Vol. 76, No. 8, August
2003
Supreme Court Orders
The Wisconsin Supreme Court will hold a public
hearing on Sept. 18 relating to procedures for the lawyer regulation
system (order 03-01), including the trust account rules (order 02-06).
The court will hold a public hearing on Oct. 1 relating to discovery in
CHIPS cases (order 03-02) and eligibility for appointment as a GAL for
adults (order 03-03).
Lawyer Trust and Fiduciary
Accounts
In the matter of the amendment of Supreme Court Rule 20:1.15
relating to safekeeping property, trust accounts and fiduciary
accounts
Order 02-06
On Dec. 19, 2002, the State Bar of Wisconsin and the Office of Lawyer
Regulation filed a petition seeking to amend Supreme Court Rule 20:1.15
by repealing the current provisions of SCR 20:1.15 and recreating the
rule in order to provide clarity and additional information to lawyers
regarding the regulation and administration of trust accounts and
fiduciary accounts.
IT IS ORDERED that a public hearing on the petition shall be held in
the Supreme Court Room in the State Capitol, Madison, Wis., on Thursday,
Sept. 18, 2003, at 9 a.m.
IT IS FURTHER ORDERED that the court's conference in the matter shall
be held promptly following the public hearing on this matter and rule
petition 03-01.
IT IS FURTHER ORDERED that notice of the hearing be given by a single
publication of a copy of this order and of the petition in the official
state newspaper and in an official publication of the State Bar of
Wisconsin not more than 60 days nor less than 30 days before the date of
the hearing.
Dated at Madison, Wis., this 11th day of June, 2003.
By the court:
Cornelia G. Clark, Clerk of Supreme Court
Petition
The State Bar of Wisconsin and the Office of Lawyer Regulation hereby
petition the Supreme Court of Wisconsin for an order amending SCR
20:1.15 by repealing the current provisions of SCR 20:1.15 and
recreating the rule in accordance with the attached language.
Background
The Petitioners hereby provide the following background to the Court
in support of this petition:
• Certain changes have previously been made to SCR 20:1.15
based upon a petition from the State Bar of Wisconsin and the Board of
Attorneys Professional Responsibility (now the Office of Lawyer
Regulation).
• The State Bar of Wisconsin and the Office of Lawyer
Regulation have determined that the past amendments to SCR 20:1.15 have
addressed concerns raised by the Court regarding lawyers serving as
fiduciaries and managing accounts on behalf of clients, but has also
raised concerns regarding the applicability of the trust account rule to
various accounts.
• The State Bar of Wisconsin and the Office of Lawyer
Regulation recognize that the current language of SCR 20:1.15 is
confusing and difficult for lawyers to understand for purposes of
compliance with the requirements of properly managing a trust account
used by a lawyer in the practice of law.
• The State Bar of Wisconsin and the Office of Lawyer
Regulation wish to modify the language of the trust account rule to
provide clarity and additional information to lawyers relating to the
regulation and administration of trust accounts and fiduciary accounts
by lawyers in the State of
Wisconsin.
• The State Bar of Wisconsin and the Office of Lawyer
Regulation have participated in extensive discussions and research
regarding the trust account rule and the content of trust account rules
in other states. The Wisconsin Bankers Association has also been
consulted regarding a number of the proposed changes and has provided
guidance and suggestions in the drafting of the attached rule.
Subchapter 20:1.15
SCR 20:1.15(a) Definitions.
SCR 20:1.15(b) Segregation of trust property.
SCR 20:1.15(c) Types of trust accounts.
SCR 20:1.15(d) Prompt notice and delivery of property.
SCR 20:1.15(e) Operational requirements for trust accounts.
SCR 20:1.15(f) Record keeping requirements for trust accounts.
SCR 20:1.15(g) Withdrawal of fees from trust account.
SCR 20:1.15(h) Dishonored instrument notification; (Overdraft
notices).
SCR 20:1.15(i) Certification of compliance with trust account
rules.
SCR 20:1.15(j) Fiduciary property.
SCR 20:1.15(k) Exceptions to SCR 20:1.15.
SCR 20:1.15 Safekeeping property; trust accounts and fiduciary
accounts
(a) Definitions
(1) Demand account. For purposes of this rule, a
"demand account" is defined as an account upon which funds are disbursed
through a properly payable instrument.
