Trust Accounting Tips

My drumbeat continues!  In my defense, it’s been 15 whole days.  Plus, back then, most of you probably still had too much summer on your mind to click on a trust accounting blog.  So, here we go again.

Over the years, more than one lawyer has told me the trust accounting rules are “too complicated.” Hence, my first post of 2018: Don’t Overcomplicate Trust Accounting.

A few moments ago, I came across a post on the Attorney at Work blog: Avoiding Common Trust Accounting Errors for Well-Intentioned Lawyers.  The post does a nice job uncomplicating trust accounting with five simple tips:

• reconcile monthly
• keep clients informed
• set up appropriate credit card processing system
• be the only signatory
• reduce personal funds in trust

Great tips.  With the respect to the final, remember, under Vermont’s rules, a lawyer may keep the lawyer’s own money in a client trust account, “for the sole purpose of paying service charges or fees on that account [and] only in an amount necessary for that purpose.”  V.R.Pr.C. 1.15(b).   As I blogged here:

• “Don’t guess.  Figure out what the normal charges and fees are or are likely to be and deposit that amount.  Randomly tossing in $500 or $1000 could lead to discipline.”

Anyhow, it’s never a bad idea for a quick refresher on the trust accounting rules.  The Attorney at Work post above is a good start.  Also, last spring, I embarked upon a Trust Account Tuesday quest in which I posted tips on trust accounting every – you guessed it – Tuesday.  I hoped the posts would serve as a companion to the Professional Responsibility Program’s Guide to Managing Client Trust Accounts.  The entries:

• Don’t Commingle
• Basic Requirements
• Don’t Disburse Absent Collected Funds
• Teddy KGB on Prompt Notification & Delivery
• Third-Party Interests in Funds Held on Behalf of a Client
• Nonrefundable Fees
• Misappropriation:  Don’t
• With Trust Accounts, Verify
• Third-Party Claims against Client Funds (an update)

And, some posts that weren’t part of last spring’s Trust Account Tuesday trope:

• T.I., Jack Torrance & Trust Accounting
• An Improper Contingent Fee
• The 6th “C”: Commingling
• Trust Accounts & ACH Transfers
• Matters of Trust: do you trust your trust accounting system

Finally, my posts on scams:

• Trust Account Scams Continue
• Learn to Identify Trust Account Scams
• Change in wire instructions? CAUTION
• The latest scam
• Scams continue: beware ANY change in wire instructions
• Protect client funds, and your law license, by learning to identify trust account scams
• Trust Account Scams: disciplinary prosecutions possible?

Maybe the rules are complicated.  But the general notion isn’t:

• know whose money you have;
• how much; and,
• keep it separate from yours.

 

Trust Account Tuesday: Misappropriation

My sense is that lawyers think of “misappropriation” as “theft” or “embezzlement.”

Yes, stealing, theft, and embezzlement are bad.  Very bad.  But misappropriation includes more.

You know what’s as bad?

“Borrowing.”

Funds held in trust are not there for the lawyer’s personal use.  Whatever the reason – payroll, rent, the student loan payment you covered just this one time with client funds that you 100% will replenish once you take your fee from the case you settled yesterday – when it comes to client funds in trust, there’s no such thing as “borrowing.”

In my view, when a lawyer uses client funds for the lawyer’s own purposes without the client’s permission, the lawyer should be disbarred. Even if the lawyer replaces the funds before anyone realized they had been removed. Even if the lawyer never intended to permanently deprive a client of money.

Long ago, the New Jersey Supreme Court defined “misappropriation” as:

• “any unauthorized use by the lawyer of clients’ funds entrusted to him, including not only stealing, but also unauthorized temporary use for the lawyer’s own purpose, whether or not he derives any personal gain or benefit therefrom.”

The opinion is here.

In 2005, I prosecuted a case that involved a lawyer’s unauthorized temporary use of client funds for the lawyer’s own purposes.  For years, the lawyer used trust funds to pay personal expenses, reimbursing the trust account when the lawyer could.  Indeed, while the investigation was still in its earliest stages, and long-before disciplinary charges were filed, the lawyer replenished the trust account in full.  Not a single client lost even a penny.

Nevertheless, I argued for disbarment.  A hearing panel of the Professional Responsibility Board agreed.  The Vermont Supreme Court adopted the panel’s decision as its own and disbarred the lawyer.

