October 2008

On September 28, 2004, Noe Alberto-Portillo was arrested in Iowa and charged with three counts of the illegal delivery and distribution of methamphetamine. The following day, James P. Sr., Piazza, an experienced criminal defense attorney, was contacted by Julio Cordoba, Alberto-Portillo’s brother-in-law, about representing Alberto-Portillo. Piazza agreed to the representation. He told Cordoba he needed $7500 if the case stayed in state court, but noted that his fee would be $15,000 if the case went to federal court. Piazza said he expected the case to be transferred to federal court because of Alberto-Portillo’s immigration status. The agreement was not reduced to writing.

Cordoba returned to Piazza’s office on Friday, October 1, with Maria Portillo, a family relation of Alberto-Portillo. Ms. Portillo gave Piazza’s receptionist $5000 in cash toward the fee. The money was not deposited into Piazza’s client trust account, but was locked in a drawer for safekeeping over the coming weekend. Piazza was aware on October 1 that the $5000 had been paid. Piazza admitted he had constructive possession of that money at that time. After the payment was made, Piazza spent several hours in conference with Alberto-Portillo’s relatives. Over the weekend of October 1, Piazza conducted extensive research to prepare for Alberto-Portillo’s preliminary hearing. He also prepared cross-examination questions for the Department of Criminal Investigations (DCI) agent, even though he was aware the preliminary hearing was “very pro forma” and that the State is only required to make a “minimal prima facie case.” On Monday, October 4, Piazza returned to his office believing he had earned the $5000 over the weekend because he worked 20 hours at $250 per hour. Piazza deposited $4200 in his office bank account and withheld $800 for personal expenses.

At the preliminary hearing on October 8, Piazza learned the state charges would be dismissed and that the United States was preparing to indict Alberto-Portillo. Over the next few weeks, Piazza continued to work on the case. On October 27, Maria Portillo returned to Piazza’s office with another $2500 in cash. Piazza believed this money was already earned. He did not deposit it in his client trust account. He took immediate possession of it. He reminded Maria Portillo that the fee for a federal case was $15,000. She objected, so Piazza verbally modified the agreement to $7500. Piazza continued to represent Alberto-Portillo in the federal criminal matter until Alberto-Portillo, dissatisfied with Piazza’s representation, requested his withdrawal from the case. The request was granted.

On April 21, Alberto-Portillo filed a complaint with the Iowa disciplinary authority. In addition, he filed a request for fee arbitration with the Polk County Fee Arbitration Board. The Fee Board ruled that Piazza had earned the $7500 paid to him for his representation. Piazza maintained in his initial response to the Disciplinary Board that the fee he received from Alberto-Portillo’s family was earned by him in preparation for trial. On October 18 the Disciplinary Board demanded proof from Piazza that the $7500 fee had been placed in Piazza’s client trust account and that an accounting had been provided to Alberto-Portillo. Piazza answered that he put the initial fee installment in his office account because he believed he had earned the money by the time he had the opportunity to deposit it. In the case of the second installment, he felt he had earned the money by the time it was received. Piazza did not provide an accounting for his services until Maria Portillo asked for one some months later. That accounting contained little detail and little documentation.

The Grievance Commission concluded that Piazza’s failure to deposit his client’s fee payments into his client trust account and his failure to provide a contemporaneous accounting to his client upon his deposits warranted a public reprimand. Piazza appealed, asserting that he had earned the entire fee by the time of his first opportunity to deposit it. His not depositing the fee into his client trust account therefore did not constitute a violation of the rules. He argued further that, since the fee was already earned, it would violate the rules to commingle those funds with his client trust account money. Finally, he suggested that, since he wasn’t required to put the advance fee in the client trust account, he had no obligation to provide a contemporaneous accounting of the money. The Disciplinary Board challenged Piazza’s arguments, holding that attorneys are required to put all advance fee payments to be placed in client trust accounts, notwithstanding the lawyer’s classification of the money as a fixed or earned fee. Attorneys are also required to provide a contemporaneous accounting to their clients of the services provided and the fees earned when client funds are transferred into general office accounts.

