Opinion 421

Statement of Facts Discussion Conclusion

Section 38 of Article X of the State Bar Rules requires that every lawyer engaged in the practice of law in Texas shall maintain a separate trust account or accounts. Disciplinary Rule 9-102 of the Texas Code of Professional Responsibility mandates that funds of clients be held separately from the lawyer's funds. The rule specifies that the client funds be kept in one or more identifiable bank accounts. It further provides that the attorney must maintain complete records of client funds, render appropriate accounts to clients, and promptly pay to the client as requested the funds which the client is entitled to receive.

Nothing in DR 9-102 requires lawyers to place clients' funds in interest bearing accounts. Provided that arranging to earn interest on client funds does not impair complete record keeping or prompt payment to clients, there is no disciplinary rule which prevents lawyers from doing so. In fact, when client funds held by an attorney are capable of earning interest, the funds should be placed at interest. The interest earned belongs to the client (see Professional Ethics Committee Opinion 404, 1981). However, under the question before us where the amount of each client's funds and the length of time they are held in trust accounts generally would not yield sufficient interest to offset the expense, setting up separate accounts for each client is impractical in these cases. If a single trust account is used and clients' funds are commingled, even if this were permitted by current banking regulations, the attorney would not be entitled to the interest since doing so would constitute an impermissible benefit from the client funds, Professional Ethics Committee Opinion 404 (1982). Calculating and distributing the interest on each client's funds when commingled with the funds of other clients would be impractical. Therefore, lawyers at present have no choice but to deposit client funds, nominal in amount or held for brief periods of time, in accounts which pay no interest. Only banks have benefitted from such an arrangement.

The Texas Equal Access to Justice Program, established by Article XI of the State Bar Rules, offers a public service alternative to the present system which, in effect, gives to banks the benefit of these commingled client funds. Article XI provides that attorneys may deposit all client funds which are nominal in amount or reasonably anticipated to be held for a short period of time into a single interest-bearing demand account. State Bar Rules Article XI, ∋5. The financial institution in which the account is maintained shall remit the interest directly to a non-profit corporation whose purpose is to use those funds to obtain legal services to the indigent in civil matters. State Bar Rules, Art. XI, ∋∋4 and 6.

Such a program does not impede fulfillment of the DR 9-102 requirements for maintaining client funds separately from lawyer funds, complete record keeping, rendering accounts to clients and ready access to client funds. It also furthers the worthwhile goal of furnishing legal services to those unable to pay. EC 2-16 and EC 2-25. The only question which remains is whether, in permitting the interest earned on client funds to be paid to the Texas Equal Access to Justice Foundation attorneys are violating DR 9-102(B)(4) which provides that they must pay to clients all the funds to which they are entitled.

As a matter of constitutional law, it has been held that clients do not have a property right in the interest earned on the above-mentioned types of client funds. Petition of New Hampshire Bar Ass'n, 453 A.2d 1258 (N.H. 1982); Petition of Minn. State Bar Ass'n, 332 N.W.2d 151 (Minn. 1982); In re Interest on Trust Accounts, 402 So.2d 389, 396 (Fla. 1981). The Internal Revenue Service has ruled that such interest is not includable in clients' gross income. Revenue Ruling 81-209, 1981-2 Cumulative Bulletin 16. The ABA Committee on Ethics and Professional Responsibility has considered the ethical acceptability of programs similar to the one established by Article XI of the State Bar Rules. In ABA Formal Opinion 348 (1982) the Committee concluded that the same rationale employed in the constitutional and tax law contexts was applicable to the ethical question. The opinion states: The client has no right under the circumstances to require the payment of any interest on the funds to himself or herself because the amount of interest which the funds could earn is likely to be less than the appropriate charges for administering the earnings. The practical effect of implementing these programs is to shift a part of the economic benefit from depository institutions to tax-exempt organizations. There is no economic injury to any client. The program creates income where there was none before. For these reasons, the interest is not client funds in the ethical sense any more than the interest is client property in the constitutional sense or client income in the tax law sense. Therefore, assuming that either a court or a legislature has authorized a program with the attributes described above and thus, either implicitly or explicitly, has made a determination that the interest earned is not the clients' property, participation in the program by lawyers is ethical.

We note that the creation of the program in Texas by Supreme Court rule constitutes an implicit determination that the interest earned is not the clients' property. Since the clients have no right to the interest, there is no duty to notify clients or obtain their consent to take part in the program.

The Committee finds that participation in the program by Texas attorneys does not violate the Texas Code of Professional Responsibility. (9-0)