Bar News - December 13, 2013
Ethics Corner: No Dollar Left Behind: What to Do With Unclaimed Client Funds
Dear Ethics Committee: The office where I work has a busy collections practice. When I am successful in obtaining recovery for my clients, according to our agreement, the funds recovered go into our client trust account. We deduct legal fees and expenses and forward the net proceeds to the client. Over the years, I have had a number of clients who have disappeared. Their businesses may have gone under or the clients may have moved without forwarding addresses. What should I do with these funds that have been in my client trust for several years? Can they be donated to IOLTA/New Hampshire Bar Foundation?
As you know, you have an obligation to safeguard your client’s property and “... promptly deliver to the client... any funds or other property that the client... is entitled to receive...” Rule 1.15(f). It is proper for you to maintain the client funds in your IOLTA account, or in an interest-bearing trust account, if the funds are substantial, until you locate the client or otherwise dispose of the funds. You should conduct a diligent search for your client – perhaps doing an Internet search for a new address, checking for mail forwarding, and if known and consistent with your duties under Rule 1.6, contacting family members. However, if you are unsuccessful in your search and five years have elapsed, then the property is presumed to be abandoned and escheats to the State of New Hampshire in accordance with RSA 471-C. Unless otherwise stated, the state is entitled to custody of unclaimed property that is presumed abandoned. This statute provides a mechanism for any holder, that is “... a person, wherever organized or domiciled, who is... in possession of property belonging to another...” to forward the funds to the Treasurer of the State of New Hampshire. Attorneys who hold unclaimed monies for clients are not exempt from this statute. Forms and instructions are available on the website of the Treasury Department.
The State of New Hampshire annually publishes a list of abandoned property and makes this list available on its website. The client may, at any time, retrieve his or her funds by following the process established by the Abandoned Property Division of the Treasury Department. The attorney is therefore relieved of any continuing obligation to search for the client.
The Report of Abandoned Property form that you transmit with the unclaimed client funds asks for the name, address, and Social Security number for your client. It may concern you that revealing a client’s name or other identifying information would be a breach of confidentiality. In that situation, the attorney should consider whether Rule 1.6(b) constitutes a safe haven for providing some or all of this information. It states that “A lawyer may reveal such (confidential) information to the extent the lawyer reasonably believes necessary... to comply with other law or a court order.” Rule 1.6(b)(4).
RSA 471-C:19, II requires that the person holding property of another provide to the treasury department the name and the last known address of the property owner, if known, and other information prescribed by rule. The purpose of this requirement is so that the owner/client may reclaim the property. Although not in the context of confidentiality (Rule 1.6), there are cases dealing with the related concept of attorney-client privilege that suggest exceptional circumstances may arise when a lawyer’s ability to disclose the client’s identity is limited. See e.g. US v Gertner, 873 F.Supp. 729, 735 (D. Mass. 1995) (... a client’s identity... may be privileged “where there is a strong probability that disclosure would implicate the client in the very criminal activity for which legal advice was sought.”) In the confidentiality situation, as in privilege law, these occurrences are rare. However, if confronted with a case in which the disclosure would, for example, implicate the client in a crime or fraud, the attorney may wish to seek further guidance.
You also inquired about whether the property may be donated to the New Hampshire Bar Foundation IOLTA Fund. Several bar associations have considered this question and suggested that the attorney may include a provision in a fee agreement that if the client cannot be located, unexpended client funds may be donated to a legal services program for the poor, as long as the amount is not substantial and the client had agreed to this provision without any pressure from the attorney. See e.g. ABA Informal Opinion 1391, Colorado Ethics Committee Formal Opinion 95 (Nov. 20, 1993). The NH Bar Ethics Committee concurs.
Some state bar associations have suggested, and we agree, that the attorney may be entitled to reasonable fees for searching for a client, if the amount of funds or the services rendered warrant compensation. See e.g. Colorado Ethics Committee Formal Opinion 95 (Nov. 20, 1993), Utah Bar Ethics Advisory Opinion No. 97-01 (Jan. 24, 1997). The committee would, however, caution you to refrain from putting into the fee agreement that the unclaimed funds are forfeited to the attorney. That may raise issues regarding Rule 1.5 and 1.15.
The NH Bar Association Ethics Committee provides general guidance on the New Hampshire Rules of Professional Conduct and publishes brief commentaries in the New Hampshire Bar News. New Hampshire lawyers may contact the committee for confidential and informal guidance on their own prospective conduct or to suggest topics for Ethics Corner commentaries by emailing Robin E. Knippers.