CHAPTER 11 THE ETHICS OF PRACTICE MANAGEMENT AND GENERAL PRACTICE TIPS

Transcription

1 CHAPTER 11 THE ETHICS OF PRACTICE MANAGEMENT AND GENERAL PRACTICE TIPS Sheila Blackford Hong Dao Jennifer Meisberger Rachel Edwards Professional Liability Fund Practice Management Advisors

2 MCLE FORM 1: Recordkeeping Form (Do Not Return This Form to the Bar) Instructions: Pursuant to MCLE Rule 7.2, every active member shall maintain records of participation in accredited CLE activities. You may wish to use this form to record your CLE activities, attaching it to a copy of the program brochure or other information regarding the CLE activity. Do not return this form to the Oregon State Bar. This is to be retained in your own MCLE file. Name: Bar Number: Sponsor of CLE Activity: Title of CLE Activity: Program Number: Date: Location: Activity has been accredited by the Oregon State Bar for the following credit: Full Credit. I attended the entire program and the total of authorized credits are: Partial Credit. I attended hours of the program and am entitled to the following credits*: General Prof Resp-Ethics Access to Justice Child Abuse Rep. Elder Abuse Rep. Practical Skills Pers. Mgmt/Bus. Dev.* General Prof Resp-Ethics Access to Justice Child Abuse Rep. Elder Abuse Rep. Practical Skills Pers. Mgmt/Bus. Dev.* General Prof Resp-Ethics Access to Justice Child Abuse Rep. Elder Abuse Rep. Practical Skills Pers. Mgmt/Bus. Dev.* *Credit Calculation: One (1) MCLE credit may be claimed for each sixty (60) minutes of actual participation. Do not include registration, introductions, business meetings and programs less than 30 minutes. MCLE credits may not be claimed for any activity that has not been accredited by the MCLE Administrator. If the program has not been accredited by the MCLE Administrator, you must submit a Group CLE Activity Accreditation application (See MCLE Form 2.) Caveat: If the actual program length is less than the credit hours approved, Bar members are responsible for making the appropriate adjustments in their compliance reports. Adjustments must also be made for late arrival, early departure or other periods of absence or non-participation. *Personal Management Assistance/Business Development. See MCLE Rule 5.11 and Regulation for additional information regarding Category III activities. Maximum credit that may be claimed for Category III activities is 6.0 in a three-year reporting period and 3.0 in a short reporting period. 8/16:MCLE1

3 C h a p t e r 11 THE ETHICS OF PRACTICE MANAGEMENT TABLE OF CONTENTS Page # PowerPoint Slides How Much Do I Owe You? New Guidelines for Fixed and So-Called Nonrefundable Fees, Oregon State Bar Bulletin October Waiting for Go Dough: A Primer on Disbursing Client Funds, Oregon State Bar Bulletin June To view these chapter materials and the additional resources below on or before November 2, go to select Upcoming CLE, select Learning The Ropes, and click on program materials, under Quick Links. After November 2, select Past CLE select Learning The Ropes, and click on program materials, under Quick Links. Additional Resources PLF Practice Aids available at Management>Forms Frequently Asked Trust Account Questions Retainer Agreement Fee Agreement Earned Upon Receipt %20Earned%20Upon%20Receipt.pdf Conflict of Interest Systems %20Procedures.pdf File Retention and Destruction Client Relations Do s and Don ts

4 THE ETHICS OF PRACTICE MANAGEMENT And General Practice Tips PRACTICE MANAGEMENT ADVISORS SHEILA BLACKFORD HONG DAO RACHEL EDWARDS JENNIFER MEISBERGER TOPICS 1. Trust Accounting 2. Client Relations 3. Conflicts 4. Confidentiality *Bonus Practice Tips* TRUST ACCOUNTING Separation, Spending, & 3rd Party Payments 11-1

5 WHAT IS A LAWYER TRUST ACCOUNT? Trust Account Not your money Business Account Your money SEPARATION 1. Retainers 2. Settlement proceeds 3. Overpayments 4. Unearned third party payments Oregon RPC DUTY OF SAFEKEEPING Deposit daily Protect $$ after hours Issue receipts for cash Protect other client property 11-2

