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ARDC Investigations PowerPoint Presentation
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ARDC Investigations

ARDC Investigations

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ARDC Investigations

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  1. Workers’ Compensation Lawyers AssociationProfessional Responsibility Boot CampUnderstanding the New Client Trust Account Requirements … and Other Ethical Considerations for Workers’ Compensation LawyersFebruary 13, 20128:30 - 10:00 a.m. Mary F. AndreoniEthics Education Counsel, ARDC

  2. 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%)

  3. 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%)

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

  5. 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

  6. 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

  7. Types of Client Trust Accounts Only two types of client trust accounts: IOLTA - Pooled/several clients & matters (Rule 1.15(f)) – net interest earned on the account is remitted to the IL Lawyers Trust Fund) or Non-IOLTA - One client/matter (Rule 1.15(a)) - interest is remitted to account beneficiary All client trust accounts must be: interest-bearing or dividend-bearing and held at an “eligible financial institution.” Non-Interest Bearing Trust Accounts are Prohibited – Rule 1.15(f)

  8. 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)

  9. Eligible Financial Institution IOLTA 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)

  10. Automatic Overdraft Notification: Rule 1.15(h) • Trust accounts can only be maintained at financial institutions that have agreed to provide overdraft notification to the ARDC • ARDC notified when a properly payable instrument against a client trust account containing insufficient funds (a/k/a non-sufficient funds or “NSF”) • Applies regardless of whether check is ultimately honored • Purpose of Rule – provide an early warning that a lawyer is engaging in conduct that could injure clients.

  11. Overdraft 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

  12. Suggestions • 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’sCharges and Fees for Maintaining the Trust Account

  13. New Recordkeeping Requirements for Client Trust Records: New Rule 1.15(a)(1)-(8) Recordkeeping Journals (5) • Trust Account Receipts Journal • Trust Account Disbursements Journal • Trust Account Register • Trust Account Client Ledger • Trust Account Reconciliation Report Samples of the above recordkeeping journals can be found on the ARDC website (www.iardc.org)

  14. Receipts JournalRule 1.15(a)(1) Lists alls receipts chronologically for all deposits in the trust account and identifies the date and source of each receipt

  15. Disbursements JournalRule 1.15(a)(1)Lists all disbursements chronologically and identifies the recipient, purpose and date of each disbursement.

  16. Client LedgerRule 1.15(a)(2) A separate page for each client/matter showing chronologically all receipts, disbursements and balances for each client/matter.

  17. Name of Client: Carol Client Legal Matter/Adverse Party: Daryl Defendant File/Case Number: 2009-456

  18. Checkbook RegisterRule 1.15(a)(4) Lists sequentially all trust account deposits and checks and reflects a current and accurate daily balance on the trust account.

  19. Reconciliation ReportRule 1.15(a)(7)(done at least quarterly) Balance in the Trust Account Journals Receipts Journal – Disbursement Journals Balance in Client Ledger Pages Amount of all client ledger pages Balance in Checkbook Register All three balances should be the same and equal to the bank statement (less for outstanding checks & net interest for IOLTA accounts, plus in-transit deposits)

  20. Availability of Records • Manual v. Computer Records - can be maintained electronically but must be able to (1) print and (2) easily access records • Preservation of Records - Rule 1.15(a)(8) requires that arrangements be made for the maintenance of records in the event of the closing, sale, dissolution, or merger of a law practice. • Security of Records – kept in a secure location; password protected.

  21. Trust Accounting Software ABA Tech Center (www.americanbar.org) ABA Time and Billing Software Chart: Not a comprehensive list, but a great resource. Includes practice management software as well. Generic Accounting Programs e.g., Quicken, QuickBooks and Microsoft MoneyMaintaining Lawyer Trust Accounts with Quicken 2006 Basic (published by Minnesota Lawyers Professional Responsibility Board and the Minnesota Office of Lawyers Professional Responsibility) Stand-Alone Programs e.g. Timeslips (www.timeslips.com) Easy Soft for Attorney Trust Accounts (www.easysoft-usa.com) Trust Account Programs for Integrated Systems e.g., Software Technology (www.stilegal.com) ProLaw Spftware (www.prolaw.com); and LexisNexis: PCLaw (www.pclaw.com) & TimeMatters/Billing Matters (www.timematters.com)

  22. Record Retention Rules 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 1.15 and the following source documents: Source Documents Rule 1.15(a)(3)-(6) • Accountings to clients or third persons, including portions of client file • Checkbook registers • Check stubs • Bank statements • Record of deposit • Checks or other record of debits • Retainer and compensation agreements with clients • Copies of bills for legal fees and expenses Client List & Financial Records of Law Practice - S.Ct.Rule 769

  23. Where 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]

  24. Types of Retainers Recognized in Illinois See 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

  25. Standards for All Fee AgreementsAll fee agreements SHOULD: • be in writing • disclose the nature of the fee arrangement; and • state where the money will be deposited and how withdrawals will be handled Advance Payment RetainersMUST be in writing and comply with Rule 1.15(c)(1)-(5)

  26. Other 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)

  27. Withdrawing 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)

  28. Resources Questions about Client Trust Accounts-ARDC Client Trust Account Handbook (www.iardc.org) Questions about IOLTA & Enrollment Forms • Lawyers Trust Fund (IOLTA) www.ltf.org Questions About the Rules of Professional Conduct • ARDC Ethics Inquiry Program Chicago office – (312) 565-2600 or (800) 826-8625 Springfield office – (217) 522-6838 or (800) 252-8048

  29. Communications with Represented Persons: 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).

  30. Referral Fees Between Lawyers 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: • each lawyer assumes financial responsibility for the representation as a whole; • the client must agree to the arrangement, including the share that each lawyer is to receive, and • the agreement must be confirmed in writing.

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

  32. Reciprocal Referral Agreement Requirements 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

  33. Reciprocal Referral Agreements:Practice 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 duration See Comment [8] to RPC 7.2

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

  35. Gifts 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

  36. 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…

  37. 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.

  38. Duty to Report Lawyer Misconduct (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.

  39. Know the Rules and Seek Help For the IL Rules of Professional Conduct& Disciplinary LawARDC 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)

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