Joint Committee on Attorney Standards December 9, 2011, Minutes

Joint Committee on Attorney Standards

Joint Committee on Attorney Standards
Minutes
(Unofficial until approved)

Supreme Court’s Front Conference Room, BismarckDecember 9, 2011

Members Present
Judge Michael Sturdevant, Chair
George Ackre
Dann Greenwood
Jean Hannig
Petra Mandigo Hulm
Mark Hanson
Dianna Kindseth
Ryn Pitts
Justice Dale Sandstrom
Dan Ulmer
Pat Ward

Members Absent
Carol Johnson
Sandra Keller
Jason Vendsel

Staff
Jim Ganje
Bill Neumann

Also Present
Justice Daniel Crothers

Chair Sturdevant called the meeting to order at 10:00 a.m. and drew Committee members’ attention to Attachment B (December 1, 2011) - minutes of the September 16, 2011, meeting.

It was moved by Justice Sandstrom, seconded by Ryn Pitts, and carried that the minutes be approved.

Credit Card Payments for Legal Fees and Costs - Cont’d

Chair Sturdevant explained that following the September 16 meeting the subcommittee consisting of Pat Ward, Petra Mandigo Hulm, Dann Greenwood, and Jean Hannig further discussed possible alternative amending language for Rule 1.15 to address the issue of credit card use. The following draft language, which would be added to Rule 1.15(b), was distributed by email for review by Committee members:

“A lawyer may accept credit card payments or wire transfer payments for unearned fees as temporary deposits into the lawyer’s general operating account if the funds in which a client or a third-party has an interest are transferred from the general operating account to the client trust fund account as soon as reasonably possible under the circumstances.”

Petra Hulm explained that the draft language would be an addition to the existing language in Rule 1.15(b). Staff noted that the draft language had been reviewed by Disciplinary Counsel and the concerns about draft language discussed at the September 16 meeting have been addressed in the revised language now before the Committee.

Petra Hulm asked whether the current language in Rule 1.15(b) would be necessary if the revised language would require the lawyer to deposit payments for unearned fees in the operating account. Justice Sandstrom observed that there may still be various fees or charges that could be incurred and the existing language describes how those fees or charges would be paid by the lawyer.

Dan Ulmer reiterated and agreed with Dianna Kindseth’s comment at the September 16 meeting that service charges related to credit card payments should be regarded as a regular cost of doing business if a lawyer elects to receive such payments. Ryn Pitts agreed also.

Dann Greenwood agreed generally with the concept of the cost of doing business, but said the focus of the draft amendments is the safekeeping of client funds and the prohibition against commingling funds.

Judge Sturdevant noted that a possible alternative is the Minnesota’s approach, which requires fees to be deposited in the operating account and then transferred immediately to the client trust account, with the lawyer assuming the risk of any chargebacks from the credit card company. He said the reference in the draft language to transferring fees to the trust account “as soon as reasonably possible under the circumstances” seems to suggest retaining the fees for a time in the event there is a chargeback. Petra Hulm said the draft language is intended to be essentially similar to the Minnesota approach. She said the reference to “as soon as reasonably possible” is meant to indicate that the transfer must occur in a very short time period without regard to possible chargebacks.

Justice Sandstrom asked whether there is a substantive purpose to “under the circumstances” as set out in the draft language. Jean Hannig suggested requiring transfer “promptly” as an alternative. Justice Sandstrom said there is a possibility that “under the circumstances” may be regarded as relating to the possible time within which a chargeback could occur, with the result that the fees could be retained in the operating account for a longer time.

Jean Hannig suggested that the draft language be revised to require that the funds be “promptly” transferred from the operating account to the client trust account. She said the reference to “as soon as reasonably possible under the circumstances” could then be deleted. She said that approach would be more in keeping with the lawyer’s obligation to keep the funds separate.

Justice Crothers noted that current Rule 1.15(b) and the draft language refer to “wire transfer payments” and wondered whether that phrase, which is something of a word of art, would encompass electronic funds transfers. Pat Ward said “electronic funds transfer” would likely include both kinds of transfers if there is uncertainty about the inclusiveness of “wire transfer payments”.

After further discussion, it was moved by Pat Ward, seconded by Jean Hannig, and carried that Rule 1.15(b) be amended to read as follows:

“A lawyer may accept credit card payments or electronic funds payments for unearned fees as temporary deposits into the lawyer’s general operating account if the funds in which a client or a third-party has an interest are promptly transferred from the general operating account to the client trust account. A lawyer may deposit the lawyer’s own funds in a client trust account only for the purpose of paying bank service charges; and fees associated with credit card payments; or ~~wire transfers~~ electronic funds payments related to that account, but only in an amount necessary for that purpose.”

