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August 1, 2013
Opinion coming on insurance companies auditing trust accounts

By Gary Blankenship
Senior Editor

After a year of discussion, the Professional Ethics Committee has ordered a proposed advisory opinion drafted to guide lawyers on a state law passed last year that allows title insurance companies to audit lawyer trust accounts.

The committee’s tentative consensus didn’t come easily, taking almost two hours of debate at its June 28 meeting at the Bar’s Annual Convention. The panel twice passed motions on what it wanted in the proposed opinion, only then to vote to reconsider, before settling on its final action.

The PEC also approved a proposed advisory opinion on cloud computing, addressed a lawyer’s duty to third parties with interests in money held in the lawyer’s trust account, and said lawyers could not report current clients’ negative payment histories to a subscription clearinghouse that would provide such information to other lawyers.

On the trust account issue, a drafting subcommittee presented three options and the committee eventually approved the first option with changes. The key issue was whether attorneys could allow a title insurance company to audit a trust account containing funds from clients who are not using the title company’s services.

The committee had been asked about attorneys’ obligations under F.S. §628.8473(8), which was effective July 1, 2012. That section provides: “An attorney shall deposit and maintain all funds received in connection with transactions in which the attorney is serving as a title or real estate settlement agent into a separate trust account that is maintained exclusively for funds received in connection with such transactions and permit the account to be audited by its title insurers, unless maintaining funds in the separate account for a particular client would violate applicable rules of The Florida Bar.”

Some committee members argued such an audit could reveal confidential client information and could only be done with client approval. Others argued that such audits served client interests by preventing lawyers from stealing from trust accounts and finding errors where clients and others might be owed money.

“This committee’s best intention can be thwarted by the dishonest lawyer who is engaged in the defalcation, the embezzlement, the theft that title companies have borne the brunt of,” said Real Property, Probate and Trust Law Section Chair Peggy Rolando, testifying before the committee. “So the bad-actor lawyer can frustrate the effectiveness of this requirement by saying, ‘You know what? I’m not getting informed consent’ [from the client for the audit].”

Committee members also noted that Rule 4-1.6(c)(1) of the Rules Regulating The Florida Bar allows an attorney to disclose confidential information without client consent if reasonably necessary “to serve the client’s interest unless it is information the client specifically requires not to be disclosed.” They argued allowing the audit is in clients’ interest and hence consent or disclosure is not needed.

Committee member Loretta O’Keefe chaired the subcommittee that drafted the three variations of the proposed opinion and noted that the committee recommended the first version: A lawyer may not allow the audit of a special trust account used only for real estate and title transactions unless informed consent is obtained from the clients whose transactions are unrelated to the auditing title company.

On complying with the state law, the opinion said the audits could be allowed only if “1) a separate trust account for each different title insurer used by that lawyer or law firm, or 2) one separate trust account and obtain each client’s informed consent to disclose information regarding their transactions to multiple title insurers for their audits, or 3) one separate trust account and obtain consent from the various title insurers to audit only the information related to transactions that the title insurer is underwriting.”

Committee member Joe Corsmeier suggested adding language to that section acknowledging the exceptions in Rule 4-1.6. Other changes were suggested and the committee ultimately voted 28-6 to direct the subcommittee to redraft the proposed opinion with those changes. The committee will consider the revised opinion when it next meets in September or October.

On other matters:

* The PEC unanimously approved Proposed Advisory Opinion 12-3, which allows cloud computing to store records and for other services as long as lawyers take reasonable steps to ensure client confidences are protected.

* On the issue of third-party interest in funds in a lawyer’s trust account, the committee voted to direct staff to revise a staff opinion to more clearly indicate that the lawyer does not have to hold those funds in trust unless the lawyer owes a legal duty to that third party.

* On the client payment history issue, an attorney had inquired whether he could report clients’ payment histories to a for-profit business, which would provide that information to other lawyers who might be hired by those clients. The inquiring lawyer said that could be a benefit to clients because those with a good payment history might not have to post retainers. But the committee ratified a staff opinion, which said it would be a conflict of interest for an attorney to report negative information about clients while continuing to represent those clients.

[Revised: 01-26-2017]