I. INTRODUCTION
II.  RULES
III. MAINTENANCE OF INTEREST BEARING TRUST ACCOUNTS
IV. RECORDS
V.

PROCEDURES

- Exhibit A
- Exhibit B
-
-

Exhibit D

VI.

LAWYERS DUTY


HANDLING CLIENT FUNDS AND PROPERTY

I. INTRODUCTION

The need to scrupulously handle funds entrusted to a lawyer by a client should be self-evident. Nonetheless, cases continue to arise where practicing attorneys, whether inadvertently or intentionally, mishandle the money of their clients, subjecting them inexcusably to economic hardship and seriously undermining public confidence in the legal profession. However, loss of money by a client is not a prerequisite to the suspension of a lawyer’s license for mishandling client funds. Delk v. Virginia State Bar, 233 Va. 187, 355 S.E.2d 558 (1987) (decided under former DR 9-102). Our purpose here is threefold:

A. To develop a full understanding of the rules for handling client funds and property;

B. To illustrate circumstances under which mistakes are often made; and

C. To demonstrate proper trust account procedures.

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II. RULES

The requirements and procedures governing the holding of client funds by Virginia lawyers are found in the Rules of Court, Part 6, § II: Rule 1.15, and § IV, ¶ 20. These rules are reprinted at the end of this Topic section (Exhibit A) and will be reviewed below.

A. "Trust" Accounts

The word "trust" is used to reflect the fiduciary role in which a lawyer receives or holds funds on behalf of a client, an estate or a ward and is an important label to distinguish these accounts from accounts containing a lawyer's operating funds. The use of such a label should constitute notice to the depository financial institution that the account is special in nature. The financial institution cannot lawfully set off against such a special account for liabilities owed it by the lawyer. Use of the term "trust account" meets the requirement that client funds be deposited in an "identifiable trust account."

B. Commingling

A general prohibition exists against commingling a lawyer's own funds with client funds. Rule 1.15(a)(3). The practice of "salting" a trust account is prohibited. A lawyer cannot for his or her own purposes maintain a sum of money on deposit in his or her trust account. Only two exceptions to the Rule are implied:

1. The bank charges exception permits a lawyer to make deposits of his or her own funds to cover bank charges made for administration of the trust account. This exception is necessary to prevent invasion of client funds to pay such charges. Rule 1.15(a)(3)(i); see LEO 1510.

2. The mixed funds exception. Where an item received by the lawyer includes amounts belonging to the client and amounts to which the lawyer is entitled (such as fees or reimbursement for previously advanced expenses), such an item must be deposited in the trust account. Rule 1.15(a)(3)(ii).

C. Withdrawal From Trust Account Funds

A lawyer must "promptly" withdraw from the trust account funds contractually due the lawyer from the client. Rule 1.15(a)(3)(ii).

Caveat: If there is a dispute whether the lawyer is entitled to the funds, the lawyer cannot withdraw the fees in dispute until the controversy is resolved. Id.

Query: What constitutes a dispute? Recognition of the premise that separation of the lawyer's funds from those of the client is necessary for the client's protection and to avoid the appearance of impropriety requires that disbursement of funds to which the lawyer is entitled occur at the earliest appropriate time.

D. Notification of Client of Receipt of Monies

A lawyer is required to promptly notify a client when funds, securities, or other property have been received on behalf of the client. Rule 1.15(b)(1).

E. Maintenance of Complete Records

A lawyer must maintain complete records of client funds, securities, and other property in his or her possession. Rule 1.15(b)(3).

F. Accounting to Client

A lawyer must account to the client for funds, securities and other property held and distributed by the lawyer. Rule 1.15(b)(3).

G. Insufficient Funds and Check Reporting

All trust accounts opened by a lawyer must be with an approved financial institution that has executed the Virginia State Bar Approved Financial Institution Agreement which requires that a financial institution report to the Virginia State Bar when any instrument which would be properly payable if sufficient funds were available, is presented against a lawyer trust account containing insufficient funds, irrespective of whether or not the instrument is honored. Va. S. Ct. R., pt.6, §IV, ¶20; Rule 1.15(d)(1). Note that the term “lawyer trust account” means an account maintained in a financial institution for the deposit of funds received or held by an attorney or law firm on behalf of a client. 

H. Prompt Payment or Delivery of Funds to Client or Another

A lawyer must promptly pay over or deliver to the client or another as requested by such person, securities and other property held for the client's account to which the client or another is entitled to receive. Rule 1.15(b)(4). A lawyer is also ethically obligated, in certain instances, to protect the rights of third parties to client funds, i.e., payment of medical liens. Va. Code §§ 8.01-66.2-66.12; LEO 1865; LEO 1747 (lawyer owes ethical duty under Rule 1.15 (c) (now Rule 1.15(b)) to protect rights of doctor to settlement proceeds under client’s assignment of funds executed in favor of the health care provider). If there is a dispute between the client and third party over entitlement to proceeds held by the lawyer, the lawyer should suggest means by which to resolve the dispute, i.e., arbitration or mediation, and hold those funds in trust until the dispute is resolved or interplead them into court. 

Comment [3], Rule 1.15.  Comment [4] to Rule 1.15 provides:

Paragraphs (b)(4) and (b)(5) do not impose an obligation upon the lawyer to protect funds on behalf of the client’s general creditors who have no valid claim to an interest in the specific funds or property in the lawyer’s possession.  However, a lawyer may be in possession of property or funds claimed both by the lawyer’s client and a third person; for example, a previous lawyer of the client claiming a lien on the client’s recovery or a person claiming that the property deposited with the lawyer was taken or withheld unlawfully from that person.  Additionally, a lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client, and accordingly may refuse to surrender the property to the client.  For example, if a lawyer has actual knowledge of a third party’s lawful claim to an interest in the specific funds held on behalf of a client, then by virtue of a statutory lien (e.g., medical, workers’ compensation, subrogation, attorneys’ lien, a valid assignment executed by the client, or a lien on the subject property created by a recorded deed of trust) the lawyer has a duty to secure the funds claimed by the third party. Under the above described circumstances, paragraphs (b)(4) and (b)(5) require the lawyer either to deliver the funds or property to the third party or, if a dispute to the third party’s claim exists, to safeguard the contested property or funds until the dispute is resolved.  If the client has a non-frivolous dispute with the third party’s claim, then the lawyer cannot release those funds without the agreement of all parties involved or a court determination of who is entitled to receive them, such as an interpleader action.  A lawyer does not violate paragraphs (b)(4) and (b)(5) if he has acted reasonably and in good faith to determine the validity of a third-party’s claim or lien.

Duty to Pay Third Party Liens

Although lawyers believe that they owe their primary duty to the client, a lawyer cannot—even at the client’s direction—disregard a valid third party lien or claim against the funds held by the lawyer.  Doing so will expose the lawyer to discipline if the third party claimant files an inquiry against the lawyer with the Virginia State Bar.  Virginia State Bar v. Timothy O’Connor Johnson, Case No. CL09-2034 (Richmond Cir. Ct. August 11, 2009).  Lawyer violates Rule 1.15 (c)(4) (now Rule 1.15(b)(4) ) when refusing to honor chiropractor’s consensual lien with client, directing client’s lawyer to pay total amount owed to chiropractor out of settlement of client’s personal injury case.  Although lawyer was not a party to the assignment of benefits, lawyer knew that client had contracted with chiropractor to pay the medical bill out of settlement.  When chiropractor refused to reduce his bill, lawyer unilaterally arbitrated the dispute by disbursing to chiropractor an amount less than what was owed.  Lawyer owed a duty to either pay the full amount owed to chiropractor or hold the amount in dispute in trust until client and chiropractor could resolve their dispute, or interplead the disputed funds into court.  This was an appeal from a District Committee determination.  The court cited with approval Legal Ethics Opinion 1747 and comment [4] to Rule 1.15 and affirmed the District Committee’s finding of misconduct. See, e.g., California Formal Ethics Op. 1988-101 (lawyer whose client agreed to pay recovery proceeds to health care provider may not ignore agreement and disburse all funds to client upon client’s instruction); Maryland Ethics Op. 94-19 (1993) (lawyer must disregard client’s instruction not to pay creditor when client had a valid lien assignment with creditor); Ohio Ethics Op. 95-12 (1995) (lawyer must disregard client’s instruction not to pay physician when client has earlier agreed to pay medical bills from settlement proceeds); and North Carolina Ethics Op. 94-20 (1994) (if lawyer knows that client has executed valid assignment of rights with doctor, lawyer may not comply with client’s later instruction to disregard it).