6 Practice Smartphone Apps Credit Card Readers DON T SPEND WHAT YOU DON T HAVE Funds must clear Use the day guideline Be wary of scams PAYMENT BY A THIRD PARTY 1. Follow Oregon RPC 1.8(f) 2. Redact billing statements 3. Specify who receives refund of unearned fees OSB Formal Ethics Opinion

7 Practice Protect Against Theft Endorse and lockup Protect credit card numbers Supervise staff Learn more CLIENT RELATIONS Fee Agreements, Communication, & the Client File FEE AGREEMENTS Account to the Client Beware Prepaid Fixed Fees Put it in writing Earned upon receipt Subject to refund See ORPC 1.5(c)(3) & OSB Formal Ethics Opinion

8 CALCULATE THE REFUND Use stage of completion If half the work is done, refund half the fee Hourly rate computations not allowed How Much Do I Owe You? "New" Guidelines For Fixed And So-Called Nonrefundable Fees NONREFUNDABLE? OSB Formal Opinion No designation of a prepaid fixed fee as nonrefundable may be misleading, if not false, in violation of Oregon RPC 8.4(a)(3) DIVISION OF FEES Disclosure + consent Total fee cannot be excessive Includes referral fees Get it in writing! See Chapter 12, Referral Agreement Between Lawyers, Fee Agreement Compendium OSB BarBooks 11-5

9 FEE AGREEMENT MODIFICATIONS Reason for Change + Explanation of Effect + Client Consent + Objective Fairness = Allowable Modification OSB Formal Ethics Opinion COMMUNICATION Attorney-Client Relationship Screen your cases Document the representation Identify the client and scope of representation Document the fees and expectations Oregon RPC 1.2 Practice When declined: Use non-engagement letters When accepted: Use engagement letters to identify client and scope Use fee agreements to document $$ expectations > Practice Management > Forms 11-6

10 MAINTAINING COMMUNICATION ORPC 1.4 Duty to keep in touch and communicate with clients ENDING THE RELATIONSHIP Give client reasonable notice Return original documents Provide final accounting Send disengagement letter See Oregon RPC 1.16(d) WHAT IS THE CLIENT FILE? Papers and property that the client provided to the lawyer; Litigation materials; All correspondence; All items that the lawyer has obtained from others; and Lawyer s notes or internal memoranda that may constitute attorney work-product. OSB Formal Opinion No

11 FILE RETENTION AND DESTRUCTION Keep files (paper or electronic) at least 10 years Do not keep original papers of clients Specify file retention and destruction guidelines in the fee agreement > Practice Management > Forms > File Management > File Retention and Destruction Guidelines Practice Retain a copy of the client file Provide entire client file upon request (absent viable attorney lien) Specify in fee agreement who pays for copying charges CONFLICTS OF INTEREST Systems, Parties, Conflict Checks, & Office Sharing 11-8

12 MANAGING CONFLICTS The Golden Rules 1. Establish a reliable system 2. Capture all parties 3. Know how to use the system 4. Know when to run a conflict check ESTABLISH A RELIABLE SYSTEM Manual System Software System Rule No. 1 USE WHAT YOU HAVE Outlook Excel Database program (i.e., Access) Searchable address book 11-9

13 TRY PREMISE-BASED SOFTWARE PC/Windows Amicus Attorney HoudiniESQ PracticeMaster ProLaw Mac Daylite (business management) TimeNet Law LawStream Legal Suite GO TO THE CLOUD Clio Rocket Matter MyCase And more Practice Discounts Save $$

14 SEARCHING WITH SOFTWARE SOFTWARE SEARCH RESULTS CAPTURE ALL PARTIES Clients Adverse Parties Related Parties Declined Clients Prospects Pro Bono Clients Firm Members 11-11

