Indiana State Bar Association's Petition to Authorize a Program Governing Interest on Lawyers' Trust Accounts, Matter of

Decision Date21 February 1990
Docket NumberNo. 49S00-9002-MS-147,49S00-9002-MS-147
Citation550 N.E.2d 311
PartiesIn the Matter of INDIANA STATE BAR ASSOCIATION'S PETITION TO AUTHORIZE A PROGRAM GOVERNING INTEREST ON LAWYERS' TRUST ACCOUNTS.
CourtIndiana Supreme Court

PER CURIAM.

The Indiana State Bar Association, through its authorized personnel, has petitioned this Court to authorize a program governing interest on lawyers' trust accounts containing funds of the lawyers' clients. This is the third such request by the Indiana State Bar Association. Two previous requests were denied by this Court after extensive consideration. In the meantime, all forty-nine of the other states have adopted such a program in one form or another. For this reason we feel that, even though we continue to reject such a program because we find it to be in conflict with the duties, responsibilities and obligations of the legal profession and each lawyer member in this jurisdiction, it is incumbent on us to explain our reasoning.

Institution of the program would require us to amend (or perhaps bend?) the Rules for the Discipline of Attorneys and the Rules of Professional Conduct, and adopt rules for the administration and function of the program. The program seeks to be financed through interest earned on clients' funds held in a lawyer's trust account which are small deposits or larger amounts held for a short period of time, each client's fund of which generates no interest or such a small amount as to be impossible, or at least impractical, to account for since the cost of tracking or retrieving it would exceed the amount involved. The program provides for a lawyer to put all of his clients' funds falling into that category into one trust account which creates a corpus large enough to generate interest which is paid at regular intervals, usually quarterly, to the Bar Foundation, a non-profit organization, which in turn would be charged to dispense the funds to provide legal aid to the poor and finance other legal projects in the public interest. Funds of a sufficient amount or held for a period of time sufficient to accumulate interest would not be included in the fund. We cannot in good conscience or the fulfillment of our duties and responsibilities endorse a program that would ignore the legal status and definition of the term "interest" as it relates to "principal." Moreover, we cannot and will not encourage lawyers in this state to violate their sacrosanct fiduciary duties to their clients.

It is well established that one who owns property owns the income that his property produces. In other words, that produced by the property becomes the property of the owner. This principle is so well established that it requires little, if any, citation to support it. This principle, when applied to the production of money in the form of interest, has been expressed in a manner familiar to most lawyers: "the interest follows the principal as the shadow follows the substance." This principle was expressed as early as 1809 by the United States Supreme Court in Himely v. Rose (1809), 9 U.S. (5 Cranch) 312, 317, 3 L.Ed. 111, 113 (Johnson, J., dissenting), in the oft-quoted maxim: "interest goes with the principal, as the fruit with the tree." Justice Roger DeBruler, authoring a majority opinion for this Court in Northern Indiana Public Service Company v. Citizens Action Coalition of Indiana, Inc., et al. (1989), Ind., 548 N.E.2d 153, 159, held that this expression:

was grounded in the theory that held money fails to yield a return only in the rarest of circumstances. Therefore, where an ascertainable amount was owed to another, denying interest on the sum amounted to a double wrong by depriving the person owed of the increase to which he was justly entitled and by allowing the one holding the funds to profit from the use of funds that did not rightly belong to him. Nashua & Lowell R. Corp. v. Boston & Lowell R. Corp., 61 F. 237, 251 (1st Cir.1894).

See also Webb's Fabulous Pharmacies, Inc. v. Beckwith (1980), 449 U.S. 155, 164, 101 S.Ct. 446, 452, 66 L.Ed.2d 358, 366 (interest earnings on interpleader fund deposited with Florida circuit court during litigation held to be "incidents of ownership of the fund itself and are property just as the fund itself is property"); B & M Coal Corporation v. United Mine Workers (1986), Ind., 501 N.E.2d 401, 404-05 (interest earned on appeal bond "must follow the principal and be distributed to the ultimate owner of the fund"), cert. denied sub nom. Spencer Co. Clerk v. B & M Coal Corp. (1987), 481 U.S. 1050, 107 S.Ct. 2183, 95 L.Ed.2d 839.