See, also, LEO 1865, which contains a thorough review of the foregoing obligations. The Opinion contains the conclusion, among others, that

The mere assertion of a claim by a third party to funds held by the lawyer does not necessarily entitle the third party to such funds. A lawyer must exercise competence and reasonable diligence to determine whether a substantial basis exists for a claim asserted by a third party. If no such basis exists, or if the third party has failed to take the steps required by law to perfect its entitlement to the funds, a lawyer may release those funds to the client, after appropriate consultation with the client regarding the consequences of disregarding the third party’s claim.

LEO 1865 also addresses the lawyer’s ethical obligations when investigation of an unasserted claim or potential lien might alert a health care provider to the client’s entitlement to a recovery from a third party. Under such circumstances, and in consultation with the client, the lawyer’s obligation to abide by the client’s decisions and to protect the client’s confidences may control the extent to which the lawyer may communicate with the health care provider having such potential claim or lien.

I. Disbursement on Uncollected Funds

It is improper for a lawyer to disburse monies from his or her trust account when the funds on which such check is drawn are not collected. See LEOs 614, 704, 1256, and 1797.

1. Disbursement of monies on uncollected funds is tantamount to using one client's collected funds as an advancement on the collected funds of a second client.

2. Virginia Code § 6.1-2.13 also specifically requires a lawyer handling a real estate closing to disburse settlement funds within two business days after the settlement. LEOs 183, 1797. For other requirements of an attorney serving as a settlement agent in a residential real estate transaction, see the Real Estate Settlements Act (Va. Code §§55-525.8-55-525.15) and the Real Estate Settlement Agents Act (Va. Code §§55-525.16-55-525.32).

3. Even if a lawyer has a separate trust account for a single client, a judgment creditor, and even with the client’s consent, the lawyer may not disburse remittances to the creditor/client on funds that have not cleared.  LEO 1835.

4. Lawyers must appreciate the difference between funds that are made “available” by the bank and funds that are “collected” and be cognizant of Internet scams in which the lawyer is asked to collect funds and promptly disburse only to learn later, after it is too late, that the deposited cashier’s check was counterfeit. These scams are quite prevalent, and often involve the lawyer’s receipt of a seemingly legitimate cashier’s check from a new “client” whom the lawyer only knows via e-mail communications initiated by the “client”. The check appears to be drawn on the funds of a well-known national bank. Promptly following his or her receipt and deposit of the check, and before it is dishonored at the “client’s” bank, the lawyer is requested by the “client” to and does make an immediate wire transfer, which the lawyer’s bank honors. Once the check bounces, the lawyer discovers that his or her trust account has been compromised. It is thus essential that the lawyer not treat the check as a cash equivalent, and wait a sufficient length of time for the check to clear as collected funds before making disbursements. Under circumstances such as these, it would also be prudent for the lawyer to verify from the “client’s” own bank that the cashier’s check in question was actually issued by the bank on which it appears to have been drawn.

J. Retention of Records and Disposition of Closed Files

Books and records subject to Rule 1.15 must be maintained for a minimum of five years after completion of the fiduciary obligation. Rule 1.15(c)(4). A client’s file, including original documents, client-furnished originals, and attorney work-product prepared for the client but must be returned to the client upon demand, even if fees and costs are still owed to the lawyer. Rule 1.16(e). LEO 1690.

LEO 1305 offers guidance on the disposition of closed client files. A lawyer does not have a general duty to preserve indefinitely all closed or retired files. Since neither the Rules of Professional Conduct nor any specific Virginia statute apparently sets forth specific rules addressing the retention of such files by private practitioners, the Ethics Committee suggests the following guidelines as indicated in ABA Informal Opinion No. 1384. (See also Maine Ethics Opinion No. 74 (10/l/86), Nebraska Ethics Opinion No. 88-3 (undated), New Mexico Ethics Opinion No. 1988-1 (undated), and New York City Bar Association Ethics Opinion No. 1986-4 (4/30/86)). The lawyer should screen all closed files in order to ascertain whether they contain original documents or other property of the client, in which case the client should be notified of the existence of those materials and given the opportunity to claim them. Having culled those materials from the closed files, the lawyer should use care not to destroy or discard materials or information that the lawyer knows or should know may still be necessary or useful in the client's matter for which the applicable statutory limitations period has not expired or which may not be readily available to the client through another source. Similarly, the lawyer should be cognizant of the need to preserve materials which relate to the nature and value of his legal services in the event of any action taken by the client against the lawyer. Having screened the files for the removal of any materials as indicated, the lawyer may at the appropriate time dispose of the remaining files in such a manner as to best protect the confidentiality of the contents.

In determining the appropriate length of time for retention or disposition of the remaining materials in a given file, a lawyer should exercise discretion based upon the nature and contents of the file. As indicated above, however, all trust account and fiduciary records should be maintained for a period of five years following completion of the fiduciary obligation and accounting period. Finally, the Committee is of the opinion that the lawyer should preserve for an extended period of time an index of all files which have been destroyed.

Subject to the above considerations, it is also advisable to identify the lawyer’s file retention policy in the lawyer’s engagement letter with the client and to remind the client of such policy in a closing letter to the client. In such manner the client will have consented to, and been notified of, the need to request his or her file within a stated period following conclusion of the representation, lest it be destroyed. Client files may be maintained electronically, unless doing so prejudices the client, for example, by making unavailable legal instruments that must be maintained in hard copy. LEO 1818.

K. Retention of Unclaimed Client Funds and Property

A lawyer must identify, label, and safekeep all client properties and maintain complete records of all client funds, securities and other property. Rule 1.15(b)(2)-(3). When client funds or properties remain unclaimed and the lawyer is unable to locate the client to return such funds or properties for a period of five years, The Uniform Disposition of Unclaimed Property Act (Va. Code §§ 55-210.1-55.210.30) provides that such funds or properties may be turned over to the Commonwealth for disposal in accordance with the provisions thereof. LEOs 818, 832, and 1644.

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III. MAINTENANCE OF INTEREST BEARING TRUST ACCOUNTS

A. Generally

All trust accounts maintained by Virginia licensed attorneys must comply with both ¶ 20 of the Rules of Court, Part 6: § IV and Virginia Rules of Professional Conduct 1.15. Paragraph 20 relates specifically to IOLTA trust accounts, the interest generated from which is paid to Legal Services Corporation of Virginia. Rule 1.15 relates to all escrow accounts and applies irrespective of whether a lawyer participates in "IOLTA."

B. IOLTA

A lawyer cannot earn interest on his/her trusts account for his/her benefit.  The rationale is that the money in the trust account does not belong to the lawyer; therefore, interest earned on the trust account cannot belong to the lawyer.  An exception exists for “IOLTA,” a program approved by the Supreme Court in ¶20, Part 6:§ IV of its Rules.  In this program, the lawyer may designate his trust account with his financial institution as a participant and all interest earned on the account, less administrative costs, will be paid to the Legal Services Corporation of Virginia (“LSCV”);  Key features of the program are:

1. The lawyer must "opt out" of the program that is, he/she must advise Legal Services Corporation of Virginia if the lawyer chooses not to participate in the program. LSCV provides notice of election forms for this purpose. An attorney must maintain his/her trust account as an IOLTA account unless he/she specifically "opts out" of the program.

2. Interest paid to LSCV shall be used for funding

a. civil legal services to the poor;

b. the administrative expenses of LSCV; and

c. the creation and augmentation of a reserve fund for the same purposes.

3. The depositing financial institution agrees to remit, at least quarterly, the interest or dividends on the average monthly balance of each such account to LSCV.

C. Other Interest Bearing Trust Accounts

A lawyer may maintain funds of a client in a non-IOLTA interest bearing account for clients if

1. the lawyer has established procedures for the computation of

a. the interest earned

b. less the administrative costs of maintaining the account, and

2. the lawyer remits at least quarterly, to each client prorated, the interest earned.  ¶20 (A).

D. Non-Interest-bearing Trust Accounts.

A lawyer may opt out of IOLTA and deposit client funds in an identifiable non-interest-bearing trust account that accrues no interest or dividends provided the attorney or law firm receives no consideration or benefit from the financial institution for opening such an account.  A lawyer who elects to use this type of account must “opt out” of IOLTA and submit an election form to LSCV in accordance with the procedure set out in ¶ 20(F).

E.       Client Consent

A lawyer who elects to open an IOLTA or non-interest-bearing trust account in accordance with Rule 1.15 and Paragraph 20 shall not be required to seek permission from each client in making the election or report any payment of interest to LSCV of interest or dividends paid by the financial institution. ¶ 20(D).

