The State Bar of Texas Office of Chief Disciplinary Counsel (CDC) has the authority to pursue disciplinary action against lawyers licensed in Texas.[1] The district attorney may also pursue a criminal indictment based on disciplinary allegations. If criminal charges stemming from misuse of trust account funds result in conviction, the lawyer is subject to compulsory discipline.[2]
In the first instance, the CDC acts upon a grievance that is upgraded to a complaint for the purpose of investigating the allegations and making a determination of just cause.[3] In alleged violations of Rule 1.14, it is typically the client or third party who has an interest in the client’s settlement funds (such as a chiropractor) who files a grievance.
The CDC has 60 days to investigate a complaint.[4] Even if a lawyer decides belatedly to return unearned fees to a client or pay a third party, it will not affect the CDC investigation nor will it necessarily mitigate any disciplinary sanctions the lawyer may face.[5] It also does not matter if the lawyer is unaware of Rule 1.14 and its requirements, or makes a technical or inadvertent violation.[6]
Disciplinary case law regarding Rule 1.14 misconduct includes the following cases:[7]
Neely v. Comm’n for Lawyer Discipline, 302 S.W.3d 331 (Tex. App. —Houston [14th Dist.] 2009, pet. denied)—Lawyer's conduct in failing to keep his funds separate from client funds in trust account, in depositing personal funds into trust account, in paying for personal and business-related expenses from trust account, and in failing to maintain records for trust account for five years violated rule of professional conduct governing the safekeeping of others' property.
Onwuteaka v. Comm’n for Lawyer Discipline, No. 14–07–00544–CV, 2009 WL 620253 (Tex. App.—Houston [14th Dist.] March 12, 2009, pet. denied)—Lawyer who received and disbursed personal injury settlement monies was found to have violated rules by (1) failing to hold funds and other property belonging in whole or part to clients or third persons in a lawyer's possession separate from the lawyer's own property, (2) upon receiving funds or other property in which a client or third person has an interest, failing to promptly notify the client or third person, (3) failing to promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive, (4) failing to promptly render a full accounting upon request, and (5) failing to keep funds or other property in which both the lawyer and another person claim interests separate until there is an accounting and severance of their interests.
McIntyre v. Comm’n for Lawyer Discipline, 247 S.W.3d 434 (Tex. App.—Dallas 2008, pet. denied)—Lawyer representing client had a duty to forward check issued from district court's registry to the Internal Revenue Service as partial payment of unpaid income taxes and therefore lawyer's failure to forward check subjected lawyer to discipline under rules governing the safekeeping of property.
Cluck v. Comm’n for Lawyer Discipline, 214 S.W.3d 736 (Tex. App.—Austin 2007, no pet.)—Advance fee of $15,000 charged by lawyer to represent client in divorce proceedings was a prepayment of a fee and not a true retainer, and thus lawyer was obligated to hold the funds in a trust account until earned. Although the contract for legal services stated that the fee was a nonrefundable retainer, the contract did not say the payment compensated the lawyer for his availability or lost opportunities. The fee agreement also stated that the lawyer's hourly fee would be billed against the payment. The lawyer deposited the client's advance fee payment directly into his operating account and consequently violated Rule 1.14 (a). Contractual language deeming a fee “nonrefundable” does not change the nature of the client's payment, which was a prepayment of the lawyer’s fees and not a true retainer.
Kaufman v. Comm’n for Lawyer Discipline, 197 S.W.3d 867 (Tex. App.—Corpus Christi-Edinburg 2006, pet. denied)—In a case where lawyer kept $278,000 of $345,000 for his own lawyer’s fees while acting as trustee for bankrupt client, the evidence was sufficient to support finding that lawyer violated rules requiring the lawyer to keep a client's money safe and separate, requiring the lawyer to promptly deliver any funds or other property that a client or third person is entitled to receive, and requiring a full accounting regarding such property upon request.
Bellino v. Comm’n for Lawyer Discipline, 124 S.W.3d 380 (Tex. App. —Dallas 2003, pet. denied)—In situations involving multiple clients’ monies, the evidence was sufficient to support finding that lawyer violated disciplinary rules requiring him to (1) hold a client’s funds separate from his own funds, (2) render a full accounting of funds received on behalf of client, (3) return unearned fees, and (4) promptly deliver funds to a third party.
Meachum v. Comm’n for Lawyer Discipline, 36 S.W.3d 612 (Tex. App.—Dallas 2000, pet. denied)—In a case where lawyer made trust account checks out to “cash,” and had no record of how checks were used, the lawyer was found to have violated rules by (1) failing to hold client’s or third party’s property in a trust account separate from lawyer’s property, (2) failing to maintain trust records, and (3) failing to render full accounting of monies in trust account.
Brown v. Comm’n for Lawyer Discipline, 980 S.W.2d 675 (Tex. App.—San Antonio 1998, no pet.)—In a case where lawyer received funds from insurer as settlement of client's case, deposited them in joint account with client, and wrote checks on account and used money for his own purposes, the evidence was sufficient to establish that lawyer was “in possession” of funds and that funds in which lawyer and client had interest were not “kept separate” as required by disciplinary rule. Client consent is irrelevant. A joint checking account with the client is not a trust account. Courts give “little or no weight” to technical, ignorant, or inadvertent violations of Rule 1.14.
