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The Coming Changes to Your Duties to Safekeep Client Property Christian A. Stiegemeyer | Director of Risk Management Christina Lewis Abate | Risk Manager.

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Presentation on theme: "The Coming Changes to Your Duties to Safekeep Client Property Christian A. Stiegemeyer | Director of Risk Management Christina Lewis Abate | Risk Manager."— Presentation transcript:

1 The Coming Changes to Your Duties to Safekeep Client Property Christian A. Stiegemeyer | Director of Risk Management Christina Lewis Abate | Risk Manager

2 THE QUIZ

3 1. But I have a Written Contract? You accept a contested probate case on a contingent fee basis. Your fee agreement states that if the client discharges the firm prior to the completion of the matter or decides not to pursue the matter, the client will immediately pay the accrued hourly rate incurred during the representation to that point. The conversion clause: A. Is enforceable as a matter of contract law. B. Is enforceable so long as the hourly rate fee is reasonable. C. Is enforceable in quantum meruit. D. Unenforceable. THE QUIZ

4 2. This Land is Your Land You represent a real estate developer. Over the course of several years you draft documents for successive entities of which the developer and investors are partners. The investors never sign an engagement letter or pay you a fee. After the development goes bankrupt and the investors lose $20 million, they sue for malpractice. On the question of whether you had an A/C relationship with the investors, the jury at your malpractice trial should: A. Find an ACR because you did not have the investors sign a non-engagement letter. B. Find there was no ACR because the investors never paid you a fee. C. Find there was no ACR because it is not reasonable for the investors to believe you represented both them and the developer. D. Find there was no ACR because the investors did not sign an engagement letter or fee contract. THE QUIZ

5 3. Practice, practice, practice? You have learned that Adverse Counsel keeps clients notarized signatures on file and subsequently attaches them to discovery documents or documents to be filed in court. It is disputed whether the signer actually reviews the documents prior to the notarized signature being attached. Regarding this practice, you: A. Dont care what he does with his clients. B. Have a duty to file a report with the OCDC after counseling and obtaining your clients consent. C. Think it is a nifty time-saving idea and look into incorporating it into your practice. D. Do not have a duty to file a report with the OCDC. THE QUIZ

6 4. I was Just Trying to be Sociable After prevailing at trial, you are so excited you send out the following Facebook post, Another million dollar verdict! We got the lying scum!! Who wants to be next? This goes to relatives, friends, colleagues, acquaintances, some clients, and other people youve talked to about possibly representing in similar actions against this adverse party. The post: A. Violates MRPC 4-7.1(c). B. Violates MRPC. 4-7.3(c)(5). C. Violates MRPCs 4-7.1(c) and 4-7.3(c)(5) D. Is permissible because your Facebook site is strictly personal and not linked to any legal sites. THE QUIZ

7 5. Bar None You are defending a bar in a dram-shop action in which an over-served drunk customer shot and killed another patron. Because the law is unsettled on the question of whether you can make the shooter a party to the suit for allocation of fault, you decide not to include him. The jury finds the bar not liable for the shooters actions, but the judge directs a verdict against the bar for $950,000. The bar sues you for malpractice, claiming the shooter should have been included. At your malpractice trial on the issue of the standard of care the jury should find you: A. Met the standard because of the unsettled nature of the law. B. Met the standard because bringing the shooter into the action exposed your client to a malicious prosecution claim. C. Met the standard because bringing the shooter into the action exposed your client to an abuse of process claim. D. Failed to meet the standard because the prudent course of action would be to add the shooter as a defendant for fault allocation and preserve the issue. THE QUIZ

8 6. It Never Occurred to Me You draft a PoA for Client which includes this language: The holder of this Power of Attorney shall also file an annual account by January 31st of each year and deliver it to [YOUR NAME HERE],attorney, or any attorney licensed in this state, designated by me or by the holder of this Power-of-Attorney for safe-keeping. The holder does not file the annual account but does steal $800,000 of Clients money. Client sues you for malpractice. The above language should be held to: A. Create a duty in you to follow-up and encourage the holder to comply with the scheme. B. Create no duty beyond exercising appropriate care in drafting the PoA. C. Create the duty to be a guardian of Clients financial well-being. D. Create a duty of being a general overseer of the PoAs holders conduct. THE QUIZ