(2) Fiduciary. For purposes of this rule,
"fiduciary" is defined as agent, attorney-in-fact, conservator,
guardian, personal representative, special administrator, trustee, or
any other position requiring the lawyer to safeguard the property of a
third party.
(3) Fiduciary account. For purposes of this rule, a
"fiduciary account" is defined as an account in which the lawyer
deposits fiduciary property.
(4) Fiduciary property. For purposes of this rule,
"fiduciary property" is defined as funds or property of a client or
third person that is in the lawyer's possession in a fiduciary capacity
that directly arises in the course of, or as a result of, a
lawyer-client relationship. Fiduciary property includes, but is not
limited to, property held as agent, attorney-in-fact, conservator,
guardian, personal representative, special administrator, or
trustee.
(5) Financial institution. For purposes of this
rule, "financial institution" means a bank, savings bank, trust company,
credit union, savings and loan association, or investment
institution.
(6) Immediate family member. For purposes of this
rule, an "immediate family member" is defined as the lawyer's spouse,
child, stepchild, grandchild, sibling, parent, grandparent, aunt, uncle,
niece or nephew.
(7) Investment institution. For purposes of this
rule, "investment institution" means an institution, such as a brokerage
house, that is capable of providing overdraft notification on lawyer
trust accounts maintained in that institution.
(8) IOLTA account. For purposes of this rule, an
"IOLTA account" is defined as a pooled, interest-bearing account,
separate from the lawyer's business and personal accounts, in which the
lawyer deposits and holds funds received in trust on behalf of a client
or third party, the interest on which does not go to the client. Typical
funds that would be placed in an IOLTA account include earnest monies,
loan proceeds, settlement proceeds, collection proceeds, cost advances,
and advance payments for fees that have not yet been earned. These
accounts are subject to the provisions of SCR Chapter 13 Interest on
Trust Accounts Program.
(9) Properly payable instrument. For purposes of
this rule, a "properly payable instrument" is defined as an instrument
that, if presented in the normal course of business, is in a form
requiring payment pursuant to the laws of this state.
(10) Trust account. For purposes of this rule, a
"trust account" is defined as an account in which the lawyer deposits
trust property.
(11) Trust property. For purposes of this rule,
"trust property" is defined as funds or property of clients or third
persons that is in the lawyer's possession in connection with a
representation.
(b) Segregation of trust property
(1) Separate account. A lawyer shall hold in trust,
separate from the lawyer's own property, that property of clients and
third persons that is in the lawyer's possession in connection with a
representation. All funds of clients and third persons paid to a lawyer
or law firm in connection with a representation shall be deposited in
one or more identifiable trust accounts.
(2) Identification of account. Each trust account
shall be clearly designated as a "Client Account," a "Trust Account," or
words of similar import. The account shall be identified as such on all
account records, including, but not limited to, signature cards, monthly
statements, checks, and deposit slips. An acronym, such as "IOLTA,"
"IOTA," or "LTAB," without further elaboration, does not clearly
designate the account as a client account or trust account.
(3) Lawyer funds. No funds belonging to the lawyer
or law firm, except funds reasonably sufficient to pay monthly account
service charges, may be deposited or retained in a trust account.
(4) Unearned fees and cost advances. Unearned fees
and advanced payments of fees shall be held in trust until earned by the
lawyer, and withdrawn pursuant to SCR 20:1.15(g). Funds advanced by a
client or third party for payment of costs shall be held in trust until
the costs are incurred.
(5) Probate accounts. Trust property of a probate
estate shall be maintained in a separate account that is subject to the
requirements of subparagraphs (b) through (i) of this rule.
(6) Trust property other than funds. Unless the
client otherwise directs in writing, securities in bearer form shall be
kept by the lawyer in a safe deposit box at a financial institution
authorized to do business in Wisconsin. The safe deposit box shall be
clearly designated as a "Client's Account" or "Trust Account." Other
property of a client or third person shall be identified as such and
appropriately safeguarded.
(7) Multi-jurisdictional practice. If a lawyer also
licensed in another state is entrusted with funds or property in
connection with a representation in the other state, the provisions of
SCR 20:1.15 shall not supersede the trust account rules of the other
state.
(c) Types of trust accounts
(1) IOLTA accounts. A lawyer who receives client
funds shall maintain a pooled interest-bearing trust account for deposit
of client or third party funds that are:
a. nominal in amount or expected to be held for a short period of
time; or
b. not deposited in an account or investment, pursuant to SCR
20:1.15(c)(2); or
c. not eligible for an account or investment, pursuant to SCR
20:1.15(c)(2), because the client is a corporation or organization not
permitted by law to maintain such an account or the terms of the account
are not consistent with a need to make funds available without
delay.