Indeed, lawyers commingling their clients' funds is the source of the greatest number of disciplinary proceedings brought in this state. For instance, in a disciplinary matter entitled In the Matter of John A. Kesler (1979), 272 Ind. 161, 397 N.E.2d 574, cert. denied (1980), 449 U.S. 829, 101 S.Ct. 96, 66 L.Ed.2d 34, Respondent Kesler took the assets of an estate amounting to twenty-seven thousand five-hundred dollars ($27,500.00) over a period of over two (2) years and sought to satisfy his obligation to his client by merely returning the principal amount of $27,500.00. Kesler refused to remit the interest produced by that money, which he put to his own use. This Court disbarred Kesler, and found he commingled client's funds with his own and treated the funds as his own. Moreover, Kesler misrepresented his acts to the court by way of a misleading petition for partial distribution in a decedent's estate. This Court held his diversion of income-producing assets from the estate to his personal benefit was misconduct warranting disbarment.

The first duty of a lawyer is to his client. References such as attorney, counsel, advocate, or other common titles have the same meaning, namely, a legal representative of another. Since we are speaking to lawyers, it is not necessary for us to outline in detail the necessary qualifications of professional education and standards of fitness and character required to become a lawyer. Pursuant to art. 7, Sec. 4 of the Indiana Constitution, the Indiana Supreme Court is vested with the exclusive responsibility and duty to supervise the admission of applicants to the practice of law, supervise the discipline and disbarment of lawyers, and prohibit the unauthorized practice of law in the State of Indiana. Pursuant to this implied and inherent power, this Court has enacted Rules for the Discipline of Attorneys and Rules of Professional Conduct. Again not finding the need to detail them by number, we need only state these rules are directed to strict standards of legal representation of clients, having at all times in mind the fiduciary relationship of the lawyer to the client to represent that client to the fullest measure of the lawyer's ability and the requirements of the law. Among these duties and responsibilities is the duty to at all times protect and preserve the rights and property of the client, to consult with the client and inform him of all actions taken by the attorney and the reason for taking them, and to keep confidential all matters communicated to the lawyer necessary for his representation but not contemplated to be made public. These are the duties of each lawyer, the goals of all professional legal groups composed of lawyers, and are of the utmost concern to all involved in our honorable profession including this Court in its supervisory capacity.

This is not to say a lawyer should ignore his duty to the profession and the public interest as a part of his professional responsibility. Indeed, in the preamble to the Rules of Professional Conduct, entitled "A Lawyer's Responsibilities," after exhorting lawyers to be concerned with their professional duties to clients, the preamble goes on to remind lawyers to recognize themselves as public citizens, to seek improvement of the law, administration of justice and quality of service rendered by the legal profession. The preamble states, in pertinent part:

As a public citizen, a lawyer should seek improvement of the law, the administration of justice and the quality of service rendered by the legal profession. As a member of a learned profession, a lawyer should cultivate knowledge of the law beyond its use for clients, employ that knowledge in reform of the law and to strengthen legal education. A lawyer should be mindful of deficiencies in the administration of justice and of the fact that the poor, and sometimes persons who are not poor, cannot afford adequate legal assistance, and should therefore devote professional time and civic influence in their behalf. A lawyer should aid the legal profession in pursuing these objectives and should help the bar regulate itself in the public interest.

