Conflict Waivers: When are they Enforceable?

I must apologize first for posing a question in the title of this blog that doesn’t have a definitive answer. I can give you some tips for making your conflict waivers as enforceable as you can, but there is no iron-clad way to ensure enforceability. Whether a conflict waiver will be effective, or upheld if challenged, depends in part upon whether the client reasonably understood “the material risks that the waiver entailed.”  Rule 1.7, Comment [22].  In other words, does the client truly appreciate what they are giving up by signing the waiver.

Since the burden will be upon the lawyer trying to enforce the waiver, here are the key items to keep in mind.  First, make sure the waiver is in writing and signed by the client. Needless to say, a court will necessarily be looking to the language of the waiver to determine whether it should be enforced. Second, make the waiver clear and concise.  This would not be the time to use complicated or flowerly language. The key is clarity and simplicity, so that a client would easily understand the risks of consenting to the conflict. Third, and most importantly, make sure that you identify the possible future conflict of interest with specificity.  Even if you cannot precisely identify the type of conflict that may arise, you should at a minimum be able to identify the possible adverse party and the nature of the conflict.  For example, if sharing confidential information between co-plaintiffs is necessary for effective representation, then consent to share relevant confidential information amongst co-plaintiffs must be addressed in the waiver.  At the same time, the failure of one party to allow the lawyer to share clearly relevant information amongst co-plaintiffs becomes a foreseeable future conflict of interest, and should be discussed in the conflict waiver.  Furthermore, any kind of conflict that you can envision at the outset (e.g., dispute arises among multiple claimants as to how to proceed, cross claims developing between co-plaintiffs, etc.) should be described with specificity in the waiver.  The more specific a waiver, the more likely it will be upheld if challenged.

Now, a conflict waiver that is more open ended and less specific in nature may also be upheld, especially where the client is sophisticated in legal matters and has access to independent counsel in signing the waiver.  Rule 1.7, Comment [22].  For example, Law Firm has been asked by large Insurance Company to render corporate tax advice.  Another department of Law Firm regularly handles personal injury matters against Insurance Company.  Law Firm asks Insurance Company to give informed advanced consent to Law Firm representing any of its other clients against Insurance Company in matters unrelated to the corporate tax advice.  Clearly, the firm may not know who will hire them in the future, but it does know the kinds of cases it generally handles and the nature of the conflict.  While the consent to the conflict is rather vague and open-ended, Insurance Company is a sophisticated client with in-house counsel who can review the consent/waiver.  This waiver will likely be upheld.  Law Firm must also obtain waivers from any personal injury clients who are adverse to Insurance Company during the time firm is representing Insurance Company.

There are also circumstances under which a waiver to a future conflict should not be sought: the representation is prohibited by law, the client lacks capacity to consent, one client will assert a claim against the other in the same litigation, or the lawyer will not be able to provide adequate representation to one or more of the clients. In addition, if a lawyer must disclose confidential information of one client to obtain informed consent by the other client, and there is no authorization to disclose that confidential information, the conflict waiver cannot be obtained.

Finally, regardless of the client’s sophistication, it is always a good idea to advise the client in writing to seek independent counsel and to give a reasonable opportunity to do so before signing any waiver.

Stay tuned for a future blog on when waivers can be revoked by the client for cause.

 

 

Posted by | Comments Off on Conflict Waivers: When are they Enforceable?