The interest accruing on this account, net of any transaction costs,
shall be paid to the Wisconsin Trust Account Foundation, Inc., which
shall be deemed the beneficial owner thereof, pursuant to SCR Chapter 13
Interest on Trust Accounts Program. A lawyer may notify the client of
the intended use of these funds.
(2) Other client accounts. A lawyer shall deposit
all client funds in the account specified in SCR 20:1.15(c)(1) unless
they are deposited in any of the following:
a. a separate interest-bearing trust account for the particular
client or client's matter, the interest on which shall be paid to the
client, net of any transaction costs;
b. a pooled interest-bearing trust account with sub-accounting by the
financial institution, the lawyer or the law firm that will provide for
computation of interest earned by each client's funds and the payment
thereof to the client, net of any transaction costs;
c. an income-generating investment vehicle selected by the client and
designated in specific written instructions from the client or
authorized by the court or other tribunal, on which income shall be paid
to the client or as directed by the court or other tribunal, net of any
transaction costs;
d. an income-generating investment vehicle selected by the lawyer and
approved by a court where the lawyer serves as guardian for a ward,
pursuant to chs. 880 and 881, stats;
e. an income-generating investment vehicle selected by the lawyer to
protect and maximize the return on funds in a bankruptcy estate, which
investment vehicle is approved by the trustee in bankruptcy and by a
bankruptcy court order, consistent with 11 USC 345; or
f. a demand deposit or other non-interest-bearing account for funds
that are neither nominal in amount nor expected to be held for a short
term, provided the client specifically so directs.
(3) Selection of account. In deciding whether to use
the account specified in SCR 20:1.15(c)(1) or an account or investment
vehicle specified in SCR 20:1.15(c)(2), a lawyer shall determine, at the
time of the deposit, whether the client funds could be utilized to
provide a positive net return to the client by taking into consideration
all of the following:
a. the amount of income the funds would earn during the period they
are expected to be on deposit;
b. the cost of establishing and administering the account, including
the cost of the lawyer's services and the cost of preparing any tax
reports required for income accruing to a client's benefit; and
c. the capability of financial institutions to calculate and pay
interest or other income to individual clients.
(4) Professional judgment. The determination whether
funds to be invested could be utilized to provide a positive net return
to the client rests in the sound judgment of the lawyer or law firm. If
a lawyer acts in good faith in making this determination, the lawyer is
not subject to any charge of ethical impropriety or other breach of the
rules of professional conduct.
(5) WisTAF. For accounts created pursuant to SCR
20:1.15(c)(1), the lawyer or law firm shall direct the financial
institution to remit to the Wisconsin Trust Account Foundation, Inc.
("WisTAF"), at least quarterly, the following:
a. the interest or dividends, net of any service charges or fees, on
the average monthly balance in the account or as otherwise computed in
accordance with an institution's standard accounting practice; and
b. a statement showing the name of the lawyer or law firm for whose
account the remittance is sent, the rate of interest applied, the amount
of service charges deducted, if any, and the account balance for the
period for which the report is made. A copy of the statement shall be
provided to the lawyer or law firm.
(d) Prompt notice and delivery of property
(1) Notice and disbursement. Upon receiving funds or
other property in which a client has an interest, or in which the lawyer
has received notice that a third person has an interest identified by a
lien, court order, judgment or contract, the lawyer shall promptly
notify the client or third person in writing. Except as stated in this
rule or otherwise permitted by law or by agreement with the client, the
lawyer shall promptly deliver to the client or third person any funds or
other property that the client or third person is entitled to
receive.
(2) Accounting. Upon final distribution of any trust
property or upon request by the client or a third person having an
ownership interest in the property, the lawyer shall promptly render a
full written accounting regarding such property.
(3) Disputes regarding trust property. When the
lawyer and another person or the client and another person claim
ownership interest in trust property identified by a lien, court order,
judgment or contract, the lawyer shall hold that property in trust until
there is an accounting and severance of their interests. If a dispute
arises regarding the division of the property, the lawyer shall hold the
disputed portion in trust until the dispute is resolved. Disputes
between the lawyer and a client are subject to SCR 20:1.15(g)(2).
