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August 1, 2012
Ethics panel examines trust account audits and cloud computing

By Gary Blankenship
Senior Editor

A state law allowing title insurance companies to audit attorney trust accounts is being looked at by the Bar’s Professional Ethics Committee.

The panel also has asked the Board of Governors to direct the committee to prepare an ethics opinion on protecting client confidences when lawyers want to store records via “cloud” computing.

The trust account issue, Ft. Lauderdale attorney Bruce Goorland told the committee, arises from the Legislature adding a subsection to F.S. §626.8473 earlier this year.

The new provision reads: “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.”

Goorland said the new provision, part of a larger bill dealing with title insurers, is confusing, poorly drafted, and likely violates Bar ethics rules. He said the last phrase in the new subsection was probably intended to say unless allowing the audit would violate Bar rules.

The problem, he said, is allowing a title insurance company to audit one transaction in a trust account would give that company access to information relating to all other deposits to that account, even those of other title insurance companies. Such access, Goorland said, could reveal confidences about of other clients.

“How can I let a title insurance company audit the whole trust account when it’s got information unrelated to that title insurance company?” he asked. “Do I as an attorney have to let them audit my trust account or am I violating the confidentiality rules of The Florida Bar?”

A solution may be to keep a separate trust account for each title company, but that arrangement could be impractical for firms that handle a lot of real estate matters, Goorland said. He noted it’s not unusual for an attorney to change title insurance companies during the course of a transaction or for the client to change attorneys.

The Ethics Committee addressed a similar situation with Ethics Opinion 93-5, he said. That opinion addressed when an attorney acting as a title and settlement agent could allow a trust fund audit by the title insurance company. The opinion said the attorney could not allow an audit of the general trust fund without the consent of all affected clients, but could allow an audit of a trust fund used exclusively for title insurance and settlements. Since the attorney in that case was an attorney for a title insurance company, Goorland said, it’s implicit in the opinion that all the funds in that special account would be in transactions involving that single title company.

PEC Vice Chair Homer Duvall said the law could raise another problem. Allowing the title company to audit the fund could be argued to waive confidentiality claims for that information, which might also be argued to waive confidentiality on other client information, he added.

Duvall said that the problem stems from title insurance companies being responsible when lawyers acting as their agents defalcate with client funds.

The committee accepted Duvall’s suggestion to table the issue until its September meeting, as the Real Property, Probate and Trust Law Section is preparing a response to the new law. But the panel also accepted the suggestion of committee member Skip Smith and appointed a subcommittee to begin drafting a possible response.

On the cloud computing issue, committee members said there are concerns because attorneys are placing confidential client information in the custody of third parties.

“This is an issue that relates to security and confidentiality of client records,” said outgoing committee Chair Gary Betensky.

“This is an emerging area that lawyers are treading into without any idea of what they’re getting into,” said committee member Steven Teppler. “There are no guidelines, because there are no standards out there for security, and there’s no real way you can do your homework to be sure you are comporting with the ethical rules.”

Teppler added that it’s unlikely the committee would prohibit the use of cloud computing but will reiterate steps lawyers must take to ensure confidential client information is protected, as it has with other technology matters.

“There’s a lot more to it than meets the eye,” committee member and Marion County Judge Jim McCune said. “Cloud computing gets outsourced to India and other places, and there’s issues about whether you can repatriate your data that’s been sent to those foreign places. Really, we all need some guidance on this.”

He likened this issue to an earlier opinion giving guidance for protecting client information on the hard drives of discarded copiers, computers, scanners, and other high- tech equipment.

The committee voted unanimously to ask the Board of Governors to direct it to prepare the opinion.

[Revised: 09-27-2016]