New Standard for Direct Mail Solicitations

If you use targeted direct mail to advertise your legal services in North Carolina, you may already know that Rule 7.3(c), the direct mail solicitation rule, was amended in October 2014. Some of you may even have received a courtesy letter from the NC State Bar, as a gentle nudge to get your mailers fixed to comply with the new rule.  The amended Rule 7.3(c) reads as follows:

…every written, recorded, or electronic communication from a lawyer soliciting professional employment from anyone known to be in need of legal services in a particular matter shall include the statement, in capital letters, “THIS IS AN ADVERTISEMENT FOR LEGAL SERVICES” (the advertising notice), which shall be conspicuous and subject to the following requirements:

(1) Written Communications. Written communications shall be mailed in an envelope. The advertising notice shall be printed on the front of the envelope, in a font that is as large as any other printing on the front or the back of the envelope. If more than one color or type of font is used on the front or the back of the envelope, the font used for the advertising notice shall match in color, type, and size the largest and widest of the fonts. The front of the envelope shall contain no printing other than the name of the lawyer or law firm and return address, the name and address of the recipient, and the advertising notice. The advertising notice shall also be printed at the beginning of the body of the enclosed written communication in a font as large as or larger than any other printing contained in the enclosed written communication. If more than one color or type of font is used on the enclosed written communication, then the font of the advertising notice shall match in color, type, and size the largest and widest of the fonts. Nothing on the envelope or the enclosed written communication shall be more conspicuous than the advertising notice.

(Emphasis added). What all this means is that you have to be sure that your advertising disclaimer on the front of your envelope and at the top of your letterhead is the most conspicuous printing anywhere on the outside of the envelope or in the letter.  The Rule doesn’t prohibit photographs on the back of the envelope, logos on the front of the envelope, or brochures inside the envelope so long as the logos, photographs and brochures do not detract from the conspicuousness of the advertising disclaimers.

I’ve been reviewing attorney advertising for over 18 years, and I’m still having a bit of trouble trying to figure out when other printing, brochures, logos, or photographs may detract from the conspicuousness of the advertising disclaimer.  Because this language is rather vague and subject to interpretation, I have been advising my clients to get their current advertising approved by the State Bar, even if it has been approved before. “Conspicuousness” may very well be in the eye of the beholder, and in this case, the beholder is the State Bar.

 

Posted by | Comments Off on New Standard for Direct Mail Solicitations

Unauthorized Practice of Law: A Trap for the Unwary

Allegations of unauthorized practice of law [“UPL”] have increased over the last few years. Most of us are familiar with the scenario of a non-lawyer doing prohibited legal work.   However, in a different context, some young NC lawyers are getting wooed by “national” or out-of-state law firms.  Typically, these firms will ask the young lawyer to be “of counsel” to their out-of-state firm so the firm can then practice law in NC.  This can be a potential trap for the unwary from a UPL standpoint.

Under North Carolina law, out-of-state firms looking to set up shop in NC must register as an interstate law firm with the NC State Bar and will also likely need a Certificate of Authority to transact business as a foreign professional corporation from the Secretary of State’s office, even if they hire a NC lawyer to handle NC cases.  In addition, the North Carolina lawyer must certify to the State Bar that other lawyers in the firm not licensed in North Carolina will abide by the NC Rules of Professional Conduct and that all professional services rendered to NC citizens by the firm are only provided by a duly licensed active member of the NC State Bar. Among other consequences discussed below, failure to follow the appropriate procedure may result in a bar grievance against the young NC attorney for assisting in the unauthorized practice of law in violation of the NC Rules of Professional Conduct, Rule 5.5(d).

The NC State Bar Council and any of its committees appointed by it for that purpose, (i.e. the Authorized Practice Committee), as well as District Attorneys, have the authority to investigate UPL allegations.  Following such an investigation, the State Bar may issue a warning letter, issue a cease and desist letter, or seek an injunction to prohibit a person or business from engaging in the unauthorized practice of law depending on the circumstances.  Engaging or assisting in the unauthorized practice of law may also expose a person to potential civil liability. Further, the unauthorized practice of law is a misdemeanor criminal offense.  Other more serious felony offenses, such as false pretenses, could be involved where an unlicensed person accepts fees while in engaging in the unauthorized practice of law.