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IV. RECORDS

A. Minimum Requirements for Trust Account

1. To properly maintain a trust account, the following records at a minimum are required:

a. Cash receipts journal, per Rule 1.15(c)(1)

b. Cash disbursements journal, per Rule 1.15(c)(1)

c. Subsidiary ledger, per Rule 1.15(c(2).

2. The concept of receipts and disbursements journals, and client subsidiary ledgers is simple. The sum total of all subsidiary ledgers at any given time should equal the amount in the trust account.

B. Accounting Systems

To demonstrate proper escrow accounting, samples of a one-write system are being used. Many accounting systems, both manual and automated, exist which facilitate escrow accounting in accordance with Rule 1.15. Information about such systems is generally available from suppliers of business systems, business consultants and accountants. In addition Comment [6] to Rule 1.15 provides:

Nothing in this Rule is intended to prohibit an attorney from using electronic checking for his trust account so long as all requirements in this Rule are fulfilled.  It is the lawyer’s responsibility to assure that complete and accurate records of the receipt and disbursement of entrusted property are maintained in accordance with this rule.  Many businesses are now converting paper checks to automated clearinghouse (ACH) debits.  Authorized ACH debits that are electronic transfers of funds (in which no checks are involved) are allowed provided the lawyer maintains a record of the transaction as required by this Rule.  The record, whether consisting of the instructions or authorization to debit the account, a record or receipt from the financial institution, or the lawyer’s independent record of the transaction, must show the amount, date, recipient of the transfer or disbursement, and the name of the client or other person to whom the funds belong.


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V. PROCEDURES

A. Authorization of Overdraft Reporting

A lawyer located in Virginia may maintain his/her escrow account only at a financial institution approved by the Virginia State Bar, unless otherwise expressly directed in writing by the client for whom the funds are being held.  Rule 1.15(a)(2); ¶ 20.  See Exhibit C for the Virginia State Bar Approved Financial Institution Agreement.

B. Posting of Transactions

Examples of items which must be deposited to a lawyer’s trust account:

1. A deposit from the client consisting totally of client funds to be paid to third parties.

2. A deposit of a third party settlement check payable to the lawyer, in which the lawyer has a partial fee interest.

3. A deposit of real estate loan funds and buyer's check from which the lawyer must:

a. pay off an existing mortgage

b. pay delinquent real estate taxes

c. pay a title insurance premium

d. remit to the seller


4. A deposit representing in whole or in part an advance of legal fees. The lawyer’s fees must be promptly withdrawn from the trust account upon being earned.

C. Reconciliation

At least quarterly a reconciliation shall be made that reflects the trust account balance for each client, person or other entity.  Rule 1.15(d)(3)(i).

A monthly reconciliation must be made of the cash balance derived from the cash receipts journal,  cash disbursements journal,, the trust account check book balance and the trust  account bank statement balance.  Rule 1.15(d)(3)(ii).

At least quarterly, a reconciliation shall be made that reconciles the cash balance from Rule 1.15(d)(3)(ii) and the subsidiary ledger balance from Rule 1.15(d)(3)(i).  Rule 1.15(d)(3)(iii).

Reconciliations must be approved by a lawyer in the law firm.  Rule 1.15(d)(3)(iv).

VI.    LAWYERS DUTY TO SUPERVISE STAFF HANDLING TRUST FUNDS

Lawyer disciplinary actions underscore the importance of properly supervising staff who handle client funds.  In the Matters of Khalil Wali Latif, VSB Docket Nos. 03-000-0376, 02-031-2876, 02-031-3117, 02-031-3344, 02-031-3345, 03-031-0175, 03-031-0895, and 03-031-0920 (2003), the respondent failed to adequately supervise his secretary who concealed notices and correspondence regarding his failure to pay fines and appear in court.  Also, over a course of months, respondent’s secretary concealed trust account overdraft notifications from the VSB and forged respondent’s signature to a letter attempting to explain the overdrafts.  An investigation revealed that respondent’s secretary had embezzled funds.  The disciplinary board imposed a four-month suspension with terms.  In the Matters of Robert Sidney Ricks, VSB Docket Nos. 02-010-0908 (2003) the disciplinary board revoked a lawyer’s license on fifteen complaints of misconduct, many of which involved embezzlement of trust funds by respondent’s secretary, who he continued to employ even after he discovered her embezzlements, allowing defalcations to continue.

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Exhibit A - Rules of Court, Part 6, Section II
RULE 1.15 Safekeeping Property

(a) Depositing Funds.

(1) All funds received or held by a lawyer or law firm on behalf of a client or a third party, or held by a lawyer as a fiduciary, other than reimbursement of advances for costs and expenses shall be deposited in one or more identifiable trust accounts; all other property held on behalf of a client should be place in a safe deposit box or other place of safekeeping as soon as practicable.

(2) For lawyers or law firms located in Virginia, a lawyer trust account shall be maintained only at a financial institution approved by the Virginia State Bar, unless otherwise expressly directed in writing by the client for whom the funds are being held.

(3) No funds belonging to the lawyer or law firm shall be deposited or maintained therein except as follows:

(i) funds reasonably sufficient to pay service or other charges or fees imposed by the financial institution or to maintain a required minimum balance to avoid the imposition of service fees, provided the funds deposited are no more than necessary to do so; or

(ii) funds in which two or more persons (one of whom may be the lawyer) claim an interest shall be held in the trust account until the dispute is resolved and there is an accounting and severance of their interests.  Any portion finally determined to belong to the lawyer or law firm shall be withdrawn promptly from the trust account. 

(b)  Specific Duties.  A lawyer shall:

(1) promptly notify a client of the receipt of the client’s funds, securities, or other properties;

(2) identify and label securities and properties of a client, or those held by a lawyer as a fiduciary, promptly upon receipt;

(3) maintain complete records of all funds, securities, and other properties of a client coming into the possession of the lawyer and render appropriate accountings to the client regarding them;

(4) promptly pay or deliver to the client or another as requested by such person the funds, securities, or other properties in the possession of the lawyer that such person is entitled to receive; and

(5) not disburse funds or use property of a client or third party without their consent or convert funds or property of a client or third party, except as directed by a tribunal.

(c) Record-Keeping Requirements.  A lawyer shall, at a minimum, maintain the following books and records demonstrating compliance with this Rule:  

(1)  Cash receipts and disbursements journals for each trust account, including entries for receipts, disbursements, and transfers, and also including, at a minimum: an identification of the client matter; the date of the transaction; the name of the payor or payee; and the manner in which trust funds were received, disbursed, or transferred from an account.

(2)  A subsidiary ledger containing a separate entry for each client, other person, or entity from whom money has been received in trust. 

The ledger should clearly identify:

(i) the client or matter, including the date of the transaction and the payor or payee and the means or methods by which trust funds were received, disbursed or transferred; and

(ii) any unexpended balance.

(3)  In the case of funds or property held by a lawyer as a fiduciary, the required books and records shall include an annual summary of all receipts and disbursements and changes in assets comparable in detail to an accounting that would be required of a court supervised fiduciary in the same or similar capacity; including all source documents sufficient to substantiate the annual summary.

(4)  All records subject to this Rule shall be preserved for at least five calendar years after termination of the representation or fiduciary responsibility. 

(d) Required Trust Accounting Procedures.  In addition to the requirements set forth in Rule 1.15 (a) through (c), the following minimum trust accounting procedures are applicable to all trust accounts.  

(1) Insufficient Fund Reporting. All accounts are subject to the requirements governing insufficient fund check reporting as set forth in the Virginia State Bar Approved Financial Institution Agreement.  

(2) Deposits.  All trust funds received shall be deposited intact.  Mixed trust and non-trust funds shall be deposited intact into the trust fund and the non-trust portion shall be withdrawn upon the clearing of the mixed fund deposit instrument.  All such deposits should include a detailed deposit slip or record that sufficiently identifies each item.                        

(3) Reconciliations.

(i) At least quarterly a reconciliation shall be made that reflects the trust account balance for each client, person or other entity.

(ii) A monthly reconciliation shall be made of the cash balance that is derived from the cash receipts journal, cash disbursements journal, the trust account checkbook balance and the trust account bank statement balance.

(iii) At least quarterly, a reconciliation shall be made that reconciles the cash balance from (d)(3)(ii) above and the subsidiary ledger balance from (d)(3)(i).

(iv) Reconciliations must be approved by a lawyer in the law firm.

