Ethics and Professionalism: Attorney Trust …

1 Ethics and professionalism : Attorney Trust Accounts and Law OfficeRecord Keeping for new york LawyersAppendix of CLE Materials Prepared by Michael J. KnightNew york Lawyers Fund for Client Protection119 Washington Avenue Albany, new york 12210 September 2012 Attorney Trust Accounts, Escrow and Record Keeping*Table of ContentsFiduciary and Law Office Record Keeping RuleA Practical Guide to Attorney Trust Accounting and RecordkeepingAttorney RegistrationNew york Lawyers Fund for Client ProtectionInterest On Lawyer account (IOLA) ProgramDishonored Check Reporting Rule (22 NYCRR Part )Escrow Funds of Missing Clients and Deceased Lawyers (22 NYCRR (f), (g)) new york State Bar Association Selected Ethics OpinionsOpinion 90 - 10/7/68 (17-68) (Deposit of escrow funds in interest bearing account )Opinion 532 - 5/27/81 (39-80) (Compensation of interest for acting as escrow agent)Opinion 554 - 11/21/83 (22-83) (Particiation in IOLA) (Updated by 764, infra)

2 Opinion 570 - 6/7/85 (37-84) (Deposit of advance fees; remission of interest) (Updated by 816, infra)Opinion 575 - 4/18/86 (46-85) (Duties of Attorney acting as realty escrow agent)Opinion 582 - 5/4/87 (13-87) (Retention of interest on settlement recovery)Opinion 600 - 5/16/89 (2-88) (Use of credit line & Attorney exchange account )Opinion 680 - 1/10/96 (57-95)(Use of electronic/computer-generated records)(Updated by 758, infra)Opinion 693 - 8/22/97 (68-96) (Use of signature stamp by paralegal)Opinion 697 - 12/30/97 (41-97) (Combination hourly and contingency fee arrangements)Opinion 710 - 11/6/98 (35-98) (Lawyer acting as escrow agent)Opinion 717 - 4/15/99 (43-98) (Medical liens and duty to pay third-party)Opinion 737 - 02/01/01 (22-00)(Prohibition against drawing escrow check on uncollected funds)Opinion 758 - 12/10/02 (24-02)

3 (Retention of Original Trust Documents)Opinion 759 - 12/10/02 (27-02) (ATM deposits into special account )Opinion 760 - 01/27/03 (25-02) (Use of power-of- Attorney in retainer agreement)Opinion 764 - 07/23/03 (25-02) (Acceptance of IOLA account earnings with consent of client)Opinion 816 - 10/26/07 (14-07) (Deposit of advance retainer)The Association of the Bar of the City of new york Selected Ethics OpinionsOpinion No. 1986-5 - (7/14/86) (Lawyer as escrow agent)Opinion No. 1991-3 - (5/16/91) (Prohibition against non-refundable retainers)Opinion No. 1995-6 - (4/5/95) (Holding escrow funds in an interest-bearing account )Opinion No. 1997-1 - (3/97) (Interest charges on unreimbursed expenses)Opinion No. 2002-2 - (3/ 2002) (Duty to Pay Interest on Client Funds)Opinion No. 2008-1 - (7/ 2008) (Obligation to Retain & Provide Client with Electronic Documents) new york Lawyers Fund, Twenty-Ninth Annual Report*The Fund gratefully acknowledges the research assistance of Albany Law School students Cheyenne James and Keith Cronin.

4 1999, 2012 new york Lawyers Fund for Client ProtectionAttorney Trust Accounts, Escrow and Record Keeping3 Fiduciary and Law Office Record Keeping Rule Effective April 1, 2009, the Rules of Professional Conduct were promulgated as joint rulesof the Appellate Divisions of the Supreme Court, and superseded Part 1200 (Disciplinary Rules of theCode of Professional Responsibility). Rule of the Rules of Professional Conduct is a uniform rule ofcourt adopted by the four Appellate Divisions of the Supreme Court in the exercise of their authority toregulate members of the bar and the practice of law, principally pursuant to section 90 of the JudiciaryLaw. Rule is published at 22 NYCRR Part contains the basic fiduciary standards set forth in Rule of the American BarAssociation s Model Rules of Professional Conduct.

5 But the new york rule is much more comprehensivethan the ABA rule in its detail and practical scope in the day-to-day management of a private lawpractice. RULE :Preserving Identity of Funds and Property ofOthers; Fiduciary Responsibility; Comminglingand Misappropriation of Client Funds orProperty; Maintenance of Bank Accounts;Record Keeping; Examination of Records(a) Prohibition Against Commingling andMisappropriation of Client Funds or lawyer in possession of any funds or otherproperty belonging to another person, where suchpossession is incident to his or her practice of law,is a fiduciary, and must not misappropriate suchfunds or property or commingle such funds orproperty with his or her own.(b) Separate Accounts. (1) A lawyer who is inpossession of funds belonging to another personincident to the lawyer s practice of law shallmaintain such funds in a banking institution withinNew york State that agrees to provide dishonoredcheck reports in accordance with the provisions of22 Part 1300.

