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Malpractice Alert Nov/Dec 2016 – Opinion 2016-7

Article: December 31, 2016  |  Malpractice Alerts

Opinion 2016-7 focused on the Lawyer’s Duty  to Promptly Deliver Funds to a Client or Third Party. In this opinion, a lawyer asked for guidance on how long he could hold client funds in the firm trust account to ensure that the check clears before distributing funds to a client,  in light of Professional Conduct Rule 1.15 that requires lawyers to “promptly” deliver funds to a client or third party.

The opinion discussed Rule 1.15 requirements, but also noted that disbursing client funds from the IOLTA before the check clears carries the risk of using funds belonging to another client to pay the check if the check is not honored.

The opinion found that a lawyer may hold a client’s funds in trust for a reasonable period of time to ensure that the check has cleared and the funds are available to distribute to the client or third party. Further, subject to the exceptions in the opinion, the opinion stated that a reasonable period of time consists of one week to ten days, given federal banking regulations and modern banking practices. OBLIC recommends that prior to disbursing funds the lawyer contact the bank to be sure the funds are actually in the IOLTA account and available for distribution, not just that the check has “cleared.”

This opinion may be useful in explaining to clients why the lawyer cannot immediately write a distribution check to them when the clients have negotiated a settlement check to resolve their claim. It may also help to avoid a scam situation where a lawyer is asked to deposit a check in the IOLTA account and then provide funds from that deposit to a third party, before the check is later determined to be fraudulent.

Click here to view the Malpractice Alert Nov/Dec 2016.

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