11

Workers’ Compensation Lawyers AssociationWorkers’ Compensation Lawyers Association

Professional Responsibility Boot CampProfessional Responsibility Boot Camp

Understanding the New Client Trust Account Requirements … and Other Ethical Considerations for

Workers’ Compensation Lawyers

February 13, 2012February 13, 20128:30 - 10:00 a.m. 8:30 - 10:00 a.m.

Mary F. AndreoniMary F. AndreoniEthics Education Counsel,Ethics Education Counsel, ARDC ARDC

22

ARDC Investigations 5,800 – 6,000 investigations every year (5-6% of lawyers)

Top Five Practice Areas:Criminal law (25%)Domestic relations (15%)Tort (10%) Real Estate (8%)Probate (6%)

Workers’ Compensation (4%)

60% of all grievances involve allegations arising out of the client-attorney relationship Neglect (38%)

Failure to communicate (21%)

33

Disciplinary Prosecutions and Sanctions (2010)

111 new disciplinary complaints filed (4% of grievances)

148 sanctions entered by the IL Supreme Court

Top Areas: Tort (16%) Probate (14%) Real Estate (12%)

Workers’ Compensation (6%)

44

Top Misconduct Issues Fraudulent or deceptive conduct Neglect Criminal conduct/conviction of lawyer Failure to communicate with client Mishandling of funds or property

55

Handling Trust Funds and Property: Rule 1.15

2010 ILRPC Retains IOLTA guidelines

Check with www.ltf.org for information on FDIC coverage for IOLTA trust account funds

Allows benign commingling (Rule 1.15(b)-deposit own funds only to pay amount of bank service charges)

Adds provision for handling advances for fees (codifies IL Supreme Court decision in Dowling)

July 2011Amendment, eff. 9/1/11 Adds new requirements for client trust accounts

66

Key Changes to Client Trust Account Requirements (eff. Sept. 1, 2011)

Types of Client Trust Account ¶(a), (f) & (g)

- interest-bearing IOLTA or Non-IOLTA

Overdraft Notification ¶(h)- Automatic notification of overdraft of trust account

Recordkeeping Requirement ¶(a)(1)-(8)

- Required preparation & maintenance of journals and record for seven years

77

Types of Client Trust Accounts Types of Client Trust Accounts Only two types of client trust accounts:Only two types of client trust accounts:

IOLTA - IOLTA - Pooled/several clients & matters (Rule 1.15(f)) – net interest Pooled/several clients & matters (Rule 1.15(f)) – net interest earned on the account is remitted to the IL Lawyers Trust Fund) earned on the account is remitted to the IL Lawyers Trust Fund)

oror Non-IOLTA - Non-IOLTA - One client/matter (Rule 1.15(a)) - interest is remitted to One client/matter (Rule 1.15(a)) - interest is remitted to

account beneficiary account beneficiary

All client trust accounts must be: All client trust accounts must be: • interest-bearing or dividend-bearing interest-bearing or dividend-bearing

andand

• held at an “eligible financial institution.” held at an “eligible financial institution.”

Non-Interest Bearing Trust Accounts are Prohibited – Rule 1.15(f)Non-Interest Bearing Trust Accounts are Prohibited – Rule 1.15(f)

88

IOLTA or Non-IOLTA?

Answer usually depends on whether funds are nominal or are expected to be held for a short period of time

Why? Amount of net interest earned

Lawyer or law firm’s reasonable judgment on which type of client trust account is appropriate – See Rule 1.15(g)

99

Eligible Financial InstitutionEligible Financial InstitutionIOLTA and non-IOLTA accounts must be maintained only at an “eligible financial institution”

“[A] bank or a savings bank insured by the Federal Deposit Insurance Corporation or an open-end investment company registered with the Securities and Exchange Commission that has agreed to provide dishonored instrument notification regarding any type of client trust account as provided in paragraph (h) of this Rule; and that with respect to IOLTA accounts, offers IOLTA accounts within the requirements of paragraph (f) of this Rule.” R. 1.15(i)(3).

