Opinion
94-128
Delivered October 17, 1994
The Arkansas IOLTA Foundation has petitioned this court to modify Rule 1.15 of the Model Rules of Professional Conduct so as to convert the IOLTA program from voluntary to comprehensive. The modification would obligate attorneys to make pooled client trust accounts interest bearing for the benefit of the Arkansas IOLTA program. The petition alleges the following advantages:
a. Lawyers have a professional responsibility to support the provision of legal services to the poor; IOLTA participation is a natural means to this end. See Rule 6.1, Model Rules of Professional Conduct.
b. In addition to increased revenue for community-spirited, law-related purposes, client confidence that attorneys are acting properly with regard to client funds is enhanced because of improved trust account practices.
c. There is a great need for additional funds to better meet the public interest purposes of IOLTA.
d. A comprehensive program will generate substantially more revenue.
e. The experience in states that have converted to a comprehensive program is that non-participating banks begin to offer IOLTA accounts after a conversion to comprehensive IOLTA program. If attorneys are required to participate, then the marketplace demands that the banks offer IOLTA accounts to attorney depositors.
The petition further alleges that the organized bar in Arkansas supports conversion to a comprehensive IOLTA program, that the membership of the Arkansas Bar Association approved the proposed modification by referendum vote, that the proposal has the support of the Executive Council, Young Lawyers' Section, and the unanimous endorsement of the Executive Counsel of the Arkansas Bar Association. Exhibits accompanying the complaint include: a Resolution of the House of Delegates, American Bar Association, urging the adoption by each state of a comprehensive IOLTA program; a September, 1993 chart reflecting that, with the exception of Indiana, all states and the District of Columbia have an IOLTA program, twenty-five states having a comprehensive program, eighteen (and the District of Columbia) having an "opt-out" program and only six states having a voluntary program. Other exhibits show the revenues generated under comprehensive plans, in marked contrast to voluntary plans.
In our February 28, 1994, Per Curiam we invited the practicing bar and interested parties to submit comments by June 1, 1994, on the proposed modification. A number of individuals have responded to that invitation, with some opposing a comprehensive plan, others favoring it. The responses include letters from the chairman of the Professional Ethics and Grievances Committee, Professor Howard W. Brill, and members of that committee which, though supporting a comprehensive IOLTA plan, oppose the mechanism of achieving the change by amending Rule 1.15 of the Model Rules of Professional Conduct. Pointing out that the Model Rules have no provision for IOLTA, voluntary or comprehensive, Professor Brill states the case for maintaining uniformity between the Model Rules of the American Bar Association and our own Model Rules, thereby keeping Arkansas within the mainstream of professional ethics and providing consistency of interpretation within the sisterhood of states. We find similar views expressed by Chairman Richard A. Reid of the Committee on Professional Conduct. Professor Brill suggests the better approach would be to effectuate the change to a comprehensive plan by amending the IOLTA rules adopted in the Per Curiam dated May 5, 1986, 289 Ark. 595, 709 S.W.2d 400, by including language to the effect that violations should be referred to the Committee on Professional Conduct.
The Arkansas IOLTA Foundation, by its president and Board of Directors, has responded to these concerns by pointing out that forty jurisdictions have currently adopted the Model Rules of Professional Conduct and that sixteen have modified the rules pertaining to the safekeeping of clients' property so as to establish a comprehensive IOLTA program, undermining uniformity. Too, the genitor of the Model Rules, the American Bar Association, recommends the adoption of a comprehensive IOLTA program by every state. Finally, a report of the Joint Technical Assistance Committee of the American Bar Association's IOLTA commission and the National Association of IOLTA Programs contains this pertinent finding:
Our experience and research indicates that the adoption of a mandatory IOLTA rule generally has not increased, at all or to any appreciable extent, the monitoring or enforcement activities of state bar counsel or professional conduct commissions. The rule or statute establishing the IOLTA obligation has normally vested the administrative responsibilities in state IOLTA organizations which have sought attorney compliance with minimal (or no) reliance on formal enforcement procedures.
The IOLTA Board has given assurance by letter of May 27, 1994, that it does not envision that the administrative functions of the proposal would be performed by anyone other than the IOLTA staff, and only if an attorney purposely fails to comply would such infraction be referred to the Committee on Professional Conduct.
Mr. E. Lamar Pettus, who has served as a Director of the IOLTA Foundation, Inc., carefully reviewed the proposed rule and offered eight pertinent comments. We asked the petitioning IOLTA Board to consider those recommendations and the Board has given us a detailed response, incorporating several in the proposed rule.
Having reviewed the allegations of the petition and considered the comments on both sides of the question, we are persuaded the time has come for IOLTA to move from a voluntary to a comprehensive program and, accordingly, we grant the petition of the Arkansas IOLTA Foundation by adopting the proposed revision of Rule 1.15 which is appended to this Per Curiam and made a part hereof by reference. The effective date of the revised rule is January 1, 1995. We express our sincere gratitude to all of those who responded to our request for comments.