In its decision, the hearing panel cited a line of cases that stretch back to the New Jersey opinion I mentioned above.  The panel concluded that the unauthorized use of client funds for the lawyer’s own purposes is so serious that, absent “compelling mitigating circumstances,” disbarment will result.

To the panel, “compelling” meant something.  The panel specifically noted numerous factors that, in nearly any other disciplinary case, would have mitigated in favor of a lesser sanction.  Still, the panel ordered disbarment.  That’s how serious the Court and hearing panels take even the temporary unauthorized use of client funds.

A law license is not license to use other people’s money as your own.  Not even a nickel.  Not even if you put the nickel back tomorrow.  This is how I remind you.

It’s not your money.  Don’t treat it like it is.

Trust Account Tuesday: 3rd party “interests” in funds held on behalf of a client.

Second post in one day.   Both on trust accounting.  What is the world coming to?

This morning, Teddy KGB helped to remind us that lawyers have a duty to deliver funds to which clients and third persons are entitled.  Our discussion was predicated on the fact that there is no dispute that a client or third person is entitled to the funds that the lawyer intends to disburse. What about when more than one person asserts an interest in the funds?

Let’s start with the rule.  As Maria might say, it’s a very good place to start.

Rule 1.15 applies.  Specifically, paragraphs (d) and (e).

The relevant section of paragraph (d):

• (d) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person.

The entirety of paragraph (e) is relevant:

• “(e) When in the course of representation a lawyer is in possession of property in which two or more persons (one of whom may be the lawyer) claim interests, the property shall be held separate by the lawyer until the dispute is resolved. The lawyer shall promptly distribute all portions of the property as to which the interests are not in dispute.

When does a third party have an interest in funds that a lawyer is holding in trust for a client or third person?  In other words, (1) when must a lawyer notify someone that the lawyer received funds; and, (2) when would a dispute over funds prohibit disbursement?

Often, the comments to the rules are helpful.  Comment [4] to Rule 1.15 says:

• “Paragraph (e) recognizes that third parties may have lawful claims against specific funds or other property in a lawyer’s custody, such as a client’s creditor who has a lien on funds collected.  A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client. In such cases, when the third-party claim is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client until the claims are resolved. A lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party, but, when there are substantial grounds for dispute as to the person entitled to the funds, the lawyer may file an action to have a court resolve the dispute.”

Ummm, ok.  But, again: what are the “interests” and “claims” that trigger the rule?

A few months ago, I found this advisory opinion from the Virginia State Bar.  I find pages 1-4 particularly helpful.

Let me be clear: here in Vermont, I do not know how disciplinary counsel, a hearing panel, or the Supreme Court would approach the issue.  However, I think the opinion from the Virginia State Bar is useful in formulating the appropriate thought process.

Some key quotes from the opinion:

• “In the absence of a valid third-party interest in the funds, the lawyer owes no duty to a creditor of the client and must act in the best interests of the client.”

This is important. In other words, when it comes to funds, a lawyer’s primary loyalty remains to the client and the conflict rules continue apply.

• “The mere assertion of an unsecured claim by a creditor does not create an ‘interest’ in the funds held by the lawyer.  Therefore, claims unrelated to the subject matter of the representation, though just, are not sufficient to trigger duties to the creditor without a valid assignment or perfected lien.”

This is consistent with how I’ve approached the issue.  Standing alone, “Hey, your client owes me money” isn’t enough.  Even if it’s true.  For example:

• Lawyer’s Client was injured skiing.
• The ski area’s insurer settled for $100,000 that’s in Lawyer’s trust account.
• Client’s injuries resulted in treatment from, among others, Physical Therapist.
• Lawyer and Client know that Physical Therapist has a lien on any recovery.
• Meanwhile, shortly before Client was injured in the skiing accident, Painter painted Client’s house.  Client disputed the bill and has yet to pay it in full.  Painter has never sued Client or obtained a judgment against Client.  Somehow, Painter found out about the ski injury settlement.  Painter called Lawyer and directed Lawyer o hold in trust the amount that Painter contends is owed by Client.

To me, Physical Therapist has “an interest” that triggers the rule, Painter does not.

The Virginia opinion lists things that trigger a lawyer’s duties to a third-party creditor:

• statutory liens
• judgment liens
• court order or judgments that affect the funds.