List of Eligible Financial Institutions

IOLTA – www.ltf.org (Lawyers Trust Fund of Illinois)

Non-IOLTA – www.iardc.org (ARDC)

1010

Automatic Overdraft Notification: Automatic Overdraft Notification: Rule 1.15(h)Rule 1.15(h)

Trust accounts can only be maintained at financial institutions Trust accounts can only be maintained at financial institutions that have agreed to provide overdraft notification to the ARDCthat have agreed to provide overdraft notification to the ARDC

ARDC notified when a properly payable instrument against a ARDC notified when a properly payable instrument against a client trust account containing insufficient funds (a/k/a non-client trust account containing insufficient funds (a/k/a non-sufficient funds or “NSF”)sufficient funds or “NSF”)

Applies regardless of whether check is ultimately honoredApplies regardless of whether check is ultimately honored

Purpose of Rule – provide an early warning that a lawyer is Purpose of Rule – provide an early warning that a lawyer is engaging in conduct that could injure clients.engaging in conduct that could injure clients.

1111

Overdraft ProblemsOverdraft Problems Mistakenly depositing trust funds into the business account

Mistakenly writing a trust check from the wrong account

Writing a trust check on funds that have not yet been collected

Bookkeeping errors

Law firm staff errors

Misunderstanding of the duties under Rule 1.15

1212

SuggestionsSuggestions Select Trust Account Checks that are Distinguishable from

Business Account Checks

Let Deposits Clear Before Writing Checks

Reconcile Monthly

Establish an Accounting System that You Understand and Can Follow Even if You Delegate Bookkeeping Tasks

Know Your Financial Institution’s Charges and Fees for Maintaining the Trust Account

1313

New Recordkeeping Requirements for New Recordkeeping Requirements for Client Trust Records: Client Trust Records:

New Rule 1.15(a)(1)-(8)New Rule 1.15(a)(1)-(8)

Recordkeeping Journals (5)Recordkeeping Journals (5) Trust Account Receipts JournalTrust Account Receipts Journal

Trust Account Disbursements Journal Trust Account Disbursements Journal Trust Account RegisterTrust Account Register

Trust Account Client LedgerTrust Account Client Ledger Trust Account Reconciliation ReportTrust Account Reconciliation Report

Samples of the above recordkeeping journals can be found on Samples of the above recordkeeping journals can be found on the ARDC website (the ARDC website (www.iardc.orgwww.iardc.org))

1414

Receipts JournalReceipts JournalRule 1.15(a)(1)Rule 1.15(a)(1)

Lists alls receipts chronologically for all Lists alls receipts chronologically for all deposits in the trust account and identifies deposits in the trust account and identifies

the date and source of each receiptthe date and source of each receipt

DATEDATE SOURCESOURCE CLIENTCLIENT CASE OR CASE OR FILE#FILE#

DEPOSITDEPOSITREF#REF#

AMOUNTAMOUNT

2/01/102/01/10 Smith Smith RetainerRetainerCheck Check #2398#2398

Joan SmithJoan Smith 2011-1232011-123 5006250062 $1,000$1,000

10/13/1010/13/10 State State FarmFarm

Carol ClientCarol Client 2009-4562009-456 5014550145 $100,000$100,000

1515

Disbursements JournalDisbursements JournalRule 1.15(a)(1)Rule 1.15(a)(1)

Lists all disbursements chronologically and identifies the Lists all disbursements chronologically and identifies the recipient, purpose and date of each disbursement.recipient, purpose and date of each disbursement.

DATEDATE CHECCHECK#K#

PAYEEPAYEE PURPOSPURPOSEE

CLIENTCLIENT CASE or FILE CASE or FILE ##

AMOUNTAMOUNT

3/1/103/1/10 10101010 Mrs. Mrs. JohnsonJohnson

Ct. OrderCt. Order James JohnsonJames Johnson 2009-3112009-311 $1,000$1,000

10/20/110/20/100

10111011 Carol Carol ClientClient

SettlemenSettlementt

Carol ClientCarol Client 2009-4562009-456 $70,000$70,000

10/20/110/20/100

10121012 Larry Larry LawyerLawyer

FeesFees Carol ClientCarol Client 2009-4562009-456 $30,000$30,000

1616

Client LedgerClient LedgerRule 1.15(a)(2)Rule 1.15(a)(2)

A separate page for each client/matter showing A separate page for each client/matter showing chronologically all receipts, disbursements and chronologically all receipts, disbursements and

balances for each client/matter.balances for each client/matter.