6 Banking institution means a state or national bank, Trust company,savings bank, savings and loan association or creditunion. Such funds shall be maintained, in thelawyer s own name, or in the name of a firm oflawyers of which the lawyer is a member, or in thename of the lawyer or firm of lawyers by whom thelawyer is employed, in a special account oraccounts, separate from any business or personalaccounts of the lawyer or lawyer s firm, andseparate from any accounts that the lawyer maymaintain as executor, guardian, trustee or receiver,or in any other fiduciary capacity; into such specialaccount or accounts all funds held in escrow orotherwise entrusted to the lawyer or firm shall bedeposited; provided, however, that such fundsmay be maintained in a banking institution locatedoutside new york State if such banking institutioncomplies with 22 Part 1300 and thelawyer has obtained the prior written approval of theperson to whom such funds belong specifying thename and address of the office or branch of thebanking institution where such funds are to bemaintained.

7 (2) A lawyer or the lawyer s firm shall identify thespecial bank account or accounts required by (b)(1) as an Attorney Special account , Attorney Trust account , or Attorney EscrowAccount, and shall obtain checks and deposit slipsthat bear such title. Such title may be accompaniedby such other descriptive language as the lawyermay deem appropriate, provided that such additionallanguage distinguishes such special account oraccounts from other bank accounts that aremaintained by the lawyer or the lawyer s firm.(3) Funds reasonably sufficient to maintain theaccount or to pay account charges may be depositedtherein. Attorney Trust Accounts, Escrow and Record Keeping4(4) Funds belonging in part to a client or thirdperson and in part currently or potentially to thelawyer or law firm shall be kept in such specialaccount or accounts, but the portion belonging tothe lawyer or law firm may be withdrawn when dueunless the right of the lawyer or law firm to receiveit is disputed by the client or third person, in whichevent the disputed portion shall not be withdrawnuntil the dispute is finally resolved.

8 (c) Notification of Receipt of Property;Safekeeping; Rendering Accounts; Payment orDelivery of lawyer shall:(1) promptly notify a client or third person of thereceipt of funds, securities, or other properties inwhich the client or third person has an interest; (2) identify and label securities and properties of aclient or third person promptly upon receipt andplace them in a safe deposit box or other place ofsafekeeping as soon as practicable; (3) maintain complete records of all funds,securities, and other properties of a client or thirdperson coming into the possession of the lawyerand render appropriate accounts to the client or thirdperson regarding them; and(4) promptly pay or deliver to the client or thirdperson as requested by the client or third personthe funds, securities, or other properties in thepossession of the lawyer that the client or thirdperson is entitled to receive.

9 (d) Required Bookkeeping Records.(1) A lawyer shall maintain for seven years after theevents that they record:(i) the records of all deposits in and withdrawalsfrom the accounts specified in Rule (b) and ofany other bank account that concerns or affects thelawyer s practice of law; these records shallspecifically identify the date, source and descriptionof each item deposited, as well as the date, payeeand purpose of each withdrawal or disbursement;(ii) a record for special accounts, showing the sourceof all funds deposited in such accounts, the names ofall persons for whom the funds are or were held, theamount of such funds, the description and amounts,and the names of all persons to whom such fundswere disbursed;(iii) copies of all retainer and compensationagreements with clients;(iv) copies of all statements to clients or otherpersons showing the disbursement of funds to themor on their behalf;(v) copies of all bills rendered to clients;(vi) copies of all records showing payments tolawyers, investigators or other persons, not in thelawyer s regular employ, for services rendered orperformed;(vii) copies of all retainer and closing statementsfiled with the Office of Court Administration; and(viii) all checkbooks and check stubs, bankstatements, prenumbered canceled checks andduplicate deposit slips.

10 (2) Lawyers shall make accurate entries of allfinancial transactions in their records of receipts anddisbursements, in their special accounts, in theirledger books or similar records, and in any otherbooks of account kept by them in the regular courseof their practice, which entries shall be made at ornear the time of the act, condition or event recorded.(3) For purposes of Rule (d), a lawyer maysatisfy the requirements of maintaining copies bymaintaining any of the following items: originalrecords, photocopies, microfilm, optical imaging,and any other medium that preserves an image of thedocument that cannot be altered without Trust Accounts, Escrow and Record Keeping3(e) Authorized special account withdrawals shall be made onlyto a named payee and not to cash. Such withdrawalsshall be made by check or, with the prior writtenapproval of the party entitled to the proceeds, bybank transfer.