Samuel Stretton
Samuel Stretton ()

The Office of Disciplinary Counsel is enforcing new recordkeeping requirements.

Are the recordkeeping requirements set forth in the Rules of Professional Conduct and the Rules of Disciplinary Enforcement being enforced?

As has been said in many articles and lectured in many ethics CLE courses, the requirements to maintain escrow records were changed several years ago. Unfortunately, many lawyers aren’t following these rule changes. At the time, many people disputed the then-proposed rule changes believing that recordkeeping itself shouldn’t be the basis to discipline a lawyer. But, those arguments were lost. One of the biggest problems has been in the past that the Office of Disciplinary Counsel had difficulty prosecuting lawyers timely when there were issues of misuse of funds because the lawyers didn’t have any records. This resulted in long delays when the records were obtained from the banks. As a result, the present rules were passed to Rule of Disciplinary Enforcement 221 and Pennsylvania Rule of Professional Conduct 1.15.

Pennsylvania Rule of Disciplinary Enforcement 221 sets forth very clearly what records lawyers have to keep and maintain. Rule 221(e) requires all records to be preserved for five years after the termination of attorney-client relationship or after the distribution of funds or distribution of property, whichever is later. All records that are given to the attorney by the bank, such as bank statements, cancelled checks, deposited items and records of electronic transactions must be maintained, see Pennsylvania Rule of Disciplinary Enforcement 221(e)(1) and (2). Also, under 221(e)(2), a check register or separately maintained ledger has to include the payee, date, purpose, and amount of each check, withdrawal and transfer and amount of each deposit.

If the account is an Interest on Lawyers’ Trust Account (IOLTA) where multiple clients’ funds are used, the lawyer has to maintain an individual ledger for each client showing the source of the funds, the amount, nature of the funds, description, withdrawals, names of persons who the funds were disbursed to and the dates. These trust ledgers have to have a running balance and must agree with the total balance in the escrow account.

Under Rule 221(e)(3), there has to be a monthly reconciliation of all the fiduciary accounts, including the IOLTA account. The lawyer has to preserve for five years copies of all records to prove compliance.

Rule of Professional Conduct 1.15 was also amended several years ago to state the same requirements. Under Rule 1.15(c)(1)(2)(3) and (4), the same requirements are set forth with the five-year record keeping requirement.

One of the major issues is under Rule 1.15, a lawyer cannot deposit their own funds in a trust account except for a small amount for paying service charges. That has to be a de minimis amount of about $100 to $150 at most.

The big issue now is that under Pennsylvania Rules of Disciplinary Enforcement 221(g), the fiduciary records for the escrow account have to be readily accessible to the lawyers and available for production to Pennsylvania Lawyers Fund for Client Security and the Office of Disciplinary Counsel in a timely fashion. This is a serious burden, but a requirement now placed on all lawyers because of the above changes. Under Pennsylvania Rule of Disciplinary Enforcement 221(g)(1), if Disciplinary Counsel sends a letter requesting the records they have to be produced within 10 business days of the service of the letter. Ten days is an awfully short period of time. If one maintains the records properly, then there is no problem. Unfortunately, many lawyers do not.

Under Rule of Professional Conduct 221(g)(3), failure to produce the records within that time period can result in a temporary suspension or other relief if the disciplinary counsel seeks enforcement.

Many of the above rule amendments were made in 2014. The Office of Disciplinary Counsel, of course, publicized the amendments, but did not initially vigorously enforce the 10-day requirement allowing time for lawyers to get in compliance.

Recently, at least in District I and District II offices (and presumably in District III and District IV), the Office of Disciplinary Counsel has become much more aggressive. If there are questions of lawyer’s improper handling of escrow funds and then there is a request for all of the records, including bank statements for, oftentimes, a year or two, checks, deposit slips, the ledger sheets and the reconciliation records. Failure to produce these can result in the disciplinary counsel seeking suspensions on a temporary basis.

Lawyers should be aware that the Office of Disciplinary Counsel is now starting to seek enforcement of the 10-day production requirement.

Having said this, these rules are clearly burdensome to small firms and solo practitioners. Monthly reconciliations and maintaining all these records is difficult for a small firm that is living on the margin and not able to hire a full or part-time bookkeeper. But, that’s not an excuse anymore.

