1988 Proposed amendments to the Pennsylvania Rules of Professional Conduct and the Rules of Disciplinary Enforcement to reduce loss resulting from the misappropriation of client and third party funds
Title 204—JUDICIAL SYSTEM GENERAL PROVISIONS PART V. PROFESSIONAL ETHICS AND CONDUCT [ 204 PA. CODE CHS. 81 AND 83 ] Proposed Amendments to the Pennsylvania Rules of Professional Conduct and the Rules of Disciplinary Enforcement to Reduce Loss Resulting from the Misappropriation of Client and Third Party Funds [44 Pa.B. 6070]
[Saturday, September 27, 2014]Notice is hereby given that The Disciplinary Board of the Supreme Court of Pennsylvania (Board) is considering recommending to the Pennsylvania Supreme Court that the Court amend Pennsylvania Rules of Professional Conduct (RPC) 5.6, Comment (10) to RPC 1.7, Comment (1) to RPC 1.8, and Comment (4) to RPC 5.7, as set forth in Annex A; RPC 1.15 and Pennsylvania Rules of Disciplinary Enforcement (''Enforcement Rules'' or ''Pa.R.D.E.'') 208 and 221, as set forth in Annex B; Enforcement Rule 219, as set forth in Annex C; Enforcement Rule 213, as set forth in Annex D; and Enforcement Rules 215, 217 and 218, as set forth in Annex E.
The adverse effects of a lawyer's theft of client funds can be felt on both a micro and a macro level. Typically, the client is misled and deprived of access to needed funds. When the dishonest lawyer is in charge of investing a client's funds, the client's life savings may be lost. Although victims may file a claim with the Pennsylvania Lawyers Fund for Client Security (Fund) for reimbursable losses resulting from the dishonest conduct of an attorney, many claimants are not fully compensated through the Fund because the maximum recovery by any one claimant is capped at $100,000. In every instance, the reputation of the bar and the courts is tarnished. Thefts involving substantial sums oftentimes result in criminal prosecution, and the media attention generated by the arrest and conviction of the offender provides harm to the reputation of the profession.
The systemic financial effect of lawyer theft can be catastrophic. By rule, claims filed with the Fund are confidential. Nonetheless, Fund personnel can attest that from time to time, the number of claims filed against a single attorney will be in double digits and the total compensable loss will amount to millions of dollars. The common thread running through many of the cases is that the client victim trusted his or her attorney, the attorney told the client that the client needed either to give the attorney the money outright or to establish a trust designed by the attorney to ''protect'' the client's assets, the attorney then raided the client's funds or appointed himself or herself as trustee to convert the entrusted funds, and no banks were used by the attorney to help safeguard the client funds. In other instances, the attorney used forged documents to mislead a bank into believing that the client had authorized transfers of funds to the attorney. In January of this year, the Supreme Court amended Enforcement Rule 514(b) to place a $1,000,000 cap on disbursements as a result of any one covered attorney, although the Court retained the discre-tion to exceed the maximum when necessary to adequately compensate all victims provided that the excess does not unduly burden the Fund. Currently, every attorney who is required to pay an active annual fee must pay an additional annual fee of $35.00 for use by the Fund. While the disciplinary system can revoke the lawyer's license and order restitution, a restitution order is generally uncollectible, as all of the funds are gone and there is no insurance coverage.
As a result of multiple large thefts as of late, a working group (group) comprised of the Board Chair, the Chair of the Rules Committee, the Board Secretary and representatives of the Office of Disciplinary Counsel (ODC) began to examine whether there was a disciplinary mechanism, in addition to the general deterrent effect of future suspension or disbarment, and short of barring attorneys from handling fiduciary funds, that would prevent large-scale defalcations. The group reviewed the rules and procedures in other jurisdictions and considered the views expressed by an ad hoc committee on trust and estate practice that had convened for a meeting at the request of the Board Chair. No definitive prophylactic solution was found. The unfortunate reality is that there is no sure-fire method of thwarting a lawyer who has felonious intent, access to fiduciary funds, and a determination to steal.
The group then focused its attention on whether there were any substantive or procedural rule changes that could at least lessen the opportunity for client losses. The group concluded that some restrictions on investment activities by lawyers would be beneficial in preventing some forms of misappropriation, provided, of course, that the rules imposing the restrictions are followed. Furthermore, public awareness of the restrictions could cause a client or prospective client to report to disciplinary authorities a perceived violation before other clients are victimized by the investment activities of a lawyer who is operating outside the rules.
The group also concluded that prompt detection of the ''red flags'' of misappropriation—for example, a bounced check on a trust account, an inordinate delay in distribution of funds, failure to distribute the full amount of funds due, failure to account, failure to return inquiries regarding the funds, or continual absence from the law office or abandonment of practice when undistributed funds are due and owing—followed by prompt investigation to confirm or rule out that misappropriation has occurred, is the strongest weapon in combatting multiple thefts, as the key to limiting loss is to remove the offending attorney from the practice of law and from access to fiduciary funds as quickly as possible. In relation to prompt detection, the Board has, for many years, actively promoted the public's awareness of the disciplinary rules and complaint procedures, by establishing a user-friendly website and by making informational brochures and complaint forms readily accessible to the public. The Board intends to revise its rules to permit the filing of disciplinary complaints electronically and by telephone. A system of mandatory overdraft notification has been in effect since 1995. See Pa.R.D.E. 221(h)—(p). Although the group noted that approximately twelve states have random audit programs, the group did not believe that current resources were adequate to establish and administer an effective random audit program in Pennsylvania. In addition, random audits do not deter or uncover all thefts.
In connection with prompt investigation, the group observed that a number of current procedural rules contain unnecessarily long due dates or have built-in delays that prevent ODC from obtaining quick access to the financial records that an attorney is required by paragraph (c) of RPC 1.15 (Safekeeping Property) and Enforcement Rule 221 (Funds of clients and third persons) to keep. A corollary observation based on experience is that some respondent-attorneys, for any variety of reasons—poor record keeping, ineffective record maintenance practices, substance abuse, or mental health issues—are, or claim to be, in the dark about a fiduciary account being ''out of trust,'' and, at times, are unable to comply in whole or even in part with a request or demand by ODC to produce required records. Of course, ODC's inability to promptly obtain a respondent-attorney's complete financial records impedes ODC's ability to perform an audit and to discover the full extent of a respondent-attorney's misappropriation. In a number of cases, the Board has observed that ''[a] failure to maintain adequate financial records epitomizes the type of professional misconduct from which the public is to be protected.'' E.g., Office of Disciplinary Counsel v. Allen R. Washington, No. 132 DB 1995, D.Bd. Rpt. 2/5/97 at p. 23, citing In re Anonymous No. 10 DB 1991, 20 Pa. D.&C.4th 159, 171 (1994).
Based on the significant investigative hardship and delay occasioned by an attorney's inability or refusal to cooperate with ODC in its effort to conduct a financial audit, the group concluded that two practice scenarios were unacceptable: an attorney being unaware of the status of his or her fiduciary accounts; and an attorney being unable or unwilling to produce his or her financial records when ODC has a basis to request or demand production of those records. The group decided that the former practice could be remedied by requiring, as do some states, an attorney to perform monthly reconciliations and to maintain proof of having conducted the same. The group believed that the latter practice could be best addressed by amending Enforcement Rules 208(f)(5) (relating to temporary suspension) and 221 (relating to the handling of funds of clients and third persons) to permit ODC to immediately seek the temporary suspension of the respondent-attorney. The group also recommended that the ''required records'' provision of RPC 1.15, which is paragraph (c) of that Rule, be: 1) amended to include the writing memorializing the fee arrangement, which writing is already required by RPC 1.5(b); and 2) clarified by expressly including the fee agreement and distribution statement in a contingent fee matter, as the creation of these two documents is required by RPC 1.5(c) although their maintenance is only required at this time by an inconspicuous statement in the Note to D.Bd. Rules § 95.2 (Investigation of the conversion of funds).
The group observed that the annual financial-reporting requirements of Rule 219 (relating to the filing of the annual fee form) could be strengthened to assist ODC in its investigative effort, in particular ODC's ability to issue subpoenas to banks and other financial institutions, and to provide a more complete record of fiduciary accounts that may be promptly frozen by an order of the Court issued pursuant to Enforcement Rule 208(f)(1)(i) (relating to emergency temporary suspension and the preservation of ''funds, securities or other valuable property of clients or others which appear to have been misappropriated or mishandled . . .''). In addition, some respondent-attorneys fail to identify on their annual fee form all of the trust accounts maintained in Pennsylvania that held funds of a client or third person subject to PA RPC 1.15. Furthermore, currently there is no requirement that an attorney identify all trust accounts over which an attorney has sole or shared signature authority or authorization to transfer funds to or from the account, yet in misappropriation cases such accounts frequently hold or held the corpus of a theft. Nor is there a requirement that an attorney identify business operating accounts, yet such accounts frequently play a role in the maintenance or concealment of stolen funds.
