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2008 Edition: Tennessee Rules of Professional Conduct Download Rules as a PDF | Return to Rules home page |
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Rule 1.15
SAFEKEEPING PROPERTY (a) A lawyer shall hold property and funds of clients or third persons that are in a lawyer’s possession in connection with a representation separate from the lawyer’s own property and funds. A lawyer in possession of clients’ or third persons’ property and funds incidental to representation shall hold said property and funds separate from the lawyer’s own property and funds. (1) Funds belonging to clients or third persons shall be kept in a separate account maintained in an insured depository institution located in the state where the lawyer’s office is situated (or elsewhere with the consent of the client or third person) and which participates in the overdraft notification program as required by Supreme Court Rule 9. A lawyer may deposit the lawyer’s own funds in such an account for the sole purpose of paying bank service charges on that account, but only in an amount reasonably necessary for that purpose. (i) Except as provided by subparagraph (a)(1)(ii), interest earned on accounts in which the funds of clients are deposited, less any deduction for service charges (other than overdraft charges), fees of the depository institution, and intangible taxes collected with respect to the deposited funds, shall belong to the clients whose funds are deposited, and the lawyer shall have no right or claim to such interest. Overdraft charges shall not be deducted from accrued interest and shall be the responsibility of the lawyer. (ii) A lawyer shall deposit funds of clients and third persons that are nominal in amount or expected to be held for a short period of time in a pooled account that participates in the Interest On Lawyers’ Trust Accounts ("IOLTA") program, which provides that all interest earned be paid to the Tennessee Bar Foundation in accordance with the requirements of Supreme Court Rule 43. The determination of whether funds are nominal in amount or are to be held for a short period of time rests in the sound discretion of the lawyer, and no charge of ethical impropriety or other breach of professional conduct shall attend a lawyer’s exercise of good faith judgment in that regard. (iii) A lawyer may decline to participate in the IOLTA program by submitting a notice of such declination in writing, no less frequently than annually, to the Chief Justice of the Tennessee Supreme Court. In accordance with the provisions of Supreme Court Rule 43, such notice may be filed at the time the lawyer files the registration statement with the Board of Professional Responsibility. (b) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this Rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such funds or other property. If a dispute arises between the client and a third person with respect to their respective interests in the funds or property held by the lawyer, the portion in dispute shall be kept separate and safeguarded by the lawyer until the dispute is resolved. (c) When in the course of representation a lawyer is in possession of property in which both the lawyer and another person claim interests, the property shall be kept separate by the lawyer until there is an accounting and severance of their interests. COMMENTS [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 of clients or third persons should be kept separate from the lawyer’s business and personal property and, if monies, in one or more trust accounts. Separate trust accounts may be warranted when administering estate monies or acting in similar fiduciary capacities. [2] The first paragraph of Section (a)(1) of this Rule contains the fundamental requirement that a lawyer maintain funds of clients and third parties in a separate trust account. All such accounts, whether or not they are a part of the Interest On Lawyers’ Trust Accounts ("IOLTA") program, must be part of the overdraft notification program established under Supreme Court Rule 9, Section 29.1. [3] A lawyer is also responsible for assuring the payment of any bank charges or fees on such trust accounts. Section (a)(1)(i) of this Rule makes clear that any interest earned on non-IOLTA trust accounts belongs to the client or third party whose funds generate the interest, and that the interest earned on them may be used by a lawyer to pay bank charges or fees. A detailed accounting of such interest and fees may be necessary to avoid the payment of any client- or matter-specific bank charges or fees (for example, charges for a certified check obtained solely for the benefit of one client) by a client other than the one on whose behalf the charge or fee was incurred. [4] Similarly, Section (a)(1)(ii) of this Rule and Supreme Court Rule 43 authorize a bank participating in the IOLTA program to deduct from any interest generated from an IOLTA account service charges (other than overdraft charges), fees of the depository institution, and intangible taxes collected with respect to the deposited funds, so long as such deductions do not diminish client funds and are not charged to interest in other IOLTA accounts. See Supreme Court Rule 43, Section (1)(d). [5] In no event may overdraft charges imposed upon a trust account be paid from interest on a trust account. [6] In order to allow a lawyer to pay appropriate bank charges or fees on a trust account, Section (a)(1)(i) of the Rule expressly relaxes the prohibition on commingling lawyer and client funds in a trust account to permit a lawyer to deposit the lawyer’s own funds in the trust account for the sole purpose of paying bank service charges, but only in an amount reasonably necessary for that very limited purpose. Lawyers should exercise great care in using this limited permission to deposit funds in a trust account, given the cardinal importance of the principle otherwise banning commingling of funds. [7] Lawyers often receive funds from third parties from which the lawyer’s fee will be paid. If there is risk that the client may divert the funds without paying the fee, the lawyer is not required to remit the portion from which the fee is to be paid. However, a lawyer may not hold funds to coerce a client into accepting the lawyer’s contention in a dispute with the client. The disputed portion of the funds should be kept in trust 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. [8] Third parties, such as a client’s creditors, may have just claims against funds or other property in a lawyer’s custody. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client and accordingly may refuse to surrender the property to the client. However, a lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party. If not inconsistent with the interests of the client, the lawyer may file an interpleader action concerning funds in dispute between the client and a third party. [9] 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. [10] In certain circumstances, Tennessee law governing abandoned property may apply to monies in lawyer trust accounts or other property left in the hands of lawyers and may govern its disposition. See Tenn. Code Ann. §§ 66-29-101 to 66-29-204 (1993 and Supp. 1999) (Uniform Disposition of Unclaimed Property Act). DEFINITIONAL CROSS-REFERENCES “Fiduciary” See RPC 1.0(d) |
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