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Bar board considers trust account rules amendments

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Bar board considers trust account rules amendments

The box on the Bar’s annual membership form for lawyers to check as verification that their trust accounts are in compliance with Bar rules might be disappearing.

The Board of Governors, at its January 31 meeting, received a proposed amendment to Rule 5-1.2(c) that would remove the checkbox from the annual membership form. The board will vote on the amendment at its March 28 meeting.

Jay Manuel The board also received another proposed amendment to Rule 5-1.1 to allow a lawyer, using his or her own monies, to replace funds missing from a trust account without being accused of comingling funds. The shortage, though, still would have to be reported to the Bar. That amendment will also be voted on in March.

Both amendments were presented to the board by the Disciplinary Procedure Committee.

Chair Jay Manuel explained to the board that the trust account compliance checkbox on the annual dues form was creating a disparity in prosecuting minor trust account violations. He said the rule is ignored by a significant minority of Bar members, and there have been no prosecutions for that failure.

In grievance cases involving minor trust account violations, Bar disciplinary counsel have taken the position that if the affected lawyers had checked the box certifying compliance with trust accounting rules, they did not qualify for a grievance diversion to a trust accounting course, Manuel said. Staff counsel contended checking the box constituted a material misrepresentation because the trust account was not in compliance and, therefore, diversion was not an option.

However, if lawyers did not check the box, there was no material misrepresentation and they qualified for diversion, Manuel said, even though they violated the rule requiring that they certify their trust account was in compliance with Bar rules.

The other change affecting trust fund shortages “allows the lawyer to replace funds that are missing from the trust account and it not be considered impermissible comingling of funds,” Manuel said. “It does require immediate notification of the Bar’s Lawyer Regulation Department and of course that may prompt an audit.”

He noted in a recent disciplinary case involving a $4 million theft by the law firm’s bookkeeper. The lawyers were eventually disbarred for failing to report the shortfall for months and for not taking adequate actions to protect the trust account. But, Manuel noted, they were also sanctioned for comingling funds when they replaced some of the missing funds with their personal resources. He said the Bar wants to encourage lawyers to replace shortfalls to protect clients and third parties, whether the deficits result from inadvertent bank changes, theft by employees, or theft by firm lawyers.

“We just thought if we had a situation where a staff person took $1,000 out of the trust account, we didn’t want the lawyer to feel he couldn’t put that $1,000 back in because that protects the client,” Manuel said. “They still have the duty to report, and if there’s any underlying violation that allowed the trust account to come up short, that’s going to be investigated and dealt with.”

He also said the requirement to report any shortfall protects the public in lieu of the checkbox for trust account compliance on the annual fee form.

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