Flat Fees, Operating Accounts and Trouble at the Disciplinary Board

Last updated on February 20th, 2022 at 02:45 pm

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In a recent DBD Opinion suspending a lawyer for one year and one day for numerous Rule violations, the Board also noted that “Respondent deposited Rule 1.15 funds into his operating account. Respondent charged the clients flat fees and accordingly, was required to maintain them in trust until he had earned their fees by performing the services he was engaged to perform. While there is no dispute that Respondent performed the services he was engaged to perform, he failed to properly hold these funds.”

This Opinion is a reminder that a common practice for a lot of practitioners actually violates the Rules. I know that lawyers routinely deposit flat fees into their operating accounts without any thought that it could be a Rule violation. However, Pa. R. Prof’l Cond, Rule 1.15(i) defines these fees as “advance fees” that have to go into IOLTA UNLESS the client provides informed consent, in writing, that the fees can be placed in the operating account.

Rule 1.15 states: (i) A lawyer shall deposit into a Trust Account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred, unless the client gives informed consent, confirmed in writing, to the handling of fees and expenses in a different manner. https://www.padisciplinaryboard.org/for-attorneys/rules/rule/3/the-rules-of-professional-conduct#rule-156

This is an excerpt from an article I wrote last year about this quirk in the Rule. The article can be found here. https://www.nxtbook.com/nxtbooks/PACDL/FORTHEDEFENSE_vol4_issue4_2019/index.php (If you are a criminal defense lawyer and a Pennsylvania Association of Criminal Defense Lawyers member, you’ve already seen it!) “State in your fee agreement that you are not depositing the fees into your trust account and have the client counter-sign the agreement. Here is a suggested version of the language that you can use: We have agreed that the fee in this matter is a flat, non-refundable fee which is earned upon receipt and covers the following work (insert scope of the engagement.) As such, it will not be placed in an attorney trust account to be billed against. This language should protect you both ways: first, by establishing that you are not receiving an advance fee that has to be deposited into an IOLTA and second, by getting the client’s informed consent to deposit the fee in the operating account, notwithstanding how the fee is characterized.”