The Supreme Court began its analysis by reviewing the different types of retainers that have been recognized in Iowa. A “general retainer” is a fee for agreeing to make legal services available during a specified time period. It is a form of an option contract. The fee is earned by the attorney when paid regardless of whether or not the attorney performs any services for the client. Therefore a general retainer cannot be deposited in a trust account. In contrast a “special retainer” covers payment of funds for a specific service. If the client and the attorney agree that the attorney shall receive the special retainer payment in advance of performing the services, then the payment is commonly referred to as an “advance fee payment.” Fee advances are not earned when paid and therefore must be deposited into the trust account. The Court also discussed a “flat fee.”  A flat fee embraces work that has to be done whether it be relatively simple and of short duration or complex and complicated. A flat fee is nothing more than an advance fee payment which must be deposited in a client trust account. Piazza’s fee arrangement here was determined by the Court to be a flat fee. Therefore Piazza had to deposit the money into the client trust account. The Court ruled that Piazza could not rely on his own determination that he earned the advance fee by the time an opportune moment came to deposit the fee. He also could not ignore a previous ruling of the Court that a flat fee is an advance fee and must be deposited in a client trust account. Importantly, the Court held that flat fees should start out in a client trust account, but must be transferred to an operating account as they are earned with reasonable promptness. The Court publicly reprimanded Piazza, who had no history of ethics violations. Such a sanction had been applied for similar transgressions.

Iowa Supreme Court Disciplinary Board v. James P. Piazza, Sr., 756 N. W. 2d 690 (Iowa October 3, 2008).

Piazza should be contrasted with the May 2007 NOBC Case of the Month, Dowling v. Chicago Options Associates, Inc ., 226 Ill.2d 277, 875 N.E. 2d 1012, (Ill. 2007). There, the Illinois Supreme Court recognized the viability of advance payment retainers. Before this, only two types of retainers were recognized there: classic and security interest retainers. A classic retainer is essentially the same as Iowa’s general retainer. With a classic retainer, the fee paid is immediately earned by an Illinois lawyer, regardless of whether she actually performs any services for the client. Under Illinois’ security retainer, funds paid to the lawyer are not considered present payment for future services. These funds must be deposited in a client trust account in the same way they would be required to be deposited in Iowa. Illinois, however, now acknowledges the advanced payment retainer. This is a similar instrument to the Iowa advanced fee retainer.  However in Illinois, when an attorney receives a present payment in exchange for the commitment to provide legal services in the future that payment passes immediately into the attorney’s ownership. In Iowa, as mentioned above, the attorney must put the fees into a client trust account and transfer them promptly as earned into her operating account. Advanced payment retainers are distinguished from security retainers in Illinois. If the lawyer and the client agree in writing or orally that the lawyer will deposit the prepayment in the client trust account and bill against it as the representation proceeds, the funds remain the property of the client and must be deposited in the trust account. If on the other hand, the lawyer and the client agree that the payment is immediate compensation for the lawyer’s commitment to perform future services, e. g., then the funds belong to the lawyer and must be deposited into the lawyer’s operating account. Iowa requires that flat fee retainers are deposited in a client trust account. Much debate has arisen in Illinois after Dowling as to how flat fees should be treated, primarily because the Court ruled that advance payment retainers should be used ‘sparingly’. Advance payment retainer agreements must be in writing and must use the term advance payment retainer agreement and clearly state the funds become the property of the lawyer when paid and that the funds will not be held in a client trust account. The language of the document must also advise the client of her available option to place her money into a security retainer.. Also the instrument must set forth the special purpose behind the retainer and explain why an advance payment retainer is advantageous to the client. If the language of the instrument is unclear the Illinois Court will construe it as a security retainer.

-RICHARD S. THOMAS, COUNSEL, ILLINOIS ARDC  &
-JAMES J. GROGAN, DACC, ILLINOIS ARDC