Michigan lawyers urge court to reject fixed wait period for IOLTA withdrawals, debate nonrefundable fees

Proposed changes to Michigan Rule of Professional Conduct 1.15 that would add timing guidance for withdrawals from client trust (IOLTA) accounts and permit certain nonrefundable fees drew sharply different views at a public hearing before the Michigan Supreme Court.

The comment period item, listed as ADM File 2022-19, concerns whether the rule or its accompanying comment should describe a presumptive time frame (commonly discussed as 30 days) after which earned fees may be withdrawn from trust and whether the rules should allow nonrefundable fees or address them in a separate rule.

Why it matters: the rules govern how attorneys hold and move client funds. Commenters said the changes would affect cash flow for small and solo firms, access to attorneys for low‑income clients, and the disciplinary tools courts and regulators use to police misappropriation of client property.

Several family law and solo practitioners told the court a presumptive waiting period would impose administrative burdens and could force firms to decline cases or raise retainer amounts. Shelly Kester, owner of Wilson Kester, described typical practice in family law: "Most of the time there's a written fee agreement, and the trust is deposited into trust," and the office allows a short period for clients to review invoices before transferring funds. Kester said a mandatory waiting period would "override these carefully negotiated agreements and potentially disrupt established attorney‑client relationships." Lisa Speaker, an appellate attorney who circulated a group comment, said the rule as drafted would "destroy" some small firms' ability to operate if earned fees could not be accessed when payroll and other obligations come due.

By contrast, John Burgess, deputy director of the Attorney Discipline Board, and a representative of the Attorney Grievance Commission urged measures to limit attorneys' ability to treat trust accounts as operating accounts. Burgess said the board "favorably views nearly all of the proposed amendments" and noted the board does not support a general permissibility of nonrefundable fees, arguing that fee regulation belongs in Rule 1.5. A speaker from the Attorney Grievance Commission recounted investigations where attorneys left earned fees in trust accounts and then used those funds for operating expenses or to shield assets from creditors, saying that a presumptive time benchmark would provide a useful management standard.

Discussion at the hearing also covered common low‑dollar flat fee practices, such as $1,500 criminal defense retainers. Commenters and justices discussed whether routine, short engagements exhaust flat fees quickly and whether a brief time in trust (for example, a day or a few days) would be a workable administrative compromise in the age of electronic transfers. John Allen, an experienced practitioner, urged that the revised proposal provide clarity for classic retainers and noted the court's staff had made helpful revisions allowing unambiguous written agreements to define terms.

Speakers from the State Bar, the Attorney Discipline Board, and the Attorney Grievance Commission urged that if the court addresses nonrefundable fees it should do so in Rule 1.5 (fees), not by importing the issue into Rule 1.15 (safekeeping property). The Grievance Commission recommended that any language allowing nonrefundable fees explicitly preserve review for reasonableness under Rule 1.5 and refunding of unearned fees under Rule 1.16.

No formal rule decision or vote was recorded at the hearing; commenters asked the court to consider clarifying the relationship among written fee agreements, flat and hybrid fee structures, the timing for removing earned funds from trust, and disciplinary review standards.

The court heard detailed operational examples and competing policy priorities: protecting clients and preventing misappropriation versus avoiding administrative burdens that could reduce access to counsel, particularly for low‑income clients who rely on payment plans.

The court did not announce any action at the close of public comment.