Illinois Supreme Court amends Illinois Rules of Professional Conduct concerning client fees, client refunds, and electronic fund transfers.

Prohibiting cash payments to clients and the charging or collecting of unreasonable fees are among significant amendments the Illinois Supreme Court made last month to the Illinois Rules of Professional Conduct.

The amendments, which take effect July 1, are intended to simplify fiscal guidance to attorneys and reduce fee disputes, according to Supreme Court Chief Justice Mary Jane Theis in a statement released by the Court. The amendments also affect how attorneys must handle client fees and funds, including a mandate against using cash.

The amendments were proposed by a working group of the Illinois Lawyers Trust Fund (LTF) and the Illinois Attorney Registration and Disciplinary Commission. The Supreme Court adopted the proposals after they were reviewed by the Supreme Court’s Committee on Professional Responsibility. The amendments concern Rule 1.15, which has been divided into several shorter parts, and Rule 1.5, which has been rewritten to include fee-related provisions currently addressed in Rule 1.15.

“One key takeaway from the amendments to Rule 1.15 is that the fundamental requirements around the safekeeping of client property are still in place,” says David Holtermann, LTF’s deputy director for grants and policy and general counsel. “You still need to segregate client funds. You can’t commingle or convert those funds. You need to keep careful records. And you need to use an IOLTA account when appropriate.”

“There are also some important substantive changes,” Holtermann says. “The revised Rule makes it explicit that lawyers may not use client or third-party funds without authorization, and that lawyers may not withdraw cash from client trust accounts. The very limited exception to the prohibition on lawyers placing their own funds in a client trust account has been expanded to include funds needed to meet minimum balance requirements imposed by the bank.”

Amended Rule 1.15 also has been updated to recognize the prevalence of electronic payment platforms and requires lawyers to ensure such payment platforms maintain client confidentiality and handle client funds properly.

“Lawyers should pay careful attention to the amendment to Rule 1.15 because the changes prohibit previously permitted activity and places new responsibilities on lawyers,” says Kathryne Hayes, with Collins Bargione Vuckovich in Chicago and vice-chair of the ISBA’s Standing Committee on Professional Conduct (Holtermann is also a member of the committee).

Unreasonable and refundable

Amendments to Rule 1.5 concern the upholding of a client’s right to obtain a refund of unearned or unreasonable fees and prohibit nonrefundable fees.

In prohibiting attorneys from charging unreasonable fees, Hayes says “amended Rule 1.5(c) explicitly prohibits ‘nonrefundable fees’ and ‘nonrefundable retainers.’ This means that a lawyer cannot communicate that payment is ‘nonrefundable.’ However, this does not mean that a terminated lawyer is not entitled to retain the fee or retainer if the fee was reasonable.”

Amended Rule 1.5(c) also clarifies that clients cannot be prevented from terminating an attorney or seeking a refund of unearned or unreasonable fees.

Amended Rule 1.5(d) summarizes common fee and retainer agreements and instructions for depositing funds to avoid commingling and conversion. For example, the amendment defines such arrangements as fixed fees, contingent fees, engagement retainers, security retainers, and special purpose retainers, Hayes says, and includes instruction regarding which account funds must be deposited to avoid conversion or commingling.

Other takeaways

• Attorneys must ensure that client or third-party funds accepted through an electronic payment method are transferred immediately to an IOLTA account or non-IOLTA client trust account maintained by the lawyer.
• Amended Rule 1.15(a) specifies which records must be maintained using three-way reconciliation. (See the Client Trust Account page on the ARDC's website for step-by-step demonstrations and samples.)
• The factors in determining whether client funds should be placed in an IOLTA or non-IOLTA client trust account have been updated and clarified in Rule 1.15(b).
• Lawyers handling funds in connection with real estate transactions should review Rule 1.15B(f).

The amended Rules are available on the Illinois Supreme Court's website. You may also compare the amended Rules with the current versions in place until July 1.

Pete Sherman is managing editor of the Illinois Bar Journal.
psherman@isba.org