Saturday, February 11, 2017

State Bar Ramps Up Enforcement Of Recordkeeping Requirements Targeting Pennsylvania Lawyers That Hold Client Cash & Maintain Crappy Client Trust Account Records

From a recent commentary in The Legal Intelligencer (Pennsylvania):
  • As has been said in many articles and lectured in many ethics CLE courses, the requirements [for Pennsylvania-licensed attorneys] to maintain escrow records were changed several years ago.

    Unfortunately, many lawyers aren't following these rule changes. At the time, many people disputed the then-proposed rule changes believing that recordkeeping itself shouldn't be the basis to discipline a lawyer. But, those arguments were lost.

    One of the biggest problems has been in the past that the Office of Disciplinary Counsel had difficulty prosecuting lawyers timely when there were issues of misuse of funds because the lawyers didn't have any records. This resulted in long delays when the records were obtained from the banks. As a result, the present rules were passed to Rule of Disciplinary Enforcement 221 and Pennsylvania Rule of Professional Conduct 1.15.
    One of the major issues is under Rule 1.15, a lawyer cannot deposit their own funds in a trust account except for a small amount for paying service charges. That has to be a de minimis amount of about $100 to $150 at most.

    The big issue now is that under Pennsylvania Rules of Disciplinary Enforcement 221(g), the fiduciary records for the escrow account have to be readily accessible to the lawyers and available for production to Pennsylvania Lawyers Fund for Client Security and the Office of Disciplinary Counsel in a timely fashion. This is a serious burden, but a requirement now placed on all lawyers because of the above changes.

    Under Pennsylvania Rule of Disciplinary Enforcement 221(g)(1), if Disciplinary Counsel sends a letter requesting the records they have to be produced within 10 business days of the service of the letter. Ten days is an awfully short period of time. If one maintains the records properly, then there is no problem. Unfortunately, many lawyers do not.

    Under Rule of Professional Conduct 221(g)(3), failure to produce the records within that time period can result in a temporary suspension or other relief if the disciplinary counsel seeks enforcement.

    Many of the above rule amendments were made in 2014. The Office of Disciplinary Counsel, of course, publicized the amendments, but did not initially vigorously enforce the 10-day requirement allowing time for lawyers to get in compliance.

    Recently, at least in District I and District II offices (and presumably in District III and District IV), the Office of Disciplinary Counsel has become much more aggressive. If there are questions of lawyer's improper handling of escrow funds and then there is a request for all of the records, including bank statements for, oftentimes, a year or two, checks, deposit slips, the ledger sheets and the reconciliation records. Failure to produce these can result in the disciplinary counsel seeking suspensions on a temporary basis.

    Lawyers should be aware that the Office of Disciplinary Counsel is now starting to seek enforcement of the 10-day production requirement.

    Having said this, these rules are clearly burdensome to small firms and solo practitioners. Monthly reconciliations and maintaining all these records is difficult for a small firm that is living on the margin and not able to hire a full or part-time bookkeeper. But, that's not an excuse anymore.

    These record production requests often arise when a lawyer misuses an escrow account, such as using an escrow check to pay personal expenses, annual fees, CLEs or writing an escrow check that is not honored due to a lack of sufficient funds. When that happens, it goes initially to the client security fund and unless there is some sort of bank error it is referred over to the disciplinary board. When that happens, routinely there is a request for all bank records and depending on the circumstances, that could be for three to six months or it could be for one to two years. ...
For the entire commentary, see The Office of Disciplinary Counsel is enforcing new recordkeeping requirements (Are the recordkeeping requirements set forth in the Rules of Professional Conduct and the Rules of Disciplinary Enforcement being enforced?) (May require subscription; if no subscription, GO HERE, then click appropriate link for the story).

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