Taxation & Estate Planning

An Ohio Lawyer’s Duty of Safekeeping Funds

By Michael D. Bonasera, Esq.

On December 7, 2007, the Ohio Board Of Commissioners On Grievances And Discipline issued Opinion 2007-7 (Word) addressing what duties a lawyers has when holding a client’s funds that the lawyer “knows” may belong to third persons. It is this latter part - the “third persons” part - that is especially vexing for us as fiduciary practitioners because of the potential ethical liabilities that creates.

Via the Elam case (Elam v. Hyatt Legal Services (1989), 44 Ohio St.3d 175), Ohio still applies a privity analysis to determine malpractice liability for attorneys. It is because of this privity standard that Ohio fiduciary/probate practitioners are ever wary of “Third Parties.”

The opinion further says:

This Board?s view of the meaning of an ?interest? sufficient to trigger safekeeping duties under Ohio?s Rule 1.15 is guided by Comment [4]. A lawful claim of a third person against specific funds in a lawyer?s custody that is not frivolous under applicable law is an interest subject to a lawyer?s ethical duty of safekeeping for which a lawyer may have a duty under applicable law to protect. In short, a lawful claim of a third person to specific funds in a lawyer?s possession is an ?interest? for purposes of Rule 1.15.

Obviously, this doesn’t help much. Can a lawyer holding disputed funds rely on his/her own judgment to determine if a claim is lawful? “Professors Hazard and Hodes state that use of the phrases ‘lawful claims’ and ‘duty under applicable law’ suggest that the third party must have a matured legal or equitable claim.” But what does “a matured legal or equitable claim” mean? Can a lawyer holding disputed funds rely on his/her own judgment to determine when a claim is frivolous? That would be nice wouldn’t it! And apparently, even after determining that the claim(s) to the funds in the lawyer’s possession is legal/matured and not frivolous (and lets not forget its only under applicable law - because we always know what law to apply and its always clear) that a lawyer may then have a duty… wow.

Full post as published by The Ohio Trust & Estate Blog on January 04, 2008 (boomark / email).