Surely these are goals recognized by any sincere and proud member of this profession including the members of this Court. However, regardless of how noble and well meaning the attainment of these goals might be, they must be secondary. In other words, the efforts of the legal profession to attain these goals must not transgress the rule of law and/or the duty to the client. The purpose behind these provisions is to have lawyers donate part of their time and effort toward pro bono activities. To suggest that members of the bar use interest money from their clients' funds to finance legal assistance to other indigent clients is nothing more than a transfer of wealth among clients. It must not be forgotten that neither the lawyers of this state, nor the Indiana Bar Association will be contributing to the continued support of pro bono activities such as legal clinics and the like....

To continue reading

Request your trial
7 cases
  • Phillips v. Washington Legal Foundation
    • United States
    • U.S. Supreme Court
    • June 15, 1998
    ... ... Syllabus * ... Under Texas' Interest on Lawyers Trust Account (IOLTA) program, an ... earned on client funds held in IOLTA accounts is the "private property'' of the client for ... stemming from an independent source such as state law. Board of Regents of State Colleges v. Roth, ... , §5(A); Rules 4, 7 of the Texas Rules Governing the Operation of the Texas Equal Access to ... As an initial matter, petitioners' assertion that client funds held in ... Sup.Ct. Rule 217 (1998); Petition of New Hampshire Bar Assn., 122 N.H. 971, 453 ... Rule Prof. Conduct 1.15(II) (1997). Indiana is the only State that has not implemented an ... ...
  • Washington Legal Foundation v. Massachusetts Bar Foundation
    • United States
    • U.S. Court of Appeals — First Circuit
    • January 8, 1993
    ... ... for Alabama Law Foundation, Inc., Alabama State Bar, Arkansas IOLTA Foundation, State Bar of ... State Bar of California, The Legal Services Trust Fund Com'n of State Bar of California, Colorado ... State Bar, Illinois State Bar Ass'n, Lawyers Trust Fund of Illinois, The Iowa State Bar Ass'n, ... Foundation, New York State Bar Ass'n, Interest on Lawyer Account Fund of the State of New York, ... Bar Plan for Interest on Lawyers' Trust Accounts, State Bar Ass'n of North Dakota, Ohio Legal ices Program of Ohio Public Defender Com'n, Oklahoma Bar ... Indiana remains the only state which has not adopted an ... client in Massachusetts is fiduciary as a matter of law. Markell v. Sidney B. Pfeifer Found., ... financial support of unions and bar associations which engage in political or ideological ... the people peaceably to assemble, and to petition the Government for a redress of grievances ... "Like many rules governing the behavior of lawyers, [the rule governing ... ...
  • Washington Legal Found. v. TEXAS EQUAL ACCESS
    • United States
    • U.S. District Court — Western District of Texas
    • January 19, 1995
    ... ... , a self-described non-profit public interest law and policy center, Michael Mazzone, a Texas ... 1983, claiming that the Texas Interest on Lawyers' Trust Accounts ("IOLTA") Program, which is ... that the IOLTA Program serves a significant state interest through means narrowly tailored to serve ... the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). To determine whether ... See State Bar Rules Governing Operation of Equal Access to Justice Program Rule ... The lone exception is the Indiana Supreme Court, which declined to adopt the state ... In re Indiana State Bar Association's Petition to Authorize a Program Governing Interest on ... ...
  • Washington Legal Foundation v. Texas Equal Access to Justice Foundation
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • September 12, 1996
    ... ... , Office of the Attorney General for the State of Texas, Austin, TX, for Thomas R. Phillips, ... , Miami, FL, for National Association of Interest on Lawyers' Trust Accounts (IOLTA) Programs, ... , Interest on Lawyers Trust Accounts Program (IOLTA), and found that the defendants are ... During the following year while the matter was being resolved, the interpleaded funds earned ... With the exception of the Indiana Supreme Court, 29 these courts agreed that ... 5 TEXAS RULES OF COURT--STATE, Rules Governing the Operation of the Texas Equal Access to ... In re Ind. State Bar Ass'ns Petition to Authorize a Program Governing Interest on ... ...
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT