What are a law partnership's ethical duties when a former partner misappropriated client funds, and can the partners plead the statute of limitations?

Plain-English summary

The inquiry concerned the ethical obligation of a lawyer and his partners for the acts of a former partner who misappropriated and failed to account for certain clients' funds. Some funds were never reflected in the partnership records because the former partner cashed checks payable to him without depositing them in the clients' trust account or the partnership account. The known instances had been resolved and restitution made, and the former partner had been expelled several years earlier; the inquirer was concerned about responsibility for unknown misappropriations and posed three questions. The committee limited its opinion to ethical considerations, noting its standing policy not to advise on questions of law or legal liability.

On the first question, the committee held that a lawyer has the ethical responsibility of fully disclosing all information available to him in investigating a former partner's misappropriation or failure to account for the firm's clients' money, and should investigate sufficiently to satisfy himself that he has diligently searched for and probably discovered all occasions of misappropriation during the partnership. On the second, it concluded, following Opinion 65-37 and ABA Informal Opinion 871, that there is no ethical prohibition on a lawyer's asserting defenses recognized by law, including the statute of limitations. On the third, it answered affirmatively that the technicality that the client's property never reached the firm's trust or partnership account does not avoid the ethical responsibility attaching when the lawyer received the funds in connection with his practice; but it held the Code does not impose a professional obligation to cure the former partner's defalcations greater than the duty imposed by law, so the lawyers would not violate the CPR by failing to repay amounts they are not legally obligated to pay.

Currency note

This opinion was issued in 1973, before The Florida Bar's adoption of the 2006 revisions to the Rules of Professional Conduct. It applied the former Code of Professional Responsibility (and, for one point, the former Canons of Ethics), which have since been replaced. Treat this page as historical context, not current guidance. Verify against current Rule 5-1.1 (trust accounts) and Rule 4-1.15 before relying on any specific requirement mentioned here.

Common questions

Q: Must partners investigate a former partner's suspected misappropriation of client funds?

A: Under this opinion, yes. The committee held a lawyer must fully disclose available information and investigate sufficiently to satisfy himself he has diligently searched for all instances during the partnership.

Q: Can the lawyers plead the statute of limitations against a repayment demand?

A: Yes. The committee, following Opinion 65-37 and ABA Informal Opinion 871, found no ethical prohibition on asserting defenses recognized by law, including limitations.

Q: Are partners responsible for funds the partner never put in a firm account?

A: Ethically, yes, where the lawyer received the funds in connection with practice; but the committee said the Code does not require repaying amounts the lawyers are not legally obligated to pay.

Background and rules framework

The opinion applied the former Code of Professional Responsibility and the former Canons of Ethics to a partnership's responsibility for client trust funds handled by a former partner. In current Florida practice the safekeeping of client funds corresponds to Rule 5-1.1 (trust accounts) and Rule 4-1.15 (compliance with trust accounting rules); the Model Rule analogue is 1.15.

Citations and references

Other opinions cited:

• Florida Opinion 65-37 (decided under the former Canons of Ethics): asserting legal defenses, including limitations
• ABA Informal Opinion 871: asserting available legal defenses

See also

No sibling opinions yet indexed.

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-73-5/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-73-5-1.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

FLORIDA BAR ETHICS OPINION
OPINION 73-5
April 30, 1973
Advisory ethics opinions are not binding.
A lawyer should diligently investigate a former partner's misappropriation of, or failure to account for, the funds of the firm's clients, and in other investigations of such matters he should fully disclose all information relating thereto that is available to him. A lawyer is ethically responsible for funds received by a partner even though those funds were never deposited in a partnership account. However, if the statute of limitations has run, the partnership may assert that defense. The partnership's lawyers may decline to repay amounts they are not required by law to pay.
Opinion: 65-37; ABA Informal 871
Vice Chairman Zehmer stated the opinion of the committee:
This inquiry concerns the ethical obligation of the inquirer and his law partners to be responsible for the acts of a former partner in misappropriating and failing to account for certain clients' funds that came into his custody. According to the inquirer, some of those funds were never reflected in the partnership records because the misappropriating lawyer cashed checks payable to him without making any deposit to the clients' trust account or the partnership account. All of the known instances of misappropriated funds have been resolved and restitution made by the former partner. Several years have elapsed since the former partner was expelled from the partnership. The inquirer is concerned about the partnership's ethical responsibility for unknown misappropriations and poses three questions:

1. What ethical responsibility does a lawyer have concerning the investigation of a former law partner's misappropriations or failure to account for trust money received by the lawyer during the term of the partnership?
2. May a lawyer ethically plead the statute of limitations when a demand is made on him for repayment of funds that were delivered to a former partner who misappropriated or failed to account for the funds without the knowledge of the lawyer?
3. Is a lawyer ethically responsible for a former partner's misappropriation or failure to account for trust funds that were not paid into any partnership account, trust or otherwise?
   It is often difficult to distinguish between questions of law and questions of professional responsibility for ethics, and inquiries to this Committee sometimes involve both. Under standing policy, the Committee does not advise on questions of law or legal liability and this opinion is limited to ethical considerations only.
4. In answer to the first question, a lawyer has the ethical responsibility of fully disclosing all information available to him in the investigation of a former law partner's misappropriation or failure to account for the monies of that law firm's clients. The lawyer should make sufficient investigation of his former law partner's activities to satisfy himself that he has diligently searched for and probably discovered all occasions of misappropriation or failure to account for trust money received by the lawyer during the term of the partnership.
5. The second question is answered by this Committee's Opinion 65-37, decided under the former Canons of Ethics. There is no ethical prohibition on a lawyer's asserting defenses recognized by law, including the statute of limitations. Nothing in the present Code of Professional Responsibility alters the principles upon which that decision was predicated. See also ABA Informal Opinion 871.
6. The answer to the third question must be in the affirmative. The technicality that the client's property never reached the law firm's trust or partnership account does not avoid the ethical responsibility that attaches when the lawyer received the funds from the client in connection with his law practice. However, it is equally clear that, under the circumstances stated above, the Code of Professional Responsibility does not impose upon the inquiring lawyer a professional obligation to cure the defalcations of their former partner which is greater than the duty imposed on him by law. Stated another way, the inquiring lawyers would not violate any of the canons or disciplinary rules in the CPR by failing to repay amounts that they are not legally obligated to pay.