WSR 11-23-033

RULES OF COURT

STATE SUPREME COURT


[ November 3, 2011 ]

IN THE MATTER OF THE ADOPTION OF THE AMENDMENTS TO RPC 1.15A-SAFEGUARDING PROPERTY-NEW COMMENT 21 )

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ORDER

NO. 25700-A-987


The Washington State Bar Association having recommended the adoption of the proposed amendments to RPC 1.15A-Safeguarding Property-New Comment 21, and the Court having approved the proposed amendments for publication;

Now, therefore, it is hereby

ORDERED:

(a) That pursuant to the provisions of GR 9(g), the proposed amendments as shown below are to be published for comment in the Washington Reports, Washington Register, Washington State Bar Association and Administrative Office of the Court's websites in January 2012.

(b) The purpose statement as required by GR 9(e), is published solely for the information of the Bench, Bar and other interested parties.

(c) Comments are to be submitted to the Clerk of the Supreme Court by either U.S. Mail or Internet E-Mail by no later than April 30, 2012. Comments may be sent to the following addresses: P.O. Box 40929, Olympia, Washington 98504-0929, or Camilla.Faulk@courts.wa.gov. Comments submitted by e-mail message must be limited to 1500 words.

DATED at Olympia, Washington this 3rd day of November, 2011.
For the Court

Madsen, C.J.

CHIEF JUSTICE


Suggested Amendment

RULES OF PROFESSIONAL CONDUCT (RPC)

RPC 1.15A - Safeguarding Property

(Clarifying procedures for maintenance of client trust accounts when the lawyer receives electronic funds transfers)

Submitted by the Board of Governors of the Washington State Bar Association




Purpose: RPC 1.15A presently outlines the applicable procedures for maintenance of lawyer trust accounts. In the course of performing random audits on lawyer trust accounts, the WSBA Auditors sometimes encounter an issue for which there does not appear to be clear guidance under RPC 1.15A. The situation arises when lawyers invoice clients for services rendered and arrange to receive electronic payments directly from clients. The lawyers provide the routing numbers for the operating account in anticipation of being paid the amount owed for services rendered. In these situations, some clients overpay the invoice, resulting in client funds being deposited into the operating account.

RPC 1.15A (h)(1)(ii) states that funds belonging in part to a client or third person and in part presently or potentially to the lawyer must be deposited and retained in a trust account, but any portion belonging to the lawyer must be withdrawn at the earliest reasonable time. In other words, when a client overpays an invoice, the lawyer must deposit the whole amount into the trust account, and then remove the portion that is earned once the deposit has cleared.

In the situation described herein, the lawyer does not know that an overpayment is coming until it is already deposited into the operating account, resulting in a situation that could be characterized as not in compliance with RPC 1.15A.

In the experience of WSBA auditors, such clients are typically large corporations with numerous departments involved in the processing of accounts payable. Generally speaking, when these situations have been detected in random audits, the lawyers have taken reasonable steps to ensure the client only pays the amount invoiced. Nevertheless, regardless of the lawyers efforts, many are in technical violation of RPC 1.15A (h)(1) and (h)(1)(ii).

The suggested Comment [21] to RPC 1.15A would provide guidance to the membership when presented with this specific scenario while still requiring strict adherence to RPC 1.15A. A comment would have the advantage of a narrative format without further complicating the rule structure of RPC 1.15A, or creating a more general exception to the RPC 1.15A requirements. However, a safe harbor in those limited instances where the client initiates the electronic funds transaction and overpays would be appropriate where, through no fault of the lawyer, an overpayment has been made.

While it is not typical that a client would unilaterally and erroneously place funds belonging to the lawyer into a trust account by electronic deposit, with the increasing prevalence of electronic banking transactions there are scenarios in which this could occur. The suggested comment is designed to address this situation as well.

Washington Comments

Comments [1] - [20] are unchanged.


[21] A unilateral deposit of funds belonging in part to a client or third party into a lawyer's non-trust account does not constitute a violation of paragraph (c) of this Rule if the lawyer promptly identifies the portion of the funds belonging to the client or third party, deposits those funds into a trust account, and notifies the client or third party of the deposit. A unilateral deposit of funds belonging in part to a lawyer into a trust account does not constitute a violation of paragraph (h) of this Rule if the lawyer promptly identifies the lawyer-owned funds and withdraws them from the trust account. For purposes of this provision, a unilateral deposit refers to funds deposited directly by a client or third party by means of electronic funds transfer where the lawyer has not directed, invited, or encouraged a deposit that would constitute a violation of this Rule and has taken reasonable precautions to prevent such a deposit.

Reviser's note: The brackets and enclosed material in the text of the above section occurred in the copy filed by the agency and appear in the Register pursuant to the requirements of RCW 34.08.040.

Washington State Code Reviser's Office