Samuel Stretton ()
Lawyers must be cautious about
practicing in multiple jurisdictions.
I am a lawyer licensed in Pennsylvania, but at times I get cases in New Jersey and Delaware from people I know. If the matter goes to litigation, I retain local counsel and then file a motion pro hac vice. But I handle the cases myself until that point. Is that permissible or does it violate the rules about unauthorized practice of law in those jurisdictions?
The question is a timely one and an issue all lawyers have to be careful of. Delaware in particular has been extremely harsh in prosecuting Pennsylvania lawyers for the unauthorized practice of law and seeking suspensions, if not disbarment.
At least in one case, a lawyer was disbarred because she handled first-party insurance matters in Delaware. She had local counsel if the matters went to trial. She also had an oral opinion from the Pennsylvania Bar Association saying she could do that. She made the mistake of attending and handling an insurance hearing when the local counsel didn’t show up. Because she had a number of cases, the Supreme Court of Delaware found her in violation of rules against the unauthorized practice of law and disbarred her. She was disbarred even though she was not admitted in Delaware. As a result of that disbarment, she was then disbarred in Pennsylvania based on reciprocal discipline.
Delaware’s harshness seems foolhardy to some extent, because many of their corporate lawyers give advice to Pennsylvania and other states’ clients without being licensed there. The Delaware Supreme Court appeared to only view the supposed misconduct from the perspective of out-of-state lawyers and not look at the conduct of their own lawyers. Those decisions should be very worrisome to any corporate or business counsel who have a multijurisdictional practice but are only admitted in one state.
The appropriate rule to look at is Rule 5.5, “The Unauthorized Practice of Law in Multijurisdictional Practice.” Although this law is still fairly stringent, it was meant to recognize the fact that multijurisdictional practice is occurring more and more. This has happened because of modern technology. Concerns of the past that a lawyer could not be fully informed of the law in another jurisdiction have slowly dissipated because of the access to computerized legal research programs where any lawyer can have easy access to all the laws in any jurisdiction.
Under Rule of Professional Conduct 5.5(a), a lawyer cannot practice in another jurisdiction. Under Rule 5.5(b), a lawyer not admitted in the state cannot hold himself or herself out and have a systematic and continuous presence in that state.
But under Rule 5.5(c), there is some flexibility. A lawyer can provide some legal services on a temporary basis in another jurisdiction. Temporary is emphasized. That can occur if the lawyer has undertaken association with a lawyer who is admitted to practice in the other jurisdiction and actively participates in the matter. It can also occur if the lawyer has a reasonably related or pending case in another jurisdiction and has another lawyer assisting. It can also occur if the lawyer is reasonably related to pending or potential arbitration or mediation of a proceeding in another jurisdiction or, finally, if the case is reasonably related to the lawyer’s practice in the lawyer’s jurisdiction.
Obviously, these are very limited activities and there is a need for local counsel. The best practice for a lawyer handling a case in another jurisdiction is to get a pro hac vice admission.
The warnings are clear. If a lawyer is handling other cases, such as first-party insurance cases, there cannot be numerous cases. There cannot be a systematic presence. The lawyer’s involvement can only be temporary.
Under Comment 10 to Rule 5.5, the following is noted:
“Paragraph (c)(2) also provides that a lawyer rendering services in this jurisdiction on a temporary basis does not violate this rule when the lawyer engages in conduct in anticipation of a proceeding or hearing in a jurisdiction in which this lawyer is authorized to practice law or which the lawyer reasonably expects to be admitted pro hac vice. Examples of such conduct includes meeting with the client, interviews of potential witnesses and a review of documents.”
Probably one of the biggest changes in the next 40 or 50 years in the practice of law will be the rapid expansion of multijurisdictional practice and the loosening of these rules about unauthorized practice of law. But there will be some battles before that occurs.
Anyone who has come up against the unauthorized practice of law complaint, particularly in Delaware, and to a lesser extent in Pennsylvania, knows how hard local bar associations fight to maintain the integrity of their bars and to prevent lawyers from other states from taking business.
That may well be true, but the days of provincial law practicing where a lawyer is limited to one jurisdiction are rapidly disappearing with technology. Multijurisdictional practice is now becoming accepted. More and more, the rules will be loosened and perhaps there may someday be a national law license, although that might not be desirable. There is something about keeping law to some extent anchored in local admission that helps to maintain the integrity and essence of being a lawyer.
Further, any lawyer practicing in multiple jurisdictions has to be careful. At least for me, it is hard enough to keep up with the changes in the law in Pennsylvania. Having a multijurisdictional practice with differing laws on various subjects might be doing a disservice to a particular client.
The bottom line is if a lawyer is venturing in other jurisdictions, the word “temporary” must be foremost in his or her mind. Second, pro hac vice and local counsel have to be utilized. Pennsylvania itself in disciplinary proceedings has been very tough on the unauthorized practice of law, and often suspended attorneys for at least a year and a day when they continue to practice law when their law license is placed on inactive status due to failure to timely pay the annual fee or failure to maintain the required CLE.
