We Passed!

Well, now I can say we’ve been audited by the State Bar! You may know that we called up Anne Parkin, the State Bar Auditor, and asked that our trust account be audited this quarter, since we weren’t lucky enough to be chosen randomly. The audit went very smoothly. Here are some takeaways:

  • Anne likes to see the quarterly reports being done on a monthly basis. When we showed her that we already did this, her eyes lit up.
  • She will look at all of your cancelled trust checks for the year, and will make sure the signatures are originals (no signature stamps), you have copies of the fronts and backs of all checks, the client matter name/number appears on the memo line, and the checks are the proper size.
  • She only reports consistent violations, not the occasional oversight, to the Office of Counsel.
  • If you have a large number of transactions in trust each month, Anne may pick a random transaction to review, and look at all of the supporting source documents (checks, deposit slips, receipts, wire transfer instructions) herself.
  • She reviews 12 months of records, including all source documents, starting with your current monthly reconciliation and going backwards.
  • For every audit she does, she prepares an audit report with a list of corrections, if any, and submits the report to the State Bar Trust Account Compliance Counsel for review.

According to Anne, things that will result in a referral to grievance include, consistent failure to reconcile (monthly or quarterly), very poor or woefully inadequate record keeping, a pattern of errors, especially where the errors are not documented and corrected within a quarter, and negative client balances that do not have sufficient explanation and have not been corrected within a quarter.

If Anne does note relatively minor errors/deficiencies in your record-keeping, she will prepare a Trust Corrections Request Form, noting the deficiencies. Then, you will be given 30 days to provide evidence of the correction to the State Bar Trust Account Compliance Counsel, Leanor Hodge.

If Anne finds no errors in her audit of your trust account, she will provide you a copy of her report, with the notation, “No follow up needed.” Woohoo, we passed! Although we were confident that we were following all the trust accounting rules, it is always nice when the State Bar agrees. We regularly assist attorneys in preparing for an upcoming trust audit, but it is a good idea not to wait until the State Bar comes knocking at your door. If your trust account needs a procedural check up, let us know. We’d be happy to take a look.

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Voluntary Trust Account Audit

The Tenth Judicial District was the lucky district selected for the State Bar’s random attorney trust account audit program this quarter. But I didn’t feel lucky–our trust account wasn’t chosen. I decided that I would no longer stand on the sidelines while others had all the fun. So, I called up the State Bar Auditor, Anne Parkin, and asked her to please, please audit our trust account, too. She obliged.

Lost my mind, you say? No, no, there is a method to my madness (and no doubt, some at my firm would call me crazy). I have been advising attorneys about trust accounting issues for 25 years now, including 10 years at the State Bar. I have helped attorneys come into compliance, defended disciplinary matters dealing with trust account issues, helped them prepare the necessary trust reports for State Bar compliance counsel, and performed trust account mini-audits. But, although I know what goes on in a State Bar audit, I have never sat through one myself.

I think this will be a great learning opportunity for me and for the attorneys in my firm who will be advising attorneys on trust accounting. And, yes, I am looking forward to this. Not to worry, I will keep you posted on the outcome. All I can say for now is…bring it on, Anne!

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Use Your Resources

You’re competent in the area of law you practice.  Of course you are!  But have you ever had some unusual circumstance occur in the middle of a perfectly “normal” case where, all of the sudden, you need to take some type of action or make a very quick decision?  You have never dealt with this particular issue before, and it is likely you never will again.  You immediately research this issue, but there is nothing on point and really no direction at all.  You are under pressure, and you need help.  This is not the time for your pride to get in the way.  You have to take care of your client.  Call that colleague you know can shed some light on this issue.  Competence doesn’t mean you know everything.  A very wise attorney recently told me, “Being a good lawyer means knowing when you use your resources.”  There are always resources.  Someone always knows someone who can give you direction.  If you cannot think of who to call first, start with your professional liability provider.  Most providers will provide this type of support.  And if a colleague contacts you and needs a little guidance, make some time to respond.  If you cannot help, you may know someone who can, and in turn become a resource yourself.

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It’s a New Year: Resolve to Reconcile

If you read the quarterly State Bar Journal disciplinary section, you know that ignoring the trust account can result in severe disciplinary action.  Do you know to whom every penny in your trust account belongs?  Can you provide a client an accounting promptly?  Are you maintaining all required records, including copies of both sides of negotiated checks?  A good rule of thumb is that every transaction into or out of the trust account must have a supporting document, and that supporting document must indicate the client whose funds are impacted.  What you want is a paper trail.  You also need to maintain a general ledger for the account, which is like a check book register.  It is your internal record for all the transactions in the account in date order with a running balance.  You need to be able to create a list of individual client balances as of a certain date each quarter, although looking at this list monthly would be better.  The list must always have positive client balances–see a negative balance, and you know there’s a problem.  You will need this general ledger, the list of client balances, your bank statement and the supporting transaction documents to do your quarterly reconciliation.  As an added precaution, we recommend that you do these reconciliations monthly, but that is not required by the rules.  On a monthly basis, you are only required to reconcile your bank statement to your general ledger.

