Samuel C. Stretton. Samuel C. Stretton.

Recent decision helps to clarify what law-related activity really means.

I am a suspended lawyer and want to work with a business or as a real estate agent. The Pennsylvania Rules of Disciplinary Enforcement, Rule 217(j) prohibits me from being involved in law-related activity. Almost every job in business has some aspect of law. Where is the line drawn?

The phrase law-related activity has brought some confusion to many persons since there is really no case law in Pennsylvania which defines what it means. On June 27, the Disciplinary Board of the Supreme Court of Pennsylvania in a unanimous decision helped to clarify what “law related” means. The case is known as In the Matter of Marc Manoff, petition for reinstatement; No. 1701 Disciplinary Docket No. 3; No. 10 DB 2011 (June 27, 2018).

Manoff had been suspended for five years on a consent discipline with the suspension retroactive to March 2011. As a practicing lawyer, Manoff was involved in businesses and had a commercial, business type of law practice. Once he was suspended, Manoff acted as a business consultant. He helped prepare marketing plans for various businesses that paid him fees for doing so. His plans suggest ways of fundraising. The plans may have mentioned the law in passing.

The Hearing Committee had recommended Manoff’s reinstatement to the practice of law despite Disciplinary Counsel’s objections that those types of activities were law related. The Office of Disciplinary Counsel took exceptions to the Disciplinary Board from the Hearing Committee Report. The matter was briefed and argued before the Disciplinary Board with the resulting opinion appearing on June 27, affirming the recommendation of reinstatement. Of course, the case now goes before the Pennsylvania Supreme Court on de nova review.

The Disciplinary Board in its opinion and recommendation noted that the Office of Disciplinary Counsel argued that while under suspension Manoff held himself out as a lawyer and engaged in consulting-type businesses, which were law-related activities, and therefore, impermissible. There was an additional twist in the case since Manoff, in 2011, before his suspension and shortly afterwards, had published an internet article about himself, which emphasized his prior legal practice. The Disciplinary Board found Manoff took no further action of holding himself out in that capacity after 2011 and found that the press release did not rise to the level to require discipline or deny reinstatement.

The Disciplinary Board then addressed the issue of Pennsylvania Rules of Disciplinary Enforcement, Rule 217(j), which prohibits a formerly admitted attorney from engaging “in any form of law related activities in this commonwealth.” The court quoted the case of Office of Disciplinary Counsel v. Marcone, 855 A.2d 654 (Pa., 2004). The Pennsylvania Supreme Court noted that rule includes the practice of law, but the rule did not establish a standard for what constitutes the practice of law, and that would have to be decided on a case-by-case basis. The Disciplinary Board then noted that the Pennsylvania Supreme Court, in the Marcone case, noted three categories that might be considered law related. The first was the instruction and advising of clients in regard to the law so they could pursue their affairs and be informed of their rights.  The second was the preparation of documents for clients requiring familiarity with legal principles beyond that of an ordinary layperson. The third was the appearance on behalf of clients before public tribunals in order that the attorney may assist the deciding officer in the proper interpretation and enforcement of the law. The board noted the court also held that the practice of law is implicated by holding oneself out to the public as competent to exercise legal judgment and having the qualifications to act in a representative capacity.

The Disciplinary Board in using the above analysis concluded that Manoff’s activities in providing business planning did not amount to the instructions and advising of clients in regard to the law so they might pursue their affairs and be informed as to their rights and obligations.  The Board noted the business plans directed by Manoff referred to laws and regulations, but such references did not rise to the level of providing instructions or advice. The bard, therefore, found that his conduct did not rise to the level of engaging in law related activities.

The board noted that Manoff’s business consulting service did not amount to the preparation of documents for clients requiring familiarity of legal principles beyond the knowledge of ordinary laypersons. The Disciplinary Board noted that the business plans that were introduced as evidence required some familiarity with businesses using law and legal issues. The Disciplinary Board noted as follows:

“While it may be impossible to completely separate a general understanding of business issues from a general understanding of legal issues bearing on a business, we conclude that the petitioner did not engage in proscribed activity in drafting business plans for his clients. There    is no evidence in this matter that the petitioner intended to draft or that his clients intended to receive legal documents. Rather, petitioner’s intent in drafting such plans was to reduce the complex, scientific and business issues to terms understandable to laypeople.”

The Disciplinary Board noted that Manoff did not prepare legal documents. The Disciplinary Board also noted that Manoff was not providing legal services or advice to the recipients of the business plans. The Disciplinary Board found no evidence that Manoff had appeared before public tribunals. The Disciplinary Board concluded that Manoff’s drafting of business plans for business organizations was not a law-related activity.

