safekeeping is warranted by special circumstances. All property that is the property of clients or third persons, including prospective clients, must be kept separate from the lawyer's business and personal property and, if monies, in one or more separate accounts. Separate accounts are to be used when administering estate monies or acting in similar fiduciary capacities. A lawyer should maintain on a current basis books and records in accordance with generally accepted accounting practice and comply with the provisions of Rules 1.15 A and B.
[2] While normally it is impermissible to commingle the lawyer's own funds with client funds, paragraph (b) provides that it is permissible when necessary to pay service charges or other fees on that account. Accurate records must be kept regarding which part of the funds are the lawyer's.
[3] Lawyers often receive funds from third parties from which the lawyer's fee will be paid. The lawyer is not required to remit the portion from which the fee is to be paid to the client funds that the lawyer reasonably believes represent fees owed. However, a lawyer may not hold funds to coerce a client into accepting the lawyer's contention. The disputed portion of the funds should must be kept in a trust account and the lawyer should suggest means for prompt resolution of the dispute, such as arbitration. The undisputed portion of the funds shall be promptly distributed.
[4] Paragraph (e) also recognizes that thirdparties may have lawful claims against specific funds or other property in a lawyer's custody, such as a client's creditor who has a lien on funds recovered in a personal injury action. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client. In such cases, when the third-party claim is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client until the claims are resolved. However, a A lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party, but, when there are substantial grounds for dispute as to the person entitled to the funds, the lawyer may file an action to have a court resolve the dispute.
[5] 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 only 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 and is not governed by this rule.
[6] A lawyers' fund for client protection provides a means through the collective efforts of the bar to reimburse persons who have lost money or property as a result of dishonest conduct of a lawyer. Where such a fund has been established, a lawyer must participate where it is mandatory, and, even when it is voluntary, the lawyer should participate.
Vt. R. Prof. Cond. 1.15
Reporter's Notes-2016 Amendment
Rule 1.15(b) is amended to provide that the funds that a lawyer may keep in a client trust account to cover service charges is that amount "reasonably" necessary for that purpose, making clear that the rules do not provide a fixed amount or percentage but will be applied on a case-by-case basis.
Rule 1.15(c) is amended for consistency with the simultaneous addition of Rules 1.5(t) and (g).
Reporter's Notes-2009 AmendmentV.R.P.C. 1.15 is amended in part to conform to changes in Model Rule 1.15, retaining a reference in V.R.P.C. 1.15(a) to V.R.P.C. 1.15 A and B, for which there are no Model Rules equivalents, and incorporating as V.R.P.C. 1.15(f)-(h) the 2005 amendment adding V.R.P.C. 1.15(d)-(f) concerning client trust funds against which checks may be drawn. See Reporter's Notes to V.R.P.C. 1.15 (1999); Reporter's Notes to 2005 amendment of V.R.P.C. 1.15.
The Supreme Court addressed issues under V.R.P.C. 1.15 in In re Farrar, 2008 VT 31, 183 Vt. 592, 949 A.2d 438 (mem.) (admitted commingling of client funds contrary to V.R.P.C. 1.15(a) requires public reprimand in light of importance of protecting client funds and potential for actual injury to client, despite lawyer's unawareness that conduct violated rule), and In re Sinnott, 2004 VT 16, ¶ 18, 176 Vt. 596, 845 A.2d 373, 380 (mem.) (former V.R.P.C. 1.15(c) [now (d)] did not apply to fees paid directly to the lawyer by the client).
Rule 1.15(a)(2), unique to the Vermont rule, is added as part of a group of amendments to Rules 1.15 A and B intended to clarify the applicability of Rules 1.15, 1.15 A and B to funds held by a lawyer other than in a professional capacity. "Property held in connection with a representation," the key phrase in what is now Rule 1.15(a)(1) that determines the applicability of those rules, is now limited to property held in connection with a representation in a lawyer-client relationship or a fiduciary relationship that arises out of a lawyer-client relationship or a court appointment. Rule 1.15 A(a) as amended makes clear that these rules govern both "trust" accounts, in which client funds arising from a representation are held, and "fiduciary" accounts, in which funds arising from a fiduciary relationship are held.
