Are the trust accounts of a law-related or ancillary business operated by a lawyer subject to the same trust-account, overdraft-notification, and audit rules as a law practice?
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This page answers the general question as of 1994. Ezel answers yours: whether it's allowed on your facts, under the current rules of professional conduct in your state, with citations.
Plain-English summary
The Board was asked whether the trust accounts of law-related ventures operated by lawyers were subject to the trust-overdraft notification and audit provisions of Supreme Court Rule 9, Section 29 and to the trust-account provisions of DR 9-102. It noted that lawyers had historically conducted law-related activities through non-lawyer entities, listing examples such as title and closing companies, trust and escrow services, brokerage firms, lending institutions, collection agencies, arbitration and mediation services, business consulting, financial and tax planning, lobbying, real-estate development, and environmental consulting.
The opinion observed that ABA Model Rule 5.7 (which addresses lawyers offering law-related services) had no counterpart in the Tennessee Code, and that Tennessee Formal Ethics Opinions 82-F-34 and 82-F-36 permitted lawyers and firms to engage in law-related activities provided they were performed in compliance with the Code of Professional Responsibility. From that premise it concluded that all of the Code's Canons, Ethical Considerations, and Disciplinary Rules apply fully to the delivery of law-related services by lawyers.
Applying that principle, the opinion held that the trust-overdraft notification and audit provisions of Rule 9, Section 29 are fully applicable, as are the requirements of DR 9-102 on preserving and maintaining trust accounts and the provisions for the IOLTA program (and Formal Ethics Opinion 89-F-121 on the mechanics of trust accounting). It added that the entire Code embodied in Supreme Court Rule 8 and the disciplinary-enforcement provisions of Supreme Court Rule 9 apply to law-related activities, and that a lawyer is ethically required to disassociate from any law-related entity the lawyer owns or controls, and to report the activity under DR 1-103, if the lawyer reasonably should know the activity is not conducted in compliance with lawyers' ethical and professional responsibilities.
Currency note
This opinion was issued in 1994, before Tennessee's adoption of the 2003 Rules of Professional Conduct, which replaced the former Code of Professional Responsibility (including DR 9-102 and DR 1-103) on which it relied, and before the ABA's 2002 Ethics 2000 revisions. The modern analogs are RPC 1.15 (safekeeping property and trust accounts), RPC 5.7 (responsibilities regarding law-related services, which Tennessee later adopted), and RPC 8.3 (reporting professional misconduct). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance, and verify against the current rules before relying on any specific requirement mentioned here.
Common questions
Q: Did a lawyer's ancillary business (such as a title or escrow company) have to follow the lawyer trust-account rules?
A: Per the opinion, yes. It concluded that the trust accounts of law-related ventures operated by lawyers were fully subject to the overdraft-notification and audit provisions of Supreme Court Rule 9, Section 29 and to the trust-account requirements of DR 9-102, including IOLTA.
Q: Tennessee had no Rule 5.7. Did that mean the Code did not reach law-related services?
A: No. The opinion explained that, although there was no Tennessee counterpart to ABA Model Rule 5.7, prior opinions (82-F-34 and 82-F-36) allowed law-related activities only in compliance with the Code, so all of the Code's Canons, Ethical Considerations, and Disciplinary Rules applied to them.
Q: What if a lawyer learned the law-related entity was not following the ethics rules?
A: The opinion concluded the lawyer was ethically required to disassociate from any law-related entity the lawyer owned or controlled, and to report the activity under DR 1-103, if the lawyer reasonably should know it was not conducted in compliance with lawyers' ethical responsibilities.
Background and rules framework
The opinion interpreted former DR 9-102 (preserving the identity of client funds and property; trust accounts) and the trust-overdraft and audit provisions of Supreme Court Rule 9, Section 29, together with DR 1-103 (reporting misconduct), against the backdrop of Tennessee opinions allowing law-related activities in compliance with the Code. The modern analogs are Model Rule 1.15 / Tennessee RPC 1.15 (safekeeping property), Model Rule 5.7 / Tennessee RPC 5.7 (responsibilities regarding law-related services), and Model Rule 8.3 / Tennessee RPC 8.3 (reporting professional misconduct).