9 7. I thought I updated that? After changing firms, the notice of a federal district courts decision is forwarded to your old email address. As a result, your notice of appeal is filed two weeks late. The district court, finding that all three factors necessary to reopen the time to appeal under Rule 4(a)(6) are present, grants additional time. In reviewing the decision the Circuit Court should: A. Affirm the district court on the grounds that you did not timely receive notice. B. Find the district court did not abuse its discretion because all factors of Rule 4(a)(6) were in fact met. C. Affirm the district court because the law favors judgment on the merits. D. Reverse the district court because failure to receive the notice was entirely and indefensibly [your] fault. THE QUIZ

10 8. Again with the Social Media During a dissolution representation you Facebook friended a client. Several months after the resolution, you receive a Facebook notification that the client has posted on her page. Youre surprised to see it is a disgruntled rant with the client claiming you did little work and way overcharged her. Not taking that lying down, you post on her page a copy of a memo you filed seeking recovery of your fees from the Husband, which was denied. Posting the memo was: A. Permissible because the client waived attorney-client privilege when she alleged you charged an unreasonable fee. B. A permissible use under Rule 4-1.9(c)(1) because the memo was generally known. C. Permissible under Rule 4-1.6(b)(3) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client. D. Impermissible. THE QUIZ

11 9. Last Social Media Question As part of your investigation into a represented adverse party, you view their Linked-In page to see what is there. The page has no password protection. The AP has enabled a feature of the system that allows them to see who has come onto their page. Because you are a Linked-In user also, you are aware of this feature. Looking at the Linked-in page: A. Is an unethical communication under Rule 4-4.2 Communication with Person Represented by Counsel. B. May be an unethical communication under Rule 4-4.2 Communication with Person Represented by Counsel. C. Is ethical per Rule 4-4.2 because the page was not password protected. D. Ethical pursuant to M.R.P.C. 4-3.2 Expediting Litigation. THE QUIZ

12 10. Dating Service In the ten year period 2002-2011, the most frequently reported Error or Omission malpractice category cited in the 2011 Legal Malpractice Insurance Report issued by the Missouri Department of Insurance was: A. Fail to File Documents with no Deadline. B. Failure to Calendar Properly. C. Failure to React to Calendar. D. Fail to Ascertain a Deadline Correctly. THE QUIZ

13 The Coming Changes to Your Duties to Safekeep Client Property Christian A. Stiegemeyer | Director of Risk Management Christina Lewis Abate | Risk Manager

14 Current Safekeeping Property Rule found at MRPC 4- 1.15 – Effective January 1, 2010; Contains subsections (a)-(m); Including the COMMENT, 4,769 words. New Safekeeping Property Rule found at MRPC: 4-1.145 – Definitions; 4-1.15 – Safekeeping Property; 4-1.155 – IOLTA Accounts; and 4-1.22 – File Retention Effective July 1, 2013; Including the several COMMENT sections, 5,730 words.

15 No Significant Changes New entries in the Definitions Section are items previously found elsewhere in the Current Rule 4-1.145 DEFINITIONS - SAFEKEEPING PROPERTY AND IOLTA ACCOUNTS

16 No Significant Changes New entries in MRPC 4-1.155 are items previously found elsewhere in the Current Rule 4-1.155 IOLTA ACCOUNTS

17 No Significant Changes New entries in MRPC 4-1.122 are items previously found elsewhere in the Current Rule 4-1.22 FILE RETENTION

18 COMMENT [3] Authorized electronic transfers shall be limited to: (1) money required for payment to a client or third person on behalf of a client; (2) expenses properly incurred on behalf of a client, such as filing fees or payment to third persons for services rendered in connection with the representation; or (3) money transferred to the lawyer for fees that are earned in connection with the representation and are not in dispute; or (4) money transferred from one client trust account to another client trust account. COMMENT [2] - Rules 4-1.15(a)(3) to (7) enumerate minimal accounting controls for client trust accounts. -COMMENT [2] enunciates requirement that only a lawyer or person under direct supervision of lawyer shall be authorized signatory or authorize electronic transfers from a client trust account. -It is permissible to grant limited nonlawyer access to a client trust account, access should be closely monitored. -Lawyer has a non-delegable duty to protect and preserve the funds in a client trust account and can be disciplined for failure to supervise subordinates who misappropriate client funds. (3) Only a lawyer admitted to practice law in this jurisdiction or a person under the direct supervision of the lawyer shall be an authorized signatory or authorize transfers from a client trust account; Changes! MRPC 4-1.15(a)(3)-(7) – Bonus Reading Includes COMMENT Changes Too 4-1.15 SAFEKEEPING PROPERTY