Then, the opinion says:

• “Likewise, agreements, assignments, lien protection letters, or other similar documents in which the client has given a third party an interest in specific funds trigger a duty under [the rules] even though the lawyer is not a party to such agreement or has not signed any document, if the lawyer is aware that the client has signed a document.” (emphasis in the original).

And, to me, here’s the key statement:

• “In other words, a third party’s interests in specific funds held by the lawyer is created by some source of obligation other than Rule 1.15 itself.”

This makes perfect sense to me.  The mere fact that Lawyer is holding the money is not enough to give a third party “an interest” in or “claim” to the funds.  That’s the “Painter” example from above.

With all of this said, the Virginia opinion makes a critical point that cannot be ignored.  While the general rule is that a lawyer have “actual knowledge” of a third party’s interest or claim to trigger the duties under the rule:

• “In some situations, under federal and state law, the lawyer need only be aware that the client received medical treatment from a particular provider or pursuant to a health care plan. In those instances, notice of lien or lien letter may not be required in order for that third party to claim entitlement to funds held by [the] lawyer.”

In other words, the duty of competence includes knowing whether, by law, a treatment provider has a valid interest, claim, or entitlement that may not need to be formally asserted.

Finally, remember, a lawyer’s is to recognize the existence of valid claims and interests to funds you are holding for a client.  Rule 1.15(e) does not require a lawyer to resolve the claims and, in fact, prohibits a lawyer from doing so unilaterally.

Where’s that leave us?  I’m not sure.  It’s an issue rarely brought to my attention.  If you’re ever unclear, call me and we’ll talk through it.

Trust Accounting: Basic Requirements

This is part 2 in an ongoing series on trust accounting.

In part 1, we learned not to commingle.  That is, the first principal of trust accounting is that lawyers must keep client funds held in connection with a representation separate from their own.  So, then, where to hold them?

Rule 1.15(a)(1) requires such funds to be kept as required by Rule 1.15A and Rule 1.15B.  Let’s look at the requirements in each, at times hopping back & forth between the two.

First, funds that belong to clients or third persons and that are in lawyer’s possession as a result of a lawyer-client representation must be held in an account that is clearly labeled as a “trust” account and that is at a financial institution.  Rule 1.15A(a).

Second, not just any old financial institution.  Rule 1.15B(a)(1) requires lawyers to “create and maintain a pooled interest-bearing trust account” at a financial institution that has been approved by the Professional Responsibility Board.  The list of approved financial institutions is on this page under the heading “Attorney Trust Accounts.”

Third, lawyers must set up an accounting system that, at a bare minimum, includes the features listed in Rule 1.15A(a)(1)-(4).

• The accounting system is important.  As this decision shows, the failure to have an accounting system will earn you a public reprimand.  Also, per Rule 1.15A(b), lawyers must submit to trust account compliance reviews.  Disciplinary Counsel regularly conducts such reviews, sometimes at random.  I’ve seen the reports.  The CPAs look for compliance with the “bare minimum” requirements.   Several compliance reviews have resulted in the imposition of discipline for failure to maintain an accounting system that includes the required minimum features.
• Without getting too lost in the weeds, the bare minimum features are:
  • a system that shows all receipts, disbursements from the trust account, including the source of receipts and nature of disbursements;
  • records that identify each client or third person for whom funds are held, the amount held, all receipts & disbursements for that client, and a running balance;
  • records documenting timely notice to each client or third person of receipts and disbursements; and,
  • records documenting “timely reconciliation” of the account or accounts, and a “single source” that identifies all accounts maintained.
• “Timely reconciliation” is “no less than monthly.”

Fourth, interest on these pooled interest-bearing trust accounts must not be made available to the lawyer or the client.  The lawyer must inform the financial institution that the interest is to be paid to the Vermont Bar Foundation.  Rule 1.15B(a)(1).  

• The interest will go to the client or third person ONLY if the funds are reasonably expected to earn net interest or dividends that will exceed the transaction costs and administrative costs.  This is exceedingly RARE.  As made clear by Rule 1.15B(a)(1), the default position is that funds go into a pooled interest-bearing trust account from which the interest is paid to the VBF.  By rule, “no lawyer may be disciplined for placing client funds in the pooled interest-bearing account if the lawyer made a good faith determination that the funds” were not reasonably expected to earn net interest or dividends for the client or third person.

Finally, by rule, the financial institution MUST notify disciplinary counsel whenever an instrument drawn on an attorney trust account is presented against insufficient funds, regardless of whether the instrument is honored.  In other words, it’s not just overdrafts that will be reported.

