Handling of Advance Fees and IOLTA
Accounts
AILA Seminar – October 9, 2015
Donald M. Scheetz
Assistant Disciplinary Counsel
The Supreme Court of Ohio
PROPER HANDLING OF FLAT,
ADVANCED, AND NON-REFUNDABLE FEES
Board Advisory Opinion 96-4
 In Advisory Opinion 96-4, the Board of
Commissioners on Grievances and
Discipline stated that a flat fee, paid in
advance, could be deposited into the
attorney’s business account and that it did
not need to be placed in the attorney’s client
trust account.
 However, the opinion further stated that,
just because the flat fee was deposited into
the business account doesn’t mean that it is
non-refundable.
 Board Advisory Opinion 96-4 was issued
during the period of time that Ohio was
governed by the former Code of Professional
Responsibility.
 Effective February 1, 2007, the Supreme
Court of Ohio adopted the Rules of
Professional Conduct, which are modeled on
the American Bar Association’s Model Rules
of Professional Conduct.
 Although the Board has not withdrawn
Advisory Opinion 96-4, its continued
viability after the adoption of the Rules of
Professional Conduct is questionable.
Rule 1.15(c) of the Ohio Rules of
Professional Conduct
 “A lawyer shall deposit into a trust account
legal fees and expenses that have been paid
in advance, to be withdrawn by the lawyer
only as fees are earned or expense incurred.”
 Unless there is an applicable exception to
Rule 1.15(c), any fees that are paid to the
lawyer in advance that have not yet been
earned must be deposited into the lawyer’s
client trust account.
 Is there an exception for “flat fees” or “nonrefundable” fees?
 The answer is “YES” – but only in two
situations.
Types of Advance Fee Payments
 “True” or “Classic” Retainer
 Advance Fee or Retainer
 “Flat Fee”
 “Earned Upon Receipt Fee”
Comment [6A] to Rule 1.5 of the Ohio Rules of
Professional Conduct
“True” or “Classic” Retainer
 The “true” or “classic” retainer is a fee paid
in advance solely to ensure the lawyer’s
availability to represent the client and
precludes the lawyer from taking adverse
representation.
Advance Fee Payment or Retainer
 What is often called a “retainer” is, in fact,
an advance payment to ensure that fees are
paid when they are subsequently earned, on
either a flat fee or hourly fee basis.
Flat Fee
 A flat fee is a fee of a set amount for
performance of agreed work, which may or
may not be paid in advance but is not
deemed earned until the work is performed.
Earned Upon Receipt Fee
 An “earned upon receipt” fee is a flat fee
paid in advance that is deemed earned upon
payment regardless of the amount of future
work performed.
 “When a fee is earned affects whether it
must be placed in the attorney’s trust
account.”
Comment [6A] to Prof. Cond. R. 1.5
 Thus, the only two situations in which the
attorney is NOT required to deposit the fees
into his or her client trust account are (1) a
“true” or “classic” retainer; and (2) an
“earned upon receipt” fee.
Limitations on Charging or Collecting an
“Earned Upon Receipt” or “Non-Refundable Fee”
 Prof. Cond. R. 1.5(d)(3) provides, in
pertinent part, as follows:
“A lawyer shall not enter into an
arrangement for, charge, or collect any of
the following:
(3) a fee denominated as ‘earned upon
receipt,’ ‘nonrefundable’ or in any similar
terms, unless the client is simultaneously
advised in writing that if the lawyer does not
complete the representation, the client may
be entitled to a refund of all or part of the fee
based upon the value of the representation
pursuant to division (a) of this rule.”
Disciplinary Counsel v. Summers,
131 Ohio St.3d 467, 2012-Ohio-1144
 “When a lawyer agrees to represent a client
through the conclusion of the case for a flat
fee, and that lawyer withdraws from
representation without cause before the
work is completed, he cannot retain the
entire flat fee by resorting to a mathematical
calculation of his billable hours.