Note that new Rule 1.15(c) requires deposit in a lawyer's trust account of any fees or expenses paid in advance, no matter how designated, if the funds are to be applied as compensation for services subsequently rendered or reimbursement for expenses subsequently incurred. The rule does not require deposit in the trust account of a "pure" retainer, a flat fee paid to assure the lawyer's availability and not for performing services. If services are also to be performed, an additional agreement at a specified rate for those services is required, and any advance payment under that agreement must be deposited in the trust account. Either form of agreement is, of course, subject to the overriding requirement of Rule 1.5(a) that fees must be reasonable.
The ABA Reporter's Explanation is as follows:
TEXT:
1. Paragraph (b): Deposits to minimize bank charges
The Commission heard testimony that in some jurisdictions lawyers are unable to avoid bank charges unless they are permitted to deposit money in a client trust account to cover such charges. The addition of this new paragraph is designed to address that problem.
2. Paragraph (c): Advance payment of fees and expenses
This new paragraph provides needed practical guidance to lawyers on how to handle advance deposits of fees and expenses. The Commission is responding to reports that the single largest class of claims made to client protection funds is for the taking of unearned fees.
3. Paragraph (e): Expand to cover all instances of disputed funds
[Former] Rule 1.15(c) is presently written to cover disputes between the lawyer and "another person," usually the client. The change proposed recognizes that at least three kinds of disputes are in fact possible: clientlawyer, client-creditor and lawyer-client's creditor. The proposed change thus uses more general language, tightens the first two sentences into one and reiterates the lawyer's duty to pay over undisputed sums. The final additional sentence clarifies the lawyer's duty to promptly distribute all portions of the property that are not subject to dispute.
COMMENT:
[1] Consistent with the Commission's action with respect to Rule 1.18, a phrase has been added to make clear that prospective clients are included among the third parties to whom the lawyer owes a duty to protect property pursuant to this Rule. While the black letter of this Rule is written in mandatory terms, the Comments are often permissive. Sometimes that may be appropriate, as where a safe deposit box is suggested unless something else is warranted by the circumstances. When the issue is close, permissive language has been retained. However, Rule 1.15(a) clearly requires that client property, including money, be kept separate from the lawyer's own, and the Comment has been changed to make that clear. A sentence has been added to provide guidance to lawyers regarding the proper maintenance of trust accounts [in accordance with V.R.P.C. 1.15 A and B].
[2] This new Comment addresses new paragraph (b).
[3] This Comment deals with handling client funds that may be set aside for payment of fees. The [former] language refers only to funds received from third parties, whereas the usual payer will be the client. Further, the lawyer should not have to show that the client is in fact likely to leave town if, pursuant to agreement, the lawyer is entitled to have the security of funds paid over before the fee is actually earned.
In addition, as in Comment [1], the clear Rule 1.15(a) and (e) requirements that disputed client funds be kept in a separate account is made mandatory rather than permissive.
[4] This Comment deals with a practical problem in which a client's creditor tries to get at funds in the hands of the lawyer. There is no doubt that, as a matter of substantive law, in some cases the lawyer would be required to make the creditor whole if the lawyer remitted property to the client to which the creditor was found entitled. In those, but only those, cases, paragraph (e) mandates a lawyer's refusal to remit the funds to the client until the dispute is resolved, while this Comment reinforces and tries to explain this sometimes controversial point. The Comment further explains that the lawyer's duty to protect client creditors only exists when the creditor has a claim against specific funds being held by the lawyer and that the lawyer's duty to protect the third party exists only when there is a nonfrivolous claim under applicable law. When there are substantial grounds for dispute as to the person entitled to the funds, the lawyer may file an action to have a court resolve the dispute.
[5] These changes clarify that when a lawyer holds funds in a capacity other than as a lawyer representing a client, this Rule does not apply.
[6] The change to "lawyers" fund for client protection" reflects the current nomenclature for these funds. The new language in the second sentence indicates a lawyer has an obligation to contribute to these funds in jurisdictions where they are mandatory.