M. When a Lawyer Leaves a Firm
For all lawyers, professional obligations arise when a lawyer leaves a firm, and Rule 3.7-7A of the Code of Professional Conduct has numerous requirements to ensure clients are given reasonable notice and reasonable steps are taken to obtain the instructions of each affected client as to who they will retain.
When trust money is involved, the trust account supervisor needs to ensure there are proper controls in place at the firm in these situations. Considerations include the following:
- The trust account supervisor should ensure that the list of files of the departing lawyer includes trust balances and any valuable property and that each file is accounted for in the transition. It is a common error for firms to not include inactive matters at this time, which still need to be considered and addressed in some fashion.
- An orderly transition of any file leaving the firm involves first obtaining the written authorization from the client to transfer the trust money or any valuable property with the file to the departing lawyer or to other new counsel. Thereafter, each transitioning file should be reviewed to determine the status of the file at the time of transition, and often includes rendering statements of account for fees and disbursements to date. For those clients with trust money, the lawyer must first consider if there are any related trust conditions that may prevent the use of the trust money to pay an account for fees and disbursements and/or that may prevent transfer of the trust money to the departing lawyer or to other new counsel. If there are such trust conditions, they must be varied before the trust money can be used or transferred out of the firm’s trust account. Commentary  of Rule 7.2-11 of the Code requires that trust conditions can only be varied with the consents of both the lawyer/person who imposed the trust condition and the lawyer who accepted the trust condition. If there are no trust conditions restricting the use of the trust funds, the trust funds were not otherwise provided to be used for a specific purpose such as to pay for an expert report or for court transcripts, and there is no other claim to the trust funds, the lawyer may firstly apply any funds to any outstanding accounts in accordance with Rule 5-44(1)(d), where an account has been delivered to the client for fees and disbursements. Any remaining trust money could be returned to the client; or lastly, transition with the file to the departing lawyer or new counsel.
- For any file leaving the firm, a copy of the client trust ledger is part of the financial record of the file and must accompany the file.
- Consider whether you should make and retain copies of any file documents that pertain to the receipt or payment of trust funds, prior to the file being given to the client or sent with the lawyer or to new council, at the firms’ cost.
- A review should also be done in conjunction with the departing lawyer to identify any balances for unlocatable clients and determine what actions have been taken to date to locate the clients. If there have been no trust transactions for more than 3 years and the clients cannot be located, after a reasonable search has been done given the dollar amount in trust, these balances may be sent to the Law Society as a Section 51 remittance with the proper paperwork.
- Under no circumstances should the files be taken by or given to the departing lawyer until guidance and authorization has been received with respect to the client trust funds as well as the file. The file and trust funds should be transferred together. Having said this, there may be situations where the client’s direction and authorization cannot be obtained but the client will be prejudiced unless work is immediately done on the file. In such circumstances, the firm and the departing lawyer will need to cooperate with one another to ensure that the work is done and the client’s interests are protected while still recognizing that the firm must maintain control of the file. If the departing lawyer is in the best position to do the work, the firm may be able to maintain control of the file through the use of trust conditions that would permit the departing lawyer to have access to the file for a limited purpose, provided that once the work has been completed the file is returned to the firm until such time as the authorization to transfer the file and trust funds has been received.