Fry v. Comm’n for Lawyer Discipline, 979 S.W.2d 331 (Tex. App.—Houston [14th Dist.] 1998, pet. denied)—Lawyer claimed proceeds from sale of client’s house was a nonrefundable retainer; however, client claimed ownership of funds and directed lawyer to pay the sale proceeds to his wife. Lawyer failed to promptly pay, and his trust account records showed he did not safeguard the funds. Lawyer who receives funds which belong in whole or in part to a client or third person is required to deposit them into a trust account and promptly deliver the appropriate portion to the client or third person and, if there is a dispute over the ownership of the funds, the lawyer must keep the funds in the trust account until the dispute is resolved.
Wade v. Comm’n for Lawyer Discipline, 961 S.W.2d 366 (Tex. App. —Houston [1st Dist.] 1997, no pet.)—In a case where the lawyer's fees and expenses were disputed by the client, the evidence was sufficient to support findings that lawyer violated rule requiring lawyer to render promptly full accounting of client funds and rule requiring lawyer to keep separate funds in which both lawyer and other parties claimed interests.
Butler v. Comm’n for Lawyer Discipline, 928 S.W.2d 659 (Tex. App. —Corpus Christi-Edinburg 1996, no writ)—Lawyer violated rule requiring safekeeping of disputed property, although assignment of portion of settlement funds to client's criminal defense lawyers was void as matter of law, where lawyer testified that he was unaware that assignment was void and had cautioned client against refusing to pay defense lawyers, indicating that lawyer knew that funds were in dispute.
Archer v. State, 548 S.W.2d 71 (Tex. App.—El Paso 1977, writ ref’d n.r.e.)—Consent by clients could not remove lawyer from the requirements of the Code of Professional Responsibility with respect to commingling of clients' and lawyer's funds.
Rule 8.03 (a) of the Texas Disciplinary Rules of Professional Conduct requires a lawyer to report the professional misconduct of another lawyer when the reporting lawyer has actual knowledge of professional misconduct that raises a substantial question as to the other lawyer’s honesty, trustworthiness, or fitness to practice law.
When a lawyer has actual knowledge that another lawyer is using trust account funds for purposes that are not authorized by the client or unbeknownst by the client, the lawyer has a duty to report the misconduct. Archer v. State, 548 S.W.2d at 73, offers an example of a prohibited use of a client trust account when another lawyer had actual knowledge of the misconduct that falls under the mandatory reporting requirement of Rule 8.03 (a):
…no finding of fraudulent, culpable, or willful conduct is required. There is no question… that the funds were commingled, or for that matter, that the Defendant used the funds so deposited for his personal affairs and business. For example, [Archer] deposited the settlement check in the case of Marcella Martinez in the amount of $13,750.00, and thirteen days later, the balance of his account was some $4.60, with the money having been spent of a variety of personal and business items while items listed on the “settlement sheet” remained unpaid.
Archer, 548 S.W.2d at 73 (discussing DR 9-102[8] which preceded 1.14).
The State Bar of Texas established the Client Security Fund (CSF) in 1975 to restore confidence in those clients who have lost money or property due to a Texas lawyer’s dishonest conduct. “Dishonest conduct” as defined in the CSF rules means “wrongful acts committed by a lawyer in the manner of defalcation or embezzlement of money, or the wrongful taking or conversion of money or property including those instances where an advance fee was not refunded when the contracted-for services were not rendered.”[9] Each year, the CSF pays hundreds of thousands of dollars to clients who suffered financial harm due to a Texas lawyer’s dishonest conduct. To request an application to the CSF, please contact:
Client Security Fund
Office of the Chief Disciplinary Counsel
State Bar of Texas
P.O. Box 12487
Austin, Texas 78711-2487
Phone: 1-877-953-5535
Email: CSFSupport@texasbar.com
The State Bar of Texas created the Ethics Helpline to assist Texas lawyers who have questions about the Texas Disciplinary Rules of Professional Conduct. The goal of the Ethics Helpline is to provide guidance that enables lawyers to follow the rules of professional conduct. The toll-free phone number is 1-800-532-3947 and staffed during office hours.
[1] Tex. Disciplinary R. Prof’l Conduct 8.05.
[2] Tex. R. Disciplinary P. 8.01; Tex. R. Disciplinary P. 8.02; Tex. R. Disciplinary P. 1.06 (V), (GG); Tex. Disciplinary R. Prof’l Conduct 8.04 (a)(2), (b); supra note 48.
[3] Tex. R. Disciplinary P. 2.10 and Tex. R. Disciplinary P. 2.12.
[4] Tex. R. Disciplinary P. 2.12.
[5] Robert P. Schuwerk et al., Texas Practice Series Handbook of Texas Lawyer and Judicial Ethics, supra, § 6:14, at 1313.
[6] Archer, 548 S.W.2d at 73; Brown, 980 S.W.2d at 680.
[7] This list of case law is nonexhaustive.
[8] Tex. Rev. Civ. Stat. Ann. art. 320a–1, app., art. 12, § 8, Canon 9, DR 9-102 (1973).
[9] Policy Manual of the State Bar of Texas Board of Directors § 3.08.02, R. 2(A).