(4)  The purpose of all receipts and disbursements of trust funds reported in the trust journals and ledgers shall be fully explained and supported by adequate records.

COMMENT            

[1] A lawyer should hold property of others with the care required of a professional fiduciary.  Securities should be kept in a safe deposit box, except when some other form of safekeeping is warranted by special circumstances.  All property which is the property of clients or third persons should be kept separate from the lawyer's business and personal property and, if monies, in one or more trust accounts.  Separate trust accounts may be warranted when administering estate monies or acting in similar fiduciary capacities.            

[2] Separation of the funds of a client from those of the lawyer not only serves to protect the client but also avoids even the appearance of impropriety, and therefore commingling of such funds should be avoided. [2a] In relation to (b)(5), consent can be inferred from the engagement agreement or any consequential agreement between the lawyer and the client regarding the disbursement of fees, i.e., when earned fees are routinely withdrawn from the lawyer’s trust account upon an accounting to the client, when costs and expenses of litigation are routinely withdrawn, or when other fees/costs or expenses are agreed upon in advance.

[3] Lawyers often receive funds from third parties from which the lawyer's fee will be paid.  If there is risk that the client may divert the funds without paying the fee, the lawyer is not required to remit the portion from which the fee is to be paid.  However, a lawyer is not required to remit the portion from which the fee is to be paid.  However, a lawyer may not hold funds to coerce a client into accepting the lawyer's contention.  The disputed portion of the funds should be kept in trust and the lawyer should suggest means for prompt resolution of the dispute, such as arbitration.  The undisputed portion of the funds shall be promptly distributed.

[4] Paragraphs (b)(4) and (b)(5) do not impose an obligation upon the lawyer to protect funds on behalf of the client’s general creditors who have no valid claim to an interest in the specific funds or property in the lawyer’s possession.  However, a lawyer may be in possession of property or funds claimed both by the lawyer’s client and a third person; for example, a previous lawyer of the client claiming a lien on the client’s recovery or a person claiming that the property deposited with the lawyer was taken or withheld unlawfully from that person.  Additionally, a lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client, and accordingly may refuse to surrender the property to the client.  For example, if a lawyer has actual knowledge of a third party’s lawful claim to an interest in the specific funds held on behalf of a client, then by virtue of a statutory lien (e.g., medical, workers’ compensation, attorneys’ lien, a valid assignment executed by the client, or a lien on the subject property created by a recorded deed of trust) the lawyer has a duty to secure the funds claimed by the third party. Under the above described circumstances, paragraphs (b)(4) and (b)(5) require the lawyer either to deliver the funds or property to the third party or, if a dispute to the third party’s claim exists, to safeguard the contested property or funds until the dispute is resolved.  If the client has a non-frivolous dispute with the third party’s claim, then the lawyer cannot release those funds without the agreement of all parties involved or a court determination of who is entitled to receive them, such as an interpleader action.   A lawyer does not violate paragraphs (b)(4) and (b)(5) if he has acted reasonably and in good faith to determine the validity of a third-party’s claim or lien.            

[5] The obligations of a lawyer under this Rule are independent of those arising from activity other than rendering legal services.  For example, a lawyer who serves as an escrow agent is governed by the applicable law relating to fiduciaries even though the lawyer does not render legal services in the transaction.

[6] Nothing in this Rule is intended to prohibit an attorney from using electronic checking for his trust account so long as all requirements in this Rule are fulfilled.  It is the lawyer’s responsibility to assure that complete and accurate records of the receipt and disbursement of entrusted property are maintained in accordance with this rule.  Many businesses are now converting paper checks to automated clearinghouse (ACH) debits.  Authorized ACH debits that are electronic transfers of funds (in which no checks are involved) are allowed provided the lawyer maintains a record of the transaction as required by this rule.  The record, whether consisting of the instructions or authorization to debit the account, a record or receipt from the financial institution, or the lawyer’s independent record of the transaction, must show the amount, date, recipient of the transfer or disbursement, and the name of the client or other person to whom the funds belong.

Prior Rule Comparison This rule is substantially the same as the original Rule 1.15 adopted January 1, 2000 except that the language has been substantially simplified for ease of understanding and the portions regarding the Financial Institutions duties redacted as they are appropriately incorporated into the “Trust Account Notification Agreement” signed by all Virginia approved financial institutions.

Committee Commentary The Committee chose to modify the rule for ease of understanding and enforcement with no substantive changes to a lawyer’s safekeeping property and recordkeeping requirements.

Amendments effective November 1, 2013, clarified that paragraph (a)(1) requires that funds must be placed in an identifiable trust account, while other property may be placed in a safe deposit box or other place of safekeeping.

 

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Exhibit B - Rules of Court, Part 6, Section IV Paragraph 20

20. Maintenance of Trust Accounts; Notice of Election Requirements—

Every trust account maintained by an active member of the VSB under Rules of Professional Conduct 1.15 shall also be maintained at a “financial institution approved by the Virginia State Bar” and maintained in accordance with this paragraph and Rule 1.15. A “financial institution approved by the Virginia State Bar” includes regulated state or federal chartered banks, savings institutions, and credit unions that are properly licensed and authorized to do business, have federal insurance on deposits, and have entered into and agreed to abide by a Virginia State Bar Approved Financial Institution Agreement. (See Appendix A which the Virginia State Bar reserves the right to amend or modify upon notice to all approved financial institutions.) The Virginia State Bar shall maintain and publish from time to time a list of approved financial institutions.

A.        Interest-bearing Trust Accounts. A lawyer may maintain funds of clients in one or more interest-bearing accounts in one or more financial institutions, whenever the lawyer has established and follows record-keeping, accounting, clerical, and administrative procedures to compute and credit or pay periodically, but at least quarterly, pro rata to each client the interest on such client’s funds less fees, costs, or expenses charged by the lawyer for the record-keeping, accounting, clerical, and administrative procedures associated with computing and crediting or paying such amounts.

B.        IOLTA Accounts. A lawyer may deposit funds of a client in an identifiable interest-bearing trust (IOLTA) account for which the lawyer has not established procedures to compute and credit or pay pro rata net earnings to such client whenever:

1. At the time of such deposit the lawyer reasonably expects that the fees, costs, or expenses which the lawyer would be entitled to charge under Paragraph 20(A) would equal or exceed the pro rata interest on such client’s funds (The determination of whether the funds of a client or third person can earn income in excess of fees, costs or expenses the lawyer would be entitled to charge under paragraph 20(A) shall rest in the sound judgment of the lawyer or law firm, and no lawyer shall be charged with an ethical impropriety or breach of professional conduct based on the good faith exercise of such judgment); and

2. The financial institution has agreed to:

a.         Periodically, but at least quarterly, remit to the Legal Services Corporation of Virginia (LSCV) interest or dividends on the average monthly balance of each such account or as otherwise computed in accordance with such bank’s standard accounting practice, provided that such rate of interest shall not be less than the rate paid by such bank to regular, non-attorney depositors;

b.         Transmit with each remittance to LSCV a statement identifying the name of the lawyer or law firm from whose account the remittance is sent, the rate of interest applied, the period for which the remittance is made, the total amount of interest earned, the service charges or other fees assessed against the account, if any, and the net amount of interest remitted;

c.         Transmit to the depositing lawyer or law firm at the same time a report showing the amount paid to LSCV from such interest-bearing account, the rate of interest applied, the fees assessed, if any, and the average account balance for the period for which the report is made;

d.         Charge no fees against an IOLTA trust account that are greater than the fees charged to non-attorney depositors, except that an IOLTA remittance fee may be charged to defray the depository institution’s administrative costs attributable to calculating and remitting the interest to LSCV; other allowable fees are per check charges, per deposit charges, a fee in lieu of a minimum balance and sweep fees.  Allowable, reasonable fees may be deducted from interest or dividends earned on an IOLTA account, provided that such charges or fees shall be calculated in accordance with the Financial Institutions' standard practice for non-IOLTA customers.  Fees or charges in excess of the interest or dividends earned on the IOLTA account, for any month or quarter, shall not be taken from the interest or dividends of any other IOLTA account.  Fees for wire transfers, insufficient funds, bad checks, stop payment, account reconciliation, negative collected balances, and check printing are not considered customary account maintenance charges and are not deductible from the interest or dividends earned on the IOLTA account.  All other fees including those non-customary fees just listed are the responsibility of the lawyer or law firm, who in turn may absorb these specific costs or pass along those fees to the client(s) being served by the transaction in accordance with attorney/client agreements.  Financial Institutions may elect to waive any or all fees on IOLTA accounts in recognition of their charitable nature;

e.         Collect no fees from the principal deposited in the IOLTA trust account;

f.          Pay all or part of the funds deposited in such interest-bearing trust account upon demand or order. An IOLTA account may be an interest-bearing check account, a money market account with or tied to check-writing, a sweep account which is a government money market fund or daily overnight financial institution repurchase agreement invested solely in or fully collateralized by United States government securities, or an open-end money market fund solely invested in or fully collateralized by the United States government securities; and

g.         Agree and abide by all provisions in the Virginia State Bar Approved Financial Institution Agreement.