Finally, in relation to the prompt removal of a respondent-attorney from practice after suspension or disbarment, the group determined that Enforcement Rules 215 (relating to voluntary resignation and disbarment on consent) and 217 (relating to formerly admitted attorneys) should be clarified and revised to: 1) ensure complete disengagement from the practice of law; 2) provide a respondent-attorney with an incentive to timely comply with the ''wind up'' and withdrawal provisions of Enforcement Rule 217; and 3) provide a consequence to the respondent-attorney for failure to fully and timely disengage. The group also decided to recommend that Enforcement Rule 217 be amended to give ODC more oversight of a respondent-attorney's compliance with the withdrawal and disengagement provisions of Rule 217. The group believed that it would be highly beneficial to protecting the public if Rule 215 were amended to allow an attorney's voluntary resignation to become public at the time that the resignation statement is filed with Disciplinary Counsel or the Secretary of the Board.
Based on the above analysis, the group recommended to the entire Rules Committee that the rules be revised to:
• impose certain restrictions on the brokering, offer or placement of investment products in relation to the provision of legal services;
• clarify the financial records required to be maintained, require account reconciliations on a monthly basis, require prompt availability and production of records upon request or demand, and allow for the temporary suspension of an uncooperative respondent-attorney;
• require attorneys to provide on the annual fee form additional account information that will assist ODC in the investigation of misappropriation cases and the preservation of fiduciary funds and other property;
• streamline unduly cumbersome procedures that impede investigations and that unnecessarily extend the time from initial detection of signs of theft to successful prosecution; and
• emphasize the importance of prompt and complete disengagement from the practice of law by a suspended or disbarred attorney, provide an incentive to timely disengage and consequence for failure to timely disengage, and give ODC enhanced oversight authority to ensure that a formerly admitted attorney has promptly and fully disengaged.
The Rules Committee reviewed and endorsed the above recommendations, and obtained the Board's approval of those recommendations. The Rules Committee approved for publication the proposed rules set forth in the attached Annex A through Annex E. The highlights of the proposed rules are summarized below in sections that correspond to the above bullet points.
Restrictions on Dealing in Investment Products (see Annex A)
RPC 5.6 would be amended to add new paragraph (b), which would preclude a lawyer from dealing in investment products—such as securities and life insurance products, including annuity policies—unless separately licensed to do so. Before offering or selling any investment product in relation to the provision of legal services, an attorney must consult all applicable federal and state laws to determine eligibility, licensing and regulatory requirements. Brokers, agents, salespersons and various types of investment advisors are regulated on the state level by the Pennsylvania Securities Commission of the Pennsylvania Department of Banking and Securities, and on the federal level by the Securities & Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Some securities licenses are administered by the North American Securities Administrators Association (NASAA). A person must be licensed through the Pennsylvania Insurance Department to sell or solicit life insurance or a fixed annuity, and the sale of variable annuities requires additional licensure through the Pennsylvania Securities Commission and FINRA.
Proposed paragraph (c) would be added to RPC 5.6 to preclude even a separately-licensed lawyer from offering a particular investment product to a client, former client, or others with whom the lawyer has or had a fiduciary relationship if the lawyer or a person related to the lawyer has an ownership interest in the entity that manages the investment product. ''Related person'' is defined within paragraph (c) and borrows from the definition of ''related person'' currently found within paragraph (c) of RPC 1.8 (Conflict of Interest: Current Clients: Specific Rules). New Comment (5) to RPC 5.6 provides three reasons for the specific prohibition: 1) potential for a conflict of interest; 2) opportunity on the part of the lawyer to control or unduly influence the use or management of the funds; and 3) loss of client trust if the investment results in a substantial loss. It is important to emphasize that separately licensed attorneys can broker, offer, sell and place investment products, just not those in which the lawyer or a related person has an ownership interest in the managing entity.
The addition of proposed paragraphs (b) and (c) to RPC 5.6 calls for language cross-referencing one or both of those paragraphs in Comment (10) to RPC 1.7 (Conflict of Interest: Current Clients), Comment (1) to RPC 1.8, and Comment (4) to RPC 5.7 (Responsibilities Regarding Nonlegal Services).
Required Records and the Consequence of Failure to Produce (see Annex B)
A heading would be added to paragraph (c) of RPC 1.15 to make clear that the records identified in that paragraph are ''Required records'' subject to the ''Required Records Doctrine,'' namely, that these records are ''required by law to be kept in order that there may be suitable information of transactions which are the appropriate subjects of governmental regulation and the enforcement of restrictions validly established.'' State Real Estate Com. v. Roberts, 441 Pa. 159, 164-165, 271 A.2d 246, 248 (1970), cert. denied, 402 U.S. 905 (1971), quoting Shapiro v. United States, 335 U.S. 1, 17 (1948) (stating that under the required records doctrine, no privilege exists with regard to business records that are required by law to be maintained). Proposed paragraph (c) also adds the requirement that a lawyer must maintain the writing required by RPC 1.5(b) (relating to the requirement of a writing memorializing the basis or rate of the fee) and clarifies that the lawyer must preserve a copy of the fee agreement and distribution statement in contingent fee matters required under RPC 1.5(c), which requirement can be found in the Note to D.Bd. Rules § 95.2 (Investigation of the conversion of funds).
Proposed subparagraph (2) of paragraph (c) provides that if a lawyer uses an account to hold funds of more than one client, the lawyer must maintain an individual client ledger for each trust client. Properly-maintained individual client ledgers facilitate a lawyer's ability to conduct the monthly account reconciliations required by new subparagraph (c)(4) as well as an auditor's ability to promptly gauge the integrity of the account. Subparagraph (c)(4) also requires that a lawyer preserve for a period of five years copies of all records and computations sufficient to prove that the required reconciliations were conducted. As explained in language added to Comment (2):
The requirement of monthly reconciliations should deter situations where an attorney's Trust Account contains a shortfall for any significant period of time. Additionally, if a lawyer fails to maintain the records identified in paragraph (c) or to perform the required monthly reconciliations, later claims by the lawyer that a shortfall (i.e., misappropriation) resulted from negligence, even if credible, will necessarily be balanced against the lawyer's abdication of responsibility to comply with essential requirements associated with acting as a fiduciary and serving in a position of trust.
Proposed subparagraph (c)(3)'s requirement that electronic data be backed up ''at the end of any day on which entries have been entered into the records'' is not burdensome because present-day computer programs have the ability to ''save'' data at regular intervals and routinely provide a ''save'' prompt at the time that the document is ''closed.'' Enforcement Rule 221(e) and (f) incorporate the foregoing changes. The current requirement of paragraph (c) that required records be maintained for five years after termination of the attorney-client relationship or disposition of the property, whichever is later, remains unchanged.
Proposed subparagraph (c)(3) of RPC 1.15 also provides that the required records be readily accessible and available for production to the Fund or ODC in a timely manner upon a request or demand by either agency made pursuant to the Enforcement Rules, the Disciplinary Board Rules, the Rules and Regulations of the Fund's Board, agency practice, or subpoena. Subdivisions (g) and (g)(2) of Enforcement Rule 221 incorporate those duties. New subdivision (g)(1) of Rule 221 provides that Disciplinary Counsel's request for records may take the form of a letter to the respondent-attorney briefly stating the basis for the request and identifying the type and scope of the records sought to be produced. Disciplinary counsel may serve the letter by personal service or by delivery of a copy of the letter to an employee, agent or responsible person at the respondent-attorney's office, at which point the respondent-attorney has five days to produce the records. If neither form of service is available, the rule allows service by mail. As set forth in the amendment to new subdivision (g)(3) of Rule 221 and the last sentence of proposed Comment (2) to RPC 1.15, the failure to maintain or produce the records may serve as a basis for temporary suspension of the lawyer's license under Pa.R.D.E. 208(f)(1) and 208(f)(5).
Rule 221(g)(1)'s letter-request procedure, when considered in combination with subdivision (g)(3) of Rule 221, satisfies any due process concerns. Administrative agencies typically obtain documents by search warrants or subpoenas; the subpoena process is preserved in RPC 1.15(c)(3) and Rule 221(g)(2). The Pennsylvania Supreme Court, however, has upheld the right to examine required records without a subpoena. Roberts, supra. Roberts' lone dissenter's concern is negated by the fact that subdivision (g) requires production of records to ODC rather than a warrantless inspection by ODC on the business premises of the respondent-attorney. If the respondent-attorney does not comply with ODC's request, ODC may file a petition for temporary suspension, at which point the respondent-attorney, as stated in the proposed Note after subdivision (g)(3), may raise any claim of impropriety pertaining to ODC's request for required records. Review by a judicial officer, to the extent that such a review is required by law, is available to the respondent-attorney.
