This page contains news on the Rules of Professional Conduct and other significant developments. Ethics resources are provided on the topics listed below which include statutes, opinions, and articles.
On October 24, 2022, the Supreme Court of California approved amendments to Rule 1.4 [Communication with Clients] and Rule 1.15 [Safekeeping Funds and Property of Clients and Other Persons] of the California Rules of Professional Conduct. These amendments are effective January 1, 2023 (Supreme Court case no. S276567). The proposal to amend these rules was developed as a companion initiative to the proactive regulation of client trust accounting under the State Bar’s Client Trust Account Protection Program (CTAPP). The proposed rules were filed with the Supreme Court on September 9, 2022, and approved by the Supreme Court as submitted.
Rule 1.4 addresses a lawyer’s duty to communicate with a client. Among the requirements is a duty to keep a client informed about significant developments relating to the client’s representation (rule 1.4(a)(3)). As amended, Comment [1] to rule 1.4, in part, provides that: “Whether a particular development is significant will generally depend on the surrounding facts and circumstances. For example, a lawyer’s receipt of funds on behalf of a client requires communication with the client pursuant to rule 1.15, paragraphs (d)(1) and (d)(4) and ordinarily is also a significant development requiring communication with the client pursuant to this rule.”
Rule 1.15 addresses a lawyer’s responsibilities for handling entrusted funds and property. Rule 1.15(d)(1) provides that when a lawyer receives funds or other property, the lawyer must, absent good cause, notify the client or other person entitled to the funds or property of that fact no later than 14 days of the receipt of the funds or other property. The 14-day compliance time period is an amendment to rule 1.15 that replaces the former, now repealed, standard which only provided that a notice must be “promptly” given to the client or other person entitled to the funds.
Rule 1.15(d)(7) requires a lawyer to “promptly distribute any undisputed funds or property in the possession of the lawyer or law firm that the client or other person is entitled to receive.” The former, now repealed, version of this requirement provided that distribution should be made upon a request from a client or other person entitled to the funds. As amended, rule 1.15(d)(7) deletes the element of a request from a client or other person.
As amended, new paragraphs (f) and (g) add a rebuttable presumption that funds or property must be disbursed within 45 days of the time those funds or property become undisputed as defined in the rule. Under this standard, unless the lawyer, and the client or other person entitled to receive the funds or property agree in writing that the funds or property should continue to be held by the lawyer, there is a rebuttable presumption affecting the burden of proof in a disciplinary action that there is a violation if the lawyer, absent good cause, fails to distribute undisputed funds or property within 45-days of the date when the funds become undisputed. (See rule 1.15(f).)
Undisputed funds or property refers to funds or property or a portion of any such funds or property, in the possession of a lawyer or law firm where the lawyer knows or reasonably should know that the ownership interest of the client or other person in the funds or property or any portion thereof, has become fixed and there are no unresolved disputes as to the client’s or other person’s entitlement to receive the funds or property. (See rule 1.15(g).)
Comment [7] to rule 1.15 provides examples of disputes that would need to be resolved before the 45-day time period begins counting down. The examples include: medical liens; statutory liens; prior attorney liens; and any legal proceeding on the entitlement to funds, such as an interpleader action. Comment [4] clarifies that the presumption does not apply to a release of a client’s file or a refund of a fee paid in advance as those situations are governed by other, more specific rules. Comment [6] clarifies that lawyers have a general duty to act diligently in resolving disputes that are delaying the distribution of funds or property.
The presumed violation is rebuttable and paragraph (f) provides that it may be rebutted by proof by a preponderance of the evidence that there was good cause for not distributing funds by the 45-day deadline. In addition, Comment [5] provides that if the presumption is rebutted, then a violation of paragraph (d)(7) must be established by the State Bar by clear and convincing evidence and without the benefit of the rebuttable presumption.
On October 24, 2022, the Supreme Court of California approved new Rule of Court 9.8.5 that serves as an enabling rule for the State Bar’s implementation of a proactive regulation program for the handling of entrusted funds and property received or held by a lawyer. The Client Trust Account Protection Program (CTAPP) is a State Bar program designed to increase public protection in the area of a lawyer’s handling of entrusted funds and property. The program focuses on the proactive regulation of lawyers responsible for complying with these fiduciary duties. A goal of this program is to promote compliance and avoid misconduct before a client is harmed by mismanagement of entrusted funds or property.
CTAPP will be implemented in phases. The first phase of CTAPP focuses on reporting and registration. By February 1, 2023, and annually thereafter, licensees are required to report to the State Bar if they are responsible for complying with any of the duties related to the handling of trust funds under rule 1.15 of the Rules of Professional Conduct. Those responsible attorneys must then register each account online through either their My State Bar Profile or the State Bar’s agency billing system, which allows an attorney to comply with the account registration requirement by having their firm submit the information required.
Those responsible attorneys must also complete an annual self-assessment questionnaire about the duties and practices for the proper handling of entrusted funds. This self-assessment will aid an attorney in identifying any potential compliance issues and taking corrective action as needed.
The last reporting requirement in Phase 1 of the CTAPP is for the responsible attorneys to certify that they are knowledgeable about, and in compliance with, applicable rules and statutes governing client trust accounts and the safekeeping of funds.
More information about the CTAPP, including a FAQ, is available at the CTAPP webpage. The Supreme Court also has issued a press release on new Rule of Court 9.8.5.
State Bar Rule 2.5 was adopted by the State Bar Board of Trustees on July 22, 2022, to become operative on the condition that the new Rule of Court 9.8.5 was approved by the Supreme Court of California. The Board of Trustees’ action contemplated that the operative date of State Bar Rule 2.5 would be the same as the operative date of new Rule of Court 9.8.5. As Rule of Court 9.8.5 becomes operative on January 1, 2023, State Bar Rule 2.5 becomes operative on that same date. State Bar Rule 2.5 addresses the administrative implementation of CTAPP and includes, among other provisions, definitions of key terms, fees for failure to timely comply, and the exemptions for certain lawyers. Regarding the exemptions, under State Bar Rule 2.5(K), exempt licensees are either a licensee who was not an active status for the entirety of the reportable time period or a licensee who is not entitled to practice law at the time of the reporting deadline for any reason other than voluntary inactive status.
More information about CTAPP, including a FAQ, is available at the CTAPP webpage.
Attorneys who receive a notice of disciplinary charges under rule 8.4.1 (Prohibited Discrimination, Harassment and Retaliation) must submit a copy of the notice to the Department of Fair Employment and Housing (DFEH). Lawyers may provide a copy of the notice using the new online submission form linked here. DFEH will review the submission and determine whether further action is warranted.
See the Ethics News Archive for earlier items.