19 Changes! MRPC 4-1.15(a)(3)-(7) – Bonus Reading Includes COMMENT Changes Too 4-1.15 SAFEKEEPING PROPERTY (4) Receipts shall be deposited intact and records of deposit shall be sufficiently detailed to identify each item; COMMENT [4] The requirements in Rule 4-1.15(a)(4) that receipts shall be deposited intact mean that a lawyer cannot deposit one check or negotiable instrument into two or more accounts at the same time, a practice commonly known as a split deposit.

20 Changes! MRPC 4-1.15(a)(3)-(7) – Bonus Reading Includes COMMENT Changes Too 4-1.15 SAFEKEEPING PROPERTY (5) Withdrawals shall be made only by check payable to a named payee, and not to cash, or by authorized electronic transfer; and

21 Changes! MRPC 4-1.15(a)(3)-(7) – Bonus Reading Includes COMMENT Changes Too 4-1.15 SAFEKEEPING PROPERTY (6) No disbursement shall be made based upon a deposit: (A) if the lawyer has reasonable cause to believe the funds have not actually been collected by the financial institution in which the trust account is held; and (B) until a reasonable period of time has passed for the funds to be actually collected by the financial institution in which the trust account is held. COMMENT [5] -Lawyer must wait reasonable time for deposited funds to be collected by the financial institution in which the trust account is located before disbursing funds on that deposit, aka "good funds; - It is not sufficient to wait only until the deposit is "cleared" or "available" as the transaction may still be reversed by the financial institution if a problem arises; -A reasonable time to wait may vary between financial institutions; - A lawyer must also delay disbursement and take extra measures to ensure collection before disbursement if the lawyer is aware of information that causes doubt about the collection or collectability of the deposit. RULE 4-1.8: CONFLICT OF INTEREST: PROHIBITED TRANSACTIONS (e) A lawyer shall not provide financial assistance to a client in connection with pending or contemplated litigation, except that: (1) a lawyer may advance court costs and expenses of litigation, including medical evaluation of a client, the repayment of which may be contingent on the outcome of the matter;

22 Changes! MRPC 4-1.15(a)(3)-(7) – Bonus Reading Includes COMMENT Changes Too 4-1.15 SAFEKEEPING PROPERTY (7) A reconciliation of the account shall be performed reasonably promptly each time an official statement from the financial institution is provided or available. COMMENT [18] The potential of these records to serve as safeguards is realized only if reconciliations are regularly performed. Reconciliation each time a statement is generated by the financial institution will enable the easiest identification of an error (whether by the lawyer or the bank).

23 What Else? 4-1.15 SAFEKEEPING PROPERTY (f) Complete records of client trust accounts shall be maintained and preserved for a period of at least five years after termination of the representation or after the date of the last disbursement of funds, whichever is later. MRPC 4-1.15(f)(1)-(11) – Record Keeping – Time Frame – Same as Current Rule

24 What Else? 4-1.15 SAFEKEEPING PROPERTY Upon dissolution of a law firm or of any legal professional corporation, the partners shall make reasonable arrangements for the maintenance of client trust account records. Upon the sale of a law practice, the seller shall make reasonable arrangements for the maintenance of records. MRPC 4-1.15(f)(1)-(11) – Record Keeping – Dissolution or Sale - New

25 What Else? MRPC 4-1.15(f)(1)-(11) – Record Keeping - Minimums 4-1.15 SAFEKEEPING PROPERTY Complete records shall include at a minimum: (1) receipt and disbursement journals containing a record of deposits to and withdrawals from client trust accounts, specifically identifying the date, source, and description of each item deposited as well as the date, payee, and purpose of each disbursement; (2) ledger records for all client trust accounts showing, for each separate trust client or beneficiary, the source of all funds deposited, the names of all persons for whom the funds are or were held, the amount of such funds, the descriptions and amounts of charges or withdrawals, and the names of all persons or entities to whom such funds were disbursed; (3) fee agreements, engagement letters, retainer agreements and compensation agreements with clients; (4) accountings to clients or third persons showing the disbursement of funds to them or on their behalf; (5) bills for legal fees and expenses rendered to clients; (6) records showing disbursements on behalf of clients;

