Criminal defense attorneys are an independent-minded group, especially in rural areas. Whether you came back home to practice law or ditched the big city headaches to practice in a small town, you have shunned the traditional law firm experience for one reason or another. Unfortunately, this independent streak can be accompanied by a selective interpretation of norms you must follow. One example is the requirement of having an IOLTA, which stands for Interest on Lawyer Trust Account. For advice on this article, I called Ellen Pitluk, an ethics attorney with the State Bar. We discussed three common excuses typically heard among criminal defense lawyers for not keeping unearned legal fees in an IOLTA.
Excuse #1: I’m a criminal defense attorney, and I don’t handle these types of funds. IOLTA accounts are for civil attorneys with shiny shoes and rolling file folders.
Harsh reality: Wrong! The Texas Disciplinary Rules of Professional Conduct make no distinction between civil and criminal fees. The only difference is that we can NOT charge contingency fees in criminal cases. Rule 1.04(e). I will not insult your intelligence by explaining why you don’t charge contingency fees in criminal cases, only to say if you do, stop now.
Excuse #2: I always charge a flat fee. My contract says my fees are earned when paid, and it clearly states it is nonrefundable.
Harsh reality: This is false. Rule 1.14 (a) of the Texas Disciplinary Rules of Professional Conduct says you must keep a client’s unearned fees separate from your law office’s operational funds or your own personal funds. So your contract says you’ve earned it. How? Imagine going into a doctor’s office, and they charge you a nonrefundable bill before they even examine you. How about going to an accountant and paying them a nonrefundable fee before they have even looked at your books. You would think something was fishy. So don’t do it. Period.
Excuse #3: I give back the money if there is a dispute, so what does it matter which account it’s from?
Harsh reality: If a client has a problem and files a grievance, you will get dinged. Hard. Once again, Rule 1.14 (a) clearly states you can’t commingle client’s funds with your funds. By depositing unearned legal fees in your operational or personal account, you have, in essence, commingled funds and violated Rule 1.14(a). Remember the adage, “Follow the money?” All it takes is one disgruntled client to complain. Money issues are something the bar takes very seriously and commingling funds may result in a disciplinary sanction published in the Texas Bar Journal.
So what should you do now that you know these excuses will get you in big trouble? First, get an IOLTA account. Then, get a system in place that allows you to reasonably justify taking the money fee out of that IOLTA account. For example, charge by the hour and keep track of your time. Is this too much of a pain? Ok, put benchmarks in your flat fee contract. For example, you can spell out that you earn 25% of the total fee at the arraignment, 50% at the first pretrial hearing, etc. Just put in something that spells out your fee agreement. It’s not as hard as you think. See, Professional Ethics Committee Opinion 611 (September 2011) (discussion of nonrefundable fees and benchmarks). You can also call the State Bar of Texas Ethics Helpline at 1-800-532-3947 for more detailed advice. The ethics attorneys will provide preventative ethics advice to assist you. These are great people, and they will take the time to help you with your questions.
In conclusion, I hope this has helped disabuse you of some common misconceptions about IOLTA accounts. Yes, they can be a bit of pain, but not unnecessarily so. And not having one is far worse. For a guide on IOLTAs, see “A Lawyer’s Guide to Client Trust Accounts” at https://www.texasbar.com/Content/NavigationMenu/ForLawyers/ResourceGuides1/TrustAccounts/GuidetoTrustAccounts.pdf. Special thanks to Ellen Pitluk for taking the time to speak with me about this article and to answer my questions! As always, take care, good luck, and have fun!