Although Enforcement Rule 221(g) does not incorporate a legal standard for production of required records, the standard is lax. Courts have upheld an administrative agency's request for production if the agency has some factual basis to support a suspicion or concern that the law has been violated even if the evidence does not establish a violation, or the circumstances justify the agency's seeking assurances that the law has not been violated; 2) the records sought are reasonably relevant to the inquiry; and 3) the demand is not too indefinite or overbroad. United States v. Morton Salt Co., 338 U.S. 632, 642-643, 652 (1950), cited in Roberts, supra; Unnamed Attorney v. Attorney Grievance Comm'n, 313 Md. 357, 364-365, 545 A.2d 685, 689 (1988).
Enforcement Rule 208(f)(5) (relating to temporary suspension) currently provides that if issues of fact are raised by the respondent-attorney's response to the rule to show cause, the Board Chair may direct that a hearing be held before a member of the Board. New subdivision (g)(3) of Rule 221 would provide that if a ground for temporary suspension is the respondent-attorney's alleged failure to maintain or produce RPC 1.15 records, the presiding Board member shall be a lawyer-Member. A similar requirement is found in proposed subdivision (d)(3) of Enforcement Rule 213 (relating to an appeal of a challenge to a subpoena). See Annex D, infra. The Board believes that having a lawyer preside at these hearings will facilitate the prompt resolution of what is largely a legal issue. The second sentence of Pa.R.D.E. 221(g)(3) refers to ''208(f)'' without further specification; hence, subdivision (g)(3) anticipates that if the Supreme Court were to remand a petition for emergency temporary suspension under 208(f)(1) to the Board for a fact-finding hearing (a procedure not specified in 208(f)(1)), that hearing would also be presided over by a lawyer-Member of the Board.
Required Reporting of Additional Financial Information (see Annex C)
Proposed amendments to Enforcement Rule 219 would require every attorney who files the annual fee form to provide additional trust and investment account information: 1) trust accounts in the Commonwealth in which the attorney, or law firm through which the attorney practiced, deposits funds of a client or third person subject to PA RPC 1.15, see proposed Rule 219(d)(1)(iii), even if the attorney does not have signature authority over the law firm's account, as explained in the Note after Rule 219(d)(1)(iii); 2) every other account that held fiduciary funds, and over which the attorney had sole or shared signature authority, id. (d)(1)(iv); and 3) every business operating account, id. (d)(1)(v). As previously stated, this additional information will assist ODC in investigating theft and preserving funds, securities and other property.
A small yet important change to the text of subdivision (d)(1)(iii) capitalizes the ''f'' and ''i'' in ''financial institution'' and cross-references that term of art to the definition of ''Financial Institution'' in RPC 1.15(a)(4).
An amendment to new subdivision (d)(1)(vi) would require the attorney to sign an averment stating that the information on the annual fee form is true and correct to the best of the attorney's knowledge, information and belief, and submitted subject to the penalties of 18 Pa.C.S. § 4904 relating to unsworn falsification to authorities; and that the attorney is subject to discipline by the Supreme Court and/or criminal prosecution for any false statement. The purpose of this additional requirement is to compel each attorney to take seriously the provision of the information contained thereon and to review the information if the task of completing the form is delegated to a subordinate. Attorneys who omit or provide false information should be aware that they may be subject to discipline and/or criminal prosecution. If the attorney is unable to certify the accuracy of the statement that he or she is familiar and in compliance with Rule 1.15, the attorney should study the Rule and bring himself or herself into compliance before signing and filing the form; the attorney may want to consult with counsel about self-reporting or issues of unauthorized practice if the form is not going to be timely filed.
Streamlining Unduly Burdensome Procedures (see Annex D)
Under proposed Rule 208(f)(5), which is found in Annex B, the time for a respondent-attorney to respond to a rule to show cause issued by the Board is reduced from 30 to ten days. By way of comparison, under current Rule 208(f)(1), a respondent-attorney has ten days to respond to a similar rule to show cause issued by the Court. The Board sees no reason to have a disparity in the time to respond to a rule issued by the Board and a rule issued by the Court. To the extent that a party desires to file with the Supreme Court a challenge to the recommendation of the Board, language added to the last sentence of Rule 208(f)(5) would limit the time for filing a petition for review to 14 days after entry of the Board's recommendation, and any answer or responsive pleading would be due within ten days after service of the petition for review.
Currently, Enforcement Rule 213 (Subpoena power, depositions and related matters) allows a party to move to quash a subpoena before a hearing committee member, precludes an appeal to the Board, and permits an appeal as of right to the Supreme Court. Subdivision (g)(3) of the Rule requires the Court to issue a rule to show cause upon the party who is not challenging the determination, returnable within ten days. Experience has shown that some respondent-attorneys have issued subpoenas to irrelevant witnesses, then exercised their right to appeal, which action caused the trial of the charges to be delayed for several months, required the Board to assign new dates for trial, and required the parties to re-subpoena or otherwise re-secure the attendance of relevant witnesses.
Under the proposed amendments to subdivision (d)(3), an appeal of a hearing committee determination would be limited to a lawyer-Member of the Board, who would be required to decide the appeal within five business days. The revised rule would specifically provide that there shall be no right to appeal to the Supreme Court and that any request for review shall not serve to stay the hearing or proceeding before the hearing committee unless the Court enters an order staying the proceedings.
In connection with the initial challenge to a subpoena before a hearing committee or special master under subdivisions (d)(1) and (2) of Rule 213, the revised rule refers the reader to ''the procedure established by the Board'' and makes citation to D.Bd. Rules § 91.3(b) (relating to procedure). If the Court adopts the proposed changes to Rule 213(d) as set forth in Annex D, the Rules Committee intends to recommend to the full Board that § 91.3(b) be amended to provide that an answer to a motion to quash be filed within five business days after receipt of service of the motion instead of the current rule's requirement of an answer within five days. The slight enlargement of time to respond is designed to avoid instances where the party filing the motion to quash accomplishes service by mail on a Wednesday, the motion is received through the mails on a Friday or Saturday, and the response is due for filing in the Office of the Secretary to the Board the following Monday. On an appeal, the non-appealing party would also have five business days in which to file a response.
New subdivision (g)(1) of Rule 213 would continue to allow both ODC and a respondent-attorney to petition the Supreme Court to enforce a subpoena. An amendment, however, would require the petitioning party to attach to the petition a certification, made in good faith, that: 1) the party exhausted reasonable efforts to secure the presence of the witness or the evidence within the witness's custody or control, 2) the testimony, records or other physical evidence of the witness will not be cumulative of other evidence available to the party, and 3) the absence of the witness will substantially handicap the party from prosecuting or defending the charges, or from establishing a weighty aggravating or mitigating factor. Of course, Disciplinary Counsel or the respondent-attorney will be subject to discipline or other sanction by the Court if the certification contains a false statement.
Prompt and Complete Withdrawal from Practice by Formerly Admitted Attorneys (see Annex E)
There is a hiatus between the date that an attorney submits a resignation statement to ODC or the Board and the date that the Supreme Court enters the order disbarring the attorney on consent. An amendment to Enforcement Rule 215(c) (relating to confidentiality of resignation statement) would make the fact of the submission of the resignation statement public immediately upon delivery of the statement either to ODC or the Secretary of the Board. An addition to subdivision (a)(6) of Rule 215 would require the attorney to aver in the resignation statement that he or she is aware that the submission of the statement will become public upon delivery. The proposed changes do not affect current law requiring that the resignation statement itself not be publicly disclosed unless the statement loses its confidential status under one of the five exceptions to confidentiality enumerated in subdivision (c).
Additions to subdivisions (a), (b) and (c) of Rule 217 (relating to formerly admitted attorneys) emphasize to a newly-suspended or disbarred attorney the importance of providing the required notice of the suspension or disbarment to clients, third parties, and courts. The text of all three subdivisions provides some leeway in giving notice, in that notice ''may be delivered by the most efficient method possible as long as the chosen method is successful and provides proof of receipt.'' The Note after subdivision (a) and the cross-references to that Note in subdivisions (b) and (c) inform the formerly admitted attorney that notice can be made, for example, by certified mail return receipt requested, delivery in person, or electronic mailing, although the latter two methods require that the formerly admitted attorney secure some form of acknowledgement of actual receipt by the intended target.
Other additions to Rule 217 provide clear notice of additional action to be taken by the formerly admitted attorney. Subdivision (c)(3) requires the formerly admitted attorney to promptly give notice of the suspension or disbarment to all other tribunals and jurisdictions in which the attorney is admitted to practice.
Subdivision (d)(2) requires the formerly admitted attorney to promptly: resign all appointments of a fiduciary nature; close all bank accounts; relinquish possession, custody or control over all fiduciary funds; and cease and desist from using all forms of communication that expressly or implicitly convey eligibility to practice in the state courts of Pennsylvania.