26 What Else? MRPC 4-1.15(f)(1)-(11) – Record Keeping - Minimums 4-1.15 SAFEKEEPING PROPERTY Complete records shall include at a minimum (Cont): (7) the physical or electronic equivalents of all checkbook registers, bank statements, records of deposit, pre-numbered canceled checks, and substitute checks provided by a financial institution; (8) records of all electronic transfers from client trust accounts, including the name of the person authorizing transfer, the date of transfer, the name of the recipient and confirmation from the financial institution of the trust account number from which money was withdrawn and the date and the time the transfer was completed; (9) reconciliations of the client trust accounts maintained by the lawyer; (10) those portions of client files that are reasonably related to client trust account transactions; and (11) records of credit card transactions with clients to the extent permitted by law and the payment card industry data security standard.

27 Some Other New COMMENTS – Safeguard & Account Partners Always Responsible 4-1.15 SAFEKEEPING PROPERTY [11] The basic financial records that a lawyer must maintain with regard to all trust accounts of a law firm include the standard books of account and the supporting records that are necessary to safeguard and account for the receipt and disbursement of client or third person funds. [12] Regardless of the arrangements the partners or shareholders make among themselves for maintenance of the client trust records, each partner maybe [sic] held responsible for ensuring the availability of these records.

28 Some Other New COMMENTS – Computerized Back-up 4-1.15 SAFEKEEPING PROPERTY [13] Alternative media for the maintenance of client trust account records may be used if printed copies of necessary reports can be produced. If trust records are computerized, a system of regular and frequent (preferably daily) back-up procedures is essential. If a lawyer uses third-party electronic or internet based file storage, the lawyer must make reasonable efforts to ensure that the company has in place, or will establish reasonable procedures, to protect the confidentiality of client information. See ABA Formal Ethics Opinion 398 (1995). Required records shall be readily accessible and shall be readily available to be produced upon request by the client or third person who has an interest as provided in Rule 4-1.15 or by the official request of a disciplinary authority, including but not limited to, a demand under Rule 4-8.1 or a subpoena duces tecum. Personally identifying information in records produced upon request by the client or third person or by disciplinary authority may be the appropriate subject of a protective order.

29 Some Other New COMMENTS – Appointment of Trustee 4-1.15 SAFEKEEPING PROPERTY [14] Rule 5.26 provides for the appointment of a trustee to handle the storage or disposition of a lawyer's client trust account records in the event that the lawyer is suspended, disbarred, disappears, or dies.

30 Some Other New COMMENTS – Download Electronic Images 4-1.15 SAFEKEEPING PROPERTY [15] The physical or electronic equivalents of all checkbook registers, bank statements, records of deposit, pre-numbered canceled checks, and substitute checks must be maintained for a period of five years after termination of each legal engagement or representation. The "Check Clearing for the 21st Century Act" or "Check 21 Act", codified at 12 U.S.C. §§5001 et. seq., recognizes "substitute checks" as the legal equivalent of an original check. A "substitute check" is defined at 12 U.S.C. §5002(16) as "paper reproduction of the original check that contains an image of the front and back of the original check; bears a magnetic ink character recognition ("MICR") line containing all the information appearing on the MICR line of the original check; conforms with generally applicable industry standards for substitute checks; and is suitable for automated processing in the same manner as the original check. "Banks," as defined in 12 U.S.C. §5002(2), are not required to return to customers the original canceled checks. Most banks now provide electronic images of checks to customers who have access to their accounts on internet-based websites. It is the lawyer's responsibility to download electronic images. Electronic images shall be maintained for the requisite number of years and shall be readily available for printing upon request or shall be printed and maintained for the requisite number of years.

