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Florida - TRUST ACCOUNTING

Supreme Court amends IOTA rules, adopting proposals of Task Force on the Distribution of IOTA Funds with modifications.  [Added 6/21/21]

          The Florida Supreme Court appointed a “Task Force on the Distribution of IOTA [Interest on Trust Account] Funds” to study whether Rule 5-1.1(g), …, should be amended “to better ensure the most effective use of IOTA funds.”  Priority was to be given to “the need for funding direct legal services for low-income litigants,” and “to examine and make recommendations on:  (1) alternative models for the distribution of IOTA funds; (2) whether specific priorities should be established for the use of IOTA funds; (3) whether specific requirements or limitations should be imposed on the use of IOTA funds; (4) whether reporting requirements on the distribution and use of IOTA funds should be adopted; and (5) any other matters related to the effective use of IOTA funds.”

          The Task Force studied the matter, held public hearings, and solicited input.  It prepared a report for the Court that unanimously proposed amendments to rule 5-1.1(g).  The Court published the proposal for comment, and a number of interested entities and individuals commented.  Effective July 1, 2021, the Court adopted the Task Force’s proposed amendments, “with substantial modifications” as discussed in its opinion.  Some of the amendments are outlined below.

          New provisions define terms like “qualified grantee organization,” “qualified legal services,” “qualified legal services provider,” and “direct expenses required to administer the IOTA funds.”  The Court modified the definition of “qualified legal services” to include “post-conviction representation, programs that assist low-income clients in navigating legal processes, and the publication of legal forms or other legal resources for use by pro se litigants.”

          The Florida Bar Foundation, “no later than six months after the fiscal year, must distribute to one or more qualified grantee organizations all IOTA funds collected that fiscal year, minus direct expenses required to administer the IOTA funds, funds required to fund the Loan Repayment Assistance Program, and any additional reserves specifically authorized by the Court.  This modification ensures that the Foundation continues its current practice of awarding grants on an annual basis, allowing grantee organizations to effectively conduct annual budgeting and long-term planning.”  Rule 5-1.1(g)(8).

          New rule 5-1.1(g)(9) “sets out how much and for what purposes a qualified grantee organization may expend IOTA funds.”  It provides that a qualified grantee organization must “expend at least 85% of the IOTA funds it receives ‘to facilitate qualified legal service providers providing or facilitating the provision of qualified legal services,’ and [must] expend no more than 15% of the IOTA funds received on ‘general administrative expenses not directly supporting the provision of qualified legal services and establishing reserves.’”

          The Bar Foundation must annually certify to the Court its compliance with rule 5-1.1(g) and must include with this certification “the total amount distributed under the Loan Repayment Assistance Program and the number of qualified legal services providers to whom distributions were made.”  In re: Amendments to Rule Regulating The Florida Bar 5-1.1(g), __ So.3d __ (Fla., No. SC20-1543, 6/18/2021), 2021 WL 2493200.

Fourth DCA reverses order requiring law firm to hold funds in trust account until firm’s dispute with lender to which firm had pledged fees as collateral was resolved.  [Added 3/10/20]

          Law Firm entered into an agreement through which it received $640,000 from a “money manager,” BWCI.  As collateral, Law Firm pledged fees it expected to receive from certain cases.  BWCI claimed that the Firm breached the agreement and sued.  BWCI moved to compel Law Firm to hold the fees listed in the agreement “in trust pursuant to Rule 5-1.1(f) of the Rules Regulating The Florida Bar.”  The trial court granted the motion.

          Law Firm appealed to the Fourth DCA, which identified the “narrow issue” in the case as “whether Rule 5-1.1(f) authorized the circuit court to issue a prejudgment order requiring the law firm to hold ‘in trust’ attorneys’ fees received on cases ‘until the dispute is resolved.’”

          The appeals court answered in the negative and reversed:  “We hold that Rule 5-1.1(f) did not authorize the order because a rule regulating professional conduct does not create substantive or procedural rights for matters left to statute, common law, or rules of procedure.”

          The court noted that Rule 5-1.1(f) applies to funds of a client or third person that are held by a lawyer “in connection with a representation.”  In this case, however, “BWCI’s claim on the attorneys’ fees did not arise ‘in the course of’ the law firm’s representation of BWCI.  The rule contemplates a connection between a claim to the funds and the underlying case where the attorney’s representation occurs [citing the Comment to Rule 5-1.1].  Here, BWCI’s claim arose not from any legal representation by appellants, but from an arm’s length business transaction with them that had no relationship to any of the cases identified in the agreement.”

          The court further stated:  “More importantly, Rule 5-1.1 governs ethical conduct of attorneys.  The rule does not create substantive or procedural rights that would support the court order in this case, an area reserved for statutes, rules of procedure, or the common law.”  Referencing the Preamble to the Rules of Professional Conduct, the court explained that Rule 5-1.1 “does not create substantive legal rights that empowered the circuit court to grant the relief it did.”

