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Attorney E-Newsletter

August 2009

Rule Changes I: Emergency Temporary Suspension

The Supreme Court of Pennsylvania has adopted a pair of rule changes that affect the operation of the disciplinary system.

On July 24, 2009, the Court adopted a series of amendments to Rule 208(f) of the Pennsylvania Rules of Disciplinary Enforcement, regarding temporary emergency suspension, which were published at 39 Pa.B. 4737 on August 8, 2009.

The amendment establishes new procedures for service and implementation of an emergency temporary suspension order when the respondent-attorney cannot be located or served personally. If the subject attorney cannot be served personally after reasonable efforts, Disciplinary Counsel may serve the petition on an employee, agent or other responsible person[1] at the respondent-attorney’s office, and if none is available, may serve it by regular and certified mail.

The amendment also sets forth a new procedure for the entry of further orders in circumstances where the attorney who is served with a rule to show cause pursuant to Rule 208(f) fails to respond to the rule or is unavailable. The Supreme Court, or any Justice, may then issue an order directing the president judge of the court of common pleas in the judicial district where the attorney’s office is located to take further action and issue such further orders as are necessary to protect the interests of the respondent attorney’s clients.

The new procedures took effect thirty days after the order on August 23, 2009.

Rule Changes II: Criminal Conviction, Reciprocal Discipline

On July 29, 2009, the Supreme Court adopted a series of amendments to Rule 203, concerning grounds for discipline; 214, concerning attorneys convicted of crimes; and, 216, concerning reciprocal discipline with other jurisdictions. The amendments were published on August 15, 2009, at 39 Pa.B. 4887, and take effect August 28, 2009.

The statement of Rule 203(b)(1), which formerly stated that an attorney is subject to discipline for conviction of a crime “which under Enforcement Rule 214 (relating to attorneys convicted of crimes) may result in suspension,” was amended to remove the language in quotation marks. Rule 214 provides a procedure for suspension when an attorney is convicted of a “serious crime,” which is defined in Rule 214(i) as “a crime that is punishable by imprisonment for one year or upward in this or any other jurisdiction.” Rule 214 also allows for discipline for lesser crimes, but the definition of grounds for discipline in Rule 203(b)(1) did not provide for such lesser offenses. The amendment changes that, and all convictions are now grounds for discipline under Rule 203(b)(1). In both cases, the conviction is conclusive evidence under the terms of Rule 214(e).

Rule 214 is amended by adding a new subsection (d)(5), which provides that Disciplinary Counsel and a respondent-attorney may file a joint petition for temporary suspension when it is in the best interest of the respondent-attorney and the legal system. Respondent-attorneys who have been convicted of crimes often prefer to have the order of suspension entered as early as possible in disciplinary proceedings, in order to “get the clock running” on whatever suspension they will ultimately serve.

Rule 216, regarding reciprocal discipline, is amended to clarify that reciprocal proceedings may involve a suspension, disbarment, revocation of license or pro hac vice admission, or resignation in another jurisdiction. The jurisdiction may be another court, a federal government agency or a military tribunal. An attorney who is subject to such discipline is required to report it to the Secretary of the Disciplinary Board within twenty (20) days.

Rule Changes III: Amendments to Disciplinary Board Rules

The Disciplinary Board has adopted a number of changes to the Rules of the Disciplinary Board. Most of these are intended to adapt the Board Rules to reflect changes already made in the Rules of Disciplinary Enforcement and elsewhere, and affect mainly Board proceedings. The rulemaking was published at 39 Pa.B. 4725 on August 8, 2009, and is effective immediately.

IOLTA Again

Last month we mentioned that the IOLTA Board had adopted amendments to the IOLTA Regulations. To a great extent these amendments reflect changes made in Rule 1.15 regarding the handling of funds in September 2008.

One important concept of the changes of which lawyers handling funds should be aware is a shift in the definition of Rule 1.15 funds, which is now defined in Section 81.101 as:

Rule 1.15 Funds are funds which the lawyer receives from a client or third person in connection with a client-lawyer relationship, or as an escrow agent, settlement agent or representative payee, or as a Fiduciary, or receives as an agent, having been designated as such by a client or having been so selected as a result of a client-lawyer relationship or the lawyer's status as such.

It is important to note that this definition is not restricted to funds received as a lawyer, but also applies to funds received in related relationships – escrow agent, representative payee, fiduciary – which are not technically part of the client-lawyer relationship, but arise out of it. Section 81.104(c) and (d) address these requirements in detail, and a considerable amount of language setting forth the former provisions regarding these funds has been deleted from Section 81.104(f)(iv).