Under the right circumstances, it may be a good opportunity for young lawyers to associate with an interstate law firm, especially in a tepid legal hiring market.  But, beware: make sure you know the potential pitfalls and closely follow the procedures outlined by the Administrative Rules of the State Bar, Subchapter E, Section .0200, and NC law, before embarking upon any association with an out-of-state firm looking to practice in NC.

Posted by | Comments Off on Unauthorized Practice of Law: A Trap for the Unwary

Your Avvo Profile: To Claim or Not to Claim

Have you claimed your Avvo profile yet? If you have, there are some ethics issues you should be aware of, and if you haven’t, you may want to read this before you do so.  My husband and law partner, Doug and I are on different sides of this debate.  He has not claimed his Avvo profile and doesn’t intend to, as far as I know.  He’s safe and secure in knowing that he has no control over the contents of the profile and if they get it wrong, it’s not his fault.  I claimed my Avvo profile a long time ago, in part, because the information posted about me was not accurate.  I felt duty bound to correct the information about me that was out there.  Once you claim your profile, however, you should be aware that you are now on the hook for ensuring that the information is correct and is updated in a timely fashion.  What I did not realize many years ago, when I claimed my Avvo profile, is that there is some information, such as testimonials, that I would have a duty to monitor but would have no control over.

I don’t use Avvo very much and only check on it rarely, as not much has changed in my professional life recently. Plus, I’m more of a LinkedIn gal. I have only one endorsement on Avvo and I don’t solicit endorsements from my clients.   What I understand from the State Bar is that you are required to check periodically on social media sites that you exercise some control over, and to make reasonable efforts to ensure that the information on the site pertaining to you complies with the advertising rules.  See 2012 FEO 8 and 2014 FEO 8.

Here’s the rub.  You have control over your profile on Avvo once you claim it, but you don’t have control over testimonials that may be posted on your profile without prior approval or authorization from you.  What if someone posts a testimonial on your profile that is untrue or that would be considered misleading under Rule 7.1.  For example, suppose someone posted, “Attorney Smith is the best attorney in the state,” or “Attorney Smith has won more personal injury cases than any other attorney in the county.”  What do you do? Either of those statements would violate Rule 7.1, according to the State Bar, but you have no control over that client’s post.

2012 FEO 8 suggests that you should contact the client and ask them to remove or modify the post so it complies with the advertising rules.  In some cases, it may be appropriate to add disclaimer language to the page where the testimonial appears.  On Avvo, however, you cannot add disclaimer language to a testimonials page, except by responding to each individual endorsement that would require a disclaimer.

What if adding a disclaimer won’t “cure” the problem, as in the two examples above, and what if you cannot reach the client, the client refuses to change the post, or you can’t identify the client from the substance of the post?  There is no clear answer in the Rules or ethics opinions.  In my opinion, if you have not solicited the testimonial and have no control over or ability to change it, then you should not be held responsible for the content of the testimonial.  2012 FEO 8 seems to suggest that control over the testimonial is what is key:  “When a lawyer has control over the content of postings on his or her profile on the networking website, the lawyer may accept a recommendation from a current or former client subject to certain conditions. The lawyer may only “accept” recommendations that comply with the Rules of Professional Conduct that pertain to advertising.” 2012 FEO 8, Opinion #1 (Emphasis added).

For Avvo, you may not have a choice whether to “accept” a testimonial or endorsement. The Rules of Professional Conduct are rules of reason.  If that’s the case, then when faced with a testimonial that would violate the Rules, and over which you have no control, you can only do what’s reasonable under the circumstances.

Posted by | Comments Off on Your Avvo Profile: To Claim or Not to Claim

Staying Professional in the Face of Adversity

It is difficult when your best efforts for a client appear to have been in vain; especially when you know without a doubt that the result should have been in client’s favor and there are no more avenues left to pursue to right the wrong.  Sometimes insult is added to injury when the client does not understand that you did everything humanly possible to help them.  We learn at an early age that life is not fair, but to see this concept played out is sometimes very hard to witness.  How do we remain professional in these circumstances?