1717

Name of Client: Name of Client: Carol ClientCarol Client

Legal Matter/Adverse Party: Legal Matter/Adverse Party: Daryl DefendantDaryl Defendant

File/Case Number: File/Case Number: 2009-4562009-456

DateDate Description Description of of TransactionTransaction

Payor/Payor/PayeePayee

RefRef Funds Funds PaidPaid

Funds Funds ReceivedReceived

BalanceBalance

10/13/1010/13/10 State Farm State Farm DraftDraft

DepositDeposit $100,000$100,000 $100,000$100,000

10/20/1010/20/10 SettlementSettlement Carol ClientCarol Client #1011#1011 $70,000$70,000 $30,000$30,000

10/20/1010/20/10 Attorney FeesAttorney Fees Larry LawyerLarry Lawyer #1012#1012 $30,000$30,000 $0$0

1818

Checkbook RegisterCheckbook RegisterRule 1.15(a)(4)Rule 1.15(a)(4)

Lists sequentially all trust account deposits and Lists sequentially all trust account deposits and checks and reflects a current and accurate daily checks and reflects a current and accurate daily balance on the trust account.balance on the trust account.

CHECKCHECK DATEDATE PAYEE OR PAYEE OR DEPOSIT DEPOSIT SOURCESOURCE

AMOUNT OF AMOUNT OF CHECKCHECK

AMOUNT OF AMOUNT OF DEPOSITDEPOSIT

BALANCEBALANCE

2/01/102/01/10 Joan SmithJoan Smith $1,000$1,000 $8,000$8,000

10101010 3/01/103/01/10 Mrs. JohnsonMrs. Johnson $1,000$1,000 $7,000$7,000

10/13/110/13/100

State FarmState Farm $100,000$100,000 $107,000$107,000

10111011 10/20/110/20/100

Carol ClientCarol Client $70,000$70,000 $37,000$37,000

10121012 10/20/110/20/100

Larry LawyerLarry Lawyer $30,000$30,000 $7,000$7,000

1919

Reconciliation ReportReconciliation ReportRule 1.15(a)(7)Rule 1.15(a)(7)(done at least quarterly)(done at least quarterly)

• Balance in the Trust Account JournalsBalance in the Trust Account JournalsReceipts Journal – Disbursement JournalsReceipts Journal – Disbursement Journals

• Balance in Client Ledger Pages Balance in Client Ledger Pages Amount of all client ledger pagesAmount of all client ledger pages

• Balance in Checkbook RegisterBalance in Checkbook Register

•All three balances should be the same and equal to the bank All three balances should be the same and equal to the bank statement (less for outstanding checks & net interest for IOLTA statement (less for outstanding checks & net interest for IOLTA

accounts, plus in-transit deposits)accounts, plus in-transit deposits)

2020

Availability of RecordsAvailability of Records Manual v. Computer RecordsManual v. Computer Records - can be maintained - can be maintained

electronically but must be able to (1) print and (2) electronically but must be able to (1) print and (2) easily access recordseasily access records

Preservation of RecordsPreservation of Records - Rule 1.15(a)(8) requires that - Rule 1.15(a)(8) requires that arrangements be made for the maintenance of records arrangements be made for the maintenance of records in the event of the closing, sale, dissolution, or merger in the event of the closing, sale, dissolution, or merger of a law practice.of a law practice.

Security of RecordsSecurity of Records – kept in a secure location; – kept in a secure location; password protected. password protected.

2121

Trust Accounting SoftwareTrust Accounting Software ABA Tech CenterABA Tech Center (www.americanbar.org) ABA Time and Billing Software Chart: (www.americanbar.org) ABA Time and Billing Software Chart:

Not a comprehensive list, but a great resource. Includes practice management Not a comprehensive list, but a great resource. Includes practice management software as well.software as well.