15 KNOW HOW TO USE YOUR SYSTEM William, Bill, or Willy? Elizabeth or Liz? Former Names SSN or TIN DOB 123 ABC Street Always document your file Practice Track and add new names from your intake form Remember to specify the relationship to the client 11-12

16 Practice Circulate New Matter List Weekly KNOW WHEN TO RUN A CONFLICT CHECK At first contact When the file is opened Whenever a new party enters the case SCREEN AND PREPARE Screen incoming lawyers Prepare outgoing lawyers Keep your own conflict list 11-13

17 Practice Update your system at closing Be aware of consent requirements Avoid business deals with clients OFFICE SHARING Screen for conflicts if you share employees Assure phone messages remain confidential Assure mail remains confidential Retrieve copies, faxes, print jobs OSB Formal Opinion CONFIDENTIALITY Protecting Client Information, Data Security, & More 11-14

18 PROTECT CLIENT INFORMATION What Others See What Others Hear CONFIDENTIALITY DURING DESTRUCTION Darik s Boot and Nuke CLIENT DATA SECURITY Metadata Is Everywhere Word processing documents Spreadsheets Database files Videos and photographs Every electronic file! 11-15

19 Inserted text Document versions Comments Headers and footers Tracked changes Template information Undo and redo history Network or server name Guarding (and Exploiting) Metadata Metadata: Danger or Delight? ACT COMPETENTLY OSB Formal Opinion

20 USE REASONABLE CARE Prevent inadvertent disclosure Limit nature of metadata Limit scope of metadata OSB Formal Opinion Practice Print to PDF Agree not to review metadata CLOUD COMPUTING OSB Formal Opinion

21 DO YOUR HOMEWORK VET THE VENDOR Reputation? Duration in business? Serving other lawyers? Secure facilities? Geographically dispersed servers? Meets industry standards? UNDERSTAND ALL TERMS 1. Review the terms of service 2. Read the vendor s privacy policy 3. Is there a business agreement? 11-18

22 SHOULD YOU USE THE CLOUD? Any browser Any platform Any location (with Internet) Any time $$$ SOCIAL MEDIA FOR INVESTIGATION Represented party? Non-represented party? Juror? Publicly available? OSB Formal Opinion

23 SHARING ON SOCIAL MEDIA RESOURCES Social media for lawyers: a word of caution Sorting out social media: tools & etiquette Social media for lawyers Data protection and cloud backup (video) What is cloud computing? harts_fyis/saas.html Cloud computing for lawyers RESOURCES Oregon State Bar General Counsel Bar Counsel Articles Ethics Opinions BarBooks Fee Agreement Compendium Oregon Law Institute Oregon Rules of Professional Conduct Annotated Professional Liability Fund Forms, Books, In Brief articles, CLEs, Confidential Advice

24 CONTACT US Practice Management Advisors Sheila Blackford Hong Dao Rachel Edwards Jennifer Meisberger and confidential 11-21

25 Oregon State Bar Bulletin OCTOBER 2011 October Issue Bar Counsel How Much Do I Owe You?: "New" Guidelines for Fixed and So-called Nonrefundable Fees By Amber Hollister Clients love certainty. For this reason, fixed fee agreements have a certain appeal clients can skip the guesswork of wondering about the number on their next bill. Fixed fee arrangements are also attractive to lawyers because they ensure payment for services in advance. But like many apparently simple concepts, entering into a fixed fee agreement the right way can be surprisingly complex. In a typical fixed fee or flat fee agreement, a lawyer charges the client a set amount to complete a defined legal task, regardless of how much time it takes for the lawyer to perform the task. Fixed fee agreements usually provide that the fee is earned upon receipt or nonrefundable. But often lawyers have questions about how much they can charge in a fixed fee agreement, and what the terms earned upon receipt and nonrefundable really mean. In the recently revised OSB Formal Ethics Op No , the OSB Legal Ethics Committee provides helpful guidance on how lawyers can do the right thing. New Language Required As a starting point, nonrefundable fixed fee agreements must be in a writing signed by the client and clearly state fees are nonrefundable or earned on receipt, and must not charge excessive or unreasonable amounts. RPC 1.5; see e.g. In re Hodges, 313 Or 618, 623 (1992) (nonrefundable fixed fee agreements must be stated in a clear and specific writing between the lawyer and client). But just any written agreement is not enough. In December 2010, the Oregon Supreme Court adopted a new subsection to RPC 1.5. Based on newly created RPC 1.5(c)(3), lawyers must include special explanatory language in any fee agreement which asserts that a fee is nonrefundable or earned on receipt. Specifically, any fee agreement claiming a fee is earned on receipt or nonrefundable must be based on a written agreement signed by the client, which explains that: (1) the funds will not be deposited into the lawyer trust account, and 11-22

