LEO #1636 TRUST FUNDS; USE OF FUNDS RECEIVED FROM CLIENT INTENDED
          AS REIMBURSEMENT FOR COSTS AND EXPENSES INCURRED BY
          FOREIGN LAW FIRM

You have presented a hypothetical situation in which foreign law
firms provide services which are used together with services
provided by a Virginia attorney on behalf of a client.  The
Virginia attorney bills the client for services plus costs which
were billed from the foreign law firm to the Virginia attorney.  In
some instances, the Virginia attorney uses funds received from the
client for expenses or purposes other than reimbursement of costs
and expenses incurred by the foreign law firm.  You also indicate
that it has been the practice of the Virginia attorney to place
such funds received from the client into the firm's operating
account, instead of the trust account.

You further indicate that in some cases, while the Virginia
attorney has received funds from the client for payment of costs,
up to and more than six months may pass before the Virginia
attorney reimburses the foreign law firm for costs advanced on that
particular client's matter.

Under the facts you have presented, you have asked the committee to
opine as to the propriety of the Virginia attorney's procedure for
handling funds received by a client for payment of costs billed or
invoiced by the foreign law firm and whether such funds are subject
to the requirements of DR 9-102 and DR 9-103 of the Code of
Professional Responsibility.

The appropriate and controlling disciplinary rules relative to your
inquiry are DR 9-102, which governs the handling of trust funds,
and DR 9-103 which mandates certain minimum record keeping
requirements with respect to trust funds. 

In the facts you present, the committee believes that the funds
received by the Virginia attorney from the client for the payment
of costs incurred by the foreign law firm, and for which the
foreign firm has not received payment by the Virginia attorney, are
trust funds subject to the requirements of DR 9-102 and DR 9-103. 
As such, these funds should be placed in the Virginia attorney's
trust account, and  the record keeping requirements under DR 9-103
apply to the handling of such funds.

The committee is of the opinion that there would be no impropriety
under DR 9-102 or DR 9-103 if the funds received from the client
were for reimbursement of costs already paid or advanced by the
Virginia attorney to the foreign law firm.  In such case, the
Virginia attorney may deposit such funds into the firm's operating
account. 

The committee bases its opinion on the language in DR 9-102(A)
which requires that all funds received or held by an attorney on
behalf of a client, other than reimbursement of advances for costs
and expenses, shall be deposited in one or more identifiable trust
accounts.  The committee believes the highlighted language refers
to and creates an exception for funds paid by the client to
reimburse an attorney for costs already paid by the attorney in
handling a client's legal matter.  In such an instance, the
attorney would normally have advanced funds from the firm's
operating account to pay a client's cost or expense.  Therefore,
the reimbursement by the client for costs already advanced or paid
by the attorney are not client funds but belong to the attorney and
should be placed in the operating account, and not commingled with
other client funds in the trust account.  Under the facts of your
inquiry, however, the Virginia attorney has not paid any funds to
the foreign law firm, for costs or expenses invoiced by the latter. 
Therefore, the funds collected from the client are not to reimburse
the Virginia attorney, but are implicitly, if not expressly for the
purpose of payment to the foreign law firm.  As such it is improper
for the Virginia attorney to place these client funds into the
operating account.

In addition, it is not proper for the Virginia attorney to use such
funds for purposes other than payment to the foreign law firm for
costs advanced by the latter.  In fact, unless the client disputes
the amount of costs incurred by the foreign law firm, upon receipt
of client funds for payment of these costs, the Virginia attorney
has an ethical duty to promptly pay or deliver funds designated for
payment to a third party such as the foreign firm.  DR 9-102 (B)(4)
imposes fiduciary duties when an attorney receives funds from a
client designated for payment to a third party.  In paying the bill
submitted by the Virginia attorney, which included charges for
costs advanced by the foreign law firm, the client implicitly, if
not expressly, directed the Virginia attorney to pay the foreign
law firm for expenses incurred in servicing the Virginia attorney's
client.

The committee believes that paragraph 7 of the fee schedule does
not change its conclusions regarding the handling of these funds. 
Finally, DR 9-103 does require, among other things, that for each
client separate subsidiary ledgers be maintained to account for
client funds received and disbursed by the Virginia attorney.    

[DRs 9-102(A) and (B)(4)], 9-103]

Committee Opinion
April 19, 1995