So, that concludes lesson 2.   To recap:

1. If you’re holding funds of a client or third person in connection with a representation, keep them separate from your own.
2. Deposit the funds in a trust account at an approved institution.
3. Implement an accounting system that, basically, tracks how much you have in total, how much you have for each individual client, where money came from, where money went.
4. Make sure the interest goes to the Vermont Bar Foundation.

 

 

 

Fees: Advanced vs. Non-Refundable

I’ll be quick to the point, to the point no fakin’: the Vermont Rules of Professional Conduct do not prohibit non-refundable flat fees.  However, Rule 1.5(f) sets out the steps a lawyer must take to treat a non-refundable fee as earned upon receipt.

Here’s a primer.

Very few lawyers charge true retainers.  What we’ve come to call a retainer is really, a fee that is a paid in advance.  Generally, if a lawyer accepts money from a client for work that has not yet been performed, then bills against that money as work is performed, that’s not a retainer.  It’s a fee that the client paid in advance.

In 2005, the Vermont Bar Association’s Professional Responsibility Program issued advisory ethics opinion 2005-4.  The Committee advised that a lawyer & client could agree that a fee paid in advance is “earned upon receipt.”  The Committee further advised that such fees become the property of the lawyer upon receipt and, therefore, cannot be deposited into the lawyer’s trust account.

In 2009, the Vermont Supreme Court amended Rule 1.5(c), the rule that governs advance fees.  Per the Reporter’s Note, the new rule required “deposit in a lawyer’s trust account of any fees or expenses paid in advance, no matter how designated, if the funds are to be applied as compensation for services subsequently rendered or expenses subsequently incurred.”  (emphasis added).

The new rule appeared to nullify or overrule that 2005 advisory opinion.  That is, “no matter how designated” suggests that a fee designated as “earned upon receipt” must,  nevertheless, go into trust until earned.

Confusion reigned.  Many lawyers routinely charged “non-refundable” fees and treated them as their own upon receipt. Others charged flat fees, put them in trust, then wondered when the fee became “earned.”

In 2016, the Court adopted the Professional Responsibility Program’s recommendation to amend Rules 1.5 and 1.15(c).  As amended, Rule 1.5(f) authorizes lawyers to enter into non-refundable fee agreements under which the fee is earned before any services are rendered.  Such fees DO NOT go into trust.  Further, the rule requires such fee agreements to be confirmed in writing and to define the scope of services that the client will receive in exchange for the non-refundable fee.  Even if labeled nonrefundable, the fee must be reasonable and, further, the new rule prohibits a lawyer from requiring the client to waive the right to challenge the reasonableness of the fee.

In short, if a lawyer complies with Rule 1.5(f), the lawyer may treat a non-refundable fee as earned upon receipt.  In that the fee is “earned,” it does not go into trust.

Of course, the rule does not REQUIRE non-refundable fee agreements.  At the same time that it amended Rule 1.5(f), the Court also amended Rule 1.15(c).  The new rule states that, with the exception of non-refundable fees that comply with Rule 1.5(f), any fee paid in advance must be deposited into trust and remain in trust until earned.

So, lawyers: if you want to treat a fee as yours upon receipt, you must comply with Rule 1.5(f).  Otherwise, a fee paid in advance must remain in trust until earned.

Word to your mother.

 

ACH Transfers & Trust Accounts

At some of my CLE presentations, I use a category called  “Conflicts, Trust Accounts, Neither.”  It’s self-explanatory: I show a slide with a word or phrase, contestants have to identify whether the phrase relates to conflicts, trust accounts or neither.  Here are a few:

• Lateral Transfers
• Coutinho Transfers
• ACH Transfers

Take a moment.

Ok.  Here we go:

• Lateral Transfers – Conflicts
• Coutinho Transfers – Neither
• ACH Transfers – Trust Accounts

I’ve written on the issues related to a lawyer’s lateral transfer from one firm to another.

Last summer, Sports Illustrated wrote about Coutinho’s transfer from Liverpool to Barca.

Which brings us to ACH transfers.

What’s an ACH transfer?  Good question.