26 (2) the client may discharge the lawyer at any time and in that event may be entitled to a refund of all or part of the fee if the services for which the fee was paid are not completed. Lawyers should take time to update their fee agreement forms, because without this language a nonrefundable fixed fee agreement will violate RPC 1.5. See Fee Agreement Compendium chapter 11 (updated April 2011, available in Bar-Books online library). When is a Fixed Fee Too Much? How much, you might ask, is too much to charge in a fixed fee agreement? The Oregon Supreme Court has held that the sole fact that a lawyer makes more money in a fixed fee agreement than the lawyer would have made by charging an hourly rate does not, in itself, make a fixed fee unethical. In re Biggs, 318 Or 281, 293 (1994). Instead, lawyers must apply the test outlined by RPC 1.5 (b) to determine whether, given the totality of the circumstances, a fixed fee is permissible. It may take some lawyers by surprise to learn that certain factors used to determine whether a fixed fee is excessive require evaluating the reasonableness of the fee after the services have been rendered. See, e.g., RPC 1.5(b)(4) & (5); In re Gastineau, 317 Or 545, (1993) (holding excessiveness of fee may be determined after the services have been rendered, as well as at the time the employment began ). Lawyers are not expected to predict the results that will be obtained, but to re-assess the reasonableness of the fee after the representation is completed, as circumstances may change that could impact the reasonableness of a fee. Despite this challenge, lawyers with experience in a particular area of law can likely judge many of the RPC 1.5(b) factors in advance, such as the time and labor required, the novelty and difficulty of the questions involved and the skill required to perform the legal service properly, with a fair amount of accuracy. Ultimately, a fixed fee will be permissible if, after considering all of the factors outlined in 1.5(b), a lawyer of ordinary prudence would not be left with a definite and firm conviction that the fee is in excess of a reasonable fee. Regardless of the factors outlined by RPC 1.5(b), fees become excessive as a matter of law when a lawyer seeks to charge more money than was agreed upon in a fixed fee agreement for the specified work. OSB Formal Ethics Op No Even so, in OSB Formal Ethics Op No , the committee acknowledges that lawyers may change the amount due under a fixed fee agreement if: 1) the agreement allows for changes over time; or 2) the fixed agreement is permissibly modified as described by OSB Formal Ethics Op No The Lawyer s Pocket or the Trust Account? The general proviso is that all legal fees paid in advance must be placed in a lawyer trust account, separate from the lawyer s personal property, until the fees are earned. RPC ; seeosb Formal Ethics Op No But, lawyers may ask, how do these rules apply in a fixed fee situation? The answer depends on whether the fees are appropriately designated as earned upon receipt in a written agreement that complies with Oregon RPC 1.5(c)(3). Fixed fees paid pursuant to an agreement that complies with RPC 1.5(c)(3) are in fact already earned by the lawyer. For this reason, they cannot be deposited in a lawyer trust account, but must be kept with the lawyer s personal property because they belong to the lawyer. RPC (c). In OSB Formal Ethics Op No , the committee explains, (i)f there is a written agreement with the client that complies with the requirements of Oregon RPC 1.5(c)(3), the funds belong to the lawyer and may not be put in the lawyer s trust account. But, the committee states, if no such agreement exists, the funds must be placed into the trust account and can only be withdrawn as earned. Refunding the Nonrefundable Fee When, if ever, does a lawyer have to refund so-called nonrefundable fees? The short answer is that lawyers must refund nonrefundable fees for work they agreed to do, but did not perform. See In re Sousa, 323 Or 137, 143(1996); In re Gastineau, 317 Or 545, (1993). As concisely stated by the Oregon Supreme Court, Any fee that is collected for services that is not earned is clearly excessive regardless of the amount. In re Thomas, 294 Or 505, 526(1983). When a lawyer has done part, but not all, of the work agreed upon in a fixed fee agreement, calculating a refund due may be complicated. Generally speaking, a lawyer must return the amount of a fixed fee that is proportionate to the amount of work not completed. See In re Okai, 23 DB Rptr 73 (2009);In re Vance, 20 DB Rptr 92 (2006). For instance, if a lawyer finishes half of the agreed upon work, half of the fee must be returned to the client. A lawyer may not simply calculate the refund required by subtracting the amount of money the lawyer would have charged for the work, had the lawyer charged an hourly rate. In re Balocca, 342 Or 279 (2007). Such an hourly rate computation in the fixed fee context would deny [the client] the benefit of the flat-fee arrangement. Id. at 292. Even completing substantial work does not relieve a lawyer from providing a refund of unearned fixed fees. For instance, in the case of In re Fadeley, the accused accepted $10,000 to represent his client in a dissolution proceeding. Although the accused did not obtain a written fee agreement, he believed that the payment was a nonrefundable minimum fee. 342 Or 403 (2007). The accused started working on the case, but about a month later, his client sent him a letter terminating the representation and asking 11-23

