December 2011 • Volume 99 • Number 12 • Page 604
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What’s the best way out of an ethical pickle?
Taking quick remedial action and preemptive self-reporting can be the best way to handle a disciplinable blunder, ethics authorities advise.
We lawyers are governed by the Rules of Professional Conduct and, indisputably, should follow them at all times. But even the most conscientious of lawyers are human and sometimes make mistakes. How can lawyers finding themselves in a professional pickle control the damage, both to their clients and to their own law licenses?
ISBA First Assistant Counsel Melinda J. Bentley presented the following hypothetical to her audience at ISBA's 2011 Solo and Small Firm conference, held in October in Springfield:
Lawyer Jones is a solo practitioner with a growing client base, and hires her cousin, Sally, a non-lawyer, to be her bookkeeper and secretary. Sally took an accounting class in college, and Lawyer Jones figures Sally will not have any trouble managing her client trust account and her business account. Lawyer Jones gives Sally signatory authority on both accounts. Sally falls on hard times, and is desperate for money to pay her rent and other bills. Sally decides to start writing checks to herself from the client trust account to cover her personal expenses. Lawyer Jones does not ever check the bank statements, and does not realize the funds are quickly dwindling. Sally starts writing checks from the firm's business account to cover the shortfalls in the client trust account. This goes on for over a year. One afternoon, Sally was out of the office, and Lawyer Jones receives a call from the bank indicating that there are insufficient funds to cover a check written from the client trust account. Lawyer Jones instructs the bank to transfer funds from her personal account to cover the check, and confronts Sally the next day about the shortfall. Sally confesses all to Lawyer Jones.
"What steps should Lawyer Jones take upon learning of Sally's actions?" Bentley asked her audience.
Chicago lawyer George Collins, who's represented many lawyers defending complaints before the Attorney Registration and Disciplinary Commission, analyzed Bentley's hypothetical for LawPulse.
RPC 1.15, Safekeeping Property, governs lawyer trust accounts. Amended effective September 1, 2011 (see LawPulse, New IOLTA requirements effective September 1, September 2011 IBJ), the rule spells out lawyers' trust account recordkeeping requirements in detail. Among other things, the rule requires lawyers to reconcile ledger balances with client trust accounts and prepare and maintain reconciliation reports of all client trust accounts on at least a quarterly basis.
Lawyer Jones's failure to check the bank statements for her trust account, then, is one obvious violation of the Rules of Professional Conduct. Moreover, Lawyer Jones's failure to check up on Sally's performance is not reasonable and, therefore, very likely constitutes a violation of RPC 5.3.
"You can't assume that the nicest people in the world are also honest," Collins remarks. "There is no presumption of innocence for people who you supervise." The quarterly reconciliations required by RPC 1.15 are part of a mandated system of checks and balances for lawyers and their bookkeepers that, if performed as required, will minimize the damage from the Sallys whose troubles tempt them to rob Peter the client to pay Paul the creditor.
As amended, RPC 1.15 also requires banks to agree to notify the Attorney Registration and Disciplinary Commission of any client trust account overdrafts in order to be eligible to maintain IOLTA accounts. Though the rules do not require lawyers to report themselves to ARDC absent a felony conviction or a disciplinary sanction in another jurisdiction, Collins suggests that Lawyer Jones might best control the damage from Sally's misfeasance by reporting herself to the agency. "That way, ARDC has her version as the first paper in its file."
"ARDC might close the matter"
Lawyers finding themselves in Jones's situation should be sure to specify what remedial action they have taken in their self-report, Collins says. Examples, he suggests, might include the very action Bentley's hypothetical Lawyer Jones took on discovering Sally's malfeasance, that is, covering the bounced check with her own funds. Collins also insists that those lawyers must employ an outside accounting firm to commence an audit of the lawyer's accounts forthwith. And, of course, on learning of a problem, lawyers should recheck their office procedures and make sure that they are in compliance with RPC 1.15.
"You should never bounce a check," Collins says. "Sometimes banks make mistakes." Citing RPC 1.15(b), Collins recommends, "Have an extra thousand dollars in your client trust account in case there's ever a problem."
Collins's advice accords with ARDC Chief Counsel James Grogan's general commentary on RPCs 1.15 and 5.3. "We would hope that a lawyer would take reasonable steps to remedy a trust account problem, including an investigation and restoring funds that have gone missing as soon as possible." Though Grogan does not comment on specific fact patterns or provide advisory opinions, he said that "there might not be a disciplinable event" if a lawyer takes reasonable and appropriate corrective action on learning of such an issue.
While there are never any guarantees, and while Collins emphasizes that whether to self-report depends on all the circumstances of an individual matter, he believes a lawyer in Lawyer Jones's situation who takes prompt and effective remedial action might escape disciplinary sanctions. Be sure to cooperate with the administrator and to volunteer in your self-report that you will do so, he advises. "ARDC might close the matter."