Generic Accounting ProgramsGeneric Accounting Programse.g., e.g., Quicken, QuickBooks and Microsoft MoneyQuicken, QuickBooks and Microsoft Money

Maintaining Lawyer Trust Accounts with Quicken 2006 Basic Maintaining Lawyer Trust Accounts with Quicken 2006 Basic (published by (published by Minnesota Minnesota Lawyers Professional Responsibility Board and the Minnesota Office of Lawyers Lawyers Professional Responsibility Board and the Minnesota Office of Lawyers

Professional Responsibility) Professional Responsibility)

Stand-Alone ProgramsStand-Alone Programse.g.e.g. Timeslips (www.timeslips.com)Timeslips (www.timeslips.com)

Easy Soft for Attorney Trust Accounts (www.easysoft-usa.com)Easy Soft for Attorney Trust Accounts (www.easysoft-usa.com)

Trust Account Programs for Integrated SystemsTrust Account Programs for Integrated Systemse.g., Software Technology (www.stilegal.com)e.g., Software Technology (www.stilegal.com)

ProLaw Spftware (www.prolaw.com); and ProLaw Spftware (www.prolaw.com); and LexisNexis: PCLaw (www.pclaw.com) & TimeMatters/Billing Matters LexisNexis: PCLaw (www.pclaw.com) & TimeMatters/Billing Matters (www.timematters.com) (www.timematters.com)

2222

Record Retention RulesRecord Retention RulesRecords of Trust Funds or Property – Rule 1.15(a)Records of Trust Funds or Property – Rule 1.15(a)

must be kept for 7 years after the representation ends including all journals required in Rule must be kept for 7 years after the representation ends including all journals required in Rule 1.15 and the following source documents:1.15 and the following source documents:

Source DocumentsSource DocumentsRule 1.15(a)(3)-(6)Rule 1.15(a)(3)-(6)

Accountings to clients or third persons, including portions of client fileAccountings to clients or third persons, including portions of client file Checkbook registersCheckbook registers

Check stubsCheck stubs Bank statementsBank statements Record of depositRecord of deposit

Checks or other record of debitsChecks or other record of debits Retainer and compensation agreements with clientsRetainer and compensation agreements with clients

Copies of bills for legal fees and expensesCopies of bills for legal fees and expenses

Client List & Financial Records of Law Practice - Client List & Financial Records of Law Practice - S.Ct.Rule 769S.Ct.Rule 769

2323

Where to Deposit RetainersWhere to Deposit Retainers

Rule 1.15(c): Funds for fees and expenses not yet earned/incurred (a/k/a “security payment retainer) MUST be deposited in the client trust account

EXCEPT for: General Retainer Fixed/lump Fee Agreement Advance Payment Retainer

See Comments [3B]-[3D]

2424

Types of Retainers Recognized in Illinois Types of Retainers Recognized in Illinois SeeSee Comments [3B]-[3D] to Rule 1.15 Comments [3B]-[3D] to Rule 1.15

Security Retainer = payment to secure fees owed for future services. Deposit in trust account

General or “Classic” Retainer = payment to secure lawyer’s availability. Deposit in the business account

Fixed/Flat Fee Agreements = a/k/a “lump” sum or “flat” fee, the lawyer agrees to provide a specific service for a fixed amount. Deposit in business account

Advance Payment Retainer (Dowling) = present payment in exchange for the commitment to provide future services. Deposit in business account

2525

Standards for All Fee AgreementsStandards for All Fee Agreements

All fee agreements SHOULD:All fee agreements SHOULD:

1. be in writing

2. disclose the nature of the fee arrangement; and

3. state where the money will be deposited and how withdrawals will be handled

Advance Payment Retainers MUST be in writing and comply with Rule 1.15(c)(1)-(5)

2626

Other ConsiderationsOther Considerations Guiding principle in choice of retainer – protection of

client’s interests

If agreement is unclear = deposit in trust account

Advance Payment Retainers should be used “sparingly”

Amount of retainer = reasonable fee under Rule 1.5(a)

2727

Withdrawing FeesWithdrawing Fees

Promptly withdraw earned fees

Reasonable notice to clients when withdrawing fees

Amounts in dispute must remain in the trust account until resolved – Rule 1.15(e)

See Comment [3] of Rule 1.15 (fees disputes)

Also see Comment [4] of Rule 1.15 (third-party claims to trust funds)

