Report
Overview
It is an unfortunate fact that some lawyers continue to misappropriate client or third person funds. For example, according to the most recent ABA Survey of Lawyers’ Funds for Client Protection (2011-2013), U.S. jurisdictions’ lawyers’ funds for client protection (“client protection fund”) collectively paid out in claims approximately $32.4 million in 2011, $27.4 million in 2012, and $36.6 million in 2013. Preliminary results for the 2017 Survey of Lawyers’ Funds for Client Protection (2014-2016) indicate that large payouts due to the misappropriation of client funds continues. The Pennsylvania Lawyers Fund for Client Protection reported losses of over $3.8 million in 2014 and $4.4 million in 2016. The Illinois Client Security Fund paid $1.3 million in 2014 and over $3 million in 2016. Every U.S. jurisdiction has and administers a client protection fund to reimburse victims for losses caused by the dishonest conduct of lawyers occurring in the course of the client-lawyer or other fiduciary relationship.
This Resolution, jointly proposed by the ABA Standing Committee on Client Protection and the ABA Standing Committee on Professional Discipline, seeks to amend the black letter of Rule 7 (Roster of Lawyers) of the ABA Model Rules for Lawyer Disciplinary Enforcement (MRLDE). Currently, Rule 7 sets forth the minimum information that disciplinary counsel shall maintain or have ready access to for all lawyers subject to a jurisdiction’s disciplinary authority. This information is generally collected as part of the jurisdiction’s annual registration process, and it is the individual lawyer’s responsibility to ensure the information remains current. In addition to providing identifying information (e.g., name, date of birth, law office and residential addresses, and bar admission information), MRLDE 7 currently states that lawyers must provide the “location and account numbers in which client funds are held by the lawyer.”
If adopted, the proposed amendments would update and minimally expand the type of information that lawyers provide and disciplinary agencies can access as part of the annual licensing registration process, thereby enhancing the ability of lawyer regulators to promptly and effectively address lawyer misappropriation of funds belonging to clients or third persons. For example, the Resolution proposes that lawyers be required to provide their email address(es), as well as the name and business address of anyone to whom the lawyer delegates tasks related to the operation of a trust account. The proposed changes are simple but necessary, and are in the best interest of the public and the profession. They are consistent with the requirements of Rule 1.15 of the ABA Model Rules of Professional Conduct and other longstanding ABA policies described below.
While House of Delegates’ approval is required for changes to the black letter of the MRLDE, House action is not required for changes to the accompanying Commentary. In order to fully inform the House regarding the proposed changes to the black letter of Rule 7, the Client Protection and Discipline Committees have included in the Resolution the text of what will be accompanying changes to the Commentary to MRLDE 7. The Discipline and Client Protection Committee broadly disseminated for comment within and outside the ABA drafts of this Resolution and the accompanying Report. The Committees thank those who provided helpful comments, and as of the time of the filing of this Resolution, they were aware of no opposition.
Current ABA Policies
The safekeeping of money and property belonging to clients or third persons is a fundamental ethical and fiduciary obligation of lawyers. Rule 1.15 of the ABA Model Rules of Professional Conduct (“MRPC”), in relevant part, requires lawyers to maintain such funds in trust accounts, separate from their own monies, to preserve “complete records” with respect to trust accounts, and to “render a full accounting” for the receipt and distribution of the monies from those accounts. Every United States jurisdiction, including territories, has included in their professional conduct rules the requirements of MRPC Rule 1.15. Most jurisdictions include in those rules a requirement that lawyers maintain such records for a certain period of years, and that lawyers make the records and books of such accounts readily available upon demand for production by disciplinary agencies.