At the end of a representation, you must also be able to create a ledger for any client showing where all of their money has gone.  The ledger should also reflect a running balance and an ending balance of zero.   If you hold client funds longer than a year, you are required to provide an accounting (ledger) to the client annually.  There is also a quarterly review report which requires you to pull three random client transactions and verify each transaction with the source documentation.

The State Bar has forms on their website for these monthly and quarterly reports, and we can also provide these reports to you.  We are now offering trust account procedural audits for a flat fee.  We can assess your trust account record-keeping, and note deficiencies.  We can also provide you a checklist to assist with your reconciliations in the future and may be able to suggest a better, or more efficient way, to handle the trust account.  Let us know if we can assist you.  It’s never a bad idea to have someone look over your shoulder.

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A Good Lesson

We all make mistakes and have bad days.  That’s, in part, what liability insurance is for.  But I recently had a good reminder not to trust your memory when communicating information to others including opposing counsel, the court, your client, and in my case, the State Bar.  I was on a conference call, communicating anecdotal information to a subcommittee of the State Bar regarding the licensure of one of our attorneys.  I was convinced that one of our attorneys was licensed in 2012 or later, when in fact, she was licensed much earlier.  I am not sure why I believed this–perhaps it is her youthful glow, or that she had not been practicing with our firm for very long.  In any case, I conveyed that information to the subcommittee as part of the example I was giving, and I was wrong.  Yikes!  Thanks to some quick fact-checking by State Bar staff, I was corrected on the conference call.  No big deal in this context, except that I was very embarrassed.  But, it was a good reminder that even when you think you know the facts, check first and verify before communicating the information to others.

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Wishing you a joyous holiday season

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Getting to “Nope!”

Like many young associates, when I first started practicing, I was eager to prove my worth, show the partners and senior associates at my firm that I deserved to hang with them, and that they could count on me to not only “get it done” but “do it well.”   The word “no” simply did not exist in my world;  it had been eviscerated from my vocabulary.  Anything that hit my desk would be handled with unmatched enthusiasm and legal acuity.  I received rave reviews from my superiors and they kept coming back to me for more help.  I never turned any project away.  I did it all.  I was a success.

I also gained 30 pounds and a sleep disorder that year, and I didn’t read a single book for pleasure.  Is that the picture of success?  In retrospect, I am not so sure.

Now, to be clear, I worked for kind, compassionate, brilliant lawyers.  That’s part of why I wanted to please them.  It’s part of why I dreaded saying “no” when they asked for help. It took me about three years to understand that they weren’t responsible for controlling my workload, I was.   I remember the first time I said “no” at work.  There was a lot of sweating, a lot of panic, and a little rehearsal.  But I did it.  And you know what?  Nothing bad happened and I still had a job.

Fast forward a few years to another challenge – parenthood.  Just as I wanted to be the perfect associate, I also want to be the perfect mother—showing up for every class party, being the first to volunteer for EVERYTHING, and NEVER forgetting to wipe down the grocery cart before the kid sits in it.   Just add another 30 pounds and a new kind of sleep disorder.  No problem, right?  I can handle it.

For some of us, learning to politely decline someone’s request, or letting an opportunity go, is a real challenge, especially for professionals with demanding careers.  This is especially true considering the heavy focus on our profession’s duties to others: our duties to colleagues, our duties to tribunals, and above all, our duties to our clients.  However, saying “no” is an extremely important skill.  And I call it a skill because for some of us, it is something that needs to be acquired.  (The next step is letting go of the guilt associated with saying “no,” but there is only so much I can tackle in one blog post!)

Rule 1.1—the very first rule of the Rules of Professional Conduct demands competence.  Although we tend to view “competence” in concrete terms such as “legal knowledge” and “skill,” also consider that when we are in high demand and over-extended, there is a corresponding risk that the quality of our work may suffer.  We may not be as thorough; we may not be as prepared.  We may not be fulfilling our duties to our clients.

Knowing your limits and finding the courage to enforce them are key to competence in the practice of law.  When we take care of ourselves, we are better equipped to care for others, whether they are our families, our colleagues, or our clients.