This is an important decision and now provides some guidance in this area of law-related activity. But, the opinion still leaves open a major area of concern for suspended attorneys.

The question becomes, for instance, a real estate agent who is a suspended lawyer. If he fills out a pre-printed agreement of sale and adds figures and names, is that preparing a legal document? Many lawyers over the years, while suspended, have acted as real estate agents. What if a lawyer is acting as an insurance broker, which many suspended lawyers do, and fill out insurance documents and things of that nature or beneficiary forms? Are these considered law-related activities? Lawyers have been reinstated in the past when they have worked as real estate or insurance brokers during their suspension.Is that going to change now? But there is an ambiguity there. A suspended lawyer who works in the Human Relations Department of a business may have to be very careful if they start filling out forms for people if there are issues of discrimination or things of that nature.

The Manoff decision helps to clarify, but still leaves many unanswered questions. Perhaps the Supreme Court will take a look at this issue in Manoff or in any other cases, and provide a full clarification that is needed so there is no uncertainty for a suspended lawyer who is working in business or real estate or in another professional capacity.

Nonqualified funds, that are a large amount, should go in an interest-bearing escrow account.

I am an attorney and I am holding monies in my IOLTA account. It turns out I will have to hold these funds for a longer period of time than several weeks. When do they become nonqualified funds?

The question is a good one, but has no direct answer and common sense will prevail. First, what are qualified funds or a qualified account? The Pennsylvania Rules of Professional Conduct, Rule 1.15 titled “Safekeeping Property” is the rule requiring IOLTA accounts and qualified funds or accounts. Under Rule 1.15(a)(3), holding funds for another are either qualified funds or nonqualified funds. Qualified funds under Rule 1.15(a)(3) are to be placed in an IOLTA bank account approved by the Pennsylvania Supreme Court where the funds may be withdrawn upon request as soon as permitted by law. Under Rule 1.15(a)(7), nonqualified funds are to be placed in a trust account or a general escrow account, where the funds may be withdrawn upon. This would not be an IOLTA account, but an escrow account that would bear interest and the interest should be the client’s money.

Rule 1.15(a)(9) defines qualified funds as follows: “Qualified funds are those which are nominal in amount or reasonably expected to be held for a short period of time that sufficient income will not be generated to justify the expense of administering a segregated account.”

Qualified funds are placed in an IOTA account. Nonqualified funds go into an escrow account that is interest bearing for the benefit of the client.

The question is, how much and how long? If one is given just a small amount of funds, for instance, a couple hundred dollars, to hold in IOLTA, then those funds could be kept there probably beyond a month. But, if one is given a substantial amount of funds, then they should not be held in IOLTA for more than one to two, maybe three weeks at most. The funds should then be put in an interest bearing account so the client can get the benefit of the monies.

Lawyers who handle estates and at times put the estate monies in their IOLTA account until distribution are making a terrible mistake. These monies should be put in either an estate account or a separate non-IOLTA interest bearing account so the estate can get the benefit of the interest. Funds held long-term are no longer qualified funds. There is no set rule as to the duration of funds in the IOLTA account. But common sense would apply. If for some reason a lawyer receives a million dollars, then that money should get out of the IOLTA account within a matter of days and into an interest bearing account because there could be a substantial amount of interest over the next month or two. On the other hand, if the monies are maybe one to three thousand dollars, then that amount can remain for about a month in the IOLTA account before the funds have to be moved.

Some lawyers maintain separate tax accounts to hold their employees’ taxes until the monthly distribution is made. The question is, should that be put in a non-IOLTA account, i.e., a general escrow account. The answer is no, because those monies are going to be paid out every 30 days, as required by the tax law. But, if for some reason those monies were held more than 30 days, then they should go into an interest-bearing, non-IOLTA account.

In conclusion, qualified funds are held only briefly in IOLTA. Nonqualified funds that are a large amount or are not going to be held for just a short period of time, have to go in the interest-bearing escrow account. Many law firms still don’t grasp that difference and make the mistakes of maintaining substantial funds for longer periods of time in their IOLTA account, which they should not.

There have not been a large number of disciplinary cases involving this issue. Oftentimes a letter of concern or education will be given to a lawyer. But the day could come when someone could receive more serious professional discipline, particularly if it involves a large amount of funds and the client lost money due to the failure of the firm to distinguish between qualified and nonqualified funds.

Chester County lawyer Samuel C. Stretton has practiced in the area of legal and judicial ethics for more than 35 years. He welcomes questions and comments from readers. If you have a question, call Stretton directly at 610-696-4243 or write to him at 301 S. High St. P.O. Box 3231, West Chester, Pennsylvania, 19381.