New subdivision (e)(1) requires that at the time the formerly admitted attorney files the verified statement required by that subdivision, the formerly admitted attorney attach copies of the notices and proofs required by Rule 217 and serve a copy on ODC; aver in the statement itself that the formerly admitted attorney has attached the notices and proofs, and served ODC with a copy; and aver that the formerly admitted attorney has complied with all of the notice, withdrawal, disengagement, and cease-and-desist provisions of Rule 217. The formerly admitted attorney must aver that the statement is true and is being made subject to the penalties of 18 Pa.C.S. § 4904 relating to unsworn falsification to authorities. A formerly admitted attorney who files the verified statement without fully complying with Rule 217 should be aware that he or she may be subject to discipline and/or criminal prosecution. In addition, when an attorney resigns under Rule 215, the resigning attorney is required under subdivision (a)(7) of that Rule to aver in the resignation statement that the attorney will promptly comply with Rule 217's notice, withdrawal, resignation, and cease-and-desist provisions.
Orders of temporary suspension direct a respondent-attorney to comply with all of the provisions of Rule 217. A new Note after Rule 217(e)(1) clarifies that an attorney who is placed on temporary suspension may have to file two verified statements of compliance: the first in response to the order of temporary suspension, and the second if and when the Court enters a final order of suspension or disbarment. The Note explains that the second statement is to supplement the first by including the information and documentation not applicable at the time of the filing of the initial statement, and will include all of the information and documentation required by subdivision (e)(1) if the respondent-attorney has failed to file the initial statement.
In relation to the disciplinary system's desire to have a formerly admitted attorney fully comply with Rule 217, new subdivision (e)(3) provides both an incentive and a consequence. That subdivision states that in cases of disbarment or suspension exceeding one year, the waiting period for eligibility to apply for reinstatement to the practice of law shall not begin until the formerly admitted attorney files the verified statement of compliance. (The District of Columbia has similar filing and reinstatement-eligibility requirements. See D.C. Bar R. XI, §§ 14(g) and 16(c)) In addition, when an attorney resigns under Rule 215, the resigning attorney is required under subdivision (a)(9) of that Rule to aver in the resignation statement that the attorney is aware that the waiting period for eligibility to apply for reinstatement does not begin until the verified statement is filed. An amendment to subdivision (b) of Rule 218 (relating to reinstatement) reiterates that the eligibility-to-apply-for-reinstatement clock starts ticking when the verified statement is filed.
To ensure that a formerly admitted attorney does not lose ''credit'' where the Court enters an order of disbarment or suspension that has a retroactivity component, Rules 215(a)(9), 217(e)(3) and 218(b) provide that if the order of disbarment or suspension contains a provision that makes the discipline retroactive to an earlier date, the waiting period, once triggered by the filing of the verified statement, will be deemed to have begun on that earlier date. The Note after Rule 217(e)(1) warns, however, that a formerly admitted attorney who has failed to file a verified statement at the time of a temporary suspension should not expect a final order to include a reference to retroactivity.
The Board's intent is to recommend to the Court that the waiting-period provision of Rule 217(e)(3) and the corresponding amendment to Rule 218(b), be prospective in nature, in that these amendments would apply only to suspension and disbarment orders entered after the amendments take effect. The Board also intends to recommend to the Court that orders of suspension for a period exceeding one year and disbarment include a provision that will provide specific notice to the formerly admitted attorney of the reinstatement-eligibility requirement of Rule 217(e)(3). Cf., e.g., In re Poole, 44 A.3d 959 (D.C. 2012) (disbarment order explaining when effective date for reinstatement purposes begins to run and directing the Clerk to transmit a copy of the order to the respondent, ''thereby giving him notice of the [rules] . . . and the effect of failure to comply therewith.'').
New subdivision (e)(2) of Rule 217 provides that a formerly admitted attorney ''shall'' cooperate with Disciplinary Counsel and respond completely to questions by Disciplinary Counsel regarding compliance with the provisions of Rule 217. The primary purpose of this requirement is to allow ODC to obtain some assurance, beyond the verified statement itself, that the formerly admitted attorney has completed all of Rule 217's ''wind up'' steps.
A formerly admitted attorney's lack of cooperation could have consequences. If ODC were to move under Pa.R.D.E. 218(k) for injunctive relief based on ''probable cause to believe that any formerly admitted attorney has failed to comply with . . . Rule 217 or is otherwise continuing to practice law,'' the formerly admitted attorney's lack of cooperation might be considered by a court as a factor in support of a finding of probable cause. Similarly, in a proceeding before the Supreme Court on a petition for contempt of the Court's disbarment or suspension order, lack of cooperation could serve as evidence of a violation and as evidence in aggravation of the discipline. Conversely, cooperation with ODC could be viewed as a positive factor if and when the formerly admitted attorney seeks reinstatement.
Interested persons are invited to submit written comments by mail, email, or facsimile regarding the proposed amendments to the Office of the Secretary, The Disciplinary Board of the Supreme Court of Pennsylvania, 601 Commonwealth Avenue, Suite 5600, PO Box 62625, Harrisburg, PA 17106-2625, Email address Dboard.comments@pacourts.us, Facsimile number (717-231-3382), on or before November 3, 2014.
By The Disciplinary Board of the
Supreme Court of PennsylvaniaELAINE M. BIXLER,
Secretary of the BoardAnnex A TITLE 204. JUDICIAL SYSTEM GENERAL PROVISIONS PART V. PROFESSIONAL ETHICS AND CONDUCT Subpart A. PROFESSIONAL RESPONSIBILITY CHAPTER 81. RULES OF PROFESSIONAL CONDUCT Subchapter A. RULES OF PROFESSIONAL CONDUCT § 81.4. Rules of Professional Conduct.
The following are the Rules of Professional Conduct:
CLIENT-LAWYER RELATIONSHIP Rule 1.7. Conflict of Interest: Current Clients.
* * * * * Comment: * * * * * Personal Interest Conflicts
(10) The lawyer's own interests should not be permitted to have an adverse effect on representation of a client. For example, if the probity of a lawyer's own conduct in a transaction is in serious question, it may be difficult or impossible for the lawyer to give a client detached advice. Similarly, when a lawyer has discussions concerning possible employment with an opponent of the lawyer's client, or with a law firm representing the opponent, such discussions could materially limit the lawyer's representation of the client. In addition, a lawyer may not allow related business interests to affect representation, for example, by referring clients to an enterprise in which the lawyer has an undisclosed financial interest. See Rule 5.6 for specific Rules that restrict or prohibit a lawyer's involvement in the offer, sale, or placement of investment products regardless of an actual conflict or the potential for conflict. See Rule 1.8 for specific Rules pertaining to a number of personal interest conflicts, including business transactions with clients. See also Rule 1.10 (personal interest conflicts under Rule 1.7 ordinarily are not imputed to other lawyers in a law firm).
* * * * * Rule 1.8. Conflict of Interest: Current Clients: Specific Rules.
* * * * * Comment: Business Transactions Between Client and Lawyer
(1) A lawyer's legal skill and training, together with the relationship of trust and confidence between lawyer and client, create the possibility of overreaching when the lawyer participates in a business, property or financial transaction with a client, for example, a loan or sales transaction or a lawyer investment on behalf of a client. The requirements of paragraph (a) must be met even when the transaction is not closely related to the subject matter of the representation, as when a lawyer drafting a will for a client learns that the client needs money for unrelated expenses and offers to make a loan to the client. The Rule applies to lawyers engaged in the sale of goods or services related to the practice of law, for example, the sale of title insurance or investment services to existing clients of the lawyer's legal practice. See Rule 5.7. But see Rule 5.6 for specific Rules that restrict or prohibit a lawyer's involvement in the offer, sale, or placement of investment products regardless of an actual conflict or the potential for conflict. [It] Rule 1.8 also applies to lawyers purchasing property from estates they represent. It does not apply to ordinary fee arrangements between client and lawyer, which are governed by Rule 1.5, although its requirements must be met when the lawyer accepts an interest in the client's business or other nonmonetary property as payment of all or part of a fee. In addition, the Rule does not apply to standard commercial transactions between the lawyer and the client for products or services that the client generally markets to others, for example, banking or brokerage services, medical services, products manufactured or distributed by the client, and utilities services. In such transactions, the lawyer has no advantage in dealing with the client, and the restrictions in paragraph (a) are unnecessary and impracticable.
* * * * * LAW FIRMS AND ASSOCIATIONS Rule 5.6. Restrictions on Right to Practice.
(a) A lawyer shall not participate in offering or making:
[(a)] (1) a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement or an agreement for the sale of a law practice consistent with Rule 1.17; or
[(b)] (2) an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a client controversy.
(b) A lawyer shall not broker, offer to sell, sell, or place any investment product in relation to the provision of legal services unless separately licensed to do so.
(c) A lawyer shall not recommend or offer an investment product to a client, former client or any person with whom the lawyer has a fiduciary relationship, or invest funds belonging to such a person in an investment product, if the lawyer or a person related to the lawyer has an ownership interest in the entity that manages the investment product. For purposes of this paragraph, related persons include a spouse, child, grandchild, parent, grandparent or other relative or individual with whom the lawyer maintains a close familial relationship.