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A Lawyer’s Duty to Self-Report?

Years ago, when I was on the ethics staff at the State Bar, I used to get the question, “Am I required to self-report conduct?” I still get that question from time to time when lawyers call me for advice.  Here’s the skinny.  There are two instances where the Rules of Professional Conduct require that you self-report your conduct, and they both have to do with handling trust funds for clients.  First, you have a duty to self-report under Rule 1.15-2(p) if you know or reasonably believe that trust funds have been misappropriated or misapplied.  The term “misapplied” is not defined in the Rules, but it appears from the context that it involves the use of client funds for a wrongful or inappropriate purpose.  Second, the Rule indicates that if an unintentional or inadvertent error results in the “use of one client’s trust funds to pay the obligations of another client, the event must be reported unless the misapplication is discovered and rectified on or before the next quarterly reconciliation required by Rule 1.15-3(d)(1).” So, if you discover an error in your trust account reconciliation resulting in a negative balance for a client, but you fix it within a quarter (e.g., replacing the funds), you are not required to report that error to the State Bar.  If you don’t correct it, you must self-report. Comment [26] makes clear that this rule requires a lawyer to self-report, even if the disclosure of confidential information is necessary to comply with the Rule.  The appropriate person at the State Bar to self-report to is the Trust Account Compliance Counsel (TACC).

Let’s contrast Rule 1.15-2(p) with Rule 8.3, which is generally known as the reporting rule.  Rule 8.3 provides that a lawyer “who knows another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer’s honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the North Carolina State Bar or the court having jurisdiction over the matter.”  This Rule, unlike Rule 1.15-2(p), does not require disclosure of information otherwise protected by Rule 1.6.  That means if a client insists that the information required to make the report remain confidential, you cannot report it. The Comment does say that a lawyer should encourage his or her client to allow the lawyer to report, if it would not harm the client to do so. Rule 8.3, by its very terms, applies only to the report of another lawyer.  It is not a self-reporting rule.

It is up to you whether you self-report conduct other than what is required under Rule 1.15-2(p).  If you do decide to self-report to the State Bar, understand that if you disclose conduct that would constitute a violation of the Rules of Professional Conduct, no matter how minor, the State Bar must open a grievance file and investigate the matter.

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When is Friending Too Friendly?

I hear more and more about attorneys connecting with their clients on social media.  The reasoning? There is a greater connection with your clients. It shows you care and that the client isn’t simply a file number.  Perhaps the thinking is that social media is an effective way to get your name out, connect with many different people, and solidify your brand.  From a marketing perspective, it may make sense.

It is not unethical to connect with a client on social media through Facebook, Twitter, or Instagram and the like.  There is no rule that says you can’t, but is it a good idea? Here are some reasons to think before you connect:

  • Social media tends to be informal. Consider whether this is the kind of relationship you want with your clients.
  • The informality associated with some kinds of social media may encourage the client to communicate with you outside of normal business hours.
  • Because of the informality, clients may be tempted to discuss their case with you online. Consider attorney-client privilege waiver issues and confidentiality problems if the client overshares.
  • Think about how you usually use social media. Is it primarily personal or for business? Does sharing what you ate for dinner really promote your brand? Consider establishing a separate Facebook page for firm news, professional activities and accolades.  Or connect with clients only through professional sites like LinkedIn.
  • Consider the kind of information shared and what the client may learn about you. Are your personal Facebook posts the kind of information you want your clients to see, or is it information that really should be reserved for friends and family?
  • Your clients may have religious or political beliefs that are vastly different from your own. They may not get your sense of humor, or they may be easily offended.  Your posts may inadvertently alienate some clients.
  • Keep in mind that clients would also see what other friends or family will post about you, if tagged. Does your mom post embarrassing pictures of you from middle school?  Or what if a friend posted a less than dignified video of you playing a game of charades at a party?  While this silliness won’t sink a career, it may not be the professional image that you want to project.

Aside from potential boundary issues, there is a real concern that this informal connection may implicitly encourage communication about the client’s case if you have connected with a client during the representation.  You already have an affirmative obligation to advise certain litigation clients about the dangers or risks of posting on social media and how those posts may affect their case. See 2014 FEO 5.

In my view, if you don’t already have an existing friendship with a client, it is prudent to keep your professional and personal life separate, especially if you are currently representing a client in litigation. Develop your brand and your connections through a law firm Facebook page or a professional platform such as LinkedIn.  You may be the life of the party, but unless you would want your clients at that party, think twice before inviting them in.