          In a footnote, the court stated:  “We do not address the validity of the agreement in this opinion.”  Howard and Associates Attorneys At Law, P.A. v. BWCI Pension Trustees Ltd., __ So.3d __ (Fla. 4th DCA, No. 4D19-1791, 3/4/2020), 2020 WL 1039229.

Second DCA indicates that practice of subpoenaing party’s law firm, rather than party, for non-party trust records is “not prohibited” but should not be employed without safeguards.  [Added 2/17/20]

          Petitioner was sued by the personal representative of her father’s estate (“Respondent”) for funds allegedly taken improperly.  At her deposition Petitioner testified that, when the father was alive, she retained Mowry Law Firm to set up a Trust for the father’s benefit.  Respondent then sought to discover certain records, serving subpoenas on Petitioner, her bank, and the Law Firm.

          Petitioner objected that the subpoena to the Law Firm sought information protected by attorney-client privileged.  The Law Firm also filed an objection, stating that “it has served as Petitioner's estate planning attorneys for over five years and she had not provided consent for the turnover of records under rule 4-1.6 of the Rules Regulating the Florida Bar.”  The trial court ordered production of the records from the Law Firm, but the order did not address the privilege issue.

          Petitioner sought certiorari relief from the Second DCA.  The appellate court quashed the order compelling production of documents from the Law Firm as departing from the essential requirements of law.  “Instead of seeking the Trust documents from Petitioner, Respondent served a subpoena directly on Petitioner’s attorneys seeking the records of the Trust, which we have established is a nonparty.  While this practice is not prohibited, it should not be employed without certain safeguards.”  The order in question “compelled the disclosure of the documents from the Mowry Law Firm without addressing the privilege issue raised by Petitioner, nor did it address the objection Petitioner's attorneys filed raising, not only the same issues of privilege, but the nonexistence of a waiver of consent by Petitioner allowing the disclosure of the records as provided under rule 4-1.6.  Also not addressed in the order was the need, or absence thereof, for an in camera inspection prior to the disclosure of the records in order to safeguard any attorney-client privilege that did, indeed, apply.”  Hett v. Barron-Lunde, __ So.3d __ (Fla. 2d DCA, No. 2D19-40, 1/22/2020), 2020 WL 355526.

Third DCA upholds order requiring production of law firm’s trust account wire receipt records over attorney-client privilege objections. [Added 11/5/14]   --  Sweetapple, Broeker & Varkas, P.L. v. Simmon, ___ So.3d __ (Fla. 3d DCA, No. 3D14-1543, 10/29/2014).

Father’s lawyer in paternity action is ordered to disgorge funds held in his trust account as unearned fees.   [Added 5/28/14]  --  Baratta v. Costa-Martinez, __ So.3d __ (Fla. 3d DCA, No. 3D14-206, 5/21/2014).

Supreme Court approves most rule changes requested by Florida Bar, including revisions to rules governing conflicts and paying witnesses, but rejects proposal to restrict activities of suspended and disbarred lawyers.    [Added 3/29/14]

     Responding to a petition filed by the Florida Bar in October 2012, the Florida Supreme Court approved all but one of the Bar’s requested rule changes.  The amendments to the Rules Regulating The Florida Bar are effective June 1, 2014.  Below is a sunEthics summary of notable changes.  In re: Amendments to the Rules Regulating The Florida Bar (Biennial Report), __ So.3d __ (Fla., SC12-2234, 3/27/2014).

Rule 4-1.7(d) (conflicts, current clients).  This rule was amended “to clarify that family relationships that must be considered as creating conflicts between lawyers include relationships by blood or marriage.”  Rule 4-1.7(d) prohibits lawyers related by blood, adoption, or marriage as a parent, child, sibling, or spouse from representing conflicting interests without the clients’ informed consent.  In addition to amending the rule, the Court directed the Bar “to study the rule further and consider whether the current categories should be broadened beyond parent, child, sibling, and spouse to include other significant relationships.”

Rule 4-1.9, Comment (conflicts, former clients).  The Comment to Rule 4-1.9 was amended to delete an example of misuse of confidential information concerning a former client.  The following sentence was deleted:  “For example, a lawyer who has represented a businessperson and learned extensive private financial information about that person may not then represent that person’s spouse in seeking a divorce.”

Rule 4-3.4(b) (paying witnesses).  Rule 4-3.4(b) was revised to permit lawyers to pay non-expert witnesses for “time spent preparing for, attending, or testifying at proceedings” (new language italicized).  This amendment may broaden the ability of lawyers to pay witnesses; the former rule only allowed “reimburse[ment] . . . for preparing for, attending, or testifying at proceedings.