Comment: (1) An agreement restricting the right of lawyers to practice after leaving a firm not only limits their professional autonomy but also limits the freedom of clients to choose a lawyer. Paragraph [(a)] (a)(1) prohibits such agreements except for restrictions incident to provisions concerning retirement benefits for service with the firm.
(2) Paragraph [(b)] (a)(2) prohibits a lawyer from agreeing not to represent other persons in connection with settling a claim on behalf of a client.
(3) This Rule does not apply to prohibit restrictions that may be included in the terms of the sale of a law practice pursuant to Rule 1.17.
(4) Paragraph (b) prohibits a lawyer from brokering, offering to sell, selling, or placing any investment product—such as securities and life insurance products, including annuity policies—unless separately licensed to do so. Licensing and registration requirements vary by state. Before offering or selling any investment product in relation to the provision of legal services, a lawyer must consult all applicable federal and state laws to determine eligibility, licensing and regulatory requirements. Paragraph (b) neither addresses the giving of investment advice nor is intended to supplant or otherwise affect federal and state laws that require licensing and registration in order to give investment advice.
(5) Paragraph (c) prohibits investment situations that are fraught with a potential for a conflict of interest or that provide an opportunity for the lawyer to control or unduly influence the use or management of the funds throughout the course of the investment. Clients who place their trust in their lawyer and assume or expect that the lawyer will protect them from harm are likely to feel deceived if substantial sums of money are lost on investments pursued at the lawyer's recommendation or prompting and the lawyer or a person related to the lawyer has an ownership interest in the entity that manages the investment product, even when the reason for the loss is limited to unexpected market conditions. The prohibition of paragraph (c) is in addition to the restrictions imposed by Rules 1.7(a)(2), 1.8(a) and 5.7.
Rule 5.7. Responsibilities Regarding Nonlegal Services.
* * * * * Comment: * * * * * Providing Nonlegal Services that Are Not Distinct from Legal Services
(3) Under some circumstances, the legal and nonlegal services may be so closely entwined that they cannot be distinguished from each other. In this situation, confusion by the recipient as to when the protection of the client-lawyer relationship applies [are] is likely to be unavoidable. Therefore, Rule 5.7(a) requires that the lawyer providing the nonlegal services adhere to all of the requirements of the Rules of Professional Conduct.
(4) In such a case, a lawyer will be responsible for assuring that both the lawyer's conduct and, to the extent required by Rule 5.3, that of nonlawyer employees, comply in all respects with the Rules of Professional Conduct. When a lawyer is obliged to accord the recipients of such nonlegal services the protection of those Rules that apply to the client-lawyer relationship, the lawyer must take special care to heed the proscriptions of the Rules addressing conflict of interest (Rules 1.7 through 1.11, especially Rules 1.7(b) and 1.8(a), (b) and (f)), and to scrupulously adhere to the requirements of Rule 1.6 relating to disclosure of confidential information. The promotion of the nonlegal services must also in all respects comply with Rule 5.6(b) and (c), relating to restrictions and prohibitions on dealing in investment products, and with Rules 7.1 through 7.3, dealing with advertising and solicitation.
* * * * * Annex B TITLE 204. JUDICIAL SYSTEM GENERAL PROVISIONS PART V. PROFESSIONAL ETHICS AND CONDUCT Subpart A. PROFESSIONAL RESPONSIBILITY CHAPTER 81. RULES OF PROFESSIONAL CONDUCT Subchapter A. RULES OF PROFESSIONAL CONDUCT § 81.4. Rules of Professional Conduct.
The following are the Rules of Professional Conduct:
CLIENT-LAWYER RELATIONSHIP Rule 1.15. Safekeeping Property.
* * * * * (c) Required records. Complete records of the receipt, maintenance and disposition of Rule 1.15 Funds and property shall be preserved for a period of five years after termination of the client-lawyer or Fiduciary relationship or after distribution or disposition of the property, whichever is later. A lawyer shall maintain the writing required by RPC 1.5(b) (relating to the requirement of a writing communicating the basis or rate of the fee) and the records identified in RPC 1.5(c) (relating to the requirement of a written fee agreement and distribution statement in a contingent fee matter). A lawyer shall also maintain the following books and records for each Trust Account and for any other account in which Fiduciary Funds are held pursuant to Rule 1.15(l):
(1) all transaction records provided to the lawyer by the Financial Institution or other investment entity, such as periodic statements, cancelled checks in whatever form, deposited items and records of electronic transactions; and
(2) check register or separately maintained ledger, which shall include the payee, date, purpose and amount of each check, withdrawal and transfer, the payor, date, and amount of each deposit, and the matter involved for each transaction; provided, however, that where an account is used to hold funds of more than one client, a lawyer shall also maintain an individual ledger for each trust client, showing the source, amount and nature of all funds received from or on behalf of the client, the description and amounts of charges or withdrawals, the names of all persons or entities to whom such funds were disbursed, and the dates of all deposits, transfers, withdrawals and disbursements.
(3) The records required by this [rule] Rule may be maintained in [electronic or] hard copy form or by electronic, photographic, or other media provided that the records otherwise comply with this Rule and that printed copies can be produced. Whatever method is used to maintain required records must have a backup so that the records are secure and always available. If records are kept only in electronic form, then such records shall be backed up, on a separate electronic storage device, at least [monthly on a separate electronic storage device] at the end of any day on which entries have been entered into the records. These records shall be readily accessible to the lawyer and available for production to the Pennsylvania Lawyers Fund for Client Security or the Office of Disciplinary Counsel in a timely manner upon a request or demand by either agency made pursuant to the Pennsylvania Rules of Disciplinary Enforcement, the Disciplinary Board Rules, the Pennsylvania Lawyers Fund for Client Security Board Rules and Regulations, agency practice, or subpoena.
(4) A regular trial balance of the individual client trust ledgers shall be maintained. The total of the trial balance must agree with the control figure computed by taking the beginning balance, adding the total of moneys received in trust for the client, and deducting the total of all moneys disbursed. On not less than a monthly basis, a lawyer shall conduct a reconciliation for each fiduciary account. The reconciliation is not complete if the reconciled total cash balance does not agree with the total of the client balance listing. A lawyer shall preserve for a period of five years copies of all records and computations sufficient to prove compliance with this requirement.
* * * * * (g) The responsibility for identifying an account as a Trust Account shall be that of the lawyer in whose name the account is held. 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 Trust Account or any other account in which Fiduciary Funds are held pursuant to Rule 1.15(l).
* * * * * Comment: * * * * * (2) A lawyer should maintain on a current basis books and records in accordance with sound accounting practices consistently applied and comply with any recordkeeping rules established by law or court order, including those records identified in paragraph (c). With little exception, funds belonging to a client or third party must be deposited into a Trust Account as defined in paragraph (a)(11), and funds belonging to the lawyer must be deposited in a business operating account maintained pursuant to paragraph (j). Thus, unless the client gives informed consent, confirmed in writing, to a different manner of handling funds advanced by the client to cover fees and expenses, the lawyer must deposit those funds into a Trust Account pursuant to paragraph (i). If the lawyer pools such funds belonging to more than one client, under paragraph (c)(2) the lawyer must keep a ledger for each individual client, regularly recording all funds received from the client and their purpose, and all disbursements of earned fees and expenses incurred. As fees become earned, the lawyer must promptly transfer those funds to the operating account. If the lawyer pools client funds after settlement or verdict in a single Trust Account, the lawyer must maintain a ledger of receipts and disbursements for each individual client, regularly recording the dates of each transaction, the identity of payors and payees, and the purpose of each disbursement, withdrawal or transfer of funds. The requirement of monthly reconciliations should deter situations where an attorney's Trust Account contains a shortfall for any significant period of time. Additionally, if a lawyer fails to maintain the records identified in paragraph (c) or to perform the required monthly reconciliations, later claims by the lawyer that a shortfall (i.e., misappropriation) resulted from negli-gence, even if credible, will necessarily be balanced against the lawyer's abdication of responsibility to comply with essential requirements associated with acting as a fiduciary and serving in a position of trust. The failure to maintain or timely produce the records required by paragraph (c) hampers rule-mandated or agency-promulgated investigative inquiries by the Pennsylvania Lawyers Fund for Client Security and the Office of Disciplinary Counsel and may serve as a basis for emergency temporary suspension of the lawyer's license to practice law. See Pa.R.D.E. 208(f)(1), 208(f)(5) and 221(g)(3).
* * * * * Subpart B. DISCIPLINARY ENFORCEMENT CHAPTER 83. PENNSYLVANIA RULES OF DISCIPLINARY ENFORCEMENT Subchapter B. MISCONDUCT Rule 208. Procedure.
* * * * * (f) Emergency temporary suspension orders and related relief.