This is an oversimplification:  an ACH transfer is an electronic transfer of funds that is processed by the Automated Clearing House.  An ACH transfer differs from a wire transfer in several respects.  Among them: funds sent via ACH transfer are not necessarily immediately available, and, ACH transfers can be reversed.  Here are some explanations of ACH transfers and how they differ from wire transfers:

• Know Your Bank: ACH vs. Wire Transfer
• Deposit Accounts: Difference Between Wire Transfer and ACH
• The Balance: Key Differences between ACH and Wire Transfers

The Vermont Bar Association’s Professional Responsibility Committee recently issued advisory opinion 2017-1. Per the opinion,

1. It is not a violation of the Rules of Professional Conduct to accept ACH transfers into a trust account.
2. An attorney should take steps to protect against ACH reversals.
3. If a reversal occurs, an attorney must act to protect client funds held in trust.

The North Carolina State Bar has also issued an advisory opinion on ACH transfers. It’s here.  The upshot: (1) an attorney may disburse immediately against funds credited to a trust account via ACH transfer; and, (2) if an ACH transfer is reversed, an attorney does not violate the rules as long as the attorney takes immediate action to protect other funds that in trust.

The NC opinion points out that ACH reversals are rare.  That’s a good thing.  However, I’m aware of two Vermont attorneys who had to deal with reversals.  It is not fun to wake up, look at your trust account statement, and see a reversal.  Simply, a reversal means that someone other than you or your firm caused money to leave your trust account.  And, often, the money that initially came in has been disbursed.  So, when the reversal occurs, the money leaving is money that belongs to a client other than the client for whom the funds were initially deposited.

As the Vermont opinion advises, take steps to protect your trust account. To quote the opinion:

• “Some banks now offer protection against ACH reversals, with names like ACH Debit Block or ACH Positive Pay. Some possible actions for an attorney to take
  to protect against ACH reversals are to ask the attorney’s bank to block reversals of ACH deposits, to set up a separate IOLTA account for ACH transfers, to set up a subsidiary account for a particular client that can only receive funds, and to give the attorney’s bank a list of entities that are authorized to withdraw from the IOLTA account.”

Check with your bank.  And, as I mentioned yesterday at the CCBA meeting, if your bank agrees to block reversals, still continue to keep an eye on your trust account! Last summer, a lawyer informed me that she’d had an ACH reversal, so she put a “block” on the trust account.  Somehow, the bank removed the block and another reversal happened.

As always, be careful out there.

 

 

 

 

Monday Morning Answers

Happy Memorial Day.

Friday’s questions are here.  The answers follow today’s Honor Roll.

Congrats to all who participated in the Vermont City Marathon.  I finished, but it wasn’t pretty. Things went well until about Mile 21.8.  From there, it was a struggle.  Still, I finished, reaching my goal of 20.

Given the way it ended, I spent yesterday afternoon and evening swearing off marathons forever.  I told myself “20 is a great accomplishment. It’s time to focus on halfs.”

This morning I’ve already started looking for a full marathon to run this fall.

Honor Roll

• Penny Benelli, Dakin & Benelli
• Laura Gorsky, Law Office of David Sunshine
• Anthony Iarrapino, Wilschek & Iarrapino
• Keith Kasper, McCormick, Fitzpatrick, Kasper & Burchard
• Kevin Lumpkin, Sheehey, Furlong & Behm
• Joshua Martin
• Lon McClintock, McClintock Law Offices
• Jeff Messina, Bergeron Paradis Fitzpatrick
• Hal Miller, First American
• Jay Spitzen

Answers

Question 1

With respect to legal ethics, which involves a different set of rules than the others?

• A.  Net dividends
• B.  Screening
• C.  Overdraft Notification
• D.  Three-Way Reconciliation

Screening is associated with the conflict rules.  The others are part of the trust accounting rules.

Question 2

Which doesn’t belong with the others?

• A. a system showing all receipts & disbursements from the account
• B. records showing all receipts & disbursements for each client
• C. records documenting timely notice to clients of all receipts & disbursements
• D. an approved credit card processing system

A-C are required by Rule 1.15A.   D is not.  

Question 3

Attorney represents Tatum in the civil matter Tatum v. James.*   Lawyer represents James and has retained Expert Witness.

Whether Attorney can contact Expert Witness without Lawyer’s permission is likely governed by:

• A.  Rule 4.2 (the no-contact rule)
• B.  Rule 1.6 (information relating to the representation)
• C.  The Rules of Civil Procedure
• D.  The Rules of Evidence

Anyhow, an expert witness is not represented by the lawyer who represents the party or person for whom the witness will be testifying. So, Rule 4.2 does not apply.

