Attorney E-Newsletter

December 2010

New Legislation Resolves Red Flags Controversy; FTC Backs Off on Mortgage Rule

We have previously reported on the “red flags” controversy in which the Federal Trade Commission (FTC) adopted a position that the Fair and Accurate Credit Transactions Act of 2003 (“FACTA”), 15 U.S.C. §§ 1681-1681x (Supp. I 2007) applies to lawyers who accept payment for fees for work performed over time, and thus requires them to adopt procedures to identify and respond to warning signs, or “red flags,” of possible identity theft.

The controversy appears to have come to a successful end for the American Bar Association. On December 7, 2010, the House of Representatives voted to pass the Red Flag Program Clarification Act of 2010, a week after the Senate approved the measure. The amendment excludes from the definition of “creditor” in the original act those who advance funds for expenses incidental to a service the creditor provides to the consumer. The act, S.B. 3987, was signed into law by the President on December 18, 2010. The Chairman of the FTC issued a statement expressing relief that Congress had clarified the “overbroad” language in the legislation.

The FTC listened to the bar’s concerns with regard to another area within its sphere of regulation. In a final rule relating to “Mortgage Assistance Relief Services” (MARS) provided by mortgage loan modification companies, the FTC decided to exempt most attorneys providing MARS in connection with the practice of law from the requirements of the rule. Attorneys are exempt from the rule’s ban on fees paid in advance if they set aside MARS fees in a client trust account and withdraw funds only as the fees are earned.

R.S.V.P.: Disciplinary Board Proposes Mandatory Response Rule

When disciplinary counsel undertake an investigation of allegations of misconduct on the part of a lawyer, they send a “Request for Statement of Respondent’s Position,” known as a “DB-7” letter, setting forth the allegations against the lawyer and the rules possibly involved. This step is required by Section 87.7 of the Rules of the Disciplinary Board. Lawyers who receive these letters are strongly urged to respond, but there is no penalty for failing to do so.

The Disciplinary Board has made a proposal to change this, in a notice of proposed rulemaking published on November 27, 2010 at 40 Pa.B. 6775. The proposed rule would make several changes in the Rules of Disciplinary Enforcement and Rules of the Disciplinary Board:

  • New Rule 203(b)(7), Pa. R.D.E., and Rule 85.7(b)(7), Pa. R.D.B., would be amended to add a ground of discipline for “failure by a respondent-attorney without good cause to respond to Disciplinary Counsel's request or supplemental request under Disciplinary Board Rules.”
  • Rule 87.7(b)(2), would be amended to refer to the requirement that a lawyer file a response to the DB-7 letter, rather than the lawyer’s right to do so.
  • Rule 87.7(b)(2), would also be amended to specify that the same provisions apply to a follow-up DB-7A letter, requesting a supplemental statement of a lawyer’s position.
  • A new subsection 87.7(c), sets forth specifications for what a response to a DB-7 letter should contain.
  • A new subsection 87.7(d) echoes the provisions establishing that failure to respond is grounds for discipline, and also notes that such failure may also be a violation of Rule 8.1(b), Pa. Rules of Professional Conduct. Comment [1] to RPC 8.1(b) makes clear that the duty to cooperate with a disciplinary inquiry imposed by RPC 8.1 applies to a lawyer's own discipline as well as that of others.
  • The Official Note to the rule states that failure to produce documents requested in a DB-7 letter is not in itself violation of Rule 87.7, but that Disciplinary Counsel may obtain a subpoena for such documents, and that willful failure to comply with the subpoena may serve as a basis for discipline under RPC 8.4(d) and various provisions of the Enforcement Rules. Willful failure to comply with a subpoena is explicit grounds for temporary suspension under the terms of Rule 208(f)(5).

Interested persons are invited to submit written comments by mail or facsimile regarding the proposed amendments to the Office of the Secretary, The Disciplinary Board of the Supreme Court of Pennsylvania, 601 Commonwealth Avenue, Suite 5600, P.O. Box 62625, Harrisburg, PA 17106-2625, facsimile number (717-231-3382), on or before December 30, 2010.

Elevated Security: Supreme Court Increases Maximum Recovery

On November 30, 2010, the Supreme Court of Pennsylvania adopted a change to Rule 514(b) of the Pennsylvania Rules of Disciplinary Enforcement, raising the maximum claim which may be awarded to a claimant by the Pennsylvania Lawyer’s Fund for Client Security from $75,000 to $100,000. The Fund, financed by the annual assessments paid by all practicing lawyers, reimburses people who have lost money due to dishonest conduct on the part of a lawyer. The change, published at 47 Pa.B. 7207, is effective December 30, 2010.

Notaries Yet Again

Many readers responded to our comments in the last two issues regarding the impropriety of lawyers directing employees who are notaries to notarize signatures not signed in the notary’s presence. Several readers pointed out that 42 Pa. C.S. §327 provides that a notary may certify an acknowledgement taken by a member of the Pennsylvania bar, where the member of the bar has witnessed the signatures.

A lawyer may certify to a notary that a document was signed in his presence, and the notary may then lawfully affix his or her seal to the certification. A lawyer may ethically request a staff member who is a notary to seal a certification done in strict compliance with this procedure. It is important to note that the lawyer must certify truthfully that he or she witnessed the signatures, and the notary must not notarize the document as though it was signed in his or her presence, but must use the form for such certification set forth in 21 P.S. 291.7(5).

Hoo Hah! A Colorful Continuance Request and Appropriate Judicial Response

Many lawyers have found themselves in a position of needing to request a continuance of a court date for an important personal event. New York lawyer Bennett Epstein faced a special problem. As the birth of his grandchild neared in the middle of a criminal trial, Epstein was not sure whether or not he would need a day off to celebrate. If the new arrival was a girl, he would be able to go forward, but if it was a boy, he would need time off to attend the bris.[1] He addressed the problem in a colorful letter to Judge Kimba Wood, who was presiding over the trial:

Should the child be a girl, not much will happen in the way of public celebration. Some may even be disappointed, but will do their best to conceal this by saying, “as long as it’s a healthy baby.” . . . However, should the baby be a boy, then hoo hah! Hordes of friends and family will arrive . . . for the joyous celebration . . . known as the bris. . . . My presence at the bris is not strictly commanded, although my absence will never be forgotten by those that matter.

Judge Wood accommodated his request, but not without comment. In her dispositional order, the Judge noted,

Mr. Epstein will be permitted to attend the bris, in the joyous event that a son is born. But the Court would like to balance the scales. If a daughter is born, there will be a public celebration in Court, with readings from poetry celebrating girls and women.

As it turned out, the bubbameiseh[2] was accurate, and Mr. Epstein’s announcement to the Court was “Hoo hah!” Pictures and treats were promised.[3]

Got a Tip?

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[1] Some have taken exception to the tradition of celebrating the birth of a boy, but not a girl. Once one understands what a bris or “brit milah” involves, the basis of the distinction becomes more clear.

[2] As defined by Mr. Epstein, “Yiddish for 'old wives’ tale.’ A 'mere bubbameiseh’ is somewhat less reliable.”

[3]The court-requisitioned poetry was gathered but not needed.