Administrative Rule 24 - ADMINISTRATION OF INTEREST ON LAWYER TRUST ACCOUNT PROGRAM (IOLTA)

Section 1. Authority and Purpose.

Under its authority to regulate the practice and conduct of lawyers in North Dakota in N.D. Const. art. VI, § 3, the North Dakota supreme court amended N.D.R. Prof. Conduct 1.15 to provide for a mandatory interest on lawyer trust account program in North Dakota. This rule is promulgated to effectuate the delegation to the North Dakota bar foundation of the administrative responsibilities over the funds generated from lawyer trust accounts under N.D.R. Prof. Conduct 1.15.

Section 2. Lawyer Trust Account Committee.

(a) The North Dakota bar foundation, a non-profit corporation established under N.D.C.C. ch. 10-33 will, through amendment of its bylaws and articles of incorporation, as may be necessary, establish a lawyer trust account committee. The committee will consist of five members. Three members must be lawyer residents of this state who are members of the foundation and licensed to practice law in this state. The remaining two members must be non-lawyer residents of this state. The members will be appointed by the chair of the board of directors of the foundation, with the approval of the board of directors.

(b) The term of office for members will be three years, except that, as determined by lot, one lawyer member first appointed will serve for an initial term of one year, and one lawyer member and one non-lawyer member first appointed will serve an initial term of two years. No member may serve more than two successive three-year terms. Each member will serve until a successor is appointed.

(c) A vacancy on the committee must be filled by appointment, under subsection 2(a), of a member to serve for the unexpired portion of the vacant term.

(d) Members of the committee serve at the pleasure of the board of directors of the foundation.

Section 3. Powers and Duties.

(a) The committee will be responsible for the implementation and administration of an interest on lawyer trust account program in the state of North Dakota as established by N.D.R. Prof. Conduct 1.15.

(b) The committee will be the sole recipient of the interest or dividends paid to the foundation from lawyer interest bearing trust accounts maintained under N.D.R. Prof. Conduct 1.15. Upon receipt of such funds, the committee must make appropriate temporary investments of the funds pending disbursement of the funds under subsection 3(c). All funds received from the interest on lawyer trust accounts and the income earned from investment of such funds must be maintained in separate accounts from other funds held by the foundation.

(c) The committee must, by grants and appropriations it considers appropriate, disburse funds solely for the following purposes:

(1) for the support of civil legal services to the poor;

(2) for public education relating to the courts and legal matters; and

(3) for the improvement of the administration of justice.

Grant applications for programs for the support of civil legal services to the poor must be given a high priority. No funds may be disbursed for any purpose other than tax exempt public purposes which are permitted under N.D. Const. art. X, § 18, and Section 501(c)(3) of the Internal Revenue Code, as may from time to time be amended.

(d) The foundation must maintain adequate records reflecting all transactions arising with respect to income from and disbursements of the interest on lawyer trust accounts. On or before July 1 of each year, and at such additional times as the North Dakota supreme court may order, the foundation must file with the board of governors of the state bar association of North Dakota and the court a written report reviewing the administration of the program together with an audit of the fund certified by a certified public accountant.

(e) Within 180 days after the effective date of this rules, the foundation must submit to the supreme court for adoption proposed guidelines and procedures for the operation of an interest on lawyer trust account program in North Dakota, including:

(1) guidelines for identifying eligible applicants;

(2) procedures for submitting grant applications;

(3) guidelines for awarding grant applications; and

(4) procedures for accounting for the expenditure of grant funds by the recipient.

Upon adoption by the court, the guidelines and procedures will serve as the basis for the administration of the disbursement of the funds by the committee. The guidelines and procedures may be subsequently amended by the court on its own motion or in response to a petition filed by any interested party under the procedures set forth in the Rule on Procedural Rules, Administrative Rules and Administrative Orders of the North Dakota Supreme Court (N.D.R.Proc.R.).

(f) Immediately after the effective date of this rule, the foundation must take whatever action necessary to obtain:

(1) a private letter revenue ruling from the Internal Revenue Service, holding that the interest earned on funds deposited in a lawyer's trust account and paid to the committee are not includable in the gross income of either the client or third person who owns the funds, or of the lawyer who deposited the funds, and that neither the depository institution nor the lawyer is required to report the payment of the interest on behalf of the client, third person, or lawyer under Section 6049 of the Internal Revenue Code; and

(2) permission from the Federal Reserve System, Federal Home Loan Bank Board and Federal Deposit Insurance Corporation to use Negotiable Order of Withdrawal (NOW) accounts for the deposit of funds of clients or third persons held by a lawyer in connection with a representation.

Section 4. Officers.

(a) The chair of the board of directors of the bar foundation, with the approval of the board of directors of the bar foundation, will appoint a chair and vice-chair of the committee.

(b) The committee may elect other officers as it considers appropriate and may specify their duties.

Section 5. Director.

(a) The board of directors of the bar foundation may appoint an executive director to serve the committee on a full or part-time basis at the pleasure of the board of directors and to be paid such compensation as the board of directors determines. The executive director, before entering upon the duties of the office, must execute an official bond in the sum of forty thousand dollars.

(b) The director will be responsible and accountable to the committee and the board of directors of the bar foundation for the proper administration of this rule.

(c) The director may employ persons, or expend money for services as the board of directors of the foundation may approve.

Section 6. Compensation and Expenses.

Members of the committee serve without compensation but must be paid their reasonable and necessary expenses incurred in the performance of their duties.

Section 7. Disposition of Funds Upon Dissolution.

If the lawyer trust account committee is discontinued, any funds then on hand must be transferred to its successor agency or organization qualifying under the Internal Revenue Code, if any, for distribution for the purposes specified under section 3 or, if there is no successor, to the general fund of the state of North Dakota.

Section 8. Supplemental Rules.

The committee may make and adopt rules not inconsistent with this rule to govern the conduct of its business and performance of its duties.

Section 9. Effective Date.

This rule take seffect on July 1, 1987.