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Introduction and Scope
The Ethics Committee of the Colorado Bar Association has been asked to provide guidance to Colorado attorneys concerning ethical considerations regarding disposition of funds held in the lawyer's trust account when the client's whereabouts are no longer known to the attorney. Generally, the issue arises after a lawyer has begun representing a client, a nominal amount of the client's funds remains in the lawyer's trust account, and the client no longer can be located. For the purpose of this opinion, we are assuming that the lawyer properly placed the funds in an account authorized by Rule 1.15(e) of the Colorado Rules of Professional Conduct (providing for the Colorado Lawyers Trust Account Foundation (COLTAF)).
Syllabus
A lawyer may request in advance, as part of a written retainer agreement, that a client consent to the donation of unexpended funds if the client subsequently cannot be located provided that such consent is given freely and without any pressure exerted upon the client. In the alternative, a lawyer may ethically permit nominal amounts of client funds to remain in his or her COLTAF account. The lawyer may make reasonable expenditures from the fund to attempt to locate the client. If such efforts are unavailing, the lawyer may hold indefinitely in the COLTAF account funds which are nominal in amount. Alternatively, the lawyer may proceed under the Unclaimed Property Act, C.R.S. 38-13-101, et seq., to have the funds be considered as abandoned property and delivered to the Colorado state treasurer. In the case of funds which are not nominal but are expected to be held for a short period of time, the lawyer may be required to proceed under the Unclaimed Property Act.
Analysis
Rule 1.15 sets forth the lawyer's obligation to preserve client funds. Rule 1.15(a) provides, in pertinent part, that a lawyer shall hold property of clients or third persons that is in a lawyer's possession separate from the lawyer's own property and in a separate account. The lawyer must also maintain complete records of such account funds for a period of six years after termination of the representation. Rule 1.15(b) requires that "upon receiving funds in which a client or third person has an interest, a lawyer shall promptly or otherwise as permitted by law or agreement with the client, deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, render a full accounting regarding such property."
Additionally, Rule 1.15(e) provides that, with certain exceptions, a lawyer must place funds of clients or third persons "which are nominal in amount or are expected to be held for a short period of time" in a COLTAF account. Rule 1.15 is substantially similar to DR 9-102 of the former Code of Professional Responsibility. Neither the Colorado Rules nor the former Colorado code specifically sets forth the obligations of an attorney with regard to the property of a missing client, nor has the Colorado Supreme Court addressed this issue.
A lawyer is also obligated to comply with C.R.S. 15-1-501, et seq., concerning fiduciary responsibilities; and under certain circumstances the Colorado Unclaimed Property Act, C.R.S. 38-13-101, et seq., may apply.
A. Provision in Retainer Agreement
The lawyer may address the possible ethical problem in dealing with funds of a client whose whereabouts are unknown through the terms of the written retainer agreement. Rule 1.5(b) states that when the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation. In Informal Opinion 1391 (1977), the American Bar Association Committee on Ethics and Professional Responsibility concluded that it would not be unethical for a legal services program for the poor to request in advance a client's consent to the donation of unexpended funds to the program if the client cannot subsequently be located, provided that ". . . a full explanation is given to the client and no pressure is exerted to secure the consent." That opinion also recommends that the funds be held for a reasonable time before transfer from the client trust account to the program funds and that reasonable efforts be made to locate the client. The committee concludes that this rationale is consistent with the Rules of Professional Conduct, particularly Rule 1.15.
Consistent with the Rules, a lawyer may provide in a retainer agreement that if the client cannot be located after reasonable efforts, that unexpended client funds may be donated to a legal services program for the poor. ABA Informal Opinion 1391, supra. A retainer agreement may similarly provide that if the client's whereabouts remain unknown, the client may designate another beneficiary of the expended funds, such as another nonprofit organization, or a friend or relative of the client. See Rule 1.15(b). Of course, the retainer agreement could specify COLTAF as a beneficiary of the unexpended funds if the client cannot be located.
The retainer agreement may provide that a reasonable amount of the client's unexpended funds may be used on efforts to locate the client.(1)
Furthermore, Rule 1.15(a) requires a lawyer to maintain complete records of trust account funds and preserve them for six years after termination of the representation. Presumably, this requires the lawyer to maintain the client's address and telephone number or some other means of contacting the client. See Michigan State Bar Committee on Professional and Judicial Ethics, Opinion RI-58 (September 5, 1990).
B. No Provision in Retainer Agreement
What are the attorney's responsibilities if there is no provision in the retainer agreement specifying the distribution of unexpended funds when a client's whereabouts are no longer known? There are two viable alternatives.
