Chair Tabor called the meeting to order at 10:00 a.m. and drew Committee members' attention to Attachment B (September 15, 2008) - minutes of the June 10, 2008, meeting. The following corrections were noted: deletion of an errant 'that" in the 5th full paragraph (8th sentence) on p. 5, change "an lawyer" to "a lawyer"in 5th full paragraph on p.7. Additional correction: Bob Udland should have been reflected as "present".
It was moved by Pat Ward, seconded by Petra Mandigo, and carried that the minutes, as corrected, be approved.
Attorney Serving in Dual Status - Personal Representative and Legal Counsel
Chair Tabor briefly reviewed the Joint Committee's discussion at the June 10 meeting of the issues related to an attorney serving as both personal representative and legal counsel, including risks of misappropriations- a matter referred to the Committee by the SBAND Board of Governors. She then requested a report from subcommittee members who further reviewed the referral following the June 10 meeting (Judge Sturdevant, Dianna Kindseth, Tim Priebe, and Jean Hannig).
Judge Sturdevant said he had circulated a memo among the subcommittee members outlining his thoughts on the issue. He said his preferred solution to the problem, as stated at the June 10 meeting, is that an attorney should be prohibited from serving in a dual capacity. However, he acknowledged that that may not be a realistic alternative in light of other considerations also discussed at the June meeting. He said some method of addressing the issue by rule would be preferable to an attempt to amend the numerous related state laws, an issue highlighted in the Board of Governors' referral. He reiterated his concern that requiring an attorney who is serving in a dual capacity to self-report may not be an effective control. He suggested an alternative may be a requirement, by administrative rule or order, that the clerk of court would give notice to designated persons whenever letters are issued to an attorney who is serving in a dual capacity. He said he visited with two clerks about such a process and there was a general sentiment that it would likely not be too burdensome. With respect to the potential for trust account misappropriations, he said there is a possibility that funds may never actually be deposited in a trust account because an attorney acting as fiduciary may establish a separate checking account for the affected entity, such as an estate or conservatorship. That situation, he said, would frustrate any kind of audit requirement with respect to a trust account. Additionally, he noted one situation in which funds were stolen from the proceeds of a sale of property, rather than as a result of the attorney serving in a dual capacity. He said it is unclear how that kind of situation can be effectively addressed.
In response to a question from Chair Tabor, Judge Sturdevant said a special rule, rather than amendments to Rule 1.15, may be the appropriate vehicle to address the issue, particularly since the issue affects more than lawyer trust accounts. There was general agreement with respect to considering a stand-alone rule. In response to a question from Dan Ulmer, there was also agreement that the rule would include notification of any dual status arrangement.
Tim Priebe agreed with the observations made by Judge Sturdevant and said the informality of the probate process often lends itself to problematic situations. He said an attorney can be appointed personal representative through the clerk's office and there is generally not a noticeable degree of oversight. Many times, he said, the heirs will not know when to question certain actions. He agreed that is important to establish some form of notification process as a means of clearly informing those involved of the attorney's dual capacity status. He asked whether it would be feasible to require, in those instances in which dual capacity is involved, the attorney to formally open and close the probate, which would trigger notice to the heirs and the court and would then involve some level of oversight because the attorney would have to close the probate.
Dianna Kindseth observed that the first level of regulation or control is often some kind of reporting, which generally promotes compliance with relevant requirements. She agreed that it is uncertain whether reporting would work as a general matter with respect to trust accounting.
Sandi Tabor said there is a separate, general issue regarding the level of monitoring of lawyers' trust accounts. She said if the conclusion is that potential for abuse of a trust account or estate is greatly magnified by an attorney serving in a dual capacity, then some kind of reporting requirement for the specific situation may warrant consideration.
In response to a question from Dan Ulmer, Bill Neumann said there are different levels of tracking or monitoring depending on the kind of case involved. For example, he said, there is no requirement that informal probates be closed and as a result the probate can remain open for a long period of time with little monitoring. He observed that if reporting is required, the next important question is what occurs after a reporting requirement is satisfied.
With respect to past lawyer discipline cases, Bill Neumann noted that theft has often occurred not because a lawyer makes the calculated decision to steal from a client, but rather occurs when the lawyer is in financial difficulty. In many instances, he said, the financial difficulty is due to depression or some other life problem that hinders the lawyer's ability to work.