Certain cases requiring a distinction between Qualified Funds and Nonqualified Funds[2] is Section 81.104(h). Specific issues addressed include:

  • Fiduciary funds – may be Qualified or Unqualified [(h)(i)]
  • Real estate transaction funds – usually Qualified [(h)(ii)]
  • Advanced costs, fees, and refundable retainer – generally Qualified until earned and removed [(h)(iii)]
  • Proceeds from dispute settlements/lawsuits – may be either [(h)(iv)]

Lawyers who are admitted in Pennsylvania, but practice elsewhere, should take note of Sections 81.102(c) and 81.103(a)(ii), which now provide that a lawyer who practices outside of Pennsylvania, but receives funds related to Pennsylvania practice, must deposit those funds in a Pennsylvania IOLTA account.[3]

There is much information in the new regulation which is directed mainly to financial institutions for the maintenance of eligible accounts. Lawyers may, however, need to be familiar with the sub-accounting requirements of new Section 81.108, although much of this information was already stated in the regulations. Sub-accounting describes the process by which the lawyer or the lawyer's Eligible Institution segregates Nonqualified Funds by owner, and income on each sub-account is separately calculated, reported, and paid to the appropriate owner.

Finally, the regulation addresses the question of who need not have an IOLTA account, and who must apply for an exemption. We attempted to clarify this last month, and our clarification evidently caused more confusion than our original explanation.[4] It is important to understand that all lawyers must have IOLTA accounts unless they are “excluded” or “exempt.” We will allow the IOLTA Board, in their very helpful FAQ, to sort it out for us:[5]

Exclusions. Certain lawyers, because of their employment are excluded from Pa. R.P.C. 1.15. Likewise, a lawyer who does not receive funds of a client or third party in a fiduciary capacity, is excluded from IOLTA. Examples include:

  • Lawyers who do not maintain private practice of law and who are employed full time in a corporate capacity; by local, state or federal government; as a law clerk; professor; or as a member of the judiciary.
  • Lawyers who do not have an office in Pennsylvania, do not maintain fiduciary funds in financial institutions in the Commonwealth, and who otherwise are not required to maintain fiduciary funds in the Commonwealth.
  • Lawyers who are retired or no longer practice law.
  • Lawyers whose practices do not require the maintenance of any trust/escrow accounts.

Exemptions. Lawyers who maintain very low balances in their pooled trust account can request an exemption but must include a written statement or account analysis, preferably from their financial institution, that demonstrates that service charges would have significantly and routinely exceeded any interest had the account been interest-bearing. The written statement should indicate the name of the financial institution and the average daily balance of each of the attorney’s/firm’s pooled trust/escrow accounts for the immediately preceding twelve calendar months. If that computation is not readily available for the past 12 months, the completed months of the current calendar year for which the account(s) was open should be used. Note: the computation of the average daily balance should comport with that which the bank uses to compute interest earnings. As a general rule accounts with a history of an average daily balance of $3,500 or less, as evidenced by the bank’s records, will be determined exempt from the IOLTA requirements.

It is important to note that IOLTA exemptions do not exempt the lawyer and his/her banks from the overdraft reporting responsibilities and requirements of PA Rule of Disciplinary Enforcement 221.

Lawyers who find it extremely impractical to comply should provide appropriate details that demonstrate the impracticality, such as the absence of any approved financial institutions that offer IOLTA accounts in the lawyer’s geographical area.

There you have it from the horse’s mouth, so to speak. If anything about that is not clear, ask them, not us.

ODC Deputy Chief Counsel Receives President’s Award

On Thursday, July 30, 2009, Paul J. Burgoyne, Deputy Chief Counsel of the Office of Disciplinary Counsel, was awarded the 2009 President’s[6] Award by the National Organization of Bar Counsel. This award is given “in recognition of lifetime achievement in the field of lawyer regulation and service to the National Organization of Bar Counsel.”

Paul Burgoyne has been with the Office of Disciplinary Counsel since 1981, and has been Deputy Chief Disciplinary Counsel since 1994. He is principally responsible for day-to-day oversight of the office’s caseload. He serves on the Board of Directors of the National Organization of Bar Counsel.

The National Organization of Bar Counsel is a non-profit organization of legal professionals whose members enforce ethics rules that regulate the professional conduct of lawyers who practice law in the United States, Canada and Australia.

Got a Tip?

Or a question, a comment, an idea you’d like to see addressed? We are always glad to hear from you. Write us at comments@padisciplinaryboard.org.

[1] Disciplinary Counsel will not be deciding whether any particular person is “responsible.”

[2] Qualified funds go into an IOLTA, in case you are scratching your head and trying to remember which is which. We do that more than we care to admit.

[3] Reader Michael Molder takes issue with our question last month as to whether “IOLTA Account” is redundant. He argues that IOLTA is a modifier describing a particular type of account. We bow to the force of his argument and submit to this legal-literary convention, which makes our lives easier anyway.

[4] The Disciplinary Board eNewsletter: Increasing the Entropy of the Legal Universe Since 2005.

[5] Since they evidently explain it so much better than we do.

[6] No, not that President.