The ABA has long been a leader in adopting policies that are implemented by jurisdictions to prevent and mitigate losses caused by the dishonest conduct of lawyers in handling funds of clients or third persons. In 1988, the ABA adopted the Model Rules for Trust Account Overdraft Notification requiring financial institutions to notify the state lawyer disciplinary agency when an overdraft on a trust account occurred. The Model Rule for Payee Notification adopted in 1991, requires insurers to provide written notice to a claimant that payment for the claim has been forwarded to the claimant’s lawyer. In 1993, the ABA adopted the Model Rule for Random Audit of Lawyer Trust Accounts, which authorizes a jurisdiction’s lawyer disciplinary agency to conduct audits of lawyers’ trust accounts, selected at random, without needing a basis to believe that misconduct has occurred. In August 2010, the ABA House of Delegates adopted the ABA Model Rules for Client Trust Account Records to delineate the types of records that lawyers must maintain in order to comply with the recordkeeping obligations outlined in the MRPC. In jurisdictions that have adopted similar policies, these measures have proven effective in deterring and detecting the mishandling of funds even before clients or third persons file complaints with disciplinary agencies. These requirements have provided useful guidance to lawyers about proper accounting procedures, and are not considered to be a regulatory burden.
Proposed Amendments
In addition to updating Rule 7 to include lawyers providing an email address, the proposed amendments would expand the scope of trust account information that a lawyer must submit as part of the annual registration process. The proposed amendment to Rule 7(i) clarifies that lawyers should provide the name of the financial institution, in addition to the account number, for each account in which the lawyer holds client or third person funds in connection with a representation. The proposed amendments to Rule 7(j) would require lawyers, as part of their annual registration, to provide the name and business address not only of the lawyer(s) with authority to disburse funds from trust accounts, but of any others to whom the lawyer has delegated authority to disburse funds from each trust account where client or third person funds are held in connection with a representation. This proposed amendment would make MRLDE 7 consistent with Rule 2(a) of the Model Rules for Client Trust Account Records, which provides that “a lawyer admitted to practice law in this jurisdiction or a person under the direct supervision of the lawyer” (emphasis added) can be an authorized signatory on the client trust account.
Similarly, new Rule 7(k) would require lawyers, as part of their annual registration, to provide the name and business address of the lawyer responsible for complying with the applicable rules governing client trust accounts as well as that information relating to any individual to whom the lawyer delegates tasks relating to the operation of such accounts, such as bookkeeping duties. New Rule 7(k) recognizes the reality that many law firms use the services of outside accountants or other firm employees to conduct monthly and annual account reconciliations. Any such delegation of tasks must be done in compliance with Rules 5.1 and 5.3 of the ABA Model Rules of Professional Conduct.
Data collected by the Client Protection and Discipline Committees when preparing this Resolution revealed that twenty-four jurisdictions already require lawyers to provide similar trust account information on their annual registration statement. In twenty-one of these jurisdictions, lawyers must report the name on their trust account, the account number, and the name of the financial institution. In a few of these jurisdictions, more detailed information in the registration statements is required, including the name of each lawyer responsible for depositing and disbursing funds, as well as the names of individuals responsible for reconciling the accounts.
The proposed changes to MRLDE would not create an undue burden for lawyers, are protective of clients and the public, and help lawyer regulators as they continue to work to minimize instances of lawyer misappropriation of monies held in trust accounts and hold lawyers accountable via discipline when appropriate. These changes also enhance the efficient use of disciplinary resources in cases where the risk to the public is high, by allowing disciplinary counsel to readily access critical information when investigating allegations of dishonest conduct resulting in misappropriation of client or third person funds. This is especially relevant when the lawyer who is alleged to have committed the misconduct is not necessarily the lawyer whose name appears on the trust account, or in small or solo firms, for example, where nonlawyer employees are often, by necessity, authorized signatories on trust accounts. The proposed amendments also allow disciplinary counsel to readily access trust account information when necessary for a more effective accounting and distribution of client funds if the lawyer dies, is missing, or becomes incapacitated. These changes will also help lawyers comply with the “complete records” requirement in Rule 1.15 of the ABA Model Rules for Professional Conduct.
