Can a lawyer charge a dormancy fee against a client's unclaimed funds left in the trust account?

Plain-English summary

A lawyer must make due inquiry into the identity and location of the owner of unclaimed funds in his trust account under Rule 1.15-2(q); if that effort fails and G.S. 116B-53 is satisfied, the property is deemed abandoned and must be escheated under G.S. 116B. A holder of abandoned or unclaimed funds may charge a reasonable "dormancy" fee that reduces the amount transferred to the State Treasurer, so long as the holder made a good-faith effort to locate the owners, a valid written contract imposes the charge, and the charge is applied on a regular basis. The inquiring lawyer wanted to add fee-contract language charging a dormancy fee (capped at $200 per year) against funds left unclaimed six months after a case concludes.

The opinion concludes the lawyer may charge such a fee, subject to three conditions. First, the client must receive prior notice of, and give written consent to, the dormancy fee. Second, the amount of the fee must be appropriate under Rule 1.5(a), which governs the reasonableness of a lawyer's fees. Third, the fee must comply with the statutory requirements of G.S. 116B-57(a) and any other restrictions imposed by the State Treasurer's Unclaimed Property Program.

In practice

Under the North Carolina rules as they stood at the time of the opinion, the analysis turns on client consent, the reasonableness of the charge, and compliance with the escheat statute. The opinion holds that a dormancy fee against unclaimed trust funds is permissible when the client had prior notice and consented in writing, the amount is appropriate under Rule 1.5(a), and the charge satisfies G.S. 116B-57(a) and the Unclaimed Property Program's requirements.

Common questions

Q: Can a lawyer keep part of a client's unclaimed trust money as a dormancy fee?

A: Yes, with conditions. The opinion concludes a lawyer may charge a dormancy fee against unclaimed trust funds if the client consented in writing after notice, the amount is appropriate under Rule 1.5(a), and the fee complies with G.S. 116B-57(a) and the State Treasurer's program.

Q: Does the client have to agree to the dormancy fee in advance?

A: Yes. The opinion conditions the fee on the client receiving prior notice of, and giving written consent to, the dormancy charge.

Q: How is the amount of the dormancy fee limited?

A: It must be appropriate under Rule 1.5(a) and comply with G.S. 116B-57(a). The opinion ties the permissible amount to the reasonableness standard of Rule 1.5(a) and the statutory escheat requirements rather than setting a fixed figure.

Background and rules framework

The opinion applies North Carolina Rule 1.15-2 (handling of trust funds, including due inquiry into the owner of unclaimed funds under subsection (q)) and Rule 1.5(a) (reasonableness of fees), which track Model Rules 1.15 and 1.5, together with the escheat provisions of G.S. Chapter 116B (including G.S. 116B-53 on when property is deemed abandoned and G.S. 116B-57(a) on a holder's dormancy charge).

Citations and references

Rules of Professional Conduct:

• MR 1.15 / NC Rule 1.15-2 (safekeeping property; due inquiry into the owner of unclaimed trust funds)
• MR 1.5 / NC Rule 1.5(a) (reasonableness of a lawyer's fee)

Statutes:

• N.C. Gen. Stat. § 116B-53 (when unclaimed property is deemed abandoned)
• N.C. Gen. Stat. § 116B-57(a) (holder's authority to charge a reasonable dormancy fee)

See also

• NC RPC 149: Unclaimed Client Funds
• NC 2006 FEO 16: Distribution of Disputed Legal Fees

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2006-formal-ethics-opinion-15/

Original opinion text

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

Inquiry:

Rule 1.15-2(q) requires a lawyer to make due inquiry into the identity and location of the owner of unclaimed funds in his trust account. If this effort is unsuccessful and the provisions of G.S. 116B-53 are satisfied, the property shall be deemed abandoned. The lawyer must then follow the provisions of G.S. 116B for the escheat of abandoned property. Pursuant to G.S. 116B-57(a), the holder of abandoned or unclaimed funds may charge a reasonable "dormancy" fee, thereby reducing the amount of funds transferred to the State Treasurer's Office, so long as the holder has made a good faith effort to locate the owners of the funds, there is a valid and enforceable written contract which imposes the charge, and the charge is applied on a regular basis.

Attorney A would like to start charging a dormancy fee for abandoned funds to cover some of the costs and time associated with reasonable efforts to locate the client. Attorney A proposes including the following language in all his fee contracts:

A reasonable dormancy fee shall be charged against any remaining funds in the client's trust account which are not claimed after notice to the client and/or issuance of a refund check six months from the date of the finalization of client's case. The charge shall be based on time and effort spent making reasonable efforts to contact client and return funds. Said charges shall not exceed $200.00 per year.

May Attorney A charge a dormancy fee as set forth in his fee contract?

Opinion:

Attorney A may charge a dormancy fee against unclaimed funds so long as (1) the client receives prior notice of and gives written consent to the dormancy fee, (2) the amount of the fee is appropriate under Rule 1.5(a) of the Rules of Professional Conduct, and (3) the fee complies with the statutory requirements of G.S. 116B-57(a) and any other restrictions imposed by the Unclaimed Property Program of the State Treasurer's Office.