You have presented a hypothetical situation in which a law firm represents a number of creditors in the collection of delinquent consumer/retail accounts.  The firm maintains a separate trust account for each major client, into which they deposit only those funds collected on behalf of that client from account debtors.  All of these funds held in each individual account belong only to one client, but are collected from a multitude of different debtors.


Under the facts you have presented you have asked the following questions:


1.         When an attorney trust account holds funds for only one client, is it necessary to remit only on irrevocably credited funds in a trust account, or may remittances be made on a more prompt basis without violating the Rules of Professional Conduct?


2.         If the answer to the first question is that disbursements on uncollected funds are permissible under those circumstances, is the same conclusion reached if the retail accounts that are being collected by the client have been “securitized”, leaving the client with only servicing and perhaps some residual rights under the securitization process?


Rule 1.15 governs the lawyer’s duty to safeguard other’s property and 1.15 (c) states that “ [A] lawyer shall: … (4) promptly pay or deliver to the client ….the funds, securities, or other properties in the possession of the lawyer which such person is entitled to receive.”


This committee has previously made reference in various LEOs to the term “irrevocably credited” when referring to the appropriate designation of funds available to be ethically disbursed to clients.[1]  LEO 1255 clearly states this committee’s continuing opinion on the correct timing of disbursement of funds.[2]  As the requester correctly states, the term “irrevocably credited” has no legal definition, however, the committee continues to opine that, in spite of past terminology, the funds must be deposited into the lawyer’s trust account, credited to the account, and be “cleared” funds that are available for withdrawal and disbursement with no chance of revocation or recall by the financial institution.  As the requester has advised, the determination of when funds actually meet that standard is determined by federal banking regulations and is a legal issue outside the purview of this committee.[3] 


Additionally, the question distinguishes those funds held in a commingled trust account from those funds held in a trust account exclusively for one client.  The answer remains the same. 


The answer to the second question is not required since the answer to the first question deemed such disbursements to be improper and the second question seems to involve legal concepts outside the purview of this committee.


This opinion is advisory only, based on the facts presented and not binding on any court or tribunal.


Committee Opinion

September 7, 2006

[1] LEOs 183, 1021, 1255, 1256, 1797.

[2] While the disciplinary rule establishes an affirmative duty to pass funds to a party or the parties entitled to the funds, it implicitly prohibits payment of funds from an escrow account to the party who is not or not yet entitled to the funds. (emphasis added) Thus, a strict interpretation would require an attorney not to disburse upon items deposited in his trust account until the depository bank had irrevocably credited them to that account. (See LE Op. 183, LE Op. 753 and LE Op. 813) It is well established that an attorney assumes a strict fiduciary responsibility when he holds money belonging to the client. (See Pickus v. Virginia State Bar, 232 Va. 5 (1986)). LEO 1255


[3] The requester accurately states that the amount of time a bank is permitted to hold funds before making the funds available for withdrawal is governed by a federal statute called the Expedited Funds Availability Act, 12 U.S.C. § 4001, et seq. (the “EFA”).  The EFA places “upper limits” on the amount of time banks are permitted to hold different categories of payment instruments before making the funds available for withdrawal.