27 for a refund, less fees incurred. Even though the dissolution was not finished, the accused refused to refund any fees because he considered the fees to be nonrefundable. The court held that the accused violated our rules because he failed to provide a prompt 1 refund of the unearned portion of the $10,000 fee. Id. at (finding violations of DR and DR 2-110(A)(3)). Lawyers should also be careful to keep records of how they spend their time on fixed fee cases. Lawyers have an obligation to provide an accounting to clients of unearned fixed fees, upon request. RPC (d); RPC 1.4(a). Despite the challenges discussed above, fixed fee agreements are often a useful option for lawyers and their clients. Nonrefundable fixed fee agreements are generally held to the same standards as more traditional fee agreements, but lawyers should take care to understand the special requirements of 1.5(c)(3) and update their fee forms with the required language. Lawyers should also take a moment to consider the true meaning of so-called nonrefundable fixed fees. Endnotes 1. The Oregon Supreme Court has yet to provide guidance on whether a refund would be required when a client terminates an attorney in bad faith near the end of a matter. In OSB Formal Ethics Op No , the committee notes, [w]hether, or to what extent, a bad-faith termination by a client near the end of a matter requires a refund of fees paid in advance is a question beyond the scope of this opinion. ABOUT THE AUTHOR Amber Hollister is deputy general counsel for the Oregon State Bar. She can be reached at (503) , or toll-free in Oregon at (800) , ext. 312, or by at ahollister@osbar.org. Ethics opinions are published and updated on the bar s website here. An archive of Bar Counsel articles is available here Amber Hollister return to top return to Table of Contents 11-24