 To hold otherwise would leave clients at the
mercy of lawyers who charge significant flat
fees to provide complete representatoin only
to withdraw when the demands of the case
become too onerous.”
Cleveland Metropolitan Bar Assn. v.
Gruttadario,
136 Ohio St.3d 283, 2013-Ohio-3662
 The lawyer charged a flat fee of $4,000 to
represent grievant’s son in a criminal
proceeding but failed to perform the agreedupon services and refused to refund any
portion of the fees, claiming that he had
expended more than 70 hours on the case.
 The Supreme Court of Ohio rejected the
lawyer’s claim, stating in part as follows:
 “But
the key flaw in Gruttadario’s position is that
he did not accept representation on an hourly fee
basis – he agreed to a flat fee for the work and
then he did not complete it. Therefore, he could
not have been entitled to retain the entire flat
fee.”
TRUST ACCOUNT
GUIDELINES
Trust Account Requirements
 Rule 1.15, Rules of Professional Conduct
 Lawyer shall hold client or third person
property:
 In connection with a representation
 Separate from lawyer’s property
 Duty to safeguard
 Prompt notification
 Prompt delivery
 Full accounting upon request
 Identify and label
 Maintain complete records
What Funds belong in Trust
Account
 Funds belonging to client
 Funds belonging partly to client and partly
or potentially to lawyer (i.e. settlement
proceeds)
 Funds belonging to 3rd party, related to
handling of case (medical bills payment)
Funds in which a third party
has an interest
 Rule 1.15 (d)
 Board of Commissioner Opinion # 2007-7
Funds claimed by two or more persons
 Rule 1.15(e)
What Does NOT belong in Trust
Account
 Funds belonging totally to the lawyer
 Funds not related to the representation of a
client
Safeguarding OTHER property
 For property other than funds, lawyer is
required to maintain for seven years a
record:
 That
identifies the property;
 The date received;
 The person on whose behalf the property was
held;
 The date of distribution.
Rule 1.15: Safekeeping Property
 A lawyer may deposit his/her own funds in a
client trust account for the sole purpose of:
 Paying
bank service charges OR
 Obtaining a waiver of bank service charges but
only in the amount necessary for that purpose.
Common Violations in Maintenance of
Trust Account Records
 Failure to maintain individual client records
or equivalent
 Failure to maintain duplicate deposit slips
 Failure to reconcile individual client records
to bank statements and the general trust
account record
 Failure to maintain records after completion
of the lawyer’s fiduciary duty
Common Violations in the Use of
Trust Accounts
 Improper transaction processed through the
trust account
 Using the trust account as an operating
account
 Using the trust account for family and nonclient related transactions
 Depositing earned fees into the trust account
 Assuming bank’s decision to grant
immediate credit on deposited item is the
equivalent of the funds actually being
collected
 Failing to withdraw earned fees from the
trust account
 Maintaining a large balance of lawyer or law
firm funds in the trust account
When do I deposit funds
 As quickly as possible, since you have a duty
to safeguard them
When do I transfer fees
 Within a reasonable time after they are
earned
 Once earned, fees do not belong in a trust
account
 You can’t spend your money UNTIL it is
moved from trust account to operating
account
Staff Assistance
 Staff may assist – employees must be
competent and properly supervised
 Internal controls must be adequate to
safeguard client funds and property
 ODC v. Ball, 67 Ohio St.3d 401; Rule 5.3
The Lawyer MUST
 Train and supervise staff; and
 Regularly review records.
Regular Review of Records
 Lawyer most familiar with client matters:
 Most
likely to spot errors
 i.e.: wrong amount recorded to wrong client
 Knows to safeguard amounts that need special
attention – those involving unresolved disputes
Can non-lawyers be signers
on trust account
 Technically yes; management
considerations:
 Since attorney is responsible is it worth the
risk?
 It is necessary?