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Friending a Represented Opposing Party

Some time ago, in a blog far, far away, we explored the topic of social media and discovery. In particular, we had concluded that it would likely be a violation of Rule 4.2 of the Rules of Professional Conduct for a lawyer to try to “friend” an opposing party she knew to be represented in that matter.  The conclusion was based upon the fact that a Facebook friend request was “a communication” under the Rule, and that the purpose of the communication was to obtain information related to the matter for which the party was represented.  As you know, Rule 4.2 prohibits communications about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter.  Seemed like an easy question with an easy answer at the time.

Fast forward to July 2018, where the Ethics Committee has been studying a proposed ethics opinion on this very issue.  An initial draft of the opinion reached the very same conclusion that we did.  The latest opinion that was circulated, Proposed 2018 FEO 5,* reached the opposite result.  Opinions #4 and #7 of the proposed ethics opinion state that either the lawyer, or any person at the lawyer’s direction, may request access to restricted portions of a represented person’s social network presence, so long as there is no misrepresentation.  In other words, the proposed opinion finds that a lawyer or his agent can make a friend request on Facebook to a person the lawyer knows to be represented.  Opinion #5 of the proposed ethics opinion also permits the lawyer to post or communicate directly on the represented person’s Facebook feed so long as the communication is not “intended to elicit information about the subject of the representation….”  Wait, what?  I cannot imagine why a lawyer, who has no relationship with a represented opposing party, would send a friend request or thereafter post on that person’s timeline, except to garner useful information about the subject matter of the representation.

Well, there are certainly arguments on both sides of this issue.  Some believe that seeking truth or exposing the truth is the most important goal and that an interpretation offering more protection to the represented individual frustrates that goal.  While discovery tools are available, or hiring a private investigator is possible, it certainly would be more expedient to be able to see what the represented person (or their friends or family) is posting online.  There may be an argument that traditional discovery may not be available or is not likely to extract the same information as Facebook postings.

At the same time, others argue that some people do not understand the full implications of accepting friend requests.  Some small business owners, for example, believe that social media is the perfect platform for growing their business, and have an “accept all friend requests” policy.  Others may recognize the lawyer’s name and know enough to decline any friend request by the lawyer, but certainly would not know the name of the lawyer’s paralegal making a friend request.  Does the omission of certain information about the person making the request somehow make that request misleading? Lawyers do have an obligation to advise their clients about social media posts and the dangers of over-sharing. So, is it the client’s responsibility to be more vigilant about who they allow into their network?

There is no doubt that a tension exists between the protection of the represented person under Rule 4.2 and the desire to find the truth.   To me, the friend request issue and its resolution may turn upon the answer to three questions: First, should Rule 4.2 be interpreted to prohibit communications between a lawyer and represented person that, while not about the subject of the representation on their face, are intended to discover or obtain information related to the subject matter of the representation?  To put it another way, does interpretation of the Rule in this instance turn upon the purpose of the lawyer’s communication, or on the actual communication itself? Second, can the lawyer, through a friend request, invite herself into a conversation with a represented person, hoping to glean some useful information, without disclosing the lawyer’s purpose or disclosing that she represents another party in the matter.  Rule 4.3, dealing with unrepresented persons, requires that much.  If we are making an exception to permit online friend requests, should we apply the minimal protections in 4.3? Third, how do we resolve the tension between truth-seeking and client protection?  Should one goal be placed above the other.  Rule 4.2 is not the only rule that would tend to, in some instances, frustrate the fact-finding goal.  The confidentiality rule is another, but there are exceptions to that rule that appear to serve a greater good or a weightier goal.   One of those exceptions is candor to a tribunal. With this opinion, the State Bar may be blurring the lines, if not carving out an exception, for certain online communications.

Comment [1] to Rule 4.2 spells out the three primary concerns addressed by the Rule, which help preserve “the proper functioning of the legal system”:

  • Protecting a person who has chosen to be represented by a lawyer in a matter against overreaching by other involved lawyers;
  • Protecting that individual from interference by involved lawyers with the attorney-client relationship; and
  • Protecting that individual against uncounseled disclosure of information relating to the representation.

I believe it is primarily the third concern that merits further analysis.  The Ethics Committee, at its July meeting, sent this proposed opinion back to subcommittee for further study.  While the current interpretation of Rule 4.2 in Proposed 2018 FEO 5 feels wrong, I usually need more than a feeling or gut reaction to justify an outcome.  On the other hand, I tell my clients, never ignore your gut.

*UPDATE: This proposed ethics opinion was rejected by the Full Council of the State Bar on October 26, 2018.  This matter will go back to the Ethics Committee at its January 2019 meeting.

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