The Attorney Grievance Commission publishes annual statistics on discipline, which repeatedly show that few ethics matters are so serious as to jeopardize an attorney’s license to practice.
The most common violations for which disbarment is a potential consequence stem from mishandling client funds and intentional misrepresentations. Intentionally lying to a court or a client is obviously wrong and should jeopardize one’s license. But financial matters – outside of knowingly taking client funds — are not always as simple. Indeed, discipline resulting from Interest on Lawyers’ Trust Accounts mistakes can be intentional or negligent, and matters may arise from commingling and record-keeping violations.
The primary authority for IOLTA accounts is Maryland Rule 19-301.15 (Safekeeping Property) and Chapter 400 of Title 19 of the Maryland Rules (Attorneys). Rule 19-301.15 generally requires lawyers to keep the property of clients and third persons separate from the lawyer’s own property. Under Subsection (a), a lawyer must keep funds separate in an account maintained as required by Title 19, Chapter 400. The lawyer also must keep records as per Chapter 400 and maintain them for five years.
Chapter 400 is both comprehensive and easy to follow. The rules require attorneys to (1) establish an IOLTA account at an approved institution (Md. Rule 19-403); (2) deposit required funds into the IOLTA account (Md. Rule 19-404); and (3) create and keep records of all transactions and (4) reconcile the account every month (Md. Rule 19-407).
Commingling, or keeping the lawyer’s own funds in an IOLTA account, is prohibited, except when funds belong to third parties and the lawyer (Md. Rule 19-408). In these situations, the lawyer’s funds should be withdrawn “promptly” when the attorney becomes entitled to the funds.
Rule 19-410 details the three prohibitions on IOLTA accounts: Lawyers may not (1) borrow from or against or pledge IOLTA funds, (2) draw cash from their IOLTA accounts, and (3) have a negative balance. In fact, bouncing an IOLTA check triggers a notice to bar counsel and an investigation. Once an inquiry is opened by bar counsel because of a non-sufficient funds notice from an IOLTA account, an audit of the entire account is usually necessary.
One concern often raised is the lawyer’s obligation regarding disputed funds. Common situations are claims by third parties to settlement funds or a fee dispute. In these situations. Rule 1.15 requires the disputed funds to remain in escrow. Whether funds actually are disputed depends on the facts of a particular case. Comment [5] dictates that a third party’s claim must be valid, lawful and not frivolous for an attorney to withhold funds from a client based on the third party’s claim.
Another concern that arises in IOLTA disciplinary cases is the timing of disbursements. The cases interpreting Rule 1.15 require counsel to promptly return client funds or funds belonging to third parties, including lienholders, “promptly” along with an accounting. What determines “promptly” is an issue of fact based on each case. However, for clients, funds should generally be paid within a few weeks and liens should generally be paid within three months.
For small firms, we recommend using a case-management system designed to track IOLTA funds (such as MyCase) or Quickbooks. For larger firms with an administrative staff, we recommend policies designed to ensure regular, comprehensive attorney oversight over the IOLTA account. Use of these systems and software generally prevents escrow account errors.
While not all errors can be prevented and despite the potential for a severe sanction, not all IOLTA matters end with disbarment or an indefinite suspension. Like all other matters, the facts and circumstances of each case, the reasons for the rule violation and the availability of mitigation evidence dictate the sanction. But, in the case of client funds, a good preventative system is the best way to avoid an encounter with the disciplinary system.
Craig Brodsky is a partner with Goodell, DeVries, Leech & Dann LLP in Baltimore. For over 25 years, he has represented attorneys in disciplinary cases and legal malpractice cases, and he has served as ethics counsel to numerous clients. His Legal Ethics column appears monthly in The Daily Record. He can be reached at csb@gdldlaw.com.
This article originally appeared in The Daily Record on May 9, 2024.
Goodell DeVries defends various professionals in Maryland, the District of Columbia, and Virginia, including lawyers and law firms. Many of these cases are ethics matters involving Bar Counsel. If you have questions about the above or are a Maryland lawyer facing discipline, please contact us at EthicsHelp@gdldlaw.com.