* * * * * (5) The Board on its own motion, or upon the petition of Disciplinary Counsel, may issue a rule to show cause why the respondent-attorney should not be placed on temporary suspension whenever it appears that the respondent-attorney has disregarded an applicable provision of the Enforcement Rules, [refused] failed to maintain or produce the records required to be maintained and produced under RPC 1.15(c) and subdivisions (e) and (g) of Enforcement Rule 221 in response to a request or demand authorized by Rule 221(g) or any provision of the Disciplinary Board Rules, failed to comply with a valid subpoena, or engaged in other conduct that in any such instance materially delays or obstructs the conduct of a proceeding under these rules. The rule to show cause shall be returnable within [30] ten days. If the response to the rule to show cause raises issues of fact, the [Chairman of the] Board Chair may direct that a hearing be held before a member of the Board who shall submit a report to the Board upon the conclusion of the hearing. If the period for response to the rule to show cause has passed without a response having been filed, or after consideration of any response and any report of a Board member following a hearing under this paragraph, the Board may recommend to the Supreme Court that the respondent-attorney be placed on temporary suspension. The recommendation of the Board shall be reviewed by the Supreme Court as provided in subdivision (e) of this rule, although the time for either party to file with the Court a petition for review of the recommendation or determination of the Board shall be fourteen days after the entry of the Board's recommendation or determination, and any answer or responsive pleading shall be filed within ten days after service of the petition for review.
* * * * * Rule 221. Funds of clients and third persons. Mandatory overdraft notification.
* * * * * (e) An attorney shall maintain and preserve for a period of five years after termination of the client-lawyer or Fiduciary relationship or after distribution or disposition of the property, whichever is later, the writing required by RPC 1.5 (relating to the requirement of a writing communicating the basis or rate of the fee), the records identified in RPC 1.5(c) (relating to the requirement of a written fee agreement and distribution statement in a contingent fee matter), and the following books and records for each Trust Account and for any other account in which Rule 1.15 Funds are held:
(1) all transaction records provided to the attorney by the Financial Institution, such as periodic statements, canceled checks in whatever form, deposited items and records of electronic transactions; and
(2) check register or separately maintained ledger, which shall include the payee, date, purpose and amount of each check, withdrawal and transfer, the payor, date, and amount of each deposit, and the matter involved for each transaction; provided, however, that where an account is used to hold funds of more than one client, a lawyer shall also maintain an individual ledger for each trust client, showing the source, amount and nature of all funds received from or on behalf of the client, the description and amounts of charges or withdrawals, the names of all persons or entities to whom such funds were disbursed, and the dates of all deposits, transfers, withdrawals and disbursements.
(3) A regular trial balance of the individual client trust ledgers shall be maintained. The total of the trial balance must agree with the control figure computed by taking the beginning balance, adding the total of moneys received in trust for the client, and deducting the total of all moneys disbursed. On not less than a monthly basis, a lawyer shall conduct a reconciliation for each fiduciary account. The reconciliation is not complete if the reconciled total cash balance does not agree with the total of the client balance listing. A lawyer shall preserve for a period of five years copies of all records and computations sufficient to prove compliance with this requirement.
(f) The records required by this [rule] Rule may be maintained in [electronic or] hard copy form or by electronic, photographic, or other media provided that the records otherwise comply with this Rule and that printed copies can be produced. Whatever method is used to maintain required records must have a backup so that the records are secure and always available. If records are kept only in electronic form, then such records shall be backed up, on a separate electronic storage device, at least [monthly on a separate electronic storage device] at the end of any day on which entries have been entered into the records.
(g) [The records required by this rule may be subject to subpoena and must be produced in connection with an investigation or hearing pursuant to these rules.] The records required to be maintained by RPC 1.15 shall be readily accessible to the lawyer and available for production to the Pennsylvania Lawyers Fund for Client Security and the Office of Disciplinary Counsel in a timely manner upon request or demand by either agency made pursuant to these Enforcement Rules, the Rules of the Board, the Pennsylvania Lawyers Fund for Client Security Board Rules and Regulations, agency practice, or subpoena.
(1) Upon a request by Disciplinary Counsel under this subdivision (g), which request may take the form of a letter to the respondent-attorney briefly stating the basis for the request and identifying the type and scope of the records sought to be produced, a respondent-attorney must produce the records within five business days after personal service of the letter on the respondent-attorney or after the delivery of a copy of the letter to an employee, agent or other responsible person at the office of the respondent-attorney as determined by the address furnished by the respondent-attorney in the last registration statement filed by the respondent-attorney pursuant to Rule 219(d), but if the latter method of service is unavailable, within eight days after the date of mailing a copy of the letter to the last registered address or addresses set forth on the statement.
(2) When Disciplinary Counsel's request or demand for RPC 1.15 records is made under an applicable provision of the Disciplinary Board Rules or by subpoena under Enforcement Rule 213(a), the respondent-attorney must produce the records and must do so within the time frame established by those rules.
(3) Failure to produce RPC 1.15 records in response to a request or demand for such records may result in the initiation of proceedings pursuant to Enforcement Rule [208(f)] 208(f)(1) or (f)(5) (relating to emergency temporary suspension orders and related relief), the latter of which specifically permits disciplinary counsel to commence a proceeding for the temporary suspension of a respondent-attorney who [refuses to comply with a valid subpoena] fails to maintain or produce RPC 1.15 records after receipt of a request or demand authorized by subdivision (g) of this Rule or any provision of the Disciplinary Board Rules. If at any time a hearing is held before the Board pursuant to Rule 208(f) as a result of a respondent-attorney's alleged failure to maintain or produce RPC 1.15 records, a lawyer-Member of the Board shall be designated to preside over the hearing.
Official Note: If Disciplinary Counsel files a petition for temporary suspension, the respondent-attorney will have an opportunity to raise at that time any claim of impropriety pertaining to the request or demand for records.
(h) An Eligible Institution shall be approved as a depository for Trust Accounts of attorneys if it shall be in compliance with applicable provisions of Rule 1.15 of the Pennsylvania Rules of Professional Conduct and the Regulations of the IOLTA Board and shall file with the Disciplinary Board an agreement (in a form provided by the Board) to make a prompt report to the Lawyers Fund for Client Security Board whenever any check or similar instrument is presented against a Trust Account when such account contains insufficient funds to pay the instrument, regardless of
* * * * * Annex C TITLE 204. JUDICIAL SYSTEM GENERAL PROVISIONS PART V. PROFESSIONAL ETHICS AND CONDUCT Subpart B. DISCIPLINARY ENFORCEMENT CHAPTER 83. PENNSYLVANIA RULES OF DISCIPLINARY ENFORCEMENT Subchapter B. MISCONDUCT Rule 219. Annual registration of attorneys.
* * * * * (d) On or before July 1 of each year all attorneys required by this rule to pay an annual fee shall file with the Attorney Registration Office a signed or electronically endorsed form prescribed by the Attorney Registration Office in accordance with the following procedures:
(1) The form shall set forth:
* * * * * (iii) The name of each [financial institution] Financial Institution, as defined in RPC 1.15(a)(4), in this Commonwealth in which the attorney or law firm through which the attorney practiced on May 1 of the current year or at any time during the preceding 12 months held funds of a client or a third person subject to Rule 1.15 of the Pennsylvania Rules of Professional Conduct. The form shall include the name and account number for each account in which the lawyer [holds] or law firm through which the lawyer practiced held such funds, and each IOLTA Account shall be identified as such. The form provided to a person holding a Limited In-House Corporate Counsel License or a Foreign Legal Consultant License need not request the information required by this subparagraph.
Official Note: If an attorney employed by a law firm receives fiduciary funds from or on behalf of a client and deposits or causes the funds to be deposited into a law firm account over which the attorney does not have signature authority, the attorney must nonetheless report the account of deposit under this subparagraph.
(iv) Every account not reported under subparagraph (iii), that held funds of a client or third party, and over which the attorney had sole or shared signature authority or authorization to transfer funds to or from the account, during the same time period specified in subparagraph (iii). For each account, the attorney shall provide the name of the financial institution (whether or not the entity qualifies as a ''Financial Institution'' under RPC 1.15(a)(4)), location, and account number.
(v) Every business operating account maintained or utilized by the attorney in the practice of law during the same time period specified in subparagraph (iii). For each account, the attorney shall provide the name of the financial institution, location and account number.
[(iv)] (vi) A statement that the attorney is familiar and in compliance with Rule 1.15 of the Pennsylvania Rules of Professional Conduct regarding the handling of funds and other property of clients and others and the maintenance of IOLTA Accounts, and with Rule 221 of the Pennsylvania Rules of Disciplinary Enforcement regarding the mandatory reporting of overdrafts on fiduciary accounts; that the information is true and correct to the best of the attorney's knowledge, information and belief, and submitted subject to the penalties of 18 Pa.C.S. § 4904 relating to unsworn falsification to authorities; and that the attorney is subject to discipline by the Supreme Court and/or criminal prosecution for any false statement.
[(v)] (vii) A statement that any action brought against the attorney by the Pennsylvania Lawyers Fund for Client Security for the recovery of monies paid by the Fund as a result of claims against the attorney may be brought in the Court of Common Pleas of Allegheny, Dauphin or Philadelphia County.