Petra Hulm asked whether related language in the comment should be considered by the subcommittee.

Dann Greenwood said Comment [2] appears to be limited to an explanation of the purpose of existing paragraph (b). He said it may be worthwhile to expand the comment language discuss permissible deposits in the operating account so long as the funds are promptly transferred to the client trust account. Petra Hulm suggested language could be added to Comment [2] to emphasize that paragraph (b) describes the only circumstances in which commingling of funds may occur.

Chair Sturdevant asked that the subcommittee review possible changes to Comment [2] for Committee discussion.

Rules for Client Trust Account Records - Rule 1.15 Draft Amendments

Chair Sturdevant then drew Committee members’ attention to Attachment D (December 1, 2011) - draft amendments to Rule 1.15 to incorporate the Model Rules for Client Trust Account Records. He noted that the Committee had initially considered the Model Rules at its September 16 meeting.

At the request of Chair Sturdevant, staff reviewed the draft amendments. He explained that the black-letter portions of the Model Rules are added as new paragraphs (p) through (t) and the comment portions of the Model Rules are added as new comments [7] through [18]. He noted that the Model Rule time frame for retention of financial records [5 years] on page 2, line 21, of the draft amendments is changed to six years, which is consistent with the general six-year requirement in paragraph (h) of current Rule 1.15 rule. He said the Model Rule provision suggests retaining copies of “monthly” trial balances and “quarterly” reconciliations - paragraph (p)(9), page 7, line 17 - but the Committee may wish to consider whether those time frames are appropriate. Committee members agreed the time frames were acceptable.

Following the review of draft amendments, staff summarized the manner in which the Model Rules have been adopted in other jurisdictions. He said ABA information regarding implementation of the Model Rules indicates that three jurisdictions are regarded as having adopted the Model Rules - Connecticut, North Carolina, and Virginia. He said Connecticut appears to have adopted the Model Rules with very few changes. He said North Carolina and Virginia appear to have adopted parts of the black-letter Model Rule and parts of the Model Rule comments. He noted that the North Carolina Bar Association had developed what appears to be a fairly thorough handbook on lawyer trust account management to assist in complying with particular rule requirements. He said the District of Columbia Bar Association considered but did not recommend the Model Rules, concluding that including detailed record-keeping requirements in professional conduct rules could serve as a “trap for the unwary” and could be administratively burdensome in some instances, particularly with respect to small law firms or solo practitioners.

Justice Sandstrom asked whether it is possible to determine how burdensome the Model Rule requirements would be on solo practitioners and small law firms. He said there likely is value in having the detailed guidance set out in the model rules.

George Ackre said the draft amendments would appear to enable compliance through a fairly simplified procedure. He stressed the need to have someone within the office regularly monitor record-keeping practices.

Dann Greenwood noted his concern expressed at the previous meeting regarding the possible burden and duplication of effort that may occur under the model rules. He said the District of Columbia Bar Association concern about creating a trap for unsuspecting lawyers is a relevant concern. However, he said most small law offices may already have or can develop an office practice that could satisfy the model rule provisions. He drew attention to Comment [16], which explains that records required to be retained must be “readily accessible” and “readily available”. That, he said, suggests compliance may require a considerable amount of work and may result in duplication of effort.

In response to a question from Chair Sturdevant, Justice Crothers said the ABA Standing Committee on Client Protection, when developing the Model Rules, discussed concerns about whether the rule requirements would represent a significant burden. He said while current records-keeping practices may be considered adequate, law offices should consider the evolving nature of financial practices and the increasing transition to electronic processing of financial transactions. He noted that Rule 1.15(h) currently requires that lawyers maintain records “sufficient” to comply with the rule, but there is essentially no guidance regarding the kinds of records that must be maintained or how they must be maintained. He said questions about what constitutes a “sufficient” record will likely increase as the use of electronic financial transactions increases. He said the goal of the model rules is to provide some objective measure regarding what is considered a “sufficient” record.

In response to a question from Chair Sturdevant, Petra Hulm said the rules may offer some level of practical assistance to younger or new lawyers and a detailed list of the kinds of records that should be retained would likely be helpful. She said most law offices would probably turn the record-keeping responsibility over to an accountant.

