Can a Texas lawyer keep client escrow or trust funds in an interest-bearing account and retain the interest for himself?

Plain-English summary

The inquiry asked whether an attorney may ethically keep escrow funds or his trust account in an interest-bearing account and retain the interest himself. The Committee answered no, concluding that to do so would violate DR 9-102, which governs preserving the identity of client funds and property.

The Committee explained that, although DR 9-102 contains no express prohibition on retaining the interest from client money, the rule implicitly recognizes that a lawyer, acting as both an attorney and a fiduciary, has no right to client money and is held to a high standard of accountability. It pointed to the long-recognized fiduciary principle that a fiduciary may not personally profit from funds entrusted to his control, citing Bar Ass'n v. Marshall, and observed that the money simply does not belong to the attorney. The Committee acknowledged that DR 9-102(A) does not specify that interest earned on trust funds belongs to the client, a gap commentators had criticized, but it noted that no question was presented about whether an attorney must earn interest for the client, so it expressed no opinion on that point.

The holding, the Committee said, is that an attorney may not use client money to earn interest for himself by placing it in an interest-bearing account. Any other view would authorize attorneys to use other people's money to benefit themselves, inconsistent with the nature of the attorney-client relationship and inviting conflicts of interest and overreaching.

Currency note

This opinion was issued in 1982, under the former Texas Code of Professional Responsibility, which the Texas Disciplinary Rules of Professional Conduct replaced effective January 1, 1990. The Disciplinary Rules have since been amended, and Texas never adopted the ABA's Ethics 2000 framework. The closest current provision on safekeeping client property is Texas Rule 1.14, with ABA analog Model Rule 1.15. The separate question the Committee left open, whether and how interest on pooled client trust funds should be handled, was later addressed through the Texas IOLTA program, which the Committee took up in Opinion 421 (1984). Subsequent rule changes or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a Texas lawyer keep the interest earned on a client trust account?

A: No. The Committee concluded that an attorney may not use client money to earn interest for himself by placing it in an interest-bearing account, and that doing so violates DR 9-102.

Q: Why is retaining the interest a violation when DR 9-102 does not mention interest?

A: The Committee reasoned that the rule implicitly treats the lawyer as a fiduciary who has no right to client money, and that a fiduciary may not personally profit from entrusted funds; the money does not belong to the attorney.

Q: Did the opinion decide whether a lawyer must earn interest for the client?

A: No. The Committee noted that no such question was presented and expressly expressed no opinion on whether an attorney has an obligation to earn interest for the client.

Background and rules framework

The opinion interprets DR 9-102 (preserving the identity of funds and property of a client) of the former Texas Code of Professional Responsibility, reading its fiduciary premise to bar a lawyer from keeping interest earned on client funds. The closest current provision is Texas Rule 1.14, with ABA analog Model Rule 1.15. The analysis turns on the lawyer's fiduciary status and the principle that a fiduciary may not profit from entrusted funds.

Citations and references

Rules of Professional Conduct:

• MR 1.15 (safekeeping property), as the modern analog
• DR 9-102, DR 9-102(A) (former Texas Code of Professional Responsibility)

Cases:

• Bar Ass'n v. Marshall, 269 Md. 510, 307 A.2d 677 (1973), a lawyer's fiduciary accountability for client funds

See also

• TX Ethics Op. 421: Participation in the Equal Access to Justice (IOLTA) Program
• TX Ethics Op. 411: Retaining Lien on a Client's File for Unpaid Fees
• TX Ethics Op. 444: Nonprofit Using Unclaimed Client Trust Funds for Other Clients

Source

• Landing page: https://www.legalethicstexas.com/resources/opinions/opinion-404/
• Original PDF: https://tcle-web.s3.amazonaws.com/public/documents/Opinion_404.pdf

Original opinion text

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

QUESTION PRESENTED

May an attorney ethically keep escrow funds or his trust account in an interest bearing account and retain the interest himself?

DISCUSSION

No. To do so would violate Disciplinary Rule 9-102 which reads as follows: DR 9-102 Preserving Identity of Funds and Property of a Client. (A) All funds of clients paid to a lawyer or law firm, other than advances for costs and expenses, shall be deposited in one or more identifiable bank accounts maintained in the state in which the law office is situated and no funds belonging to the lawyer or law firm shall be deposited therein except as follows: (1) Funds reasonably sufficient to pay bank charges may be deposited therein. (2) Funds belonging in part to a client and in part presently or potentially to the lawyer or law firm must be deposited therein, but the portion belonging to the lawyer or law firm may be withdrawn when due unless the right of the lawyer or law firm to receive it is disputed by the client, in which event the disputed portion shall not be withdrawn until the dispute is finally settled. (B) A lawyer shall: (1) Promptly notify a client of the receipt of his funds, securities, or other properties. (2) Identify and label securities and properties of a client promptly upon receipt and place them in a safe deposit box or other place of safekeeping as soon as practicable. (3) Maintain complete records of all funds, securities, and other properties of a client coming into the possession of the lawyer and render appropriate accounts to his client regarding them. (4) Promptly pay or deliver to the client as requested by a client the funds, securities, or other properties in the possession of the lawyer which the client is entitled to receive.

While DR 9-102 does not contain a specific prohibition on retaining the interest from client money, implicit in the rule is a recognition that an attorney, both as an attorney and a fiduciary, has no right to client money and is held to a high standard of accountability. In such a relationship, the attorney accepts the client's funds in trust and remains strictly accountable for his or her own conduct in administering that trust. See, Bar Ass'n v. Marshall, 269 Md. 510, 307 A.2d 677, 682 (1973). And, while the argument has been advanced that money should not lie fallow, it has long been a well- recognized rule of fiduciary relationships that a fiduciary may not personally profit from funds or property entrusted to his control or custody. Furthermore, nothing can change the fact that the money simply does not belong to the attorney.

DR 9-102(A) does not specify that the interest earned on the funds in the client's trust account belongs to the client, however. Commentators have criticized this omission, noting that it might allow attorneys to misappropriate such interest. Note, "Attorney Misappropriation of Clients' Funds: A Study in Professional Responsibility," 10 U. Mich. J.L. Ref., 415, 436 (1977). But, since no question is presented as to whether an attorney has an obligation to earn interest for the client, the Committee expresses no opinion. The holding of this opinion is that an attorney may not use client money to earn interest for himself by placing it in an interest bearing account.

Were this committee to take any other view, it would be authorizing attorneys to use other people's money to benefit themselves. Such a holding would be inconsistent with the nature of the attorney-client relationship as well as approving a situation fraught with possibilities for conflicts of interest and overreaching.

Tex. Comm. On Professional Ethics, Op. 404 (1982)