However, Rule 26 of the Vermont Rules of Civil Procedure limits the ways in which discovery may be obtained from an expert witness.  Contacting that witness informally might not be one of them.  Thus, in the hypo, Rule 26 answers the question.  The Vermont rule is based on Federal Rule of Civil Procedure.  

Rule 3.4(c) of the Rules of Professional Conduct prohibits lawyers from disobeying an obligation under the rules of a tribunal.  In that V.R.C.P. 26(c) is a court rule, a violation of thereof might rise to the level of a violation of Rule 3.4(c) of the Rules of Professional Conduct.

If interested, please contact me and I will provide you with a cite to a decision from the Vermont Superior Court that is on point.  I’m having trouble linking to it.

*Sadly, James prevailed over Tatum in last night’s Game 7.  Never in my life have I heard so much praise heaped upon a superstar who, when you get right down to it, beat a team that was without its 2 best players for the entire playoffs. Not exactly something upon which legacies used to be built.

Question 4.

Pops & Olive divorced many years ago.  Pops is over a year in arrears on court-ordered spousal maintenance payments.

Olive asks Lawyer to represent her in a post-judgment motion to enforce the order.   She cannot afford Lawyer’s fee and asks Lawyer to take the case on a contingent fee basis.  Lawyer agrees.  You may assume that Lawyer does not have any conflicts that prohibit Lawyer from representing Olive.

Which is most accurate?

• A.   If the contingent fee agreement is reasonable & reduced to writing, it does not violate the rules.
• B.   Lawyer has violated the rules.  Contingent fees are banned in domestic cases.
• C.   There will not be a violation unless or until Lawyer attempts to collect a contingent fee from Olive.
• D.   There is no violation because it was Olive, the client, who proposed the contingent fee.

Rule 1.5(d)(1) allows contingent fees in this type of situation.

Question 5

Talk about unethical!!

In 1980, the first woman to cross the finish line at the Boston Marathon did so in what would have been the fastest time in Boston history, and third-fastest marathon in recorded history.  Alas, she was disqualified after it was determined that she’d not run the full course.  By some reports, she jumped into the race in the final mile before the finish.

Name her.

Rosie Ruiz.

For more, here’s a story that ran in the Lawrence Eagle Tribune a few years ago.  Until I read the story, I’d never known that it’s suspected that Rosie qualified for Boston by cheating at the 1979 New York City marathon.

Like any other human activity, the running world is replete with cheaters.  The New Yorker ran this story on Kip Litton, a runner who, among other race irregularities, is suspected of having gone to so far to concoct a fake marathon & list himself as the winner.  Letsrun wrote about Mike Rossi, the runner who probably never expected a note to his kid’s teacher would have such damning consequences.

I view Derek Murphy as the sports disciplinary prosecutor.  Derek runs Marathon Investigation.  It’s a site dedicated to exposing marathon cheats, in particular those who cheat to get into Boston.

 

Reminder: Don’t fear trust accounting

Lately, I’ve warned often of trust account scams.  Today, I thought I’d re-post a blog that originally ran in January:  Don’t Overcomplicate Trust Accounting.

Yes – scams are scary.  But, don’t let that fear – or a generalized aversion to accounting – keep you from attending to your trust account.  Here’s what I wrote earlier this year:

*****

Last November, I posted The 50 Original Rules.  It’s a post that briefly recaps the history of the conduct rules that apply to lawyers.  Best I can tell, the earliest record of guidelines for attorney conduct in the United States is David Hoffman’s 1836 publication of his Fifty Resolutions in Regard to Professional Deportment.  My post includes each of Hoffman’s 50 resolutions.

181 years later, it’s somewhat fascinating to me how many of Hoffman’s resolutions continue to resonate.  Many are embedded in the current rules and our collective professional conscience.  Given my fascination, I’ve resolved to blog about the continued relevance of Hoffman’s resolutions, taking them one at a time.  To date, I’ve posted:

• Don’t Be a Jerk
• Don’t Switch Sides

Today’s thought:  Don’t overcomplicate trust accounting.

There are three rules that apply to client property & trust accounting:  Rule 1.15, Rule 1.15A, and Rule 1.15B.   They’re not exactly models of clarity, especially for folks with no business or accounting background.

But here’s what Hoffman resolved in 1836:

25.    I will retain no client’s funds beyond the period in which I can, with safety and ease, put him in possession of them.