(1)    Do not allow your emotions to get in the way.  Don’t yell, be overly animated, or allow your body language to show you are upset.  For some, keeping neutral facial expressions and not expressing anger and outrage comes naturally, but I believe for a lot of us, it is a learned behavior that comes with experience and effort.  If you need to vent, wait until after you leave the forum.

(2)    Try not to take things personally.  There are often factors involved that play into a decision that having nothing to do with you, i.e. politics, group dynamics, etc.

(3)    Stay positive.  Set the tone for those around you.  “Let me embrace thee, sour adversity, for wise men say it is the wisest course.” (King Henry VI, William Shakespeare)

(4)    Respond decisively.  Speak with conviction, confidence, and authority – despite the circumstances.

(5)    Remain fearless.  Do not allow the experience to keep you from pursuing what is just.

(List derived from http://www.forbes.com/sites/glennllopis/2014/01/20/7-ways-leaders-maintain-their-composure-in-difficult-times/)

Conducting yourself professionally in these types of situations sets an example for those around you.  Exhibit civility and self-control.  This type of behavior will certainly benefit you in the legal community and in your practice.  Though you may lose a battle, losing it with grace is commendable and will be noticed.

Posted by | Comments Off on Staying Professional in the Face of Adversity

Informal Written Ex Parte Communications – Playing by the Rules

You are involved in litigation and opposing counsel is driving you insane.  Deadlines are constantly ignored, and you are becoming increasingly frustrated.  You finally draft a pointed e-mail to opposing counsel requesting that he respond to the discovery requests you sent that are yet again overdue.  You decide to copy the judge on the e-mail thinking maybe that will get opposing counsel moving.  Good idea?  No.  But why?  Rule 3.5 (a)(3) seems to allow ex parte written communications with a judge if a copy is “furnished simultaneously to the opposing party.”  Doesn’t that permit unlimited written communications with a judge regarding a pending matter as long as the opposing party is copied?

According to 98 FEO 13, Rule 3.5(a)(3) must be read in conjunction with RPC 8.4(d) and Comment 7 to RPC 3.5.  Rule 8.4(d) prohibits conduct that is prejudicial to the administration of justice.  Comment 8 (formerly Comment 7) states “[a]ll litigants and lawyers should have access to tribunals on an equal basis.  Generally, in adversary proceedings, a lawyer should not communicate with a judge relative to a matter pending before, or which is to be brought before, a tribunal over which the judge presides in circumstances which might have the effect or give the appearance of granting undue advantage to one party.”  The opinion notes that informal ex parte written communications could be used to introduce new evidence, argue the merits of the case, or to cast the opposing party or counsel in a bad light.  Such informal communications give the appearance of granting undue advantage to one party and are impermissible ex parte communications.

The opinion notes that informal written communications should be limited to the following:

  • Written communications, such as a proposed order or legal memorandum, prepared pursuant to the court’s instructions;
  • Written communications relative to emergencies, changed circumstances, or scheduling matters that may affect the procedural status of a case such as a request for a continuance due to the health of a litigant or an attorney;
  • Written communications sent to the tribunal with the consent of the opposing lawyer or opposing party if unrepresented; and
  • Any other communication permitted by law or the rules or written procedures of the particular tribunal.

If you need the judge to know about a problem with opposing counsel, you may file a motion after trying to resolve the matter with counsel.  Even if opposing counsel is the one violating the rules, do not try to handle the matter by bringing it to the judge’s attention “informally,” or you may be the one answering to the State Bar.

Posted by | Comments Off on Informal Written Ex Parte Communications – Playing by the Rules

What’s My Line? – Your LinkedIn Endorsements

Unlike the game show “What’s My Line” from the 1960’s where celebrity panelists had to guess the occupation of contestants by asking a series of questions, you don’t want to leave prospective clients guessing about your “line” of work.  First, you have an obligation under the ethics rules to ensure that you only post truthful and accurate information about your services on social networking sites. Second, it just makes no sense from a marketing perspective.  If you practice only family law, why would you advertise your skills as a real estate practitioner?  This is what could happen, however, if you are not careful about the endorsements you accept through LinkedIn.

