What must a law firm do when it learns a former partner overcharged clients for expenses and may have had access to client trust accounts?

Plain-English summary

A firm asked about its ethical duties after a former member, Shareholder B, had overcharged clients for business-related travel expenses. The committee was of the opinion that the firm must disclose Shareholder B's actions and the potential conflict of interest arising from those actions to all clients from whom Shareholder B had an opportunity to steal, which would include all of Shareholder B's clients.

The committee added that, to the extent Shareholder B had access to other client trust accounts, the firm should at a minimum conduct an independent audit of those accounts. The firm must also have measures in place to assure that all attorneys and non-attorneys in the firm conform to the Rules of Professional Conduct. The committee was also of the opinion that the firm should report Shareholder B to the Disciplinary Counsel of the Washington State Bar Association.

Currency note

This opinion was issued in 1994, before the Washington State Bar Association's adoption of the 2006 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Must the firm tell clients about a former partner's overcharging?

A: The committee said the firm must disclose Shareholder B's actions and the potential conflict to all clients from whom Shareholder B had an opportunity to steal, which would include all of Shareholder B's clients.

Q: What should the firm do about trust accounts the former partner could access?

A: The committee said the firm should at a minimum conduct an independent audit of any trust accounts to which Shareholder B had access.

Q: Does the firm have to report the former partner to the bar?

A: The committee was of the opinion that the firm should report Shareholder B to the Disciplinary Counsel of the Washington State Bar Association.

Background and rules framework

The committee addressed a firm's duties after discovering a former shareholder had overcharged clients for expenses. It framed the response around disclosure to affected clients, the potential conflict of interest those actions created, safekeeping of client funds through an independent trust-account audit, firm-wide compliance measures, and a report to bar disciplinary authorities. The opinion did not cite specific RPC numbers in the text indexed here.

See also

• WA Ethics Op. 912: Reporting Employee Trust Misappropriation
• WA Ethics Op. 1247: Reporting Another Lawyer's Misconduct vs. Client Secret

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=645

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Advisory Opinion: 1564
Year Issued: 1994
RPC(s):
Subject: Law firm's duty to disclose former partner's overcharging of expenses to clients

The Committee discussed your inquiry regarding the ethical duties a law firm has to report the conduct of Shareholder B. Specifically, a former member of the law firm had overcharged clients for business-related travel expenses. The Committee was of the opinion that the law firm must disclose Shareholder B's actions and the potential conflict of interest which may arise from those actions to all clients from whom Shareholder B had an opportunity to steal. This would include all of Shareholder B's clients. To the extent that Shareholder B had access to other client trust accounts, the law firm should at minimum conduct an independent audit on those accounts. In addition, the law firm must have measures in place to assure that all attorneys and non-attorneys in the firm conform to the Rules of Professional Conduct. The Committee was also of the opinion that the law firm should report Shareholder B to the Disciplinary Counsel of the Washington State Bar Association.