First, if the funds are nominal in amount, the attorney may keep the unexpended funds in his or her COLTAF account. In this situation, there is no provision in Rule 1.15 that would require the lawyer to remove the money from his or her COLTAF account if the client's whereabouts are unknown. Accordingly, the lawyer would satisfy his or her ethical responsibilities simply by leaving the unexpended funds in the COLTAF account.(2)
Second, the lawyer may consider whether the provisions of the Unclaimed Property Act provide an alternative means of disposing of unexpended funds.(3) Generally speaking, the Unclaimed Property Act applies to amounts of money greater than $50 in circumstances where the owner of the money cannot be found. See C.R.S. Section 38-13-110(5)(c). The Act appears to be applicable to attorneys, since C.R.S. 38-13-108 applies to property held by agents and fiduciaries.(4) That statute requires that "intangible property and any income or increment derived therefrom held in a fiduciary capacity for the benefit of another person is presumed abandoned unless the owner, within three years after it has become payable or distributable, has increased or decreased the principal, accepted payment of principal or income, communicated concerning the property, or otherwise indicated an interest by a memorandum or other record on file prepared by the fiduciary."
In some circumstances it may not be clear when the three year presumed abandonment period begins to run. Accordingly, once an attorney determines that a client's whereabouts are unknown, the attorney could start the running of the presumed abandonment period by contacting the client in writing at the client's last known address notifying the client that the attorney has unexpended client funds and that they are payable or distributable to the client. Utilizing these procedures would be optional for nominal amounts of client funds, unless it is clear from the circumstances of the case that the unexpended funds are payable or distributable to the client.
However, in the case of COLTAF funds expected to be held for a short period of time, the client would reasonably expect that those funds would be "payable or distributable" once that short period of time has expired. Thus, in this situation, resort to the provisions of the Unclaimed Property Act might be mandatory.
Under the Unclaimed Property Act, the attorney would then have to wait three years before the client's unexpended funds would be presumed abandoned. After the three years, the attorney could follow the procedures in the Unclaimed Property Act which would result in delivering the money to the Colorado state treasurer if the client's whereabouts remain unknown. Following this procedure would enable the attorney to satisfy his or her obligations under Rule 1.15, especially since the Unclaimed Property Act allows the property owner, upon presentation of the proper proof, to reclaim funds from the Colorado state treasurer's office.
Ethics committees in other jurisdictions have approved the practice of following state unclaimed property laws to dispose of funds of clients whose whereabouts are unknown after reasonable efforts have been made to locate them. See Maryland Opinion 90-25 (February 22, 1990) (lawyer who receives check for a client's claim and who is unable to locate the client after reasonable efforts must dispose of the check according to the Maryland Uniform Disposition of Abandoned Property Act); North Carolina Opinion 89 (April 12, 1990) (lawyer holding client trust funds for a client who has disappeared may deem the funds abandoned and pay the money into the escheat fund pursuant to the state statute on abandoned property after five years when certain conditions are met); Vermont Opinion 87-9 (August 1987) (lawyer who owes an unearned portion of a retainer to a client who cannot be located despite a diligent search for seven years may dispose of the funds by taking steps in state unclaimed property law).
Conclusion
To avoid an ethical problem concerning unexpended funds of a client whose whereabouts are unknown, a lawyer may make proper provisions in a written retainer agreement, provided that the client's consent to the disposition set out in the retainer agreement was freely and knowingly given. Pursuant to Rule 1.15, if unexpended client funds are nominal in amount the lawyer may maintain such funds indefinitely in his or her COLTAF account. The lawyer may also expend a reasonable amount of the client's funds in an effort to locate the client. Alternatively, the lawyer may follow the procedures of the Colorado Unclaimed Property Act for nominal amounts and take necessary measures to deliver the client's unexpended funds to the Colorado state treasurer pursuant to that act. In the case of client funds expected to be held for a short period of time, the Unclaimed Property Act may be mandatory after the expiration of the short time period.
1. Even without such a provision in a retainer agreement, a lawyer may expend a reasonable amount of the client's unexpended funds in order to locate the client. See Rule 1.15(b) (lawyer may take steps "permitted by law" to deliver funds to client).
2. Although not required to do so, the lawyer could follow the procedures discussed below under the Unclaimed Property Act for unexpended funds of nominal amount.
3. Lawyers should consider whether any changes to this statute by the legislature or by judicial interpretation might affect this analysis.
4. In rare circumstances, compliance by a lawyer with the disclosure and turnover requirements of the Unclaimed Property Act could violate the lawyer's duty under Rule 1.6(a) to maintain the confidentiality of "information relating to representation of a client." To the extent that a lawyer's duties under the Rules of Professional Conduct conflict with the Unclaimed Property Act, questions may arise as to the constitutionality of the statute as applied to lawyers because of the Colorado Supreme Court's exclusive constitutional authority to regulate the practice of law. The resolution of any such conflict, however, is beyond the scope of this Opinion.
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