Have you ever received an endorsement through LinkedIn for an area of practice that you don’t do?  I once received an endorsement for patent law.  What?!  Well, I’ve learned to just ignore those endorsements that have nothing to do with my practice, but not after accepting a few of them, just to see what would happen.  If you have accepted LinkedIn endorsements for areas in which you do not currently practice, even inadvertently, then you need to visit your LinkedIn profile, and hide those endorsements/practice areas.  I am not the person who can best tell you how to do that.  I fiddled around with my profile for awhile until I figured it out — I think.  But, suffice it to say that if you are showing practice areas on LinkedIn that you do not do, then you must take some action to delete or hide those practice areas and the corresponding endorsements.

The failure to do so would be a violation of Rule 7.1(a).  This Rule provides that every communication about your services must be truthful and not misleading.  If you have created a LinkedIn profile, you have control over your information on that site, including your profile, your connections and your endorsements.  Unlike some other social networking sites, LinkedIn gives you lots of flexibility about what to show and what may be deleted.  Because you have control over the contents of your LinkedIn profile, you must periodically review it to ensure it is accurate.  If you change practice areas, review your profile to see if it needs to be updated or modified.  Also, if you change employment, promptly add your new employer to your profile so it does not appear you are still working at your old firm.

Bottom Line: Make sure your LinkedIn profile accurately shows “What’s Your Line” so you don’t get in trouble with the Bar.

Posted by | Comments Off on What’s My Line? – Your LinkedIn Endorsements

Doing Business with Clients? Better Think Twice

Recognizing and avoiding conflicts of interest can be thorny. Rule 1.8(a) of the NC Rules of Professional Conduct addresses one such conflict: engaging in business transactions with clients. Specifically, the Rule provides that an attorney may engage in a fair and reasonable transaction with a client under certain conditions, which include informed, written consent by the client and the opportunity to consult independent counsel. The Rules are clear that you may engage in these transactions with certain restrictions, but does that mean you should?

Rule 1.8

Regarding conflicts of interest with current clients, Rule 1.8(a) provides:

(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest directly adverse to a client unless:

(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client;

(2) the client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel on the transaction; and

(3) the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction.

The Reasoning behind Rule 1.8(a)

Comment one provides the rationale behind the Rule.  “A lawyer’s legal skill and training, together with the relationship of trust and confidence between lawyer and client, create the possibility of overreaching when the lawyer participates in a business, property or financial transaction with a client, for example, a loan or sales transaction or a lawyer investment on behalf of a client.”

When Does the Rule Not apply?

Rule 1.8(a) generally would not apply in the following circumstance:

  • Business dealings with former clients;
  • Commercial transactions between the lawyer and client where the client normally markets those services to the public such as medical or banking services, products distributed by the client etc.;
  • Fee agreements between the attorney and client except where the lawyer obtains an interest in the client’s property as payment for a fee;

Further, if you have a situation where the client is independently represented in the transaction, paragraph (a)(2) of Rule 1.8 would not apply.

Additional considerations

Comment 3 of the Rule provides:

The risk to a client is greatest when the client expects the lawyer to represent the client in the transaction itself or when the lawyer’s financial interest otherwise poses a significant risk that the lawyer’s representation of the client will be materially limited by the lawyer’s financial interest in the transaction.  Here the lawyer’s role requires that the lawyer must comply, not only with the requirements of paragraph (a), but also with the requirements of Rule 1.7. Under that Rule, the lawyer must disclose the risks associated with the lawyer’s dual role as both legal adviser and participant in the transaction, such as the risk that the lawyer will structure the transaction or give legal advice in a way that favors the lawyer’s interests at the expense of the client. Moreover, the lawyer must obtain the client’s informed consent. In some cases, the lawyer’s interest may be such that Rule 1.7 will preclude the lawyer from seeking the client’s consent to the transaction.

