Where must a lawyer deposit a large client fund held pending settlement, and can the client direct the interest to the Oregon Law Foundation instead of earning it?
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This page answers the general question as of 2014. Ezel answers yours: whether it's allowed on your facts, under the current Oregon Rules of Professional Conduct, with citations.
Plain-English summary
A lawyer represents a defendant in litigation. To aid settlement, the defendant forwards a substantial sum so the lawyer can pay promptly if a settlement is reached later, and the defendant wants the maximum possible rate of return earned while the lawyer holds the funds. The opinion asks what limits exist on the type of institution or account in which the lawyer may place the funds, and answers by reference to the trust-accounting rules.
The opinion sets out Oregon RPC 1.15-1(a), which requires client funds to be held in a separate interest-bearing lawyer trust account at an institution selected with reasonable care, and Oregon RPC 1.15-2, which distinguishes IOLTA accounts (for funds that cannot earn net interest, with interest paid to the Oregon Law Foundation) from interest-bearing accounts for the client's benefit (for funds that can earn net interest). Rule 1.15-2(d) lists the factors, including the amount, the expected duration, prevailing interest rates, and the cost of a separate account, that determine whether particular funds can earn net interest. Rule 1.15-2(h) limits trust accounts to institutions that meet stated banking, FDIC-insurance, Oregon Law Foundation, and overdraft-notification requirements.
Applying those rules, the opinion concludes that because the amount is substantial and is expected to be held long enough to earn net interest, the defendant's funds must be placed in an interest-bearing trust account at one of the qualifying institutions, with the interest accruing to the client under RPC 1.15-2(c). The opinion adds that nothing in Rule 1.15-2 prohibits the defendant from waiving the right to that interest and authorizing payment to the Oregon Law Foundation. Because that waiver may have tax implications, the lawyer should inform the defendant of the possibility and recommend independent tax advice; if the lawyer chooses to advise on the point, the lawyer may have a self-interest conflict under Oregon RPC 1.7(a)(2) and would need the client's informed consent under RPC 1.7(b). A footnote notes Oregon RPC 1.4(b) requires the lawyer to explain the matter enough for the client to make an informed decision.
In practice
The opinion holds that, under the Oregon rules as they stood at the time, the placement of client funds turns on whether they can earn net interest: substantial, longer-held funds go into an interest-bearing account for the client's benefit, while funds that cannot earn net interest go into the pooled IOLTA account. Per the opinion, a client may choose to waive the interest to the Oregon Law Foundation, in which case the lawyer should flag the possible tax consequences and recommend independent tax advice. Verify the current text of Oregon RPC 1.15-1 and 1.15-2 before relying on any specific point.
Common questions
Q: Where must a lawyer deposit a large client fund that will be held for a while before settlement?
A: In an interest-bearing trust account for the client's benefit at a qualifying institution, not the pooled IOLTA, because the opinion concludes funds that can earn net interest must be held under Oregon RPC 1.15-2(c).
Q: How does a lawyer decide whether funds go in IOLTA or a separate interest-bearing account?
A: Per the opinion, Oregon RPC 1.15-2(d) sets the factors: the amount, the expected duration of the deposit, prevailing interest rates, the cost of a separate account, and the institution's ability to compute and pay client income.
Q: Can the client choose to give up the interest?
A: Yes. The opinion concludes nothing in Rule 1.15-2 prohibits the client from waiving the interest to the Oregon Law Foundation, but the lawyer should advise of possible tax consequences and recommend independent tax advice.
Background and rules framework
The opinion interprets Oregon RPC 1.15-1 (safekeeping client property and trust accounts) and Oregon RPC 1.15-2 (IOLTA and interest-bearing client accounts, qualifying institutions, and the net-interest factors), corresponding to Model Rule 1.15, along with Oregon RPC 1.7(a)(2) and 1.4(b) on the lawyer's advice about waiving interest.
Citations and references
Rules of Professional Conduct:
- Oregon RPC 1.15-1 / Model Rule 1.15 (safekeeping property; trust accounts)
- Oregon RPC 1.15-2 (IOLTA and interest-bearing client accounts; qualifying institutions)
- Oregon RPC 1.7(a)(2) (personal-interest conflict)
- Oregon RPC 1.4(b) (explaining a matter so the client can decide)
Other opinions cited:
- Washington Advisory Op. No. 193 (1996)
See also
- OSB Ethics Op. 2005-68: Trust Account, Disputed Settlement Funds
- OSB Ethics Op. 2005-48: Unclaimed Client Funds in Trust
- OSB Ethics Op. 2005-55: Lawyer as Escrow Agent
Source
- Landing page: https://www.osbar.org/ethics/toc.html
- Original PDF: https://www.osbar.org/_docs/ethics/2005-117.pdf
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