(e) Operational requirements for trust accounts
(1) Location. Each trust account shall be maintained
in a financial institution that is authorized by federal or state law to
do business in Wisconsin and that is located in the State of Wisconsin
or has a branch office located in the State of Wisconsin, and which
agrees to comply with the overdraft notice requirements of SCR
20:1.15(h).
(2) Insurance requirements. Each trust account shall
be maintained at a financial institution that is insured by the Federal
Deposit Insurance Corporation, the National Credit Union Share Insurance
Fund, the Wisconsin Credit Union Savings Insurance Corporation, the
Securities Investor Protection Corporation or other investment
institution financial guaranty insurance.
(3) Interest requirements. An interest-bearing trust
account shall bear interest at a rate no less than that applicable to
individual accounts of the same type, size and duration and in which
withdrawals or transfers can be made without delay when funds are
required, subject only to any notice period which the depository
institution is required to observe by law or regulation.
(4) Prohibited transactions.
a. Cash. No disbursement of cash shall be made from
a trust account or from a deposit to a trust account, and no check shall
be made payable to "Cash."
b. Telephone transfers. No deposits or disbursements
shall be made to or from a trust account by a telephone transfer of
funds.
c. Internet transactions. A lawyer shall not make
deposits to or disbursements from a trust account via an Internet
transaction.
d. Electronic transfers by third parties. A lawyer
shall not authorize a third party to electronically withdraw funds from
a trust account.
e. Credit card transactions. A lawyer shall not
authorize transactions via credit card to or from a trust account.
However, earned fees may be deposited via credit card to a lawyer's
business account.
f. Debit card transactions. A lawyer shall not use a
debit card to make deposits to or disbursements from a trust
account.
(5) Availability of funds for disbursement.
a. Standard for trust account transactions. A lawyer
shall not disburse funds from the lawyer's trust account(s) unless the
deposit from which those funds will be disbursed has cleared, and the
funds are available for disbursement.
b. Exception: real estate transactions. In closing a
real estate transaction, a lawyer's disbursement of closing proceeds
from funds that are received on the date of the closing, but which have
not yet cleared, shall not violate SCR 20:1.15(e)(5)(a) if those
proceeds are deposited on the date of the closing and are comprised of
the following types of funds: 1) a certified check; 2) a cashier's
check, teller's check, bank money order, official bank check or
electronic transfer of funds, issued or transferred by a financial
institution insured by the Federal Deposit Insurance Corporation or a
comparable agency of the federal or state government; 3) a check drawn
on the trust account of any lawyer or real estate broker licensed under
the laws of any state; 4) a check issued by the State of Wisconsin, the
United States, or a political subdivision of the State of Wisconsin or
the United States; 5) a check drawn on the account of or issued by a
lender approved by the United States Department of Housing and Urban
Development as either a supervised or a nonsupervised mortgagee as
defined in 24 C.F.R. § 202.2; 6) a check from a title insurance
company licensed in the State of Wisconsin, or from a title insurance
agent of the title insurance company, provided that the title insurance
company has guaranteed the funds of that title insurance agent; and 8) a
personal check or checks in an aggregate amount not exceeding $5,000 per
closing if the lawyer has reasonable and prudent grounds to believe that
the deposit will be irrevocably credited to the trust account. Without
limiting the rights of the lawyer against any person, it shall be the
responsibility of the disbursing lawyer to reimburse the trust account
for such funds that are not collected and for any fees, charges and
interest assessed by the financial institution on account of such funds
being disbursed before the related deposit has cleared and the funds are
available for disbursement. The lawyer shall maintain a subsidiary
ledger for funds of the lawyer that are deposited in the trust account
to reimburse the account for uncollected funds and to accommodate any
fees, charges and interest.
c. Exception: collection trust accounts. When
handling collection work for a client, and maintaining a separate trust
account to hold funds collected on behalf of that client, a lawyer's
disbursement to the client of collection proceeds which have not yet
cleared, shall not violate SCR 20:1.15(e)(5)(a) so long as those
collection proceeds have been deposited prior to the disbursement.
Without limiting the rights of the lawyer against any person, it shall
be the responsibility of the disbursing lawyer to reimburse the trust
account for such funds that are not collected and for any fees, charges,
and interest assessed by the financial institution on account of such
funds being disbursed before the related deposit has cleared and the
funds are available for disbursement. The lawyer shall maintain a
subsidiary ledger for funds of the lawyer that are deposited in the
client's trust account to reimburse the account for uncollected funds
and to accommodate any fees, charges and interest.
