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| This is what lawyers call: "Not fun." |
By Elizabeth Kruska
If you go hire a lawyer, depending on what the legal issue is, you might end up paying the lawyer a retainer that goes into the lawyer’s client trust account. I always explain the trust account retainers like this: it’s always the client’s money. It always belongs to the client. (There are some exceptions with flat earned-at-the-time-of-payment fees and the like, but this is the usual course). I just hold onto it in my special trust account, and I earn against what’s there. Then when I have earned that money, or paid out a particular expense, it comes out of the client’s money. If there’s money left when we’re done, it goes back to the client.
The other thing about this is that under the rules, lawyers are supposed to use a pooled, interest-bearing account. This does a couple things. First, it prevents a situation where lawyers would have to open brand new bank accounts for each client (can you even imagine how cumbersome that would be?). Second, if all the money is together in one account, more interest can be generated. By law, the interest goes toward helping pay for legal services for people who cannot afford it. Lawyers aren’t supposed to mix their funds with client funds. There can be enough non-client money in one of these accounts for ordinary bank fees, but that’s about it.
This all sounds fairly simple. But it’s not. Since every client knows his or her money is always his or her money, they need to know that their own money will always be there and how it’s going to be used. That means the lawyer is going to have to have a system to make sure each particular client’s funds are clearly accounted for, that the lawyer is keeping the client updated about this, and that the amount each client has (or should have) adds up to the amount in the account. Yikes.
There’s no one right way to do this. The key is to pick a method, stick to it, and make sure you stay current.
Oh, and to add to the mix: lawyers can be randomly audited at any time to make sure their client trust accounts are as they should be. This is mildly terrifying for a profession that tends to be populated by Type-A perfectionists who hate math.
Of course, we all know that the auditing isn’t meant to be punitive. It’s because if we’re holding onto client money or property, it’s our duty to make sure that money or property is held safely. Nobody would hire a lawyer if they thought the lawyer would mishandle their money or property.
Here’s what happened here. Lawyer has been practicing for about 35 years, and does a lot of real estate work. Lawyer also had an assistant who helped with a lot of the billing. Sidenote—this is totally fine. Lots of assistants help with billing. However, the buck always stops with the lawyer, because the lawyer is the one in charge.
A couple things happened between 2014-2017 that sort of caused a storm of problems. Assistant left the firm, and Lawyer had a really hard time finding a new assistant to replace her. The firm also was in the process of making a transition to QuickBooks for accounting software.
I have heard that Quicken and QuickBooks—when you know how to use them—are wonderful, magical tools that can be personalized and can do a whole lot of stuff. I have also heard (and experienced) that if you don’t know how to do it, it can be a little painful.
Lawyer kept having work to do, and kept generating fees and other accounting-related activities. But since the new software wasn’t totally on-line, and there wasn’t a new assistant to do it anyway, the firm had to go back to basics and do it all by hand. There is literally nothing wrong with this if you’ve got a system to make sure things are operating appropriately and smoothly and everyone’s money is properly accounted-for.
You see where this is going.
Lawyer was doing multiple real estate closings a day. These involve lots of money in and out and wire fees, and it’s a lot to keep track of. At first it was fine, but it got to be so much that Lawyer and his firm couldn’t stay on top of doing monthly reconciliations. Finally, Lawyer found a new assistant who could whip things into shape and help with the client trust accounts. Things started to come together.
That’s when the random audit popped up. The CPA doing the audit discovered that during this time period there were some record-keeping issues. There was no uniform system for disbursements or for giving updates to clients on what was in their accounts. And there was no monthly reconciliation going on.
Lawyer agreed these things happened. By the time the CPA did the audit and discussed it with Lawyer, the problems had already been fixed. He was able to show that the firm was fully using QuickBooks, and how they devised a three-way system to stay on top of the account. No clients lost any money or were in any way injured by the prior system, such as it was.
Lawyer has never had any sort of discipline in the past, and was cooperative with the audit and investigation. He’s made changes to make sure there are no repeats of prior issues.
Upon learning there were these significant trust accounting issues, the professional responsibility board had a hearing to determine what, if any, sanction was appropriate for Lawyer. Even though Lawyer knew the trust accounting system wasn’t working, it wasn’t as if he had set out to violate the rules or hurt anyone. The professional responsibility board was a little troubled that he let it go on as long as he did, though. The board wanted to make sure to drive home to lawyers generally that this is a serious obligation, and we need to make sure we’re staying up to date on our trust accounting.
The board believed Lawyer when he said he believed he could get caught up, and that his intention was never to hurt or jeopardize a client.
Without a good system in place, clients really could have been hurt. Their money could have been misused or misplaced.
The board felt Lawyer’s conduct deserved a public reprimand. They balanced the aggravating and mitigating factors and determined that his mitigating factors outweighed the aggravating factors. Therefore, the board did a private admonition and a probationary period. Along with this, Lawyer agreed to do a follow-up audit. As long as Disciplinary Counsel felt the follow-up audit showed there was no longer a need for probation, it would be dismissed.
Why is SCOV involved? SCOV can (and does) review opinions from the professional responsibility board from time to time. It reviewed this one, agreed with it, and decided to publish it. So, that’s that.
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