28 Oregon State Bar Bulletin JUNE 2006 Bar Counsel Waiting for 'Go' Dough: A primer on disbursing client funds By Sylvia Stevens One of the frustrating aspects of trying to offer assistance to lawyers about compliance with the Oregon Rules of Professional Conduct is, on occasion, not having an answer or even a suggestion about where the lawyer might look for an answer. A question that has put me in that situation a number of times over the years is "How soon can I disburse settlement funds to my client?" While Oregon RPC exhorts us to safeguard client funds, it offers no instructions on how to actually do it, beyond the basics of segregation, notification, prompt delivery and accounting on request. Cash settlements are rare; most settlement funds arrive in a lawyer s office in the form of a check or draft. As we all learned in law school, a check is only a "promise to pay." Until the payor s funds have actually arrived at the payee s bank (as "collected funds"), the settlement has not been paid. Accordingly, if a lawyer disburses the settlement funds too soon, the disbursement will overdraw the trust account or draw against the funds of some other client. Neither is a desirable outcome. Years ago when I was in private practice, my firm had a rigorously-adhered-to policy that no disbursement was made until at least 10 business days after the check was deposited. Presumably, that was the typical amount of time it would take for the deposit to become "collected funds" in the firm s trust account. Based on purely anecdotal information, I believed that this was common practice in the legal community. Moreover, it made sense to me. As a result, I suggested to lawyers who asked how soon they could disburse funds that they should wait 10 business days unless they could get satisfactory assurances from their friendly banker that a shorter time was safe. Of course, in the real world (where, as I am constantly reminded, I don t work), clients don t want to wait 10 business days for their money. It has been a long time coming, they need the money and waiting just isn t in their plans. Lawyers are caught between their duty of prompt delivery and their obligation to ensure that they don t draw against uncollected funds or against the funds of other clients. 1 This issue was highlighted recently in an unsatisfying discussion with a lawyer who wanted assurance that he could disburse his client s funds immediately, and who suggested that the bar should craft a rule creating a "safe-harbor" for lawyers in this situation. I suggested that we already have a rule, Oregon RPC , and that lawyers have an obligation to familiarize themselves to some extent with banking law. Taking my own advice to heart, a few minutes of noodling on the Internet turned up "A Guide to Regulation CC Compliance" on the Federal Reserve s website. Although designed to help financial institutions comply their legal obligations, it 2 is written in understandable language and is a good primer on "funds availability" rules. A caveat is in order here. I am not and never have been a bank lawyer, and I profess no expertise in what I am confident is a more complex area than the aforementioned guide suggests. My purpose here is only to share some very basic information. Certainly, there is more to this subject than what you will read here and this is not intended as and shouldn t be taken as authority on the topic. If you have questions about any of this information, I recommend further research or inquiry of your local banker. 3 Regulation CC sets out the maximum time a financial institution has for making funds available to customers, measured in "business days" after the "banking day" on which the deposit is made. Business days are Monday through Friday (excluding federal holidays); a banking day is any business day that the institution is open for substantially all of its activities. Note that Saturday is not a business day, even though it may be a banking day. The following deposits have "next-day availability," meaning that the funds must be available on the first business day following the banking day of deposit: 1. Cash deposited in person; 2. Electronic payments deposited into an account; 3. U.S. Treasury checks; 4. U.S. Postal Service money orders deposited into an account of the payee; 5. Federal Reserve Bank or Federal Home Loan Bank checks into an account of the payee; 6. State or local government checks deposited into an institution in the payor s state; 11-25