Is it Ever a Good Idea?

Bottom Line: I do not believe it is a good idea to engage in business transactions with current clients and strongly discourage the practice. It is tough to be completely objective when your own financial interests are involved. Even if you believe you can be objective, your client may see things differently. You can avoid the possibility of even  inadvertent over-reaching, and potentially a grievance, by not engaging in transactions with current clients.  However, if you must, consider requiring your client to obtain independent counsel. Further, even small firms should have written policies regarding the guidelines on doing business with current clients along with detailed documentation that makes the type of disclosures required by Rule 1.8 (a).

Posted by | Comments Off on Doing Business with Clients? Better Think Twice

Metadata – What is it and Why Should I Care?

I must be honest.  Though I had an idea what metadata was, and I knew it should be “scrubbed” from documents sent to opposing counsel, I did not really know exactly what it entailed.  I recently searched for a non-technical definition for metadata.  I could not find an entry under Black’s Law Dictionary and Webster’s definition was “data that provides information about other data.”  Helpful, right?  So, I delved further and found a publication by the National Information Standards Organization that purported to explain metadata.  “Metadata is structured information that describes, explains, locates, or otherwise makes it easier to retrieve, use or manage an information resource.  Metadata is often called data about data or information about information.”  http://www.niso.org/publications/press/UnderstandingMetadata.pdf.  This did not help much either, so I continued my search of a simple definition of metadata.

I found my answer in, 2009 FEO 1 and the Pennsylvania Formal Opinion 2009-100.  Thankfully, these opinions present the definition of metadata in a simple fashion that those of us with low-tech skills understand.  “Metadata … is data contained within electronic materials that is not ordinarily visible to those viewing the information.  Although most commonly found in documents created in Microsoft Word, metadata is also present in a variety of other formats, including spreadsheets, PowerPoint presentations, and Corel WordPerfect documents.”  2009 FEO 1 quoting Pennsylvania Formal Op. 2009-100.  Metadata can include information about a document such as the date and time the document was created, the computer on which it was created, the last time it was saved, track changes showing what was added or deleted to the document, or comments made during the editing process.  This information can be revealed to a recipient by right-clicking, clicking on an icon, or using software to reveal the metadata.  Id.  These explanations make much more sense.

Not only does 2009 FEO 1 present a helpful definition of metadata, it addresses why lawyers should be concerned about disclosure of metadata and the duty to ensure this does not occur.  The danger of metadata in the practice of law is that it may contain confidential client information.  We are all aware that RPC 1.6(a) prohibits lawyers from revealing confidential client information unless it falls under a certain exception, but what is a lawyer’s duty regarding metadata that is “not ordinarily visible?”  The opinion states that a lawyer must use “reasonable care to prevent the disclosure of confidential information hidden in metadata when transmitting an electronic communication…”  What constitutes reasonable care depends on the circumstances and hinges on the following factors:

(i)                  The sensitivity of the confidential information that may be disclosed;

(ii)                The potential adverse consequences from disclosure;

(iii)               Any special instructions or expectations of a client; and

(iv)              The steps that the lawyer takes to prevent the disclosure of metadata.

Rather than having to analyze these factors each time a document is sent electronically, it is probably a better idea to use a metadata “scrubbing” application to remove any embedded information before sending electronic files to others.  These applications can be found online and many are reasonably priced.  However, before scrubbing metadata, make sure you are not inadvertently violating any disclosure duties under the law.  This is especially important when forwarding electronic documents in response to a subpoena or formal discovery request.  For example, Rule 26(b)(1) of the NC Rules of Civil Procedure states, “[f]or the purposes of these rules regarding discovery, the phrase ‘electronically stored information’ includes reasonably accessible metadata that will enable the discovering party to have the ability to access such information as the date sent, date received, author, and recipients. The phrase does not include other metadata unless the parties agree otherwise or the court orders otherwise upon motion of a party and a showing of good cause for the production of certain metadata.”