Citations and references
Rules of Professional Conduct (former Code):
- DR 9-102 (trust accounts; preserving client funds and property). Modern analog: Model Rule 1.15 / Tennessee RPC 1.15
- DR 1-103 (reporting misconduct). Modern analog: Model Rule 8.3 / Tennessee RPC 8.3
- (Law-related services generally). Modern analog: Model Rule 5.7 / Tennessee RPC 5.7
Other opinions cited:
- Tennessee Formal Ethics Opinions 82-F-34 and 82-F-36 (law-related activities permitted in compliance with the Code)
- Tennessee Formal Ethics Opinion 89-F-121 (mechanics of trust accounting)
- ABA Formal Opinions 54, 57, 233, 234, 297, 305, and 328 (cited in the earlier Tennessee opinions)
See also
- NY State Bar Op. 886: Ancillary Business Organizations and Conflicts
- NJ ACPE Op. 682: Lawyer-Owned Bar-Related Title Insurer
- AL Ethics Op. 1987-161: Lawyer Also Acting as a Real Estate Broker
Source
- Landing page: https://www.tbpr.org/ethic_opinions/94-f-135
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
94-F-135 - Trust Accounts of Law Related Services
BOARD OF PROFESSIONAL RESPONSIBILITY OF THE SUPREME
FORMAL ETHICS OPINION 94-F-135
Inquiry is made whether the trust accounts of law related ventures operated by lawyers are subject to the trust overdraft notification and audit provisions of Rule 9, Section 29 and the trust account provisions of Disciplinary Rule 9-102.
Lawyers have historically engaged in law related activities by operating non-lawyer entities. Some of the law related ventures or ancillary businesses operated, and law related services provided, by lawyers are real estate title companies/agencies, real estate closing companies/agencies, trust/escrow services, brokerage firms, lending institutions, collection companies/agencies, arbitration/mediation services, management/business consulting, tax/financial planning, lobbying, real estate development, environmental consulting, etc.
Rule 5.7 of the American Bar Association (ABA) Model Rules of Professional Conduct makes it unethical for lawyers or law firms to offer non-legal services functionally connected or ancillary to the practice of law (law related services) to anyone except clients.
There is no counterpart to ABA Model Rule 5.7 in the Tennessee Code of Professional Responsibility. Tennessee Formal Ethics Opinions 82-F-34 and 82-F-36, citing ABA Formal Opinions 54, 57, 233, 234, 297, 305 and 328 and Disciplinary Rules 2-101 through 2-105,permit lawyers or law firms to engage in law related activities provided they are performed in compliance with the Code of Professional Responsibility. All the Canons, Ethical Considerations and Disciplinary Rules of the Code are fully applicable to the delivery of law related services by lawyers. Lawyers or law firms which provide law related services or operate, own or control law related business ventures or which provide law related services,are ethically required to comply with all applicable ethical rules. The trust overdraft notification and audit provisions of Rule 9, Section 29 are fully applicable. The requirements of Disciplinary Rule 9-102 on preserving and maintaining trust accounts and the provisions for the IOLTA program are fully applicable as well as Formal Ethics Opinion 89-F-121, on the mechanics of trust accounting. All the provisions of the Code of Professional Responsibility embodied in Tennessee Supreme Court Rule 8 and the disciplinary enforcement provisions of Tennessee Supreme Court Rule 9 are fully applicable to law related activities by lawyers or law firms.
Lawyers are ethically required to disassociate from any law related entity operated, owned or controlled by lawyers or law firm, and to report the activity pursuant to Disciplinary Rule 1-103, if they reasonably should know that the law related activity is not conducted in compliance with the ethical and professional responsibilities of lawyers.
This 9th day of December, 1994.
ETHICS COMMITTEE:
Brenda Y. Hall
Donna Simpson Massa
C. Richard Dietzen
APPROVED AND ADOPTED BY THE BOARD
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