29 7. Cashier s, certified or teller s check deposited into an account of the payee; 8. Checks drawn upon the same institution if the branches involved are in the same state or check-processing region. Next-day availability does not apply to ATM deposits of types 1, 4, 5, 6 or 7. Funds from those deposits must be available on the second business day if the ATM is owned by the depositor s institution, otherwise by the fifth business day. For checks not listed above, the availability schedule is determined by whether the check is "local" or "nonlocal." A check is "local" if the paying institution and the depositor s institution are in the same check-processing region; funds from local checks must be made available by the second business day following the banking day of deposit. If the paying institution and the depositor institution are not in the same check-processing region, the check is "nonlocal," and funds must be made available by the fifth business day. 4 One other rule worth noting: the first $100 of any deposit not already subject to "next day availability" must be available by the first business day after deposit. In other words, if you deposit a nonlocal check, the first $100 of the funds must be available the next business day, but the remainder need not be made available until the fifth business day. Notwithstanding the next-day, two-day and five-day availability rules, institutions may delay for "a reasonable period of time" the availability of funds from certain types of deposits. A reasonable period is generally one additional business day (making a total of two) for checks drawn on the same institution, five additional business days (total of seven) for local checks, and six additional business days (total of 11) for nonlocal checks. An institution may impose longer exception holds, but has the burden of proving that the longer periods are reasonable. Customers who make deposits in person must be notified at the time of deposit that the funds availability will be delayed; the notice must include an explanation for the delay and the date on which the funds will be available. If the deposit is not made in person, the notice and delay information must be mailed to the customer not later than the first business day after the banking day of the deposit. The delay provisions of Regulation CC do not apply to funds from cash or electronic deposits. An institution may delay the availability of those funds in the following cases: Large deposits (although the first $5,000 must be available according to the regular availability policy of the institution). Redeposited checks (unless the check was returned for a missing endorsement or because it was post-dated and the deficiencies have been corrected). Deposits to accounts that are repeatedly overdrawn (i.e., the account had a negative balance on six banking days during the last six months or was overdrawn $5,000 or more on two banking days during the last six months). Reasonable cause to doubt collectibility (i.e., post-dated checks, checks more than six months old). Checks deposited during emergencies beyond the institution s control (may be held until the normal check processing is resumed). New customer accounts open less than 30 days (next-day availability applies only to cash, electronic deposits and the first $5,000 of any next-day item; the remaining amount of next-day items must be available by the ninth business day). It is important to remember that funds availability rules and policies only govern when an institution must allow withdrawal of deposited funds. The availability of funds does not guarantee that the deposited item ultimately will be honored on presentment to the paying bank. The institution on which a check is drawn has 48 hours to dishonor any instrument presented for payment. If the depositor s institution makes funds available before the payor institution has fully processed the check, there is yet a possibility that the check will be dishonored and the amounts charged back against the lawyer s trust account. All of this may be a long way of saying that my old "10-day" rule wasn t so outdated after all, especially with nonlocal checks or those that present other collectibility issues. Although the funds availability rules tell us the earliest date that funds can be withdrawn after deposit, they don t provide any guarantee that the check will actually be honored. Moreover, the funds availability rules govern banks, not lawyers managing their trust accounts. The "prompt delivery" requirement in Oregon RPC (d) does not mean that funds must be delivered before the funds are, in fact, collected. Lawyers risk violating the rule if funds are disbursed when they are available under Regulation CC but the check is subsequently dishonored. However, using the Regulation CC timelines will definitely reduce that risk. A banker colleague points out that the only way to be absolutely certain that a check is good is to confirm with the paying bank. She admits, however, that bankers consider such requests to be an administrative "nightmare" and will generally only do it only when they feel they are vulnerable to a loss, such as when dealing with flaky clients or suspicious activity. She recommends the 10- business day rule as a good general practice except for funds that are received by wire transfer. As with many disputes that arise between clients and lawyers, education and better communication may be the most important deterrent. Lawyers should inform clients early in the representation about the lawyer s own funds availability rule so that when funds are received, the client will be aware of and understand the reason for the wait time. Understanding the applicable banking regulations, establishing one s own policy and informing clients in advance are simple steps to assure compliance with our obligations as fiduciaries of our client s funds

30 10/11/2016 Endnotes 1. This may be a more acute problem in real estate transactions closed by lawyers, which is apparently a common practice in many jurisdictions including South Carolina, North Carolina, Georgia and Florida. Those jurisdictions have either adopted or are considering the adoption of "good funds" laws or rules of professional conduct which purport to limit disbursement to collected or credited funds. The laws and rules are riddled with exceptions, however, which seem to boil down to allowing disbursement when the lawyer has a reasonable belief that the check in question is virtually certain to be honored on presentment. 2. To read the real thing, see 12 USC 4001 to 4010 (the Expedited Funds Availability Act), 12 USC 5001 to 5018 (the Check 21 Act), and 12 CFR Financial institutions may made funds available sooner if they choose; Regulation CC also allows an institution to extend the time within established limits on a case-by-case basis. 4. There are exceptions to the two and five day availability rules and additional information can be found at section of Regulation CC Sylvia Stevens ABOUT THE AUTHOR Sylvia Stevens is general counsel of the Oregon State Bar. She can be reached at (503) Or (800) , ext. 359, or by at sstevens@osbar.org. return to top return to Table of Contents 11-27