Can a lawyer charge a payee to recover the stop-payment and reissuance costs for a trust-account check that was never cashed?

Plain-English summary

A residential real estate lawyer frequently issues small checks from the trust account to clients and third parties, and a number go uncashed, creating ongoing maintenance costs (labor, stop-payment fees, and mailing fees for reissuance). The lawyer asked whether he could charge an amount to cover the administrative costs of stop-payments, reissuance, and re-mailing for checks outstanding more than 30 days after issuance.

The Committee concluded the lawyer may charge a check recipient an amount to cover the administrative measures used to resolve the outstanding check, including expenses such as stop-payment and postage fees, provided the amount charged is not unreasonable. It noted the inquiry implicates Rule 1.5 but that Rule 1.15, the Financial Recordkeeping Rules (Rule 417, SCACR), and the IOLTA Rules (Rule 412, SCACR) govern the trust-accounting obligations and must be complied with.

The analysis turned on Rule 1.5(a)'s prohibition on charging an unreasonable fee or an unreasonable amount for expenses, and on Comment 1 to Rule 1.5, which allows a lawyer to seek reimbursement for in-house services by charging an amount that reasonably reflects the cost incurred. Because the lawyer incurs both actual third-party expenses and in-house time and effort in resolving stale checks, the lawyer may charge an amount against the recipient's check for reimbursement, provided it is not unreasonable.

The Committee placed one firm limit on collection. The lawyer may deduct the charge from funds remaining in trust after adequate steps have been taken to cancel, void, or nullify the previously issued check, and, regardless of the reasonableness of the amount, the deduction is limited to the total amount of funds that were to be paid by the previously outstanding check, to avoid using funds belonging to a party other than the intended recipient. Apart from that limit, the Committee specifically declined to opine on whether any particular amount meets the "not unreasonable" requirement of Rule 1.5(a).

In practice

Under this opinion, a lawyer may recoup the reasonable administrative cost of resolving an uncashed trust-account check, including third-party fees and in-house time, by charging it against the payee. The opinion holds that the charge may be deducted only after the original check is canceled or voided and only from the funds that were to be paid by that check, so the lawyer never reaches another party's money, and it leaves the question of what specific amount is "not unreasonable" to the lawyer under Rule 1.5(a), within the constraints of Rules 1.15, 417, and 412, SCACR.

Common questions

Q: Can a lawyer charge a payee for the cost of stopping payment and reissuing an uncashed trust check?

A: Yes. The opinion concludes a lawyer may charge a recipient an amount covering the administrative cost of resolving the outstanding check, including stop-payment and postage fees, if the amount is not unreasonable.

Q: Can the lawyer recover in-house time, not just out-of-pocket fees?

A: Yes. The opinion relies on Comment 1 to Rule 1.5, which allows charging an amount that reasonably reflects the cost of in-house services, in addition to the third-party expenses incurred.

Q: Where can the lawyer take the charge from?

A: The opinion limits the deduction to the funds that were to be paid by the previously outstanding check, after the check has been canceled or voided, so the lawyer does not use funds belonging to another party.

Q: Did the Committee say how much the lawyer can charge?

A: No. Apart from the cap at the amount of the original check, the opinion specifically declines to opine on whether any particular amount meets the "not unreasonable" requirement of Rule 1.5(a).

Background and rules framework

The opinion interprets Rule 1.5 (fees), specifically 1.5(a)'s bar on unreasonable fees or expense charges and Comment 1's allowance for reasonable in-house cost reimbursement, while noting that Rule 1.15 (safekeeping property) and the South Carolina court rules on financial recordkeeping (Rule 417, SCACR) and IOLTA (Rule 412, SCACR) govern the trust-accounting obligations. South Carolina's Rules 1.5 and 1.15 correspond to the ABA Model Rules.

Citations and references

Rules of Professional Conduct:

• MR 1.5 / SC RPC 1.5(a) (fees; no unreasonable fee or expense charge)
• MR 1.15 / SC RPC 1.15 (safekeeping property; trust accounting)

Court rules:

• Rule 417, SCACR (financial recordkeeping)
• Rule 412, SCACR (IOLTA)

See also

• ABA Formal Op. 93-379: Billing for Fees and Expenses
• ABA Formal Op. 00-420: Surcharge for a Contract Lawyer

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-22-04/
• Original PDF: https://www.scbar.org/media/gkdbsveb/22-04_eao_webfile622.pdf

Original opinion text

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

ETHICS ADVISORY OPINION

22-04

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER'S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

SC Rules of Professional Conduct: 1.5, 1.15.

Facts: Due to the nature of a residential real estate practice, Lawyer frequently issues relatively small dollar amount checks from Lawyer's trust account to both clients and third parties. A number of these checks are not timely negotiated, resulting in ongoing trust accounting maintenance costs, including labor costs, stop-payment fees, and mailing fees for uncashed trust account checks that require stop payments and/or reissuance and re-mailing to the payee.

Question Presented: May Lawyer charge an amount to cover administrative costs associated with stop-payment fees and trust account check reissuance and re-mailing fees for checks that remain outstanding for more than thirty (30) days after issuance?

Summary: Yes, Lawyer may charge a check recipient an amount to cover administrative measures undertaken to resolve the outstanding check, which includes expenses incurred such as stop payment fees and postage fees, provided the amount charged is not unreasonable.

Opinion: This inquiry implicates Rule 1.5; however, Rule 1.15, together with the Financial Recordkeeping Rules found in Rule 417, SCACR, and the IOLTA Rules at Rule 412, SCACR, govern the Lawyer's trust accounting obligations and must be considered and complied with as to any lawyer trust accounting issues.

Rule 1.5(a) begins with this fundamental statement, "A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses." The foregoing sentence governs this inquiry. Comment 1 to Rule 1.5 provides, in relevant part, "A lawyer may seek reimbursement for the cost of services performed in-house…by charging an amount that reasonably reflects the cost incurred by the lawyer." Here, in conjunction with the administrative measures undertaken by Lawyer in addressing and resolving trust account checks that remain outstanding for more than thirty (30) days, it appears that Lawyer incurs actual expenses to third-parties as well as costs associated with the in-house expenditure of time and effort on the part of Lawyer and his staff. Consequently, Lawyer may charge an amount against the recipient's check to obtain reimbursement for the same, provided the amount charged is not unreasonable. To collect on such amount charged, Lawyer may deduct the amount to be charged from funds that remain in trust after adequate steps have been taken to cancel, void, or otherwise nullify the previously issued check that Lawyer is undertaking efforts to replace. Regardless of reasonableness of the amount to be charged, deduction of that amount by Lawyer is limited to the total amount of funds that were to be paid by the previously outstanding check to avoid use of funds belonging to another party besides the intended check recipient. Apart from the limit referenced, the Committee specifically avoids opining as to whether any specific amount meets the "not unreasonable" requirement of Rule 1.5(a).