BILL ANALYSIS �
AB 1515
Page 1
Date of Hearing: May 6, 2014
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 1515 (Gonzalez) - As Amended: March 20, 2014
As Proposed to be Amended
SUBJECT : ATTORNEYS: ADVANCE FEES AND EXPENSES
KEY ISSUE : SHOULD THE EXISTING PROFESSIONAL OBLIGATIONS OF
ATTORNEYS REGARDING CLIENT FUNDS BE CLARIFIED TO REQUIRE THAT
FUNDS RECEIVED FROM CLIENTS IN ADVANCE OF LEGAL SERVICES BE
SEGREGATED UNTIL EARNED OR INCURRED?
SYNOPSIS
This bill seeks to clarify that money received by an attorney in
advance of fees earned and costs incurred is to be kept separate
from the attorney's own funds. Existing law provides a
comparable rule for funds received or held for the benefit of
clients. However, it is not clear whether this rule is
sufficiently broad to cover advance payments for fees received
from or on behalf of the client. This bill would resolve that
potential ambiguity. There is no known opposition.
SUMMARY : Clarifies attorney duties regarding advance fees and
expenses. Specifically, this bill :
1)Provides that it is the duty of an attorney to deposit into a
client trust account funds received in advance from or for the
client for fees, costs or expenses that have been paid in
advance for legal services, which shall be withdrawn by the
attorney only as fees are earned or costs or expenses
incurred.
2)Provides that the specified legal services may be provided in
stages, and the fee may be withdrawn when the attorney has
performed and completed the specified stage or stages,
provided the agreement with the client specifies each stage
and sets the amount of the advance fee for each stage. For
purposes of this subdivision, any fee that is paid in advance
as the set amount of the fee for specified legal services,
whether paid as a "fixed" fee, a "flat" fee, or under any
other label, is earned only when the attorney has performed
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and completed the legal services agreed to be provided in
exchange for that fee.
3)Provides that the State Bar shall adopt for approval by the
Supreme Court any necessary amendments to its rules of
professional conduct to conform with this subdivision.
EXISTING LAW :
1)Provides pursuant to the State Bar Act for the regulation and
licensure of attorneys by the State Bar of California, imposes
various duties on an attorney, including the duty to maintain
the confidences and preserve the secrets of his or her client
at every peril to himself or herself, and authorizes the Board
of Trustees of the State Bar, with the approval of the Supreme
Court, to formulate and enforce rules of professional conduct
for all members of the State Bar. (Business and Professions
Code section 6000 et seq.)
2)Provides for the establishment of client trust accounts.
(Business and Professions Code section 6211.)
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
COMMENTS : The author states that this bill would clarify that
an attorney has a clear and explicit statutory duty to deposit
fees and expenses that a client has paid in advance for legal
services into a client trust account, to be withdrawn by the
attorney only as fees are earned or expenses incurred.
This Bill Would Address Potential Ambiguity Under Existing Rules
Regarding the Segregation of Client Funds Received In Advance.
The State Bar of California notes:
Rule 4-100(A) of the Rules of Professional Conduct
provides, in part: "All funds received or held for the
benefit of clients by a member or law firm, including
advances for costs and expenses, shall be deposited in one
or more identifiable bank accounts labelled 'Trust
Account,' 'Client's Funds Account' or words of similar
import, maintained in the State of California, or, with
written consent of the client, in any other jurisdiction
where there is a substantial relationship between the
client or the client's business and the other
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jurisdiction."
According to the State Bar, "Although the safest thing for an
attorney to do - and the customary practice by many - is to hold
advance fees (as well as costs and expenses) in a client trust
account and draw them out as they are earned, Rule 4-100(A) does
not clearly and explicitly refer to "advance fees." This bill
would clarify the situation by explicitly imposing a duty to
deposit into a client trust account fees and expenses that a
client has paid in advance for legal services, to be withdrawn
by the attorney only as fees are earned or expenses incurred."
These funds are to be held in client trust accounts consistently
with Business and Professions Code section 6211.
The Bar observes that in Baranowski v. State Bar (1979) 24
Cal.3d 153, 163, the California Supreme Court found that the
predecessor to Rule 4-100 (former Rule 8-101, with the same
language as current Rule 4-100 to the extent relevant here)
"expressly requires that sums advanced to pay costs or expenses
be placed in a separate trust account; it does not expressly
deal with advance legal fees."
It should be noted that while the Baranowski court commented
that the rule did "not expressly deal with advanced legal fees,"
the court explicitly declined to decide the question of whether
the rule covers advanced legal fees. (Baranowski, 24 Cal.3d at
164.) Thus, the question appears to be an open one under the
Rules of Professional Conduct.
The State Bar comments that this bill is consistent with ABA
Model Rule of Professional Conduct, Rule 1.15(c), which it
states is the rule in at least 30 other states requiring an
attorney to deposit and hold legal fees paid in advance in a
client trust account and not withdraw them until they are
earned. Imposing this obligation explicitly in California will
serve to further public protection and public confidence in the
legal profession, the State Bar argues.
According to the Bar, the language in this bill would not apply
to a "true retainer." Under Rule 3-700(D)(2), the Bar states, a
"true retainer" is one that is paid "solely for the purpose of
ensuring the availability of the member." The Bar states that
this definition of a "true retainer" was adopted by the
California Supreme Court in Baranowski: "An 'advance fee
payment' as used in this context is to be distinguished from a
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classic 'retainer fee' arrangement. A [classic] retainer is a
sum of money paid by a client to secure an attorney's
availability over a given period of time. Thus, such a fee is
earned by the attorney when paid since the attorney is entitled
to the money regardless of whether he actually performs any
services for the client." (Baranowski v. State Bar, supra, 24
Cal.3d at p. 164 fn.4).
Author's Technical Amendments. To avoid potential ambiguity,
the author proposes the following technical revisions:
(p) To deposit into a client trust account funds received
in advance from or for the client for fees, costs and or
expenses that have been paid in advance for legal services into
a client trust account , which shall be withdrawn by the attorney
only as fees are earned or costs or expenses incurred.
(1) For purposes of this subdivision, any fee that is paid
in advance as the set amount of the fee for specified legal
services, whether paid as a "fixed" fee, a "flat" fee, or under
any other label, is earned only when the attorney has performed
and completed the legal services agreed to be provided in
exchange for that fee. The specified legal services may be
provided in stages, and the fee may be withdrawn when the
attorney has performed and completed the specified stage or
stages, provided the agreement with the client specifies each
stage and sets the amount of the advance fee for each stage. For
purposes of this subdivision, any fee that is paid in advance as
the set amount of the fee for specified legal services, whether
paid as a "fixed" fee, a "flat" fee, or under any other label,
is earned only when the attorney has performed and completed the
legal services agreed to be provided in exchange for that fee.
(2) The State Bar shall adopt for approval by the Supreme Court
any necessary amendments to its rules of professional conduct to
conform with this subdivision.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
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Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334