If a lawyer puts client escrow funds in an interest-bearing account and the retainer is silent on interest, can the lawyer keep the interest?
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This page answers the general question as of 2002. Ezel answers yours: whether it's allowed on your facts, under the current New York Rules of Professional Conduct, with citations.
Plain-English summary
A lawyer holds roughly $3,000 of residual interest spread across about sixteen closed real-estate escrow matters dating back as far as ten years. The real-estate contracts did not require interest-bearing accounts and the engagement agreements are silent on interest. Some former clients may be hard to find. The lawyer asks how to dispose of the interest.
The opinion concludes the interest belongs to the clients. DR 9-102(A) bars commingling and DR 9-102(B)(2) requires client funds to be held in special accounts; together with general trust principles, these mean interest on separated client funds belongs to the client. The Committee marshals a long line of New York opinions holding that a lawyer-escrow agent may not retain interest on client funds absent an explicit agreement. It notes a narrow possible exception (express client consent where the interest is de minimis and the funds are promptly and routinely disbursed) but holds neither condition is met here, and observes that for nominal, short-term amounts the better practice is an IOLA account.
Because the funds here belong to identifiable clients, they must be paid to those clients if they can be located. For clients who cannot be found, DR 9-102(F) requires the lawyer to obtain a judicial order fixing the lawyer's fees and disbursements and to deposit the missing client's share with the Lawyers' Fund for Client Protection; the opinion notes the lawyer may not instead route these particular funds into an IOLA account.
In practice
Under the New York Code as it stood at the time, the opinion holds that earned interest on client escrow funds is the client's property and may not be kept by the lawyer where the retainer is silent. The opinion directs payment to located clients, and for missing clients directs the DR 9-102(F) route of a court order plus deposit with the Lawyers' Fund for Client Protection, rather than an IOLA deposit. It identifies IOLA as the appropriate vehicle only for nominal, short-term amounts.
This opinion applies the former New York Code (DR/EC numbering). New York replaced the Code with the Rules of Professional Conduct effective April 1, 2009; the trust-account rule DR 9-102 now corresponds to Rule 1.15, and the missing-client provision DR 9-102(F) to Rule 1.15(f). Verify the current rule text before relying on any specific requirement.
Common questions
Q: Can a lawyer keep the interest on a client's escrow funds?
A: No. The opinion concludes interest earned on separated client funds belongs to the client and must be paid to the client where the retainer agreement does not provide otherwise.
Q: What if the retainer never mentioned interest?
A: Silence does not let the lawyer keep it. The opinion concludes that absent an explicit agreement, any interest realized on the client's funds belongs to the client.
Q: What does the lawyer do if a former client can't be found?
A: The opinion concludes the lawyer must seek a judicial order fixing fees and disbursements and deposit the missing client's share with the Lawyers' Fund for Client Protection under DR 9-102(F).
Q: Could the lawyer just put the leftover interest in an IOLA account?
A: Not here. The opinion concludes IOLA is for nominal, short-term funds, and that DR 9-102(F) requires the missing-client funds to go to the Lawyers' Fund instead.
Background and rules framework
The opinion interprets the former New York Code's trust-account rule DR 9-102, including the anti-commingling provision DR 9-102(A), the special-account requirement DR 9-102(B)(2), and the missing-client provision DR 9-102(F), against the IOLA framework. The corresponding Model Rule is MR 1.15. It relies on a series of New York State, county, and city bar opinions on interest on escrowed funds.
Citations and references
Rules of Professional Conduct:
- MR 1.15 (safekeeping property) / NY DR 9-102, DR 9-102(A), (B)(2), (F)
Other opinions cited:
- N.Y. State 582 (1987); N.Y. State 554 (1983); N.Y. State 532 (1981)
- N.Y. City 81-68 (1981); N.Y. City 79-48 (1980)
See also
- ISBA Ethics Op. 15-02: Disposition of Unclaimed and Unidentified Client Funds
- NYC Bar Ethics Op. 2014-3: Charging a Client's Credit Card
- ABA Formal Op. 505: Fees Paid in Advance
Source
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