OTLA Trial Lawyer Winter 2021

52 Trial Lawyer • Winter 2021 check has cleared. To avoid having clients pressure you to disburse funds sooner, tell them at the outset of your attorney- client relationship that it’s your firm policy to wait ten banking days for checks to clear. Not keeping funds separate Another mistake Lee made was leav- ing her earned fees in the trust account. ORPC 1.15-1(a) requires that property belonging to clients or third parties be held separately from the lawyer’s own property. The lawyer’s money and the client’s or third party’s money cannot be commingled in the same bank account. This means lawyers need to maintain two separate accounts: (1) a business account for the lawyer’s own money or earned fees, and (2) a lawyer trust account for clients’ funds. In Lee’s case, she did not transfer some fees she had earned from the trust ac- count over to her business account. This carelessness resulted in her leaving $425 of her earned fees in the trust account for at least six months. Those funds should have been promptly removed from the trust account after they had been earned and billed for. The Bar discovered this error when it investigated the overdraft issue. As a re- sult, she was charged with violating ORPC 1.15-1(a) for failing to keep her own funds separate from client funds. Tip: Lawyers get busy and may wait to move earned funds to their business account. As time passes by, they forget they have money in the trust account that belongs to them. To avoid these prob- lems, lawyers should keep proper trust accounting records and do monthly reconciliation. Not knowing the balance of client funds As the Bar continued its investigation into the overdraft issue, it also discovered another problem with Lee’s trust ac- count. A month prior to the overdraft, Lee wrote a check in the amount of $500 from the trust account to pay her attor- ney fees for work she did on behalf of Client Beta. Before she wrote the check, she quickly glanced at the balance from her online bank account. It showed she had over $5,000 in the trust account. Or that was what she thought. When she looked at the total account balance in the trust account, she thought there was more than enough money in the account from which the $500 would be withdrawn. But the $5,000 total bal- ance is not very helpful. Money in the trust account belongs to specific clients, and the total balance is just the money outstanding in the account belonging to all those clients. It does not tell Lee how much Client Beta, or Client Charlie, or Client Delta has in the trust account. If Lee doesn’t know that a client has zero money in the trust account, and she writes a check on that client’s behalf, she’s using another client’s money to make the disbursement. And that is exactly what happened to Lee. She did not realize Client Beta only had $250 remaining in the trust account from his initial $1,000 retainer. Lee used other clients’ unearned funds to cover the $250 difference. This mistake led the Bar to charge her with another violation under ORPC1.15- 1(c) for withdrawing funds before they are earned. Tip: To avoid this error, lawyers need to know the balance of each client’s funds in the trust account before disbursing funds on behalf of that client. This re- quires lawyers to keep a subaccount for each client in the trust account. The subaccount is also known as an indi- vidual client ledger. It has a chronological listing of all withdrawals and deposits and a running balance for each client who has money in the trust account. At any given point, you should be able to pull up the client ledger and see exactly howmuch money a client has in the trust account and all transactions associated with that client. This information does not magically appear in the ledger. It must be manu- ally entered into your trust accounting program by you (or by your staff if you delegate that duty). Each transaction in the trust account must be tied to a client matter with details such as date, amount, payee and purpose. Not using trust software and systems Although Lee had a practice manage- ment program with built-in trust ac- counting software, she was not properly using it to manage her trust account. She was relying solely on bank statements and online banking to check the total balance occasionally. She sometimes added a case note to a client’s matter in the practice management program to indicate the client paid a retainer of X amount. When the Bar asked her to produce a client ledger, trust journal, reconciliation report and other trust records, Lee was not able to do so because she had not been entering transactions into the pro- Trust Accounting Continued from p 51