Rule 1. Authority and Purpose.
Pursuant to its authority to regulate the practice and conduct of lawyers in North Dakota in Article VI, Section 3 of the North Dakota Constitution, the North Dakota Supreme Court amended Rule 1.15 of the Rules of Professional Conduct 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 pursuant to Rule 1.15 of the Rules of Professional Conduct.
Rule 2. Lawyer Trust Account Committee.
(a) The North Dakota Bar Foundation (Foundation), a non-profit corporation established pursuant to Chapter 10-24, NDCC, shall, through amendment of its bylaws and articles of incorporation, as may be necessary, establish a Lawyer Trust Account Committee. The Committee shall consist of five members. Three members shall be lawyer residents of this state who are members of the Foundation and licensed to practice law in this state. The remaining two members shall be non-lawyer residents of this state. The members shall be appointed by the Chairperson of the Board of Directors of the Foundation, with the approval of the Board of Directors.
(b) The term of office for members shall be three years, except that, as determined by lot, one lawyer member first appointed shall serve for an initial term of one year, and one lawyer member and one non-lawyer member first appointed shall serve an initial term of two years. No member may serve more than two successive three-year terms. Each member shall serve until a successor is appointed.
(c) A vacancy on the Committee shall be filled by appointment, pursuant to Section (a), of a member to serve for the unexpired portion of the vacant term.
(d) Members of the Committee shall serve at the pleasure of the Board of Directors of the Foundation.
Rule 3. Powers and Duties.
(a) The Committee shall be responsible for the implementation and administration of an Interest on Lawyer Trust Account Program in the state of North Dakota as established by Rule 1.15 of the Rules of Professional Conduct.
(b) The Committee shall be the sole recipient of the interest or dividends paid to the Foundation from lawyer interest bearing trust accounts maintained pursuant to Rule 1.15 of the Rules of Professional Conduct. Upon receipt of such funds, the Committee shall make appropriate temporary investments of the funds pending disbursement of the funds pursuant to Section (c).All funds received from the interest on lawyer trust accounts and the income earned from investment of such funds shall be maintained in separate accounts from other funds held by the Foundation.
(c) The Committee shall, by grants and appropriations it deems 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 shall be given a high priority. No funds may be disbursed for any purpose other than tax exempt public purposes which are permitted under Article X, Section 18 of the North Dakota Constitution, and Section 501(c)(3) of the Internal Revenue Code, as may from time to time be amended.
(d) The Foundation shall 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 shall 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 one hundred eighty days after the effective date of these rules, the Foundation shall 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 shall 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 pursuant to the procedures set forth in the Rule on Procedural Rules, Administrative Rules and Administrative Orders of the North Dakota Supreme Court (NDRPR).
(f) Immediately after the effective date of these rules, the Foundation shall 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.
Rule 4. Officers.
(a) The Chairperson of the Board of Directors of the Bar Foundation, with the approval of the Board of Directors of the Bar Foundation, shall appoint a chairperson and vice-chairperson of the Committee.
(b) The Committee may elect other officers as it deems appropriate and may specify their duties.
Rule 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 shall determine. The executive director, before entering upon the duties of the office, shall execute an official bond in the sum of forty thousand dollars.
(b) The director shall be responsible and accountable to the Committee and the Board of Directors of the Bar Foundation for the proper administration of these rules.
(c) The director may employ persons, or expend money for services as the Board of Directors of the Bar Foundation may approve.
Rule 6. Compensation and Expenses.
Members of the Committee shall serve without compensation but shall be paid their reasonable and necessary expenses incurred in the performance of their duties.
Rule 7. Disposition of Funds Upon Dissolution.
If the Lawyer Trust Account Committee is discontinued, any funds then on hand shall be transferred to its successor agency or organization qualifying under the Internal Revenue Code, if any, for distribution for the purposes specified under Rule 3 or, if there is no successor, to the general fund of the State of North Dakota.
Rule 8. Supplemental Rules.
The Committee may make and adopt rules not inconsistent with these rules to govern the conduct of its business and performance of its duties.
Rule 9. Effective Date.
These Rules shall take effect on July 1, 1987.
Dated this 24th day of March, 1987.
Ralph J. Erickstad, Chief Justice
Gerald W. VandeWalle, Justice
H. F. Gierke III, Justice
Herbert L. Meschke, Justice
Beryl J. Levine, Justice
Luella Dunn, Clerk
North Dakota Supreme Court
SOURCE: IOLTA Study Subcommittee of the Attorney Standards Committee established April 1985; Attorney Standards Committee minutes of September 13, 1985, and September 12, 1986;SBAND Board of Governors minutes of September 14, 1985, and September 6, 1986; State Bar Association minutes of June 13, 1986.
CROSS REFERENCE: Rule 1.15, North Dakota Rules of Professional Conduct.
[Adopted effective July 1, 1987; amended effective October 1, 1987.]