31 Some Other New COMMENTS – Automated Clearing House 4-1.15 SAFEKEEPING PROPERTY [16] The ACH (Automated Clearing House) Network is an electronic funds transfer or payment system that primarily provides for the inter-bank clearing of electronic payments between originating and receiving participating financial institutions. ACH transactions are payment instructions to either debit or credit a deposit account. ACH payments are used in a variety of payment environments including bill payments, business-to-business payments, and government payments (e.g., tax refunds.) In addition to the primary use of ACH transactions, retailers and third parties use the ACH system for other types of transactions, including electronic check conversion (ECC). ECC is the process of transmitting MICR information from the bottom of a check, converting check payments to ACH transactions depending upon the authorization given by the account holder at the point-of-purchase. In this type of transaction, the lawyer should be careful to comply with the requirements to maintain documentation of the transaction.

32 Some Other New COMMENTS – Electronic Checks 4-1.15 SAFEKEEPING PROPERTY [17] There are five types of check conversions where a lawyer should be particularly careful to maintain good documentation. First, in a "point-of-purchase conversion," a paper check is converted into a debit at the point of purchase and the paper check is returned to the issuer. Second, in a "back-office conversion," a paper check is presented at the point of purchase and is later converted into a debit and the paper check is destroyed. Third, in an "account-receivable conversion," a paper check is converted into a debit and the paper check is destroyed. Fourth, in a "telephone-initiated debit" or "check- by-phone" conversion, bank account information is provided via the telephone and the information is converted to a debit. Fifth, in a "web-initiated debit," an electronic payment is initiated through a secure web environment. The need for complete documentation applies to each of the type of electronic funds transfers described. All electronic funds transfers shall be recorded and a lawyer should not re-use a check number that has been used previously in an electronic transfer transaction.

33 Some Other New COMMENTS – Typical Documents to Retain 4-1.15 SAFEKEEPING PROPERTY [19] In some situations, documentation in addition to that specified in this Rule 4-1.15 is necessary for a complete understanding of a trust account transaction. The type of document that a lawyer must retain because it is "reasonably related" to a client trust account transaction will vary depending on the nature of the transaction and the significance of the document in shedding light on the transaction. Examples of documents that typically must be retained under this Comment [19] include: 1 - Correspondence relating to a disagreement over fees/costs/distribution of proceeds; 2 - Settlement agreements contemplating payment of funds; 3 - Settlement statements issued to the client; 4 - Documentation relating to sharing litigation costs and attorney fees for subrogated claims; 5 - Agreements for division of fees between lawyers; 6 - Guarantees of payment to third parties out of proceeds recovered on behalf of client, 7 - Copies of bills/receipts/correspondence for payments to third parties on clients behalf (whether from client's funds or lawyer's funds advanced for client).

34 Why IOLTA? [[3] The IOLTA requirements conform with the decision in Brown v. Legal Foundation a/Washington, 538 U.S. 216 (2003). IOLTA funds must be deposited with institutions paying interest and dividends comparable to rates paid to the institution's own other similarly-situated non-IOLTA customers. This recognizes that additional options have developed and are being offered in the marketplace by financial institutions from which qualifying IOLTA balances should also benefit. Apart from the important goal of fairness in the treatment of IOLTA funds, the most recent rule changes are important to the purposes of the IOLTA program: providing a source of funds to support civil legal services to the poor, improving the administration of justice, and promoting other programs for the benefit of the public as are specifically approved from time to time by this Court. MRPC 4-1.155 COMMENT [3]

35 Why IOLTA? For 2012, the Foundation Board of Directors awarded $950,000 to four grant recipients in the category of "Civil Legal Assistance to the Poor." The awards will be paid to: LEGAL SERVICES OF EASTERN MO $319,960.00 LEGAL AID OF WESTERN MO $289,940.00 LEGAL SERVICES OF SOUTHERN MO $276,355.00 MID-MISSOURI LEGAL SERVICES $63,745.00 SUBTOTAL $950,000.00 $50,000 in grant awards in the category "Administration of Justice" for 2012 will be paid to the following to accomplish a diverse array of projects: JACKSON COUNTY CASA $4,000.00 ST. LOUIS BAR FOUNDATION $20,000.00 KANSAS CITY BAR FOUNDATION $20,000.00 VOICES FOR CHILDREN $6,000.00 SUBTOTAL $ 50,000 From the Missouri Trust Account Foundation website - http://www.moiolta.org/grants.aspx

36 The Coming Changes to Your Duties to Safekeep Client Property Christian A. Stiegemeyer | Director of Risk Management Christina Lewis Abate | Risk Manager Thank you!


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