Dianna Kindseth observed that in the accounting industry the first level of fraud prevention is to remove the opportunity for wrongdoing. She said a similar principle may be applicable in these situations: establish some mechanism that removes or lessens the opportunity to engage in inappropriate conduct.
In response to a question from Pat Ward regarding whether any other states have adopted rules to address the problem, Bill Neumann said he is not aware of any state that has adopted a specific provision regarding dual status situations.>
Sandi Tabor said it may be possible to obtain information from the ABA's Center for Professional Responsibility. She noted as well that there has been some interest expressed by a legislator in requiring that all attorneys be bonded. She said if a workable solution can be accomplished by rule, then the potential for a legislative response lessens.
Justice Sandstrom wondered why it would not be possible to prohibit an attorney from serving in a dual capacity. Sandi Tabor said she was inclined to agree with a prohibition but the central concern with that approach appears to be the burden it may impose in rural areas where there are few attorneys. Tim Priebe agreed the better approach would be to prohibit dual representation but also agreed doing so may create problems in rural area of the state. Pat Ward said that without some idea of how frequently dual representation occurs he is hesitant to suggest one particular approach.
Sandi Tabor suggested contacting SBAND's Real Property, Probate, and Trust Law Section through the section chair to determine what concerns there may be with respect to how the issue may be addressed, particularly in the context of a general prohibition against dual representation.
Judge Sturdevant said he would prefer to have some assessment of the response to a prohibition before proceeding to development of a draft rule.
Justice Sandstrom observed that the general issue is one that relates to protecting the public and also public confidence in the profession. He noted as well the previously mentioned potential for a legislative response if it is perceived that the profession has not responded reasonably to address the concern.
At the request of Chair Tabor, Bill Neumann agreed to contact the chair of the Real Property, Probate, and Trust Law Section for observations about methods of addressing dual representation, including the possible impact of a prohibition. Chair Tabor said a short conference call meeting of the Committee may be schedule to discuss any information gathered and to provide additional direction to the subcommittee.
Notification of Overdrafts of Lawyer Trust Account - Draft Rule
Chair Tabor next drew attention to Attachment D (September 15, 2008) - draft amendments to Rule 1.15, Rules of Professional Conduct, regarding notification of overdrafts of lawyer trust accounts, which was developed by subcommittee comprised of Justice Sandstrom, Petra Mandigo, and Ryn Pitts.
Justice Sandstrom briefly reviewed the Supreme Court's referral of the issue of overdraft notification and summarized the Committee's June 10 discussion concerning the referral. He said the draft rule amendments, which are based on the Minnesota rule provision included in the referral, were prepared and distributed among subcommittee members for comment. He noted the main suggestion that the definitions set out in proposed paragraph (p) should more appropriately be included in Rule 1.0 of the Rules of Professional Conduct, which defines various terms used in the rules. The draft amendments would essentially require, as does the Minnesota rule, that a financial institution approved as a depository for lawyer trust accounts must agree to notify the Disciplinary Board of any overdrafts on the trust account. A trust account could not be maintained in a financial institution that does not agree to the notification process.
Justice Sandstrom observed that current technology likely would lessen any burden placed on a financial institution to implement and comply with the notification process. He noted early discussion indicating that banks with branches in both Minnesota and North Dakota are already complying with the requirements imposed under the Minnesota rule.
Dan Ulmer asked whether there would be any practical impediments to timely implementation of the notification process if the rule amendments were adopted. He said a bank will ultimately make a basic business decision about whether to accept an account if there are requirements attached to having the account that may be problematic for the particular institution. Sandi Tabor noted that the Bar Foundation regularly receives reports from all banks that have trust lawyer accounts. She said it may be possible for SBAND to communicate with the various banks, if the rule amendments are adopted, about the reporting requirement and that the lawyer holding the trust account may be contacting the affected bank about the notice process. Bill Neumann suggested that the Committee may want to correspond with the executive directors of the banking associations about the proposal and request that they contact their respective members and provide comments. Justice Sandstrom suggested also contacting the commissioner of the Department of Financial Institutions. Sandi Tabor said the basic concern is that the banking community have notice of what is being proposed and SBAND could facilitate the process of providing information to the relevant associations.