Dianna Kindseth said the record-keeping requirements should be helpful to lawyers in that lawyers would essentially be asked fulfill normal, accurate business accounting responsibilities.

Following further discussion, it was moved by Justice Sandstrom, seconded y Pat Ward, and carried that the draft amendments to Rule 1.15 to incorporate the Model Rules for Client Trust Account Records be approved.

Chair Sturdevant asked whether the proposed amendments should be held and combined with the revised amendments to Rule 1.15 regarding credit card payments for lawyer fees.

Justice Sandstrom said the two sets of amendments address two distinct issues and probably should be considered separately. Committee members agreed.

It was moved by Justice Sandstrom, seconded by Pat Ward, and carried that the proposed amendments to Rule 1.15 be approved for submission to the Board of Governors for review and, in the absence of any Board comment requiring Committee action, be approved for submission to the Supreme Court for its consideration.

Model Rule on Provision of Legal Services Following Determination of a Major Disaster

Chair Sturdevant next drew attention to Attachment E (December 1, 2011) - a draft admission to practice rule incorporating the ABA Model Rule on Provision of Legal Services Following Determination of a Major Disaster and accompanying amendments to add a new comment to Rule 5.5 of the Rules of Professional Conduct. Staff explained that the draft rule simply sets out the model rule, with various style revisions, as a new admission to practice rule. He said the amendments to Rule 5.5 follow the ABA amendments to Model Rule 5.5. He noted that Section (D) of the draft rule contains 60 days as the time frame suggested in the model rule for when the authority to practice law conferred under the rule would end. There is, he said, a corollary reference in Comment [5]. He said the Committee should consider whether that time frame is acceptable.

In response to a question from Justice Sandstrom, staff said the logical placement for the rule in the Admission to Practice Rules would likely be as new Rule 3.2.

Petra Hulm drew attention to Section (G), which requires that a lawyer seeking temporary admission under the rule file a registration statement with the Clerk of the Supreme Court in a form prescribed by the Supreme Court. She said it may be more appropriate to have the statement filed with the Board of Law Examiners.

Following further discussion, it was moved by Justice Sandstrom, seconded by Pat Ward, and carried that the draft be revised to require filing of the registration statement with the Board of Law Examiners in a form prescribed by the Board and that references to “pursuant to” be replaced with “under” throughout the draft.

It was moved by Justice Sandstrom, seconded by Pat Ward, and carried that the draft rule, as revised, be titled as proposed Rule 3.2 of the Admission to Practice Rules and that the proposed rule and related amendments to Rule 5.5 of the Rules of Professional Conduct be approved for submission to the Board of Governors for review and, in the absence of any Board comment requiring Committee action, approved for submission to the Supreme Court for its consideration.

Credit Card Payments for Legal Fees and Costs - Comment Language

Dann Greenwood suggested that the Committee not postpone submission of the proposed amendments pending development of related revisions to Comment [2] of Rule 1.15. He suggested that Comment [2] be amended to provide that commingling funds is “permissible” under paragraph (b), as the Comment currently provides, “when temporarily depositing identified credit card or electronic funds transfer payments into the general operating account pending transfer to the client trust account or”, with the balance of the Comment retained.

It was moved by Dann Greenwood and seconded by Jean Hannig that Comment [2] be amended in the manner described.

Petra Hulm observed that the suggested language would essentially restate the substance of the revised rule. She suggested as an alternative that Comment [2] be revised to simply provide that paragraph (b) provides “the only situations in which it [commingling] is allowed”.

Dann Greenwood asked whether it is clear that there are no instances, other than those identified in the proposed amendments to paragraph (b), in which permissible commingling of funds may occur. Pat Ward said if commingling is to be permitted, it should be within narrowly defined limits, which the suggested language seems to address. Committee members generally agreed.

With the consent of the second, the motion was withdrawn.

It was moved by Petra Hulm, seconded by Pat Ward, and carried that Comment [2] to Rule 1.15 be amended as follows:

“ While normally it is impermissible to commingle the lawyer’s own funds with client funds, paragraph (b) provides ~~that it is permissible when necessary to pay bank service charges on that account~~ the only situation in which it is allowed. Accurate records of the funds must be kept regarding which part is the lawyer’s.”

It was moved by Dann Greenwood, seconded by Pat Ward, and carried that the proposed amendments to Rule 1.15(b) and Comment [2] be approved for submission to the Board of Governors for review and, in the absence of any Board comment requiring Committee action, be approved for submission to the Supreme Court for its consideration.

There being no further discussion the meeting was adjourned at 11:30 a.m.