Petition granted.
DUDLEY, J., dissents.
Attachment 1
New material underlined deleted material crossed out.
Rule 1.15 Safekeeping Property
(a) All lawyers shall hold property of clients or third persons that is in a lawyer's possession in connection with a representation separate from the lawyer's own property.
(1) Funds of a client shall bekept in a separate accountdeposited and maintained in one or more identifiable trust accounts in the state where the lawyer's office is situated, or elsewhere with the consent of the client or third person. The lawyer or law firm may not deposit funds belonging to the lawyer or law firm in any account designated as the trust account, other than the amount necessary to cover bank charges, or comply with the minimum balance required for the waiver of bank charges.
(2) Other property shall be identified as such and appropriately safeguarded.
(3) Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of [five years] after the termination of the representation.
(b) Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this Rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.
(c) When in the course of representation a lawyer is in possession of property in which both the lawyer and another person claim interest, the property shall be kept separate by the lawyer until there is an accounting and severance of their interest. If a dispute arises concerning their respective interests, the portion in dispute shall be kept separate by the lawyer until the dispute is resolved.
(d)(1) Each trust account referred to in (a) above shall be an interest-bearing trust account in a bank, savings bank, trust company, savings and loan association, savings association, credit union, or federally regulated investment company, and the institution shall be insured by an agency of the federal government.
(2) A lawyer who receives client funds which in the judgment of the lawyer are nominal in amount, or are expected to be held for such a short period of time that it is not practical to earn and account for income on individual deposits, shall create and maintain an interest-bearing account for such funds. The account shall be maintained in compliance with the following requirements;
(A) The trust account shall be maintained in compliance with sections (a), (b) and (c) of this rule and the funds shall be subject to withdrawal upon request and without delay;
(B) No earnings from the account shall be made available to the lawyer or law firm; and,
(C) The interest accruing on this account, net of reasonable check and deposit processing charges which shall only include items deposited charge, monthly maintenance fee, per item check charge, and per deposit charge, shall be paid to the Arkansas IOLTA Foundation, Inc. All other fees and transaction costs shall be paid by the lawyer or law firm.
(3) All client funds shall be deposited in the account specified in section (d)(2) unless they are deposited in a separate interest-bearing account for a specific and individual matter for a particular client. There shall be a separate account opened for each such particular matter. Interest so earned must be held in trust as property of each client in the same manner as is provide in (a) and (b) of this rule.
(4) The interest paid on the account shall not be less than, nor the fees and charges assessed greater than, the rate paid or fees and charges assessed, to any non-lawyer customers on accounts of the same class within the same institution.
(5) The decision whether to use an account specified in section (d)(2) or an account specified in section (d)(3) is within the discretion of the lawyer. In making this determination, consideration should be given to the following:
(A) The amount of interest which the funds would earn during the period they are expected to be deposited, and,
(B) The cost of establishing and administering the account, including the cost of the lawyer's or law firm's services.(e) All lawyers who maintain accounts provided for in this Rule, must convert their client trust account(s) to interest-bearing account(s) with the interest to be paid to the Arkansas IOLTA Foundation, Inc. no later than six months from the date of the order adopting this Rule, unless the account falls within subsection (d)(3). All lawyers shall certify annually that they, their law firm or professional corporation is in compliance with all sections and subsections of this Rule. (f) A lawyer shall certify, in connection with the annual renewal of the lawyer's license, that the lawyer is complying with all provisions of this rule. Certification shall be made on the following form in an manner designated by the Clerk of the Supreme Court. (g) A lawyer or a law firm may be exempt from the requirements of this rule if the Arkansas IOLTA Foundation's Board of Directors, on its own motion, has exempted the lawyer or law firm from participation in the Program for a period of no more than two years when service charges on the lawyer's or law firm's trust account equal or exceed any interest generate.
TRUST ACCOUNT/IOLTA CERTIFICATE
(All licensed lawyers in Arkansas must check the appropriate box and sign below)
I am a lawyer who in the course of the practice of law in Arkansas receives or disburses client funds, and, in order to comply with the Model Rules of Professional Conduct Rule 1.15, I have (my law firm has; or the public or private entity for which I work has) established one or more pooled client trust account(s), all of which are interest-bearing for the benefit of the Arkansas IOLTA Foundation.
I am engaged in the practice of law in Arkansas, but in the course of my practice I do not receive client funds.
I am not required to maintain a client trust account because I do not practice law in Arkansas, receive client funds in Arkansas, or receive funds from Arkansas clients.
Because I am a full-time judge, government lawyer or military lawyer, I do not handle client funds and do not maintain a client trust account.
_________________________________________ _______________________________ Signature of Lawyer Date Supreme Court Number