In response to a question from Dan Ulmer concerning the process and timeframe for considering the proposed amendments, their adoption, and implementation, Justice Sandstrom said the normal process following submission of proposed amendments to the Supreme Court is for notice to be given about a hearing on the amendments if one is to be held. If the amendments are adopted, he said, the Court would set an effective date, which is most often March 1, to coincide with publication of the rule books. He said proposed rule amendments normally must be submitted by November to be included, if adopted, in new rule books.
Chair Tabor said it would be important to learn from the banking community what their timeframe for implementation of the notice process might be. She said the time needed to implement a notice requirement may have a bearing on the effective date of rule amendments. Committee members agreed the Chair should contact the two bank associations and the Department of Financial Institutions with a request for comment concerning implementation of the notice process and what might be considered a reasonable time period for implementation. Bill Neumann suggested the contact should indicate that SBAND would be willing to assist in developing any communication to be provided to member banks about implementation of the rule.
Pat Ward observed that if Minnesota banks with branches in North Dakota have already been complying with the Minnesota requirement, most banks should be situated to implement the process here.
In response to a question from Justice Sandstrom, Committee members agreed the definitions in proposed paragraph (p) should be recommended as new definitions to be included in Rule 1.0.
Staff noted that a useful feature of the Code of Judicial Conduct is that a defined term is indicated by an * wherever it is found within the Code, which provides a quick reference point instructing the reader to consult the terminology section. Justice Sandstrom explained that in the web version of the rules a defined term is hyper-linked to the definition.
Bill Neumann recalled the earlier comments regarding a possible need to review Rule 1.15 regarding general trust account issues and asked whether that review would take place. Sandi Tabor said Rule 1.15 was not significantly modified during the last major review and amendment of the Rules of Professional Conduct and it may be time to review the rule generally in light of current trust account management issues.
Chair Tabor asked whether there were any comments or suggestions concerning the substantive language of the draft rule amendments. Committee members generally agreed the substantive language was acceptable and the only remaining questions were those concerning implementation.
It was moved by Pat Ward, seconded by Dan Ulmer, and carried that the Chair contact the relevant banking interests as discussed; that draft rule amendments be modified to present the definitions set out in paragraph (p) as new definitions to be included in Rule 1.0; and that the amendments, as modified, be approved for submission to the Board of Governors for comment and, in the absence of any Board issues requiring Committee attention, for submission to the Supreme Court for its consideration.
Bill Neumann said the Board of Governors will next meet in November.
Board of Governors Responses to Committee Submissions
Chair Tabor noted that following the Committee's June 10 meeting three matters were submitted to the Board of Governors for comment: 1) the proposed amendments to the Admission to Practice Rules prepared by the Board of Law Examiners and reviewed by the Committee, 2) the proposed rule permitting pro bono legal services to be provided by certain retired, out-of-state, or otherwise qualified lawyers, and 3) a request for comment about whether the Board would be willing to undertake a study of possible adoption of a code of professional aspirations.
Chair Tabor said the Board recently considered the Committee's submissions. She said the Board had no suggested changes concerning the proposed amendments to the Admission to Practice Rules and supports the amendments. She said the proposed amendments would now be submitted to the Supreme Court.
Chair Tabor said there were some questions and concerns raised about the proposed pro bono legal services rule and she would forward those issues to the subcommittee that developed the rule (Jean Hannig, Bob Udland, and Mark Hanson) with a request that they report back on the Board's comments at the Committee's November meeting.
With respect to the development of a code of professional aspirations, Chair Tabor said the Board had authorized the Association president to form a task force to review background information submitted by the Committee and begin drafting a proposed code for submission to the Board. She said she would inform the Supreme Court of the Board's decision and the Committee would monitor the task force's progress. Petra Mandigo agreed to participate in the task force effort on behalf of the Committee.
It was moved by Pat Ward, seconded by Dan Ulmer, and carried that staff should prepare technical amendments to the Rules of Professional Conduct to annotate defined terms.
Chair Tabor requested any further comments concerning whether to more fully review Rule 1.15 with respect to general trust account management issues. Judge Sturdevant suggested the matter be deferred until the Committee reaches a final conclusion regarding how to address the dual representation issue. He said if the conclusion is that a prohibition against dual representation is not feasible, then there may be additional issues to be defined and addressed. There was general agreement with that assessment.
Chair Tabor reminded Committee members of the possibility of a short conference call meeting with respect to further direction on the issue of dual representation.
There being no further discussion the meeting was adjourned at 12:05 p.m.