3. Interest accruing on such accounts and paid by the financial institution to LSCV shall be used for funding 1) civil legal services to the poor in Virginia, 2) LSCV’s administrative expenses, and 3) the creation and augmentation of a reserve fund for the same purposes.

C.        Non-interest-bearing Trust Accounts. A lawyer may deposit funds of a client in an identifiable non-interest-bearing trust account for which the account accrues no interest or dividends so long as the attorney or law firm receives no consideration or benefit from the Financial Institution for opening a non-interest bearing trust account or for converting from an IOLTA account to a non-interest bearing trust account. A lawyer who elects not to participate in the maintenance of an interest-bearing trust account as described in Paragraph 20(B) must submit such an election in accordance with the procedures set forth in Paragraph 20(F) of this rule.

D.        Reporting to Client. A lawyer who elects to deposits funds of a client in an account pursuant to Paragraph 20(B) or (C) shall not be required to seek permission from such client in making the election. As to funds deposited in accordance with Paragraph 20(B), a lawyer shall not be required to compute or report to such client any payment to LSCV of interest or dividends by the banking institution on funds in any such account wherein the client’s funds have been deposited by the lawyer.

E.         Law Firm Trust Accounts. A law firm of which any participating lawyer is a member may maintain the account(s) on behalf of any or all lawyers in the firm.

F.         Opt-Out of IOLTA Account. A lawyer who elects to open an IOLTA account shall obtain a “Request to Establish IOLTA Account” form from LSCV. A lawyer who elects not to maintain an IOLTA account shall make such election on a “Request to Opt-Out” form provided by LSCV.

 

Exhibit C

Virginia State Bar Approved Financial Institution Agreement

This Virginia State Bar Approved Financial Institution Agreement (“Agreement”) is made this _____ day of _____________, by and between the Virginia State Bar and _______________________, (“Financial Institution”).

                                                                      WITNESS:

The undersigned, an officer of the Financial Institution executing this Agreement, being duly authorized to bind said institution by this Agreement, hereby applies to be approved as a depository to receive escrow, trust, or client funds, as defined in Part 6, Section IV, Para. 20, of the Rules of Supreme Court of Virginia, or any successor provision(s), from attorneys for deposit in what are hereinafter referred to as “Trust Accounts.”  The Financial Institution agrees to comply with the requirements, or any successor provisions:

1.  Notification to Attorneys or Law Firm.  To notify the attorney or law firm promptly of an overdraft in any Trust Account or the dishonor for insufficient funds of any instrument drawn on any Trust Account held by it.

2.  Notification to Bar Counsel.  To report the overdraft or dishonor to Bar Counsel of the Virginia State Bar, as set forth in Paragraph 5 of this Agreement.

3.  Audit of Trust Account.  To provide reasonable access to the Virginia State Bar of all records of the Trust Account if an audit of such account is ordered pursuant to court order, or upon receipt of a subpoena therefor.  The financial institution may charge for the reasonable costs of producing these records.

4.  Interest Calculation.  The financial institution shall not engage in the practice of “negative netting” as to IOLTA trust accounts.

5.  Form of Report.  That all such reports shall be substantially in the following format:

In either case of a dishonored instrument or an instrument presented against insufficient funds in a Trust Account, but honored by the financial institution, the report shall be identical to the notice customarily forwarded to the depositor and shall include the name and address of the depositor notified, including the name of the lawyer responsible for the account, as well as a copy of the dishonored instrument, if such copy is normally provided to the depositor.  In addition, the report shall identify the financial institution reporting the overdraft, the account number, the date of the overdraft, the name of the person making the report, their address and telephone number and date. The report shall be made simultaneously with and within the time provided by law for notice of dishonor to the depositor or, in the case of instruments that are honored by the financial institution, within five (5) banking days after the date of presentation for payment against insufficient funds.

6.  Consent of Attorneys or Law Firms.  The Financial Institution may require, as a condition to opening an attorney Trust Account, the written consent of the attorney or law firm opening such account to the notification to Bar Counsel of the Virginia State Bar as set forth in Paragraph 2 of this Agreement.

7.  Change of Name or Corporate Form.  If a Financial Institution changes its name, merges or otherwise affiliates with, or is acquired by another entity, the successor Financial Institution shall promptly notify Bar Counsel of the change and whether the successor institution wishes to serve as a financial institution approved by the Virginia State Bar for attorney Trust Accounts and enter into an Agreement. 

8.  Termination of Agreement.  This Agreement may terminate upon thirty (30) days notice from the Financial Institution in writing to Bar Counsel that the institution intends to terminate the Agreement on a stated date and that copies of the termination notice have been mailed to all attorneys and law firms that maintain Trust Accounts with the Financial Institution or any branch thereof.  Notice to the Bar Counsel shall be sent by certified mail to the Virginia State Bar, Attention: Bar Counsel, 1111 E. Main Street, Suite 700, Richmond, Virginia 23219-3565.

9.  Binding Effect.  This Agreement shall be binding upon the Financial Institution and any branch thereof receiving Trust Accounts.

10. Definition.  For purposes of this agreement the following definitions will apply:

a.    “Notice of Dishonor” refers to the notice which, pursuant to Uniform Commercial Code Section 3-508(2), must be given by a drawee bank before its midnight deadline.

b.     “Insufficient funds” refers to a state of affairs in which there is an insufficient collected balance in an account as reflected in the financial institution’s accounting records, so that an otherwise property payable item presented for payment cannot be paid without creating an overdraft in the account.

c.     “Dishonored” shall refer to instruments that have been dishonored because of insufficient funds as defined above.

d.     “Negative Netting” refers to the practice of a financial institution collecting some part or all of the fees assessed during a stated period of time against any IOLTA account that has failed to generate enough interest to pay assessed fees from the positive interest generated by other IOLTA accounts and deducting those fees from the total interest remitted to the Legal Services Corporation of Virginia for that time period.

IN WITNESS WHEREOF, the Financial Institution has executed this Agreement on the date and year written above.

ATTEST:

______________________________________
Name of Financial Institution

______________________________________
Address of Financial Institution

______________________________________

By____________________________________
Officer’s Name
(Please print)

_______________________________________
Officer’s Signature

_______________________________________
Corporate Office Held

 

 

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Exhibit D

Disciplinary Process of the Virginia State Bar 

Prepared by: Paul D. Georgiadis, Assistant Bar Counsel
&
Leslie T. Haley, Haley Law, PLC and Former Senior Assistant Ethics Counsel

Edited and revised by Jane A. Fletcher, Deputy Intake Counsel
&
Richard E. Slaney, Assistant Bar Counsel

SCOPE

This presentation provides an overview of the Virginia State Bar’s disciplinary system for processing, investigating and prosecuting complaints against attorneys who practice law in Virginia.

I.             SOURCE OF THE BAR’S AUTHORITY

The Virginia State Bar gets its authority to regulate lawyer conduct from:

A.             Rules of Professional Conduct (RPCs), found in Vol. 11 of the Virginia Code and at the VSB website, www.vsb.org.

B.             Procedure for Disciplining, Suspending and Disbarring Attorneys (Paragraph 13), found in the Rules of Supreme Court of Virginia (Volume 11 of the Virginia Code) and at the VSB website, www.vsb.org.  

C.            Trust Account Regulations, found in Virginia State Bar Professional Guidelines and the VSB website, www.vsb.org.

D.            Virginia Code, Section 54.1-3900, et seq. (statutes dealing with Professions Regulated by the Supreme Court of Virginia)

E.             American Bar Association’s Standards for Imposing Lawyer Sanctions (2005).

II.          NON-DISCIPLINARY RESOURCES TO HELP LAWYERS

In addition to processing complaints about lawyers, the Office of Bar Counsel coordinates the following processes to assist lawyers in avoiding misconduct:

A.        Ethics Counsel

  • Ethics Counsel, a non-disciplinary arm of the Office of Bar Counsel, gives Lawyers “real time” assistance via telephone and e-mail about ethical dilemmas.
  • All inquiries are held in strict confidence and are not shared with the disciplinary side of the Office of Bar Counsel.
  • Contact information:

This part of VSB work is governed by the Supreme Court of Virginia through its rules found in Volume 11 of the Virginia Code.[1]

Legal Ethics Opinions (LEOs) are advisory opinions promulgated by the Standing Committee on Legal Ethics (the Committee). Lawyers may request an LEO concerning actual or contemplated conduct. 