[(vi)] (viii) Whether the attorney is covered by professional liability insurance on the date of registration in the minimum amounts required by Rule of Professional Conduct 1.4(c). Rule 1.4(c) does not apply to attorneys who do not have any private clients, such as attorneys in full-time government practice or employed as in-house corporate counsel.
Official Note: The Disciplinary Board will make the information regarding insurance available to the public upon written or oral request and on its web site. The requirement of Rule 219(d)(3) that every attorney who has filed an annual fee form or elects to file the form electronically must notify the Attorney Registration Office of any change in the information previously submitted within 30 days after such change will apply to the information regarding insurance.
[(vii)] (ix) Such other information as the Attorney Registration Office may from time to time direct.
* * * * * Annex D TITLE 204. JUDICIAL SYSTEM GENERAL PROVISIONS PART V. PROFESSIONAL ETHICS AND CONDUCT Subpart B. DISCIPLINARY ENFORCEMENT CHAPTER 83. PENNSYLVANIA RULES OF DISCIPLINARY ENFORCEMENT Subchapter B. MISCONDUCT Rule 213. Subpoena power, depositions and related matters.
* * * * * (d) Challenges; appeal of challenges to subpoena. Any attack on the validity of a subpoena issued under this rule shall be handled as follows:
(1) A challenge to a subpoena authorized by subdivision (a)(1) shall be heard and determined by the hearing committee or special master before whom the subpoena is returnable in accordance with the procedure established by the Board. See D.Bd. Rules § 91.3(b) (relating to procedure).
(2) A challenge to a subpoena authorized by subdivision (a)(2) shall be heard and determined by a member of a hearing committee in the disciplinary district in which the subpoena is returnable in accordance with the procedure established by the Board. See D.Bd. Rules § 91.3(b) (relating to procedure).
(3) A determination under paragraph (1) or (2) may [not] be appealed to a lawyer-Member of the Board[, but may be appealed to the Supreme Court under subdivision (g)] within ten days after service pursuant to D.Bd. Rules §§ 89.21 and 89.24 of the determination on the party bringing the appeal by filing a petition with the Board setting forth in detail the grounds for challenging the determination. The appealing party shall serve a copy of the petition on the non-appealing party by mail on the date that the appealing party files the appeal, and the non-appealing party shall have five business days after delivery to file a response. No attack on the validity of a subpoena will be considered by the Designated lawyer-Member of the Board unless previously raised before the hearing committee. The Board Member shall decide the appeal within five business days of the filing of the non-appealing party's response, if any. There shall be no right of appeal to the Supreme Court. Any request for review shall not serve to stay any hearing or proceeding before the hearing committee or the Board unless the Court enters an order staying the proceedings.
* * * * * (g) Enforcement of subpoenas[; appeal of challenges to subpoenas].
(1) Either Disciplinary Counsel or a respondent-attorney may petition the Supreme Court to enforce a subpoena [or to review a determination under subdivision (d)(1) or (2) on the validity of a subpoena. No attack on the validity of a subpoena will be considered by the Court unless previously raised as provided in subdivision (d)] that was not the subject of a challenge pursuant to subdivision (d)(1) or (2), or that was the subject of a challenge and has not been finally quashed by either the hearing committee or the Board Member designated to hear the appeal, provided that the party filing the petition to enforce attaches a certification in good faith that: a) the party exhausted reasonable efforts to secure the presence of the witness or the evidence within the witness's custody or control, b) the testimony, records or other physical evidence of the witness will not be cumulative of other evidence available to the party, and c) the absence of the witness will substantially handicap the party from prosecuting or defending the charges, or from establishing a weighty aggravating or mitigating factor. See also Enforcement Rule 208(f)(5) (relating to emergency temporary suspension orders and related relief).
Official Note: The reference to Enforcement Rule 208(f)(5) is intended to make clear that, where the person who is resisting complying with a subpoena is the respondent-attorney, the provisions of this rule are cumulative of those in Enforcement Rule 208(f)(5).
(2) Upon receipt of a petition for enforcement of a subpoena, the Court shall issue a rule to show cause upon the person to whom the subpoena is directed, returnable within ten days, why the person should not be held in contempt. If the period for response has passed without a response having been filed, or after consideration of any response, the Court shall issue an appropriate order.
[(3) A petition for review of a determination made under subdivision (d)(1) or (2) must set forth in detail the grounds for challenging the determination. Upon timely receipt of a petition for review, the Court shall issue a rule to show cause upon the party to the proceeding who is not challenging the determination, returnable within ten days, why the determination should not be reversed. If the period for response has passed without a response having been filed, or after consideration of any response, the Court shall issue an appropriate order.]
* * * * * Annex E TITLE 204. JUDICIAL SYSTEM GENERAL PROVISIONS PART V. PROFESSIONAL ETHICS AND CONDUCT Subpart B. DISCIPLINARY ENFORCEMENT CHAPTER 83. PENNSYLVANIA RULES OF DISCIPLINARY ENFORCEMENT Subchapter B. MISCONDUCT Rule 215. Discipline on consent.
(a) Voluntary resignation.—An attorney who is the subject of an investigation into allegations of misconduct by the attorney may submit a resignation, but only by delivering to Disciplinary Counsel or the Secretary of the Board a verified statement stating that the attorney desires to resign and that:
(1) the resignation is freely and voluntarily rendered; the attorney is not being subjected to coercion or duress; the attorney is fully aware of the implications of submitting the resignation; and whether or not the attorney has consulted or followed the advice of counsel in connection with the decision to resign;
(2) the attorney is aware that there is a presently pending investigation into allegations that the attorney has been guilty of misconduct the nature of which the verified statement shall specifically set forth;
(3) the attorney acknowledges that the material facts upon which the complaint is predicated are true; [and]
(4) the resignation is being submitted because the attorney knows that if charges were predicated upon the misconduct under investigation the attorney could not successfully defend against them[.];
(5) the attorney is fully aware that the submission of the resignation statement is irrevocable and that the attorney can only apply for reinstatement to the practice of law pursuant to the provisions of Enforcement Rule 218(b) and (c);
(6) the attorney is aware that pursuant to subdivision (c) of this Rule, the fact that the attorney has tendered his or her resignation shall become a matter of public record immediately upon delivery of the resignation statement to Disciplinary Counsel or the Secretary of the Board;
(7) upon entry of the order disbarring the attorney on consent, the attorney will promptly comply with the notice, withdrawal, resignation and cease-and-desist provisions of subdivisions (a), (b), (c) and (d)(2) of Enforcement Rule 217;
(8) after the entry of the order disbarring the attorney on consent, the attorney will file a verified statement of compliance as required by subdivision (e)(1) of Enforcement Rule 217; and
(9) the attorney is aware that the waiting period for eligibility to apply for reinstatement to the practice of law under Enforcement Rule 218(b) shall not begin until the attorney files the verified statement of compliance required by Enforcement Rule 217(e)(1), and if the order of disbarment con-tains a provision that makes the disbarment retroactive to an earlier date, then the waiting period will be deemed to have begun on that earlier date.
(b) Order of disbarment.—Upon receipt of the required statement, the Secretary of the Board shall file it with the Supreme Court and the Court shall enter an order disbarring the attorney on consent.
(c) Confidentiality [or] of resignation statement.—The fact that the attorney has submitted a resignation statement to Disciplinary Counsel or the Secretary of the Board for filing with the Supreme Court shall become a matter of public record immediately upon delivery of the resignation statement to Disciplinary Counsel or the Secretary of the Board. The order disbarring the attorney on consent shall be a matter of public record. If the statement required under the provisions of subdivision (a) of this rule is submitted before the filing and service of a petition for discipline and the filing of an answer or the time to file an answer has expired, the statement shall not be publicly disclosed or made available for use in any proceeding other than a subsequent reinstatement proceeding except:
* * * * * Rule 217. Formerly admitted attorneys.
(a) A formerly admitted attorney shall promptly notify, or cause to be promptly notified, [by registered or certified mail, return receipt requested,] all clients being represented in pending matters, other than litigation or administrative proceedings, of the disbarment, suspension, administrative suspension or transfer to inactive status and the consequent inability of the formerly admitted attorney to act as an attorney after the effective date of the disbarment, suspension, administrative suspension or transfer to inactive status and shall advise said clients to seek legal advice elsewhere. The notice required by this subdivision (a) may be delivered by the most efficient method possible as long as the chosen method is successful and provides proof of receipt. At the time of the filing of the verified statement of compliance required by subdivision (e)(1) of this Rule, the formerly admitted attorney shall file copies of the notices required by this subdivision and proofs of receipt with the Secretary of the Board and shall serve a conforming copy on the Office of Disciplinary Counsel. See D.Bd. Rules § 91.92(b) (relating to filing of copies of notices).
Official Note: Notice may be accomplished, for example, by delivery in person with the lawyer securing a signed receipt, electronic mailing with some form of acknowledgement from the client other than a ''read receipt,'' and mailing by registered or certified mail return receipt requested.
