Opinion #173. Retainer Fees, Credit Cards and IOLTA

Issued by the Professional Ethics Commission

Date Issued: March 7, 2000

QUESTION

May a lawyer accept a retainer from a client by credit card if the lawyer's bank insists on placing the funds in the lawyer's general business account rather than the lawyer's IOLTA account?

OPINION

We start our analysis of this question by noting that client funds or funds belonging in part to a client and in part presently or potentially to a lawyer or law firm must be kept in a segregated account, in some instances an IOLTA account, rather than a general business account pursuant to Rule 3.6(e) of the Maine Bar Rules. For the purposes of this analysis, we determine that client funds are funds held by the lawyer that may be refundable to the client. Put differently, if there are no circumstances under which the funds or any portion of the funds may be refunded to the client, then the funds can be fairly characterized as funds of the lawyer or law firm. All other funds received from the client are client funds.

Accordingly, before determining into what account the funds shall be placed, the lawyer must first determine to whom the funds belong, presently or potentially. If the lawyer decides, based upon an explicit understanding reached with the client that the funds belong to the lawyer or law firm and there are no circumstances under which the funds (or any portion of the funds) may be refunded to the client, then the lawyer may place the funds in a general business account. If on the other hand, the lawyer determines that the funds are client funds, then the rule prohibits placement in a general business account.

Funds paid by a client for services rendered and funds paid by a client to reimburse a lawyer for advances for costs and expenses paid by a lawyer would be expected to belong to the lawyer, whereas funds paid by a client for services not yet rendered and for costs and expenses not yet paid by the lawyer would be expected to belong to the client.

Having analyzed the problem as we have, we turn now to that portion of Maine Bar Rule 3.6(e)(1) that provides as follows:

All funds of clients paid to a lawyer or law firm, other than retainers and advances for costs and expenses, shall be deposited in one or more identifiable accounts . . .. No funds belonging to the lawyer or law firm shall be deposited therein except as follows: . . . (ii) Funds belonging in part to a client and in part presently or potentially to a lawyer or law firm must be deposited therein.

We note that the provisions of Rule 3.6(e)(1) and 3.6(e)(1)(ii) appear to contradict each other in that paragraph (1) excepts retainers and advances, but subparagraph (ii) makes no such exception. The provisions are reconciled by interpreting the phrase "retainers and advances for costs and expenses" to mean only those funds that are truly non-refundable to the client. In contrast, funds that are potentially refundable to the client, whether labeled retainers, advances, or something else, are fully or partially client funds and accordingly, must be segregated in accordance with section (ii).

We also recognize that in revising Rule 3.6(e), the Advisory Committee on Professional Responsibility added the word "retainer” in the first paragraph. The reporter's note indicates that this change was made as "advance payment of fees is not improper.” Although this change and the reason therefore appear to be as ambiguous as the rule, we construe the phrase “advance payment of fees" to mean payment of a flat fee by a client that is non-refundable.

The answer to the question posed then turns upon whether the funds that are the subject of the credit card payment are potentially refundable (in which case they are client funds) or not (in which case they are not client funds). Once the lawyer answers that question, the options available to the lawyer are clear. Despite the bank's insistence, funds that are client funds may not be placed in a general business account, but rather must go directly into either an IOLTA account or other identifiable account.

We point out that once client funds are placed in an IOLTA account, any portion of those funds to which a lawyer becomes entitled may then be transferred to the lawyer's general business account. This issue was addressed in Opinion #98 of this Commission and should be referred to for questions concerning the withdrawal of funds from IOLTA accounts.


Enduring Ethics Opinion

Enduring Ethics Opinion 173 [June 2016]