Supreme Court Adopts Amendments to Rule on Property Handling
On April 5, 2005, the Supreme Court of Pennsylvania put in place the last major piece of its complete overhaul of the Pennsylvania Rules of Professional Conduct, adopting changes to Rule 1.15 of the RPC, and also amendments to Rule 221 of the Pennsylvania Rules of Disciplinary Enforcement, creating new standards of conduct governing the handling of property of others by lawyers.
The changes to Rule 1.15 are extensive, and include the following:
- Lawyers are required to place all funds received from or on behalf of a client or third party either in a Trust Account complying with the requirements of the Interest on Lawyer Trust Accounts (IOLTA) program, or in "another investment vehicle specifically agreed upon by the lawyer and the client or third person which owns the funds."
- The rule specifically requires that when funds are held in trust pending a resolution of a dispute between competing claims to such funds, the undisputed portion of the funds must be released to the owner of the funds.
- There is a specific provision that legal fees and expenses of representation paid in advance must be placed in a trust account, and withdrawn only as they are earned or incurred.
The amendments to Rule 221 also impose substantive changes on the way lawyers must handle trust accounts and the funds of others. The rule defines a "Trust Account" as "an account in which an attorney, in accordance with Rule 1.15 of the Pennsylvania Rules of Professional Conduct, deposits funds received from a client or a third person in connection with a client-lawyer relationship, excluding funds which the attorney receives while acting as fiduciary for an estate, trust, guardianship or conservatorship."
Rule 221, for the first time, defines what records a lawyer must keep on a trust account to satisfy the requirements of maintaining appropriate trust account records. The rule requires that lawyers maintain the following records on a trust account:
- bank statements and check registers (which shall include the
payee, date, amount and the client matter involved); - all transaction records returned by the financial institution, including
canceled checks in whatever form and records of electronic transactions; and - records of deposits and a ledger separately listing each deposited
item and the client or third person for whom the deposit is being made.
The rule provides that these records may be maintained in electronic form, provided that they must be retrievable in printed hard copy, and they must be regularly backed up with an appropriate storage device.
The rule changes take effect upon their publication in the Pennsylvania Bulletin, which occurred on April 23, 2005. The rulemaking is published at 35 Pa.B. 2386.
The Order adopting the changes is available online here. The text of the changes has been incorporated into the Rules of Professional Conduct and the Rules of Disciplinary Enforcement at this site; the changes in the text may be viewed in the published text here.