(b) A formerly admitted attorney shall promptly notify, or cause to be promptly notified, [by registered or certified mail, return receipt requested,] all clients who are involved in pending litigation or administrative proceedings, and the attorney or attorneys for each adverse party in such matter or proceeding, of the disbarment, suspension, administrative suspension or transfer to inactive status and consequent inability of the formerly admitted attorney to act as an attorney after the effective date of the disbarment, suspension, administrative suspension or transfer to inactive status. The notice to be given to the client shall advise the prompt substitu-tion of another attorney or attorneys in place of the formerly admitted attorney. In the event the client does not obtain substitute counsel before the effective date of the disbarment, suspension, administrative suspension or transfer to inactive status, it shall be the responsibility of the formerly admitted attorney to move in the court or agency in which the proceeding is pending for leave to withdraw. The notice to be given to the attorney or attorneys for an adverse party shall state the place of residence of the client of the formerly admitted attorney. The notice required by this subdivision (b) may be delivered by the most efficient method possible as long as the chosen method is successful and provides proof of receipt. See Note after subdivision (a), supra. At the time of the filing of the verified statement of compliance required by subdivision (e)(1) of this Rule, the formerly admitted attorney shall file copies of the notices required by this subdivision and proofs of receipt with the Secretary of the Board and shall serve a conforming copy on the Office of Disciplinary Counsel. See D.Bd. Rules § 91.92(b) (relating to filing of copies of notices).
(c) A formerly admitted attorney shall promptly notify, or cause to be promptly notified, of the disbarment, suspension, administrative suspension or transfer to inactive status[, by registered or certified mail, return receipt requested]:
(1) all persons or their agents or guardians, including but not limited to wards, heirs and beneficiaries, to whom a fiduciary duty is or may be owed at any time after the disbarment, suspension, administrative suspension or transfer to inactive status[, and];
(2) all other persons with whom the formerly admitted attorney may at any time expect to have professional contacts under circumstances where there is a reasonable probability that they may infer that he or she continues as an attorney in good standing[.]; and
(3) any other tribunal, court, agency or jurisdiction in which the attorney is admitted to practice.
The notice required by this subdivision (c) may be delivered by the most efficient method possible as long as the chosen method is successful and provides proof of receipt. See Note after subdivision (a), supra. At the time of the filing of the verified statement of compliance required by subdivision (e)(1) of this Rule, the formerly admitted attorney shall file copies of the notices required by subdivision (c) and proofs of receipt with the Secretary of the Board and shall serve a conforming copy on the Office of Disciplinary Counsel. The responsibility of the formerly admitted attorney to provide the notice required by this subdivision shall continue for as long as the formerly admitted attorney is disbarred, suspended, administratively suspended or on inactive status.
[(d)] (d)(1) Orders imposing suspension, disbarment, administrative suspension or transfer to inactive status shall be effective 30 days after entry. The formerly admitted attorney, after entry of the disbarment, suspension, administrative suspension or transfer to inactive status order, shall not accept any new retainer or engage as attorney for another in any new case or legal matter of any nature. However, during the period from the entry date of the order and its effective date the formerly admitted attorney may wind up and complete, on behalf of any client, all matters which were pending on the entry date.
(2) In addition to the steps that a formerly admitted attorney must promptly take under other provisions of this Rule to disengage from the practice of law, a formerly admitted attorney shall promptly:
(i) resign all appointments as personal representative, executor, administrator, guardian, conservator, receiver, trustee, agent under a power of attorney, or other fiduciary position;
(ii) close every IOLTA, Trust, client and fiduciary account;
(iii) properly disburse or otherwise transfer all client and fiduciary funds in his or her possession, custody or control;
(iv) cease and desist from using all forms of communication that expressly or implicitly convey eligibility to practice law in the state courts of Pennsylvania, including but not limited to professional titles, letterhead, business cards, signage, websites, and references to admission to the Pennsylvania Bar; and
(v) in cases of disbarment or suspension exceeding one year, take all necessary steps to cancel or discontinue the next regular publication of all advertisements and telecommunication listings that expressly or implicitly convey eligibility to practice law in the state courts of Pennsylvania.
The attorney shall maintain records to demonstrate compliance with the provisions of this paragraph (2) and shall provide proof of compliance at the time the attorney files the verified statement required by subdivision (e)(1) of this Rule.
[(e)] (e)(1) Within ten days after the effective date of the disbarment, suspension, administrative suspension or transfer to inactive status order, the formerly admitted attorney shall file with the Secretary of the Board a verified statement [showing] and serve a copy on Disciplinary Counsel. In the verified statement, the formerly admitted attorney shall:
[(1)] (i) aver that the provisions of the order and these rules have been fully complied with; [and]
[(2)] (ii) list all other state, federal and administrative jurisdictions to which such person is admitted to practice[. Such statement shall also set forth the residence or other address of the formerly admitted attorney where communications to such person may thereafter be directed.], aver that he or she has fully complied with the notice requirements of paragraph (3) of subdivision (c) of this Rule, and aver that he or she has attached copies of the notices and proofs of receipt required by (c)(3); or, in the alternative, aver that he or she was not admitted to practice in any other tribunal, court, agency or jurisdiction;
(iii) aver that he or she has attached copies of the notices required by subdivisions (a), (b), (c)(1) and (c)(2) of this Rule and proofs of receipt, or, in the alternative, aver that he or she had no clients or third persons to whom a fiduciary duty was owed;
(iv) in cases of disbarment or suspension for a period exceeding one year, aver that he or she has attached his or her attorney registration certificate for the current year, certificate of admission, any certificate of good standing issued by the Prothonotary, and any other certificate required by subdivision (h) of this Rule to be surrendered; or, in the alternative, aver that he or she has attached all such documents within his or her possession, or that he or she is not in possession of any of the certificates required to be surrendered;
(v) aver that he or she has complied with the requirements of paragraph (2) of subdivision (d) of this Rule, and aver that he or she has attached proof of compliance, including resignation notices, evidence of the closing of accounts, copies of cancelled checks and other instruments demonstrating the proper distribution of client and fiduciary funds, evidence of the destruction or removal of indicia of Pennsylvania practice, and requests to cancel advertisements and telecommunication listings; or, in the alternative, aver that he or she has no applicable appointments, accounts, funds, or indicia of Pennsylvania practice;
(vi) aver that he or she has served a copy of the verified statement and its attachments on the Office of Disciplinary Counsel;
(vii) set forth the residence or other address where communications to such person may thereafter be directed; and
(viii) sign the statement.
The statement shall contain an averment that all statements contained therein are true and correct to the best of the formerly admitted attorney's knowledge, information and belief, and are made subject to the penalties of 18 Pa.C.S. § 4904 relating to unsworn falsification to authorities.
Official Note: A respondent-attorney who is placed on temporary suspension is required to comply with subdivision (e)(1) and file a verified statement. Upon the entry of a final order of suspension or disbarment, the respondent-attorney must file a supplemental verified statement containing the information and documentation not applicable at the time of the filing of the initial statement, or all of the information and documentation required by subdivision (e)(1) if the respondent-attorney has failed to file the initial statement. Although the grant of retroactivity is always discretionary, a respondent-attorney who fails to file a verified statement at the time of temporary suspension should not expect a final order to include a reference to retroactivity.
(2) A formerly admitted attorney shall cooperate with Disciplinary Counsel and respond completely to questions by Disciplinary Counsel regarding compliance with the provisions of this Rule.
(3) After the entry of an order of disbarment or suspension for a period exceeding one year, the waiting period for eligibility to apply for reinstatement to the practice of law shall not begin until the formerly admitted attorney files the verified statement required by subdivision (e)(1) of this Rule. If the order of disbarment or suspension contains a provision that makes the discipline retroactive to an earlier date, the waiting period will be deemed to have begun on that earlier date.
(f) The Board shall cause a notice of the suspension, disbarment, administrative suspension or transfer to inactive status to be published in the legal journal and a newspaper of general circulation in the county in which the formerly admitted attorney practiced. The cost of publication shall be assessed against the formerly admitted attorney.
* * * * * Rule 218. Reinstatement.
* * * * * (b) A person who has been disbarred may not apply for reinstatement until the expiration of at least five years from the effective date of the disbarment, except that a person who has been disbarred pursuant to Rule 216 (relating to reciprocal discipline and disability) may apply for reinstatement at any earlier date on which reinstatement may be sought in the jurisdiction of initial discipline. Pursuant to Rule 217(e)(3), the waiting period for eligibility to apply for reinstatement to the practice of law shall not begin until the person files the verified statement required by subdivision (e)(1) of Rule 217. If the order of disbarment contains a provision that makes the disbarment retroactive to an earlier date, the waiting period will be deemed to have begun on that earlier date.
* * * * * [Pa.B. Doc. No. 14-1988. Filed for public inspection September 26, 2014, 9:00 a.m.]