26.    I will on no occasion blend with my own my client’s money. If kept distinctly as his it will be less liable to be considered as my own.

I understand that it is a GROSS OVERSIMPLIFICATION for me to say that Hoffman’s 2 lines capture all that is required by the trust accounting rules.  However, his two lines are a damned good start.

In my experience, lawyers who overcomplicate trust accounting come to fear it.  The fear, in turn, leads to avoidance.

It’s a bad idea to avoid trust accounting.

Here are some simple thoughts:

• If it’s not yours, it goes in trust.
• If it is yours, get it out of trust.
• Know how much you have and whose it is.
• Promptly pay yourself,  promptly pay your clients.

Adhering to these basic principles will go a long way towards keeping you in compliance with the trust accounting rules.  And aren’t these principles exactly what Hoffman expressed in 2 short resolutions?

Don’t overcomplicate trust accounting.

For a more complicated detailed review of the trust accounting rules, take a look at the Professional Responsibility Program’s manual on managing client trust accounts. I am working on updates that I hope to have finalized within a few months.

 

 

Monday Morning Answers: #117

Welcome to marathon week!  More on that to come on Friday.

Last Friday’s questions are here.  The answers follow today’s honor roll.

HONOR ROLL

(links where available)

• Karen Allen
• Matthew Anderson, Pratt Vreeland Kennelly & White
• The Comeback Kids
  • Jordana Levine, Audrey Smith, Rachel Thompson
• Erin Gilmore, Ryan Smith Carbine
• Robert Grundstein
• Keith Kasper, McCormick, Fitzpatrick, Kasper & Burchard
• Jeanne Kennedy
• Kevin Lumpkin, Sheehey, Furlong & Behm
• Joshua Martin
• Lon McClintock, McClintock Law Offices
• Jack McCullough, Vermont Legal Aid, Mental Health Law Project
• Jeff Messina, Bergeron Paradis Fitzpatrick
• Hal Miller, First American
• Krystn M. Perettine, McCormick, Fitzpatrick, Kasper & Burchard
• Jay Spitzen,

 

ANSWERS

Question 1

What type of conflict is less likely to be imputed to other lawyers in the same firm as the conflicted lawyer?

• A.  a conflict between a former client & current client
• B.  a conflict between current clients
• C.  a conflict arising from a personal interest of the disqualified lawyer
• D.  Trick question.  In VT, all conflicts are imputed to others in the same firm.

Rule 1.10 is the rule on imputed disqualification.  The rule imputes conflicts that arise under Rules 1.7 and 1.9 to other lawyers in the same firm.  Thus, of the choices listed, choices A & B are not correct.

C is correct. Per Rule 1.10(a), conflicts that are based on a personal interest of the disqualified lawyer are not imputed to others in the lawyer’s firm, so long as there is not a significant risk that the disqualified lawyer’s conflict will materially limit the remaining lawyers’ representation of the client.

Question 2

How long are Vermont lawyers required to keep trust account records?

• A.   6 years from the termination of a representation. Rule 1.15(a)(1).
• B.   7 years from the termination of a representation.
• C.   a reasonable period of time following the termination of a representation.
• D.  the rules are silent,

Question 3

Lawyer called me with an inquiry. I listened, then said:  “generally, your duty is to raise all non-frivolous defenses in a motion to quash.  If the court enforces the subpoena, the rule permits you to comply.”

It’s most likely that Lawyer and I discussed:

• A.  Rule 1.6 (confidential information relating to the representation of a client)
• B.  Rule 1.9 (former client conflicts)
• C.  Rule 4.4 (respect for the rights of a third person)
• D.  Rule 7.1 (communications concerning a lawyer’s services)

I’ve already received 3 inquiries of this nature this month.  Generally, when subpoenaed to disclose information relating to the representation of a client, unless the client consents to the disclosure, the lawyer has a duty to raise all non-frivolous defenses against disclosure.  Why?  Because “i’ve been subpoenaed” is NOT an exception to Rule 1.6’s prohibition of the disclosure of information related to a representation.

I’ve blogged on this issue HERE.

Question 4

Tech competence.  My position is that, for many lawyers, Rule 1.1’s duty of competence includes a duty to understand when and how to advise/request that clients/opposing parties preserve ______.

• A.   ESI
• B.   CBD
• C.   DUI
• D.  ACH

“ESI” is Electronically Stored Information.  Last week, I posted ESI: there’s risk in failing to preserve.