These record production requests often arise when a lawyer misuses an escrow account, such as using an escrow check to pay personal expenses, annual fees, CLEs or writing an escrow check that is not honored due to a lack of sufficient funds. When that happens, it goes initially to the client security fund and unless there is some sort of bank error it is referred over to the disciplinary board. When that happens, routinely there is a request for all bank records and depending on the circumstances, that could be for three to six months or it could be for one to two years.

In conclusion, the answer to the question is yes, the Office of Disciplinary Counsel—now a year and a half or so into this new rule changes—is starting to get aggressive in enforcing the 10-day request for records. As a result, all lawyers have to reform their recordkeeping practice and start these reconciliation processes. If lawyers ignore these rules, there are going to be some sad stories down the line where people may be placed on a temporary suspension which, obviously, could be devastating to one’s practice.

Therefore, despite the expensive and burdensome nature of complying, there is no choice but to comply. The days of arguing whether it’s too burdensome for lawyers and it’s unfair to small firms is long past. This is what is required and lawyers should start rethinking how they are handling their IOLTA and escrow accounts.

There has been a lot of wonderful improvements to the practice of law.

I often hear older lawyers state how great it was to practice law 40 or 50 years ago. What is the biggest difference between practicing law now and then?

Older lawyers, like me (who has practiced for 40-plus years), at times do look back and wish some of the aspects of practicing law were the same now as they were then. But, it’s really a foolish wish since there are so many wonderful things that have enhanced the legal profession since 40 or 50 years ago.

In years past, it wasn’t quite as big, there was more camaraderie, lawyers were more respectful of each other, there was a lot more business, it was easier to make a living and the time pressures were not quite the same.

But, in reality, it was not the greatest of times. Perhaps for a white male lawyer 40 to 50 years ago was a good time, but if one was a black male or a black female or any woman attorney or any nonwhite attorney, times were not so good. There was a great deal of discrimination. There were very few minorities practicing law and very few women. This lack of diversity was a loss to the bar. Anyone who practices now realizes how enriching it is to have a diverse bar and a diverse bench. The old discriminations don’t exist as they once did.

Further, in this modern world, it is a much more level playing field. Forty or 50 years ago, the big firms had these wonderful libraries and everyone else had a few law books and had to run to the Jenkins Law Library in Philadelphia or attempt to gain access to one of the law school’s libraries. It was often difficult because many libraries would close at 5 p.m. and for trial lawyers who were on trial most of the day and had briefs to write, there was no place to go. Computer research software such as Westlaw and Nexis, have been great levelers. All firms, whether big or small, have access to all the same cases and so the quality of lawyering is much better.

Electronic filing has helped many lawyers. The only sad part about electronic filing is the loss of personal contact. There is something to be said about getting to know all the clerks and officers in the Prothonotary and Clerk of Court and Register of Wills Office. That happened when one would have to physically file. Nowadays, there is not the same knowledge or closeness. Similarly, in days of old, judicial chambers were open and one could walk in and out and say hello to the judge’s secretary. Nowadays, it’s rare one sees a judicial secretary because they are usually in areas where the public and lawyers don’t have ready access. On the other hand, this lack of ready access is good because it creates a barrier between the bench and bar and there has to be such a line drawn.

One downside of the modern practice is constant emails, faxes and constant overwhelming and many times useless over-communication. But, the younger generation is used to handling that. It’s the older lawyers who, at times, suffer through what appears to be endless 24-hour-a-day inquires and letters and need to respond to something.

Further, despite nostalgia, on the whole the practice of law is in a much better place. That is not to say that the modern world can’t be better. But, the days of discrimination against women and minorities is slowly passing. The bar is greatly enriched by its diversity. And the quality of lawyering seems to be far better. The downside, of course, is lack of business due the modern economic problems and perhaps an oversupply of lawyers.

The modern legal profession is in a great state of transition and all lawyers should seek to provide leadership as to the direction and the future of the legal profession. But, the bottom line is the legal profession is a service business. This basic concept must never be forgotten. Law is a service business and will still need the personal touch with the educated and knowledgeable approach. Modern technology and future suggestions of artificial intelligence can only go so far. The personal aspects of the legal profession must be maintained. These issues are for the next generation of lawyers to deal with and this current generation should start to provide some leadership in that regard. •