Does a lawyer's fiduciary duty over a client trust account extend to co-counsel and other third parties whose funds are in the account, and may the account be maintained out of state or controlled by non-lawyers?

Plain-English summary

Two California attorneys, A and B, represented a plaintiff on a contingency basis. B moved his office to another state and formed a partnership with C, who was not a State Bar member; B kept his California membership. A settlement check was deposited into a client trust account maintained by B and C outside California. The client's share was undisputed, but A and B disputed their respective shares and the conditions B imposed before disbursing to A.

On the location of the account, the committee identified Rule 8-101, which requires funds received or held for clients to be deposited in identifiable bank accounts maintained in California, or with the client's written consent in another jurisdiction where there is a substantial relationship between the client or the client's business and that jurisdiction. The committee identified that the account normally must be maintained in California, with limited exceptions, and expressed no opinion on whether the exceptions applied.

On control, the committee identified that it was not aware of any rule requiring the trust account to be under the control only of State Bar members. It identified that exclusive control by the member is common because of the heavy ethical and civil implications, and that a member may delegate authority over trust funds but cannot delegate the ethical responsibility or civil liability.

On the duty to co-counsel, the committee identified that the attorney's fiduciary obligation extends to any third party's assets in the attorney's possession, not only client funds, citing Johnstone v. State Bar (funds held for a third party who is not the client are impressed with a trust, and conversion is a breach) and Crooks v. State Bar. It identified that a violation of Rule 8-101 does not require harm to the client (Murray v. State Bar; Vaughn v. State Bar). The committee concluded that B is held to fiduciary standards so long as third-party funds are under his control, while making no attempt to judge the legitimacy or good faith of the fee dispute between A and B.

Currency note

This opinion was issued in 1988, before California's November 1, 2018 adoption of the renumbered Rules of Professional Conduct. It interprets former Rule 8-101 (handling of client funds and trust accounts), which corresponds to current Rule 1.15. Subsequent rule amendments or later opinions may have changed the analysis, including trust-account location and IOLTA requirements. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.

View original opinion

Common questions

Q: Does a lawyer's trust-account duty cover co-counsel's share, not just the client's?

A: Per the opinion, yes. The committee concluded the fiduciary obligation extends to any third party's assets in the attorney's possession, citing Johnstone v. State Bar.

Q: Can a client trust account be kept outside California?

A: Per the opinion, normally no. The committee identified Rule 8-101 as requiring the account to be maintained in California, with limited exceptions it did not decide applied here.

Q: Can a non-lawyer have control over the trust account?

A: Per the opinion, the committee was aware of no rule limiting control to State Bar members, but identified that the member cannot delegate the ethical responsibility or civil liability for the account.

Background and rules framework

The opinion interprets former California Rule 8-101 (funds received or held for clients), which corresponds to ABA Model Rule 1.15. The fiduciary duty to third parties is anchored in Johnstone v. State Bar, Crooks v. State Bar, Murray v. State Bar, and Vaughn v. State Bar.

Citations and references

Rules of Professional Conduct (former):

• California Rule 8-101 (client funds and trust accounts)

Cases:

• Johnstone v. State Bar, 64 Cal.2d 153 (1966)
• Crooks v. State Bar, 3 Cal.3d 346 (1970)
• Murray v. State Bar, 40 Cal.3d 575 (1985)
• Vaughn v. State Bar, 6 Cal.3d 847 (1972)

See also

• LACBA Ethics Op. 485: Personal Funds in a Client Trust Account and Bank Charges
• LACBA Ethics Op. 484: Commingling a Security-Deposit Retainer
• LACBA Ethics Op. 478: Medical Liens and Disbursement of Client Funds

Source

• Landing page: https://lacba.org/?pg=ethics-opinions
• Original PDF: https://lacba.org/docDownload/2010997