1.     Requesting an LEO

The request for an LEO must:

  • Be in writing on a form mandated by the Committee;
  • Be in the hypothetical, with no identifying information about the parties; and
  • State that the requesting lawyer has researched ethics rules, statutory law and case law on the question at hand and the results of that research.

Para. 10-2A.

2.  Anatomy of an LEO
  • The Committee issues an LEO after it reaches a decision by a majority vote. No dissenting opinions are issued. 
  • An LEO states the operative facts, the question presented, the applicable ethics rules, relevant prior Opinions and case law, the Committee’s opinion on the facts presented, and the rationale for that opinion. 
  • The requesting member or any other VSB member may ask the Committee to reconsider its conclusion. The requesting member may appeal the Committee’s conclusion to the Bar Council, the governing body of the VSB.  Para. 10-2D.

  • If the request presents a previously resolved issue, the requesting attorney is notified through a “Legal Ethics Inquiry” response citing prior Opinions instead of through a new LEO.

  • The Committee may decline to issue an LEO regarding any matter that is subject of a pending disciplinary proceeding or litigation. 

3.         Publication and Comment Period for LEOs

  • In the Committee’s discretion, LEOs may be published as informal advisory opinions or transmitted to Bar Council for approval, modification, or disapproval as a formal advisory opinion.
  • Prior to consideration of the Opinion by Council, the VSB issues a press release inviting public comment.  Para 10-2C.

  • If approved by Bar Council, the VSB may petition the Supreme Court of Virginia for review of the Opinion.

  • Prior to consideration of the Opinion by the Court, the VSB issues a press release inviting public comment. 

Note this important distinction about the legal effect of LEOs, depending upon the issuing body:

  • Opinions issued by the Legal Ethics Committee or the Council are advisory only, have no legal effect and are not binding on any judicial or administrative tribunal. Para. 10-2C., Para. 10-3A.
  • Opinions approved by the Supreme Court of Virginia become a decision of the court and have the full force of law.  See, e.g., LEO 1765: Whether an Attorney Working for a Federal Intelligence Agency can Perform Undercover Work Without Violating Rule 8.4

4.         Finding and Researching LEOs

The LEOs or summaries of LEOs can be found at:

  • Separate unnumbered volume of the Virginia Code entitled Legal Ethics and Unauthorized Practice Opinions;
  • By number, at the Bar’s website: www.vsb.org/site/regulation/leos ;
  • The Virginia Lawyer Register; and

         
  • Virginia CLE’s website, www.vacle.org.

III.                     OVERVIEW OF THE DISCIPLINARY SYSTEM

A.           Rules of Disciplinary Procedure

            The procedural rules governing lawyer discipline are found in the Rules of Virginia Supreme Court, Part 6, Section IV, Paragraph 13 (Volume 11 of the Virginia Code).

B.            What is Misconduct?

The Supreme Court of Virginia includes in its definition of Misconduct:

1.                     Violation of Disciplinary Rules (current Rules of Professional Conduct or the older Code of Professional Responsibility);

   2.                     Conviction of a Crime (generally, a felony or other offense involving theft, fraud, forgery, extortion, bribery or perjury).

C.           Intake Process

Lawyers in the Intake section of the Office of Bar Counsel review all Inquiries to decide whether they state Misconduct. This first level of review is intended to eliminate those complaints that are frivolous or state situations that are outside the scope of the ethics rules. About 75% of complaints are dismissed and referred to as NATs, No Action Taken. 

The Intake staff may use its proactive process, or informal investigation, to resolve the situation. This involves contacts by the staff with the respondent and complainant in an effort to reach resolution.

D.    Preliminary Investigation

1.              If the Intake staff identifies possible disciplinary rule violations, the matter is assigned to Bar Counsel to conduct a preliminary investigation.

2.              The Preliminary Investigation usually includes sending the complaint to the Respondent so he can file a written response and allowing the Complainant to respond to the Respondent’s response.

3.              The bar strives to complete preliminary investigations within 60 days of receipt of the complaint.

E.     Preliminary Investigation Dispositions

Within the 60-day time limit, Bar Counsel should decide the disposition of the complaint using the following authority and alternatives:

1.    Dismiss the complaint if any of the following apply:

  • As a matter of law, the conduct does not constitute Misconduct; or
  • The evidence shows that the Respondent did not engage in the Misconduct alleged; or
  • There is no credible evidence that the Respondent committed Misconduct; or
  • There is not “clear and convincing” evidence of Misconduct.

Para. 13-10 E.

2.                If none of the above bases for dismissal exists, Bar Counsel will refer the matter to a District Committee for a more detailed investigation

F.     Investigative Authority of Bar Counsel

1.              Bar Counsel has the authority to issue subpoenae ducestecum (for documents) and summonses (for witnesses) during its investigation. Para. 13-8A.5.

2.                Bar Counsel has the authority to examine the financial books and records maintained by an attorney in her law practice.  Para. 13-8A.3-4 [2]

3.              3.    Rule 8.1(c) of the Rules of Professional Conduct requires cooperation with a “lawful request” of a discipline investigation. 

4.              4.    Para. 13-6G.3. empowers the Disciplinary Board to impose an interim Suspension if an Attorney fails to comply with a summons or subpoena issued by any member of the Board, the Clerk, Bar Counsel, or any lawyer member of a District Committee. [3] 

 

 

G.     District Committee Investigations

1.       A District Committee investigation can be performed by either the Office of Bar Counsel or an attorney member of the District Committee.  Most cases are investigated by one of the staff investigators of the Office of Bar Counsel. Summonses and subpoenae duces tecum may be issued by Bar Counsel as a part of the investigation. Para. 13-8A.5.  

2.         The investigation will result in the submission of a report to the Subcommittee of the District Committee. Para 13-10F.

H.         Action by the Subcommittee

1.      The Subcommittee consists of three District Committee members: a lay person and two attorney members. One attorney member shall be appointed by the District Committee or Section Chair to act as Chair of that Subcommittee.   

2.     The Subcommittee will consider the report of Investigation and the recommendation submitted by the Office of Bar Counsel in order to make a disposition of each of the complaints presented.

3.     The Subcommittee acts by majority vote. Para. 13-15C. However it must have a unanimous vote to approve an Agreed Disposition. Para. 13-7A.9.  

4.     The Subcommittee can:

a.              Dismiss the complaint; or

b.              Impose limited discipline; or

c.              Accept an Agreed Disposition of discipline; or

d.              Set a hearing in the matter; or

e.              Certify the matter to the VSB Disciplinary Board.

5.     The Subcommittee can dismiss a complaint if:

  • As a matter of law the conduct does not constitute Misconduct. Para. 13-15B.1.a.

  • The evidence shows that the Respondent did not engage in the Misconduct alleged. Para. 13-15B.1.b.

  • There is no credible evidence to show Misconduct by the Respondent. Para. 13-15B.1.b.
  • There is no “clear and convincing” evidence of Misconduct. Para. 13-15B.1.b.

  • The alleged Misconduct is protected by superseding law. Para. 13-15B1.e.

6.         Limited Discipline by the Subcommittee without a hearing

a.     The Subcommittee can impose the limited discipline of a private Admonition without Terms without a hearing if it believes the bar’s investigation shows that the Respondent has engaged in Misconduct. The Respondent may reject this disposition and request a full evidentiary hearing before the District Committee. Para. 13-15B.2. 

b.     The Subcommittee can impose a private Dismissal De Minimis without a hearing if it finds that the Respondent has engaged in Misconduct that is not of sufficient magnitude to warrant disciplinary action, and the Respondent has taken reasonable precautions against a recurrence of the Misconduct. Para. 13-15B1.c

c.     The Subcommittee can impose a private Dismissal for Exceptional Circumstances without a hearing if it finds that the Respondent has engaged in Misconduct but there exist exceptional circumstances mitigating against further proceedings. Para. 13-15B1.d.