Therefore, lawyers who are practicing in other jurisdictions at times walk unknowingly into legal and ethical landmines. The last thing a lawyer wants to do is to be suspended or sanctioned in another jurisdiction and face reciprocal discipline in his or her jurisdiction with the resulting loss of livelihood.
Therefore, any lawyer practicing in multiple jurisdictions but licensed in only one ought to carefully review his or her practice and conform the practice to some of the concerns and requirements as set forth in Rule 5.5.
Lawyers should pay close attention to
financial record-keeping requirements.
I am a young lawyer starting my practice. I just opened my IOLTA account and my operating account. What are the record-keeping requirements that I should comply with?
Clearly, by the question, the young lawyer is on the right track. Having an operating account and an IOLTA/escrow account is critical. Sometimes it amazes me how many lawyers don’t have an escrow account if they are not practicing in personal injury law. There is always a need for an escrow account. Client costs have to be placed in an escrow account until spent, under Rule 1.15. Further, unless the fee is nonrefundable, fees have to be placed in the escrow account until earned under Rule 1.15.
Also, a young lawyer should recognize that the IOLTA/escrow account is only for a short-term holding of funds. Any funds of a significant amount to be held longer than several weeks’ duration have to be placed in an interest-bearing escrow account under Rule 1.15. The purpose of that is to provide interest to the clients. Obviously, the interest goes to the client and not to the attorney. Lawyers who handle estates with potentially significant sums of money that come into the lawyer’s possession from sale of property and bank accounts should not allow these funds to be held for several months or years in an IOLTA account, because the estate is not getting interest. That money should be put in a separate estate account that bears interest.
Financial records under Rule 1.15(c) have to be maintained for a period of five years after the termination of the lawyer-client or fiduciary relationship. Under the same Subsection (c), the requirements for what records are to be maintained are set forth. The rule requires all transaction records provided to the lawyer by the financial institution, such as periodic statements, canceled checks, deposited items and other records of electronic transactions. Second, the lawyer has to maintain a ledger sheet, which includes the payee, date and amount of each check and withdrawal and the matter involved in each transaction. Third, the records required by this rule may be maintained electronically or in paper form. If the records are kept only in electronic form, then such records should be backed up, at least monthly, in a separate electronic storage device.
The minimum record-keeping requirements, for at least five years, are all bank statements, all deposit slips and all canceled checks (assuming the bank gives them to you). If there are no hard copies, there has to be a monthly backup in separate electronic storage devices. Perhaps most importantly, for every client, there has to be a separately maintained ledger. That can be done electronically or on paper, but it must be available. That ledger should show every activity that occurs with the money being held and should contain a running balance.
Unfortunately, many lawyers (sometimes it seems like all lawyers) don’t do that. When there is an issue concerning the handling of funds by a client complaining to the disciplinary board, the board or the client security fund, if there is an insufficient check on the escrow account, will require bank records for six months or longer. It is amazing how many lawyers don’t have their bank statements or deposit slips. Also, it is amazing how many lawyers don’t have ledger sheets.
The days of one’s accounting supposedly being in the back or inside the file folder disappeared 40 years ago. Unfortunately, many lawyers haven’t realized that, and it seems like many of the small personal injury firms don’t have the ledger sheet but still use their file folders.
Every lawyer right now should be able to, if asked, immediately pull his or her ledger sheet, either from the paper file folder or from a computer and say exactly how much money he or she is holding in the client’s account and what was spent.
The Pennsylvania Supreme Court and the Office of Disciplinary Counsel have been growing impatient, to some extent, with lawyers who don’t maintain these records. Failure to maintain the records also complicates the disciplinary enforcement process. If a complaint comes in to the Office of Disciplinary Counsel about the handling of funds, if the lawyer doesn’t have the records, it becomes a much more involved and expensive procedure. Subpoenas have to be issued and bank records have to be attained. This can be very costly and also delay matters for months.
There have been rumblings in the past that the Pennsylvania Supreme Court or the Office of Disciplinary Counsel might consider seeking sanctions against lawyers for not maintaining these records. All lawyers should keep that in mind and attempt to maintain the records for that five-year period.
One of the problems, as mentioned earlier, has been that banks don’t give canceled checks back like they used to. Sometimes banks will give photocopies, but many times that is not done either.
A wise lawyer might ask the bank, even if it costs a little more each month, to still provide these copies, front and back, of the canceled checks. But, at least in my experience with one major bank, that is almost an impossible situation.
But for a young lawyer starting out, it is a good practice to maintain all those deposit slips, all those bank statements, maintain check records with running balances, and maintain client ledger sheets with running balances. The maintenance should be for five years. Doing that will put a young lawyer in a far better position than many of his or her older contemporaries. Although sometimes it can be difficult to do for a lawyer who is already overly stressed and overly busy, it is a good practice and will save a lot of aggravation down the line if the records ever have to be produced.
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, Pa., 19381.