Commentary
The House of Delegates does not adopt the Commentary to the MRLDE. If the proposed amendments are adopted, the Commentary to MRLDE 7 will be amended as follows:
Commentary
A permanent registration system should be established from which the agency can determine whether an individual is licensed to practice in the state, where the individual is located, and information regarding all accounts in which the lawyer holds client or third person funds in connection with a representation. Such information maintained via the registration system should include the name of any individual(s) authorized to disburse funds from such accounts or who are designated by the responsible lawyer to perform tasks related to the operation of such accounts. Such tasks could include performing bookkeeping functions. The lawyer’s assignment of such tasks must be done in accordance with Rules 5.1 and 5.3 of the Model Rules of Professional Conduct. The registration records may be maintained by the court, a courtdesignated agency, or in unified bar states by the state bar association. Disciplinary counsel should have ready access to the records.
The individual lawyer has the responsibility of keeping his or her registration information current, and should be required to promptly inform the registration agency of any change. Generally, the current business address listed in the roster is the lawyer's legal address for purposes of service of process and any other notices. See Rule 13.
Registration records should be updated to include information if the lawyer is deceased or no longer engaged in the practice of law. When a lawyer has disappeared or is deceased, the lawyer's relatives or law partners or associates in the firm, corporation, or agency in which the lawyer was employed should report that fact to the registration agency. See Rule 28(A).
Upon the convening of a hearing on formal charges against a lawyer, disciplinary counsel should require the lawyer to verify the accuracy of the information contained in the roster, and to correct any part thereof which is out of date.
A coordinated system of assigning a universal registration number is urgently needed to make interstate reciprocal enforcement of discipline effective.
Conclusion
For the reasons set forth above, the Client Protection and Discipline Committees respectfully request that the House of Delegates adopt these proposed changes to MRLDE 7.
Respectfully submitted,
Frank X. Neuner, Chair
ABA Standing Committee on Client Protection
August 2017
General Information Form
Submitting Entity: Standing Committee on Client Protection
Standing Committee on Professional Discipline
Submitted By: Frank X. Neuner, Jr., Chair, Standing Committee on Client Protection
1. Summary of Resolution(s). The Resolution, jointly proposed by the ABA Standing Committee on Client Protection and the ABA Standing Committee on Professional Discipline, seeks to amend the black letter of Rule 7 (Roster of Lawyers) of the ABA Model Rules for Lawyer Disciplinary Enforcement (MRLDE). The proposed amendments would update and minimally expand the type of information that lawyers provide and disciplinary agencies can access as part of the annual licensing registration process to include the lawyer’s business email address, the name of the financial institution and the account number for each account in which the lawyer holds client or third person funds in connection with a representation, the name and business address of the lawyer(s) or other individual(s) with authority to disburse funds from
trust accounts, and the name and business address of the lawyer responsible for complying with the applicable rules governing client trust accounts and any individual to whom the lawyer delegates tasks relating to the operation of such accounts, such as bookkeeping duties.
2. Approval by Submitting Entity. The Standing Committee on Client Protection approved the Resolution on Thursday, May 4, 2017. The Standing Committee on Professional Discipline approved the Resolution on Friday, May 5, 2017.
3. Has this or a similar resolution been submitted to the House or Board previously? The proposed amendments have not previously been submitted to the House of Delegates or the Board of Governors.
4. What existing Association policies are relevant to this Resolution and how would they be affected by its adoption? Rule 1.15 of the ABA Model Rules of Professional Conduct, in relevant part, requires lawyers maintain client and third-party funds in trust accounts, separate from their own monies, to preserve “complete records” with respect to trust accounts, and to “render a full accounting” for the receipt and distribution of the monies from those accounts. The ABA Model Rules for Client Trust Account Records requires lawyers to delineate the types of records that lawyers must maintain in order to comply with the recordkeeping obligations outlined in the Model Rules of Professional Conduct. The proposed amendments are consistent with the requirements of Rule 1.15 of the ABA Model Rules of Professional Conduct and the ABA Model Rules for Client Trust Account Records.