7.       Agreed Dispositions before the Subcommittee

a.     The Subcommittee can accept an Agreed Disposition between the bar and the Respondent. Para 13-15B.4. 

b.     All members of the Subcommittee must accept the Agreed Disposition. If any one member rejects the agreement, a hearing will be scheduled before the full District Committee. Paras. 13-7A.9.,13-15C.

c.     If the Subcommittee accepts the Agreed Disposition, it will issue a document called the “Subcommittee Determination” that outlines the relevant facts, rule violations and discipline to be imposed upon the Respondent.

8.       Subcommittee Decision to Set for Hearing Before the Full District Committee 

If the Subcommittee does not dismiss the complaint, it must set the matter for a hearing before the District Committee or certify it to the Disciplinary Board.

a.       Information available to Respondent

When a matter is set for a District Committee hearing by the issuance of a Charge of Misconduct, the Respondent is provided with a copy of the Investigative Report and any exculpatory materials in the possession of Bar Counsel. Paragraph 13-16A. However, there is no requirement of reciprocity on the part of the Respondent.  But RPC 8.1 states that “a lawyer ... in connection with a disciplinary matter, shall not: ... (a) knowingly made a false statement of material fact; (b) fail to disclose a fact necessary to correct a misapprehension known by the person to have arisen in the matter; (c) fail to respond to a lawful demand for information from ... disciplinary authority, except that this Rule does not require disclosure of information otherwise protected by Rule 1.6; or (d) obstruct a lawful investigation by ... disciplinary authority.”

b.     District Committee Hearings are Public

Private discipline is available only up through the first 21 days of the issuance of the Charge of Misconduct. Any discipline agreed to during the second 21 day period is public, as is the district committee hearing. However, the hearing will not be posted on the public hearing docket until 21 days after the date of the Charge of Misconduct. Para. 13-16H. After the matter is posted on the public docket, it will not be possible to work out an agreed disposition imposing private discipline, and any discipline imposed will become a matter of public record.

9.       Certification to Disciplinary Board

The Subcommittee may bypass a District Committee hearing and certify the matter directly to the Disciplinary Board if there is a reasonable belief that the Respondent has engaged in Misconduct that, if proved, would justify a suspension or revocation of the Respondent's license to practice law.  Paragraph 13-15B.3.

10Terms

a. The Subcommittee is authorized to approve an Agreed Disposition that can include imposing certain conditions or terms, which the Respondent is required to perform as a condition predicate for the imposition of an admonition with terms, a private reprimand with terms, or a public reprimand with terms. With the imposition of terms, there must also be provided an alternative sanction in case of non-compliance with the term within the deadline for compliance.   

b. The Terms must be performed within the deadline set by the Subcommittee.  If the Terms are not met, the alternative sanction will be imposed against the Respondent through a show cause hearing. Para. 13-15.F.

In the event of non-compliance, Bar Counsel will initiate a show cause hearing before the District Committee.

(i)             The hearing is simply to allow the Respondent an opportunity to show that he has complied with the Terms; it is not for the purpose of extending the time for compliance.

(ii)        The burden of proof is on the Respondent to show by clear and convincing evidence that he has complied with the Terms within the time specified by the Terms.  A finding of failure to comply with the terms within the specified time period requires the alternative disposition or sanction to be imposed. Para 13-15.F.

I.         Action by the District Committee

1.         Hearings

a.         Charge of Misconduct

  • The initial pleading or charging document is a notice pleading, not a fact pleading.  The hearing “is an informal proceeding and it is only necessary that the defendant be informed of the nature of the charge and be given an opportunity to answer.” Norfolk & Portsmouth Bar Ass'n v. Drewry, 161 Va. 833,838, 172 S.E. 282 (1933).
  • At least 42 days before the hearing date, Bar Counsel must serve upon the Respondent by certified mail the Charge of Misconduct, a copy of the Investigative Report considered by the Subcommittee, and any exculpatory materials. Para. 13-16A.

  • Within 21 days after service of the Charge of Misconduct, Respondent must file an answer or a demand that the District Committee proceedings be terminated and the matter transferred to a three judge circuit court panel pursuant to Virginia Code Section 54.1-3935. Para. 13-16B.
b.       Summons and Subpoenae

  • The District Committee can issue summonses and subpoenae duces tecum either through a lawyer committee member or the Office of Bar Counsel. Should a Respondent wish to have such process effected on his or her behalf in preparation for the hearing, the Office of Bar Counsel will issue the process on behalf of the District Committee. Para 13-16E.
  • A subpoena compelling the Respondent to produce documents may be served upon the Respondent by certified mail at the Respondent’s last address of record with the bar in the same manner as other notices served upon Respondents.
  • The Chair may quash any summons or subpoena issued on behalf of the Committee for good cause.  The Chair may also refuse to issue summons or subpoena requested by the Respondent. Paragraph 13-16E.
  • Summons and subpoenae issued by the Committee can be enforced by a Circuit Court. Paragraph 13-2.

c.                Participants in District Committee  Hearing

  •  Bar Counsel presents the case against the Respondent on behalf of the bar.
  • The Respondent or, if represented by counsel, the Respondent’s counsel, presents the Respondent’s case.
  • District Committee Members on the hearing panel may ask questions of the witnesses.

      

Para. 13-16L-M

d.  Order of the  District Committee Hearing

The District Committee Hearing proceeds in the following order:

(i)        Opening statements;

(ii)       Presentation of the bar's case;

(iii)      Presentation of the Respondent's case;

(iv)      Motion to Strike--argument on the question of whether ethics rule violations have been proved by clear and convincing evidence and whether the bar has failed to introduce sufficient evidence that would under any set of circumstances support the conclusion that Respondent has engaged in the alleged Misconduct. The ruling is made by the Chair, subject to being over-ruled by the majority of the remaining members of the panel. Para 13-16R;

(v)       Private Committee deliberation on the question of ethics rule violations. Para. 13-16T

(vi)      Committee announcement of its decision on ethics rule violations;

(vii)     Evidence and argument on the sanction to be imposed for any misconduct found;

(viii)       Committee announcement of its decision from the bench on discipline imposed;

(ix)       Formal written decision issued by District Committee Determination setting forth findings of facts, nature of the Misconduct—including Rule violations, and sanctions imposed.  Para 13-16Y.

e.                  Rules of evidence are not strictly enforced [4].  Para.13-12D.

f.                   Objections may be made and are ruled upon by the presiding chair, subject to being overruled by a majority of the remaining hearing panel. Para 13-16Q.

g.                  A quorum of five District Committee members is required for a hearing.  Each District Committee consists of seven attorneys and three lay people.  Any five members of the Committee may constitute a quorum, although an effort is made to include a lay member in the quorum whenever possible. Para. 13-4B. The members of the Subcommittee who set the matter for hearing may participate in the hearing.

h.                  District Committee Hearings, except for deliberations of the panel, are open to the public. Para 13-16G.  

i.                   Neither counsel for the complainant or any witness may examine or cross-examine any witness, introduce evidence, or present an argument. Para. 13-16N.  

2.          District Committee Decisions after a hearing include:

a.         Dismissal;

b.         Public Dismissal De Minimis;

c.              Public Dismissal Exceptional Circumstances;

d.              Public Admonition, with or without terms; 

e.         Public reprimand, with or without term;

f.          Certification to the Disciplinary Board or file a complaint in a circuit court pursuant to Va. Code Section 54.1-3935.

Para. 13-16X.

3.         Appeals of District Committee Determinations

An appeal from a Determination by a District Committee upon trial is heard by either the Disciplinary Board or a three judge circuit court panel, if so chosen by the Respondent. Para. 13-17A. [5]  Such appeals are based solely upon the record from the District Committee. The standard for the appeal is whether there was substantial evidence to support the findings of the District Committee. Para. 13-19.

4.          Terms

The District Committee has the same authority as the Subcommittee regarding the issuance and enforcement of Terms.     

J.      Action by the Disciplinary Board

1.         Composition

The Disciplinary Board is composed of 20 persons, including 16 attorneys and 4 lay persons. Para.13-6A. It generally holds its hearings in Richmond.  A quorum of any 5 Disciplinary Board members is required for a hearing.  An effort is made to include at least one lay person in each quorum. Para. 13-6D.

2.       Notice

Upon certification, the Clerk of the Disciplinary System will serve upon the Respondent a notice of the hearing date before the Disciplinary Board and the Certification from the District Committee of at least 21 days prior to the hearing date.  Para. 13-18C.  