2828

ResourcesResources

Questions about Client Trust AccountsQuestions about Client Trust Accounts --ARDC Client Trust ARDC Client Trust Account Handbook (www.iardc.org)Account Handbook (www.iardc.org)

Questions about IOLTA & Enrollment FormsQuestions about IOLTA & Enrollment Forms Lawyers Trust Fund (IOLTA) Lawyers Trust Fund (IOLTA) www.ltf.org www.ltf.org

Questions About the Rules of Professional ConductQuestions About the Rules of Professional Conduct ARDC Ethics Inquiry ProgramARDC Ethics Inquiry Program

Chicago office – (312) 565-2600 or (800) 826-8625Chicago office – (312) 565-2600 or (800) 826-8625

Springfield office – (217) 522-6838 or (800) 252-8048Springfield office – (217) 522-6838 or (800) 252-8048

2929

Communications with Represented Communications with Represented Persons: RPC 4.2Persons: RPC 4.2

Applies to communications with a “person” rather than with a “party,” clearing up ambiguity under prior rule

Comment [7] provides guidance concerning which constituents of a represented organization - “constituent of the organization who supervises, directs or regularly consults with the organization’s lawyer concerning the matter or has authority to obligate the organization with respect to the matter or whose act or omission in connection with the matter may be imputed to the organization for purposes of civil or criminal liability…”

“Matter” interpreted by the Illinois Supreme Court in People v. Santiago, 236 Ill.2d 417, 925 N.E.2d 1122, 2010 WL 966493(Ill. March 18, 2010).

3030

Referral Fees Between Lawyers Referral Fees Between Lawyers RPC 1.5(e)RPC 1.5(e)

Rule 1.5(e) permits lawyers not in the same firm to divide a fee for the referral of the client to another lawyer so long as:

1. each lawyer assumes financial responsibility for the representation as a whole;

2. the client must agree to the arrangement, including the share that each lawyer is to receive, and

3. the agreement must be confirmed in writing.

3131

Reciprocal Referral Agreements:New RPC 7.2(b)(4)

Rule 7.2 Advertising***

(b) A lawyer shall not give anything of value to a person for recommending the lawyer’s services except that a lawyer may

***(4) refer clients to another lawyer or a nonlawyer professional pursuant to an agreement not otherwise prohibited under these Rules that provides for the other person to refer clients or customers to the lawyer, if

 (i) the reciprocal referral agreement is not exclusive, and (ii) the client is informed of the existence and nature of the

agreement.

3232

Reciprocal Referral Agreement Reciprocal Referral Agreement RequirementsRequirements

Permitted if:

1. does not interfere with lawyer’s independent professional judgment (Rules 5.4(c) or 2.1);

2. agreement is non-exclusive;

3. no payment for the referral unless it’s a lawyer-to-lawyer referral payment under Rule 1.5(e); and

4. client is informed of the referral agreement

3333

Reciprocal Referral Agreements:Reciprocal Referral Agreements:Practice TipsPractice Tips

Review Rules of Professional Conduct: RPC 2.1 & 5.4(c) cannot interfere w/indep. prof.

judgment RPC 5.4(c) cannot share legal fees w/non-lawyers RPC 1.7 avoid conflicts of interest RPC 7.5 law firm names must be only those of lawyers

Periodically review agreement for compliance

Agreement should not be of indefinite durationSee Comment [8] to RPC 7.2

3434

Gift Ban - Sec. 16(b) of IL Workers’ Gift Ban - Sec. 16(b) of IL Workers’ Compensation ActCompensation Act

Gift Ban – lawyers appearing before the Commission shall not provide compensation or any gift to any person in exchange for the referral of a client involving a matter to be heard before the Commission except for a division of fees between lawyers not in the same firm.

“Gift” defined as any type of gratuity, entertainment or hospitality except food and refreshments not exceeding $75 per person on a single calendar date

3535

Gifts Under the RulesGifts Under the Rules

To Lawyers from Clients – conflict under RPC 1.8(c); must meet general standards of fairness to rebut presumption of undue influence; substantial gift vs. simple (e.g. token of appreciation) See Comment [6] to RPC 1.8.