5. If this is a late report, what urgency exists which requires action at this meeting of the
House? N/A
6. Status of Legislation. (If applicable) N/A
7. Brief explanation regarding plans for implementation of the policy, if adopted by the House of Delegates. The Standing Committees on Client Protection and Professional Discipline will
circulate the amended policy to the highest court of appellate jurisdiction and lawyer regulatory authorities in each U.S. jurisdiction with recommendations to adopt the amendments.
8. Cost to the Association. (Both direct and indirect costs) N/A
9. Disclosure of Interest. (If applicable) N/A
10. Referrals. The Resolution was forwarded to ABA Committees and Commissions, ABA Section and Division Chairs, presidents of state and local bar associations through The Bridge, and affiliated organizations including the Association of Professional Responsibility Lawyers, the National Organization of Bar Counsel, and the National Client Protection Organization, and circulated on various Center of Professional Responsibility list serves.
11. Contact Name and Address Information. (Prior to the meeting. Please include name,
address, telephone number and e-mail address)
Selina S, Thomas
Client Protection Counsel
American Bar Association
321 N. Clark Street, 17th Floor
Chicago, IL 60654
312/ 988-6721
Selina.thomas@americanbar.org
Ellyn S. Rosen
Regulation and Global Initiatives Counsel
ABA Center for Professional Responsibility
321 North Clark Street
17th Floor
Chicago, IL 60654-7598
312/988-5311
Ellyn.Rosen@americanbar.org
12. Contact Name and Address Information. (Who will present the report to the House? Please include name, address, telephone number, cell phone number and e-mail address.)
Frank X. Neuner, Jr.
NeunerPate
One Petroleum Center
1001 West Pinhook Road, Suite 200
Lafayette, LA 70503
Phone: 337 237 7000
Cell: 337 654 4424
fneuner@neunerpate.com
Executive Summary
1. Summary of the Resolution
The Resolution, jointly proposed by the ABA Standing Committee on Client Protection and the ABA Standing Committee on Professional Discipline, seeks to amend the black letter of Rule 7 (Roster of Lawyers) of the ABA Model Rules for Lawyer Disciplinary Enforcement (MRLDE). The proposed amendments would update and minimally expand the type of information that lawyers provide and disciplinary agencies can access as part of the annual licensing registration process to include the lawyer’s business email address, the name of the financial institution and the account number for each account in which the lawyer holds client or third person funds in connection with a representation, the name and business address of the lawyer(s) or other individual(s) with authority to disburse funds from trust accounts, and the name and business address of the lawyer responsible for complying with the applicable rules governing client trust accounts and any individual to whom the lawyer delegates tasks relating to the operation of such accounts, such as bookkeeping duties.
2. Summary of the Issue that the Resolution Addresses
The proposed amendments are part of the ongoing effort to minimize instances of lawyer misappropriation of monies held in trust accounts and hold lawyers accountable via discipline when appropriate.
3. Please Explain How the Proposed Policy Position Will Address the Issue
The proposed amendments allow disciplinary counsel to readily access critical information when investigating allegations of dishonest conduct resulting in misappropriation of client or third person funds. This is especially relevant when the lawyer who is alleged to have committed the misconduct is not necessarily the lawyer whose name appears on the trust account or where nonlawyer employees are authorized signatories on trust accounts. The proposed amendments also allow disciplinary counsel to readily access trust account information when necessary for a more effective accounting and distribution of client funds if the lawyer dies, is missing, or becomes incapacitated. These changes will also help lawyers comply with the “complete records” requirement in Rule 1.15 of the ABA Model Rules for Professional Conduct. The proposed amendments would not create an undue burden for lawyers and are protective of clients and the public.
4. Summary of Minority Views or Opposition Internal and/or External to the ABA Which Have Been Identified
The submitting entities were not aware of any opposition at the time of filing.
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