3.         Election by Respondent

Respondent will have 21 days from service of the Certification (or "charge of misconduct") in which time the Respondent may:

a.            File a signed answer, or

b.            File a signed answer with a demand that proceedings before the Disciplinary Board be terminated and further proceedings be conducted before a three-judge circuit court. Para. 13-18A.1.; Va. Code §54.1-3935.

c.              If an answer is filed, or if no answer or demand is filed within 21 days of service of the Certification, the complaint will be heard by the Disciplinary Board. Para. 13-18B.

4.         Disciplinary Board Hearings

a.                  Board hearings consist of the same basic steps as those in a District Committee proceeding. However, Board proceedings are generally more formal in nature and generally include a pre-hearing order or scheduling order requiring pre-hearing designation of exhibits and witnesses, objections thereto, and stipulations. Para. 13-18E.

b.                  Summonses and subpoenae duces tecum are issued by the Clerk of the Disciplinary System upon request of Bar Counsel, the Respondent, or the Board itself. Para. 13-6G.2.

c.                   Members of the Board panel may ask questions of the witnesses.

Para. 13-18I.2,3.

5.         Disciplinary Board Dispositions:

                        The Disciplinary Board can hand down any of the following decisions:

a.                   Dismissal;

b.                  Admonition, with or without terms;

c.                   Public reprimand, with or without terms;

d.                  Suspension of license for up to five years;

e.                   Suspension of license  for one year or less, with or without Terms;

f.                   Revocation of license.

                        Para. 13-18M.

NOTE: There is no Board sanction that incorporates the word "private" in its nomenclature.  Misconduct cases before the Disciplinary Board, except Impairment cases, are public proceedings.

6.         Cases of Original Jurisdiction

The Board also hears cases of original jurisdiction regarding impairment, Para.13-23 criminal convictions of a specific nature in Para.13-21, First Offender Statute, and Para. 13-22, Guilty Plea or Adjudication of Crime; and reciprocal discipline of disbarment or suspension by another jurisdiction, Para.13-24. The Board also may hear matters related to the failure of a Respondent, who has elected to appeal a district committee decision to a three judge court, to file a transcript.

7.         Appeal of a Disciplinary Board Decision

a.              The Respondent has an appeal as a matter of right to the Supreme Court of Virginia from an order of Admonition, Public Reprimand, Suspension, or Disbarment imposed by the Disciplinary Board. Para. 13-26A.  ]

b.              A notice of appeal and assignments of error must be filed with the Clerk of the Disciplinary System within 30 days after the Memorandum Order of the Disciplinary Board is served on the Respondent. This action within the time prescribed is jurisdictional. Rule 5:21 (b).  

c.              A stay is automatically imposed on a Board order of Admonition or Public Reprimand during the pendency of the appeal.  A Board order of suspension or revocation may be stayed by the Supreme Court during an appeal upon appropriate petition. Rule 5:21(b)(5).

IV.       MISCELLANEOUS ITEMS OF INTEREST        

A.        Request by Complainant to Withdraw Complaint

The fact that a Complainant wishes to withdraw his/her complaint will not be the  sole basis upon which to dismiss the matter.  The investigation and prosecution of the complaint will proceed to its appropriate conclusion despite the request to withdraw the complaint by the Complainant. Para. 13-10B.  

B.        Existence of Pending Criminal/Civil Litigation

The pendency of civil or criminal litigation similar to the charges of misconduct may result in the deferment of proceedings, based on the prosecutorial discretion of Bar Counsel.

C.        Service

Service is effective in the disciplinary system when mailed by certified mail to the Respondent at the Respondent’s last address on record for licensing purposes with the Bar. Thus, it is important that the Respondent maintain a current address with the Bar membership department.

Para. 13-12C.

D.        Costs

Costs are assessed upon the Respondent in every case in which there has been a final determination of misconduct by a District Committee (and its subcommittee), Circuit Court, the Disciplinary Board, or the Supreme Court, following a hearing or entry of an agreed disposition when a Dismissal de minimis, Dismissal for Exceptional Circumstances, an Admonition, Reprimand, Suspension, or Revocation is imposed; cases against a Respondent who surrenders his license to practice law when charges are pending against him; cases in which a Respondent has been found guilty of a Crime by the Disciplinary Board; reciprocal discipline cases; and reinstatement cases. Para. 13-9E.

The costs are assessed by the Clerk of the Disciplinary System and include reasonable costs paid by the bar to outside experts or consultants, reasonable travel and out-of-pocket expenses for witnesses, court reporter and transcript fees, copying, mailing, required publication costs and an administrative charge as determined by the Virginia State Bar Council. Costs are now $500.00 at the Subcommittee level, $750.00 at the district committee level, and $1000.00 at the Board or Circuit Court level. Costs unpaid by a specified date will result in the suspension of the Respondent's license to practice law by the Disciplinary Board until payment is made. Para. 13-9F.

E.         Disciplinary Trials/Civil Litigation

1.              A disciplinary proceeding is a civil proceeding, in the nature of an inquest into the conduct of the attorney. Moseley v. Virginia State Bar ex rel. Seventh District Committee, 694 S.E.2d 586, 589 (Va. 2010). See also, Maddy v. District Committee, 205 Va. 652, 658, 139 S.E.2d 56, 58 (1964); cf. Seventh District Committee v. Gunter, 212 Va. 278, 183 S.E.2d 713, 717 (1971), cited with approval in Gunter v. Virginia State Bar, 241 Va. 186, 399 S.E.2d 820 (1991).

2.              Since the proceeding is in the nature of an inquest, it is conducted much like an administrative proceeding.

3.              The Respondent has no procedural due process right to discovery in a disciplinary proceeding. Gunter v. Virginia State Bar, id.; Para.13-11.

4.              Hearings are bifurcated. The District Committee and Board will first determine if the bar has proved Misconduct; if so, the District Committee or Board will then hear evidence in mitigation or aggravation before determining the appropriate sanction.

5.           Motions to Strike are permitted in hearings at the conclusion of the Bar’s evidence and at the conclusion of all of the evidence. Para. 13-16R, District Committee hearings, and Paragraph 13-18J., Disciplinary Board hearings.

F.         Procedure for Conducting Three Judge Court Proceedings

Matters which are taken to a three judge court pursuant to Va. Code Section 54.1-3935 are conducted in accordance with the rules and procedures of Paragraph 13.  Va. Code Section 54.1-3935(B).

V.        MYTHS AND MISCONCEPTIONS ABOUT BAR COMPLAINTS

A.        Myth:  There is a statute of limitations for filing a bar complaint.

Reality: No limit exists.  A complainant may file a complaint regarding conduct far in the past. Moseley v. Virginia State Bar ex rel. Seventh District Committee, 694 S.E.2d 586, 589 (Va. 2010)

B.        Myth: Only clients can file complaints.

Reality: Anyone can file a complaint regarding any attorney's conduct.

C.        Myth:  If a complainant withdraws a complaint, the matter is closed.

Reality: Once a complainant files a complaint, the Bar investigates and pursues the allegations based on the merit of each claim, not on the preferences of the complainant.

D.        Myth: If a complainant is a criminal, his complaint is unreliable and will surely be dismissed.

Reality: The Bar evaluates the merits of each allegation regardless of the identity of the complainant. Each year, the bar prosecutes cases to the highest tribunals based upon complaints initiated by inmates.

E.      Myth: The Bar can only investigate the specific allegations of the complainant.

Ø  Reality: The Bar investigates all issues present in the information obtained.

F.      Myth: If there is no showing of harm, the complaint will be dismissed. Ø  Reality: The complaint system determines misconduct, not damages.

[1] Rules of Court, Pt 6, §IV, 10.

[2]As a result of a study by the Virginia State Bar Random Trust Account Review Committee, the VSB has initiated a policy to promptly review attorney escrow account records upon receipt of information that may call into question an attorney’s management of his or her escrow account.  An example may be a second escrow account check returned for insufficient funds, regardless of the explanation.

[3]A related power is the Board’s broad sanction power under Para. 13-6G1., including interim suspension, for failure to comply with a Board order. This has arisen in the context of disability hearings where a Respondent has been ordered to disclose health care providers, provide releases, and submit to a mental or physical examination and evaluation. 

[4]= In any Disciplinary Proceeding, evidentiary rulings shall be made favoring receipt into evidence of all reasonably probative evidence to satisfy the ends of justice.  The weight given such evidence received shall be commensurate with its evidentiary foundation and likely reliability. Para. 13-12D.

[5]==The bar has no right to appeal.  Its sole recourse is a motion to reconsider, which is also available to the Respondent, based upon the discovery of material evidence not known or available when first heard and to prevent an injustice or warranted by specific exceptional circumstances. Para 13-16DD

 

 

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