Rule 5-1.2(c) (trust accounting).  Every firm with more than one lawyer must have a written plan for compliance with trust accounting rules, and this plan must be “disseminated to each lawyer in the firm.”  The rule also sets out requirements for reporting trust account problems within the firm and, if a satisfactory response is not received, to the Bar.

REJECTED proposal; Rule 3-6.1 (activities of suspended/disbarred lawyers).  The Bar asked the Court to amend Rule 3-6.1 "to prohibit suspended attorneys and former attorneys who have been disbarred, or whose disciplinary resignations or revocations have been allowed, from representing clients in administrative proceedings and before administrative agencies which allow nonlawyer agents or 'qualified representatives' to represent clients in certain circumstances."  The Court rejected this proposal, concluding that it does "not have the authority to prohibit a lawyer from doing non-legal work."  In re: Amendments to the Rules Regulating The Florida Bar (Biennial Report), __ So.3d __ (Fla., SC12-2234, 3/27/2014).

Florida Ethics Opinion 12-4, concerning title insurers’ audits of lawyers’ trust accounts under Florida law, becomes final.  [Added 3/14/14]    
Florida Ethics Opinion 12-4 is now a final advisory opinion.  The opinion answers questions concerning a lawyer’s ethical obligations in light of both the Rules of Professional Conduct and Fla.Stat. sec. 626.8473(8).  The statute requires lawyers to maintain funds received in the capacity of a “title or real estate settlement agent” in a separate trust account and to “permit the account to be audited by its title insurers, unless maintaining funds in the separate account for a particular client would violate applicable rules of The Florida Bar.” 
 The Committee responded to two questions asked by an inquiring member of the Florida Bar. These two questions were:
 “Question 1:  Is an attorney permitted to allow a title insurance company to audit the firm’s special trust account used exclusively for real estate and title transactions without the informed consent of the clients who have no involvement with that particular title insurance company?” 
 “Question 2:  If an attorney is not ethically permitted to allow a title insurer to audit the special trust account without the clients’ informed consent because the special trust account involves unrelated transactions, but new section 626.8473(8), Florida Statutes, requires that attorney to allow the audit, does the attorney abide by the ethics rules or the statute?” 
 The Committee’s responses to these questions are summarized in the opinion's final paragraph:  “[T]he inquirer may not permit multiple title insurance companies to audit a single trust account used exclusively for real estate and title transactions, unless the lawyer reasonably concludes that permitting the audits would serve the affected clients’ interests and the affected clients have not prohibited disclosure of the information.  The inquirer may permit a title insurer to audit a single trust account used exclusively for client transactions insured by the title insurer requesting the audit.  The answer to the inquirer’s second question offers three alternatives that may harmonize the inquirer’s obligations under the applicable Rules Regulating The Florida Bar and the statute if the lawyer concludes that permitting the audits is not necessary to serve the affected clients’ interests or if affected clients’ have prohibited the lawyer from disclosing the information.”

Supreme Court disbars rather than suspends lawyer whose gross negligence regarding trust account was insufficient to prove intent to misappropriate funds.  [Added 9/5/13]  -- Florida Bar v. Johnson, __ So.3d __, 38 Fla.L.Weekly S626 (Fla., Nos. SC11-1136, SC11-1578, SC11-2343, 9/4/2013), 2013 WL 4734568. 

Lawyers whose bookkeeper embezzled millions in client funds are disbarred for trust accounting violations and their conduct in responding to the problem.  [Added 3/30/13]  -- Florida Bar v. Rousso, 117 So.3d 756 (Fla. 2013). 

Supreme Court suspends lawyer for 3 years rather than 90 days; confidentiality gives way to fiduciary obligations when holding money in trust for non-client.  [Added 12/13/11]  -- Florida Bar v. Watson, 76 So.3d 915 (Fla. 2011). 

Supreme Court disbars lawyer for multiple trust account violations.  [Added 4/8/11]  --  Florida Bar v. Mirk, 64 So.3d 1180 (Fla. 2011).

Supreme Court disciplines lawyer who allowed non-lawyer to have signatory authority on escrow account.  [Added 6/10/10]  --  Florida Bar v. Hines, 39 So.3d 1196 (Fla. 2010). 

Supreme Court holds that lawyer whose trust account check to client has not cleared has duty to stop payment when served with writ of garnishment seeking those funds.  [Added 5/2/08]  -- Arnold, Matheny and Eagan, P.A. v. First American Holdings, Inc., 982 So.2d 628 (Fla. 2008). 

Lawyer who intentionally misappropriated trust funds, but had "impaired judgment" due to medications and mental health difficulties, is suspended rather than disbarred.  Florida Bar v. McFall, 863 So.2d 303 (Fla. 2003).