Bottom line, metadata is potentially embedded in every document drafted.  Lawyers must concern themselves with metadata in order to remain compliant with NC rules, statutes, and ethics opinions.

Posted by | Comments Off on Metadata – What is it and Why Should I Care?

Checking Under the Hood of Your Trust Account

Are you doing the ethical equivalent of checking under the hood and kicking the tires of your trust account? If not, you better make some time to do so, and soon.   Over the last several years, the State Bar has made a concerted effort to step up enforcement concerning supervision of trust accounts, or lack thereof.  It primarily has done this by aggressively pursuing disciplinary action against attorneys who fail to satisfy what it considers to be adequate supervision and oversight of trust accounts.

A significant number of attorneys have received public discipline, including active or stayed suspensions.  Many of these individuals were experienced, well- respected attorneys with previously unblemished disciplinary records and in many instances very impressive credentials.  If you believe you are immune because you’re in a large or well-established firm or because you’re not the partner or principal directly responsible for the trust account, think again.  This is an issue that potentially affects any lawyer in North Carolina whose firm handles trust funds.  The most common reasons that lawyers have gotten caught in this disciplinary net is either because: (1) they placed too much faith in a trusted employee, who betrayed it, or (2) they abdicated, rather than delegated, their responsibilities concerning the trust account to an employee or outside bookkeeper or accountant.

It is not possible in this format to provide an exhaustive list of the potential issues or pitfalls on this subject.  Instead, I will cover three of the most common areas that have ensnared some very good lawyers over the last several years.  There also is an e-publication available on our Firm website that addresses these issues entitled, “Tips for Safeguarding Client Trust Funds.”  http://brockerlawfirm.com/wp-content/uploads/2014/02/Trust-Funds.pdf

First, all the lawyers in a firm must ensure that they have an adequate system in place to comply with the trust account rules, including adequate supervision of non-lawyers.  In the last few years, if trust funds were stolen or even just misapplied by employees or other non-lawyers and there was an inadequate system in place concerning trust account supervision (or none at all), the State Bar has obtained a stayed or active suspension against at least one of the lawyers in the firm in many cases.

Second, even when there is a system in place, if funds are misused or misappropriated by an employee, the State Bar has issued public disciplinary action against one or more lawyers in the firm.  Public discipline has been imposed even when the lawyers discovered the theft, self-reported it to the State Bar as required, and took all other possible corrective remedies after the discovery, including full reimbursement to the client and pursuing criminal charges against the embezzler. In essence, the State Bar has taken a strict liability approach to trust account violations concerning misuse of the funds.     

Third, the State Bar has taken the position that supervising attorneys are required, at least periodically, to review the trust account bank statements, checks, deposit slips, wire transfers and other source documents.  Although this requirement is not specifically set forth in the Rules, Comments or Formal Ethics Opinions to my knowledge, the Bar consistently has taken the position in recent years that such review of source documents is required as part of a lawyer’s duty to adequately supervise non-lawyers with respect to trust accounts.  According to the State Bar, it is not sufficient for an attorney merely to review trust acccount summaries prepared by a non-lawyer without crosschecking or confirming the information in the summaries with the corresponding source documentation, at least periodically.

In other words, the State Bar expects that lawyers will go beyond just merely observing if things appear to be running smoothly and requires them to check under the hood of their trust account, at least periodically.  A good place to start for a DIY approach is the State Bar’s Trust Account Handbook, which is available on its website.  Our Firm also offers customized trust account procedural assessments for law firms and lawyers who need outside assistance.  However you decide to do it, it is past time to roll up your sleeves and get your hands dirty.

Posted by | Comments Off on Checking Under the Hood of Your Trust Account