From Lawyers to Judge, Official or Employee of Tribunal prohibited under RPC 8.4(f). Look to IL Judicial Code, Rule 65(C)(4) for permissible exception

3636

ILRPC 8.4(f):

(f) knowingly assist a judge or judicial officer in conduct that is a violation of applicable rules of judicial conduct or other law. Nor shall a lawyer give or lend anything of value to a judge, official, or employee of a tribunal, except those gifts or loans that a judge or a member of the judge’s family may receive under Rule 65(C)(4) of the Illinois Code of Judicial Conduct…

3737

Judicial Code, Rule 65(C)(4)Judicial Code, Rule 65(C)(4)Canon 5. A Judge Should Regulate His or Her Extrajudicial Activities to Minimize

the Risk of Conflict With the Judge's Judicial Duties.  

C. Financial Activities

***4) Neither a judge nor a member of the judge's family residing in the judge's

household should accept a gift, bequest, favor, or loan from anyone except as follows:

(a) a judge may accept a gift incident to a public testimonial to the judge; books supplied by publishers on a complimentary basis for official use; or an invitation to the judge and the judge's spouse to attend a bar-related function or activity devoted to the improvement of the law, the legal system, or the administration of justice;

(b) a judge or a member of the judge's family residing in the judge's household may accept ordinary social hospitality; a gift, bequest, favor or loan from a relative; a wedding or engagement gift; a loan from a lending institution in its regular course of business on the same terms generally available to persons who are not judges; or a scholarship or fellowship awarded on the same terms applied to other applicants;

(c) a judge or a member of the judge's family residing in the judge's household may accept any other gift, bequest, favor, or loan only if the donor is not a party or other person whose interests have come or are likely to come before the judge, including lawyers who practice or have practiced before the judge.

3838

Duty to Report Lawyer Misconduct Duty to Report Lawyer Misconduct (a/k/a “Himmel” duty): Rule 8.3(a/k/a “Himmel” duty): Rule 8.3

RPC 8.3 sets forth the mandatory duty as follows: (a) A lawyer who [1] knows that [2] another lawyer has [3] committed a

violation of Rule 8.4(b) or (c) shall [4] inform the appropriate professional authority.

*** (c) This Rule does not require disclosure of information otherwise protected

by the attorney-client privilege or by law or information gained by a lawyer or judge while participating in an approved lawyers’ assistance program or an intermediary program approved by a circuit court in which nondisciplinary complaints against judges or lawyers can be referred.

3939

Know the Rules and Seek HelpKnow the Rules and Seek Help

For the IL Rules of Professional Conduct& Disciplinary Law

ARDC website at: www.iardc.org

For Guidance on the IL RulesCall the ARDC Ethics Inquiry Hotline:

312-565-2600 (Chicago); 217-522-6838 (Springfield)

Talk to other lawyersSee RPC 1.6(b)(4)

Mary F. AndreoniMary F. Andreoni

MARY F. ANDREONI is Ethics Education Counsel for the Illinois MARY F. ANDREONI is Ethics Education Counsel for the Illinois Attorney Registration and Disciplinary Commission (ARDC) where Attorney Registration and Disciplinary Commission (ARDC) where she develops and implements the ARDC’s ethics education she develops and implements the ARDC’s ethics education initiatives, including the ARDC Ethics Inquiry Program and the initiatives, including the ARDC Ethics Inquiry Program and the Illinois Professional Responsibility Institute, where she is also an Illinois Professional Responsibility Institute, where she is also an instructor. She has authored several articles including the ARDC instructor. She has authored several articles including the ARDC publication, Client Trust Account Handbook and spoken at publication, Client Trust Account Handbook and spoken at hundreds of programs on legal ethics. Prior to joining the hundreds of programs on legal ethics. Prior to joining the Commission in 1994, Ms. Andreoni was law clerk to Illinois Commission in 1994, Ms. Andreoni was law clerk to Illinois Appellate Court Justice Mel R. Jiganti and later practiced Appellate Court Justice Mel R. Jiganti and later practiced commercial litigation with the law firm of Peterson & Ross in commercial litigation with the law firm of Peterson & Ross in Chicago. While in practice, she also served on the ARDC Inquiry Chicago. While in practice, she also served on the ARDC Inquiry and Hearing Boards.and Hearing Boards.

4040