Question 5

Elihu Smails was a lawyer who became a judge.  After the way Judge Smails treated Danny Noonan, no way anybody would ever want to carry the Judge’s clubs for 18 holes!

Name the movie in which Judge Smails didn’t exactly cloak himself in behavior that tends to cast the legal profession in a positive light.

Caddyshack

 

Monday Morning Answers: #113

Welcome to Monday!  This must be the nicest January ever.

Friday’s questions are here.  Today’ s answers follow the Honor Roll.

I’m ecstatic to report that while there might not be many of us, there’s a committed contingent of us who don’t share what we intend to order with fellow diners & who order last.

Honor Roll

• Karen Allen, Esq.
• Devon Ayers, Paralegal, Housing Discrimination Law Project, Vermont Legal Aid
• Penny Benelli, Dakin & Benelli
• Alberto Bernabe, Professor, John Marshall Law School
• Rich Cassidy, Esq.
• Beth DeBernardi, Administrative Law Judge, Vermont Dept. of Labor
• Laura Gorsky, Law Office of David Sunshine
• Robert Grundstein, Esq.
• Gregg Harris, Assistant Attorney General, Department of Building & Services
• Keith Kasper, McCormick, Fitzpatrick, Kasper & Burchard
• Elizabeth Kruska, Esq.
• Kevin Lumpkin, Sheehey, Furlong & Behm
• Lon McClintock, McClintock Law Offices
• Hal Miller, First American
• Herb Ogden, Esq.
• Jim Runcie, Ouimette & Runcie
• Jay Spitzen, Esq.
• Robyn Sweet, CORE Registered Paralegal, Cleary Shahi  & Aicher

Answers

Question 1

How about a 50/50 to start?

There’s a rule that “a lawyer shall not engage in undignified or discourteous conduct which is degrading or disruptive to a tribunal.”

Does the rule apply to depositions?  Yes or no.

YES.  See, V.R.Pr.C. 3.5, Comment [5]

Question 2

By rule, when must a lawyer provide a client or third person with a full accounting of funds or property that the lawyer held for the client or third person?

• A.  upon request by the client or third person
• B.  upon the termination of the representation
• C.  monthly
• D.  regularly

V.R.Pr.C. 1.15(d) states that a lawyer “upon request of a client or third person, shall promptly render a full accounting of such property.” I’d put to you (Rake) that Rule 1.16(d) suggests that an accounting should be provided upon on the termination of the representation as well.

Question 3

True or false.

In an ex parte proceeding, a lawyer does not have a duty to inform the tribunal of material facts that are adverse to a client’s position.

FALSE.  V.R.Pr.C. 3.3(d).

Question 4

Lawyer works at Firm.  In addition, Lawyer often provides short-term legal services under the auspices of programs sponsored by nonprofits and a local court.  When providing such services, neither Lawyer nor clients have an expectation of continuing representation.

As such, while providing the short-term legal services,

• A.  Lawyer’s duty of competence is relaxed.
• B.  The trust accounting rules do not apply.
• C.  Client’s statements to Lawyer are not confidential.
• D.  The conflicts rules are relaxed. V.R.Pr.C. 6.5

Question 5

When you believe in things that you don’t understand, then you suffer.  Superstition ain’t the way.

Johanan Vigoda was a lawyer.  In 1971, Vigoda helped a client who was a musician to negotiate a contract with a record company.  Per the terms of the contract, the musician had to pay 6% in royalties to Vigoda indefinitely & forever, including to Vigoda’s heirs after Vigoda’s death.

Vigoda died in 2011.  In 2013, the musician learned that the record company was still making royalty payments to Vigoda’s widow.  The musician ordered the payments to stop.  The musician sued, seeking an order that he was not required to continue to pay royalties beyond Vigoda’s death.  The musician claimed that Vigoda had duped him into signing the contract, never telling him that it called for “forever” royalty payments.

Vigoda’s widow counter-claimed.  She claimed that Vigoda’s regular practice was to read the terms of any proposal, agreement, or contract to the musician. Thus, she alleged that the musician had agreed to and signed the contract after Vigoda read it to him.   She sought more than $7 million in royalty payments that had not been made between 2013 & 2015.  Last summer, the musician and Vigoda’s widow settled the dispute.

Name the musician.  (the writing should be on the wall.)

Stevie Wonder.