(6) Record retention. Complete records of trust
account funds and other trust property shall be maintained by the lawyer
and shall be preserved for a period of at least six (6) years after
termination of the representation.
(7) Production of records. All trust account records
shall be deemed to have public aspects as related to a lawyer's fitness
to practice. Upon request of the Office of Lawyer Regulation, or upon
direction of the Supreme Court, the records shall be submitted to the
office for its inspection, audit, use and evidence under such conditions
to protect the privilege of clients as the Court may provide. The
records, or an audit thereof, shall be produced at any disciplinary
proceeding involving the lawyer, wherever material. Failure to produce
the records shall constitute unprofessional conduct and grounds for
disciplinary action.
(8) Business account. Each lawyer who receives trust
funds shall maintain at least one demand account, other than the trust
account, for funds received and disbursed other than in the lawyer's
trust capacity, which shall be entitled "Business Account."
(f) Record keeping requirements for trust
accounts
(1) Demand accounts. Complete records of a trust
account that is a demand account shall include a transaction register;
individual client ledgers; a ledger for account fees and charges, if law
firm funds are held in the account pursuant to SCR 20:1.15(b)(3);
deposit records; disbursement records; monthly statements; and
reconciliation reports, as described in SCR 20:1.15(f)(1)(a)-(g).
a. Transaction register. The transaction register
shall contain a chronological record of all account transactions, and
shall include the date, source and amount of all deposits; the date,
check or transaction number, payee and amount of all disbursements,
whether by check, wire transfer, or other means; the date and amount of
every other deposit or deduction of whatever nature; the identity of the
client for whom funds were deposited or disbursed; and the balance in
the account after each transaction.
b. Individual client ledgers. A subsidiary ledger
shall be maintained for each client or matter for which the lawyer
receives trust funds, and shall record each receipt and disbursement of
that client's funds, and the balance following each transaction. A
lawyer shall not disburse funds from the trust account that would create
a negative balance with respect to any individual client or matter.
c. Ledger for account fees and charges. A subsidiary
ledger shall be maintained for funds of the lawyer deposited in the
trust account to accommodate monthly service charges. This ledger shall
record each deposit and expenditure of the lawyer's funds in the account
and the balance following each transaction.
d. Deposit records. Deposit slips shall identify the
name of the lawyer or law firm, and the name of the account. The deposit
slip shall identify the amount of each deposit item, the client or
matter associated with each deposit item, and the date of the deposit.
The lawyer shall maintain a copy or duplicate of each deposit slip. All
deposits shall be made intact. No cash, or other form of disbursement,
shall be deducted from a deposit. Deposits of wired funds shall be
documented in the account's monthly statement.
e. Disbursement records.
(1) Checks. Checks shall be pre-printed and
pre-numbered. The name and address of the lawyer or law firm, and the
name of the account, shall be printed in the upper left corner of the
check. Trust account checks shall include the words "Client Account" or
"Trust Account" in the account name. Each check disbursed from the trust
account shall identify the client matter and the reason for the
disbursement on the memo line.
(2) Canceled checks. Canceled checks shall be
obtained from the financial institution. Imaged checks may be
substituted for canceled checks.
(3) Imaged checks. Imaged checks shall be acceptable
if they provide both the front and reverse of the check and comply with
the requirements of this paragraph. The information contained on the
reverse side of the imaged checks shall include any endorsement
signatures or stamps, account numbers, and transaction dates that appear
on the original. Imaged checks shall be of sufficient size to be
readable without magnification and as close as possible to the size of
the original check.
(4) Wire transfers. Wire transfers shall be
documented by a written withdrawal authorization or other documentation,
such as a monthly statement of the account, which indicates the date of
the transfer, the payee and the amount.
f. Monthly statement. The monthly statement provided
to the lawyer/law firm by the financial institution shall identify the
name and address of the lawyer or law firm, and the name of the
account.
g. Reconciliation reports. For each trust account,
the lawyer shall prepare and retain a printed reconciliation report on a
regular and periodic basis, but in any event, no less frequently than
every thirty (30) days. Each reconciliation report shall show the
following balances and verify that they are identical:
(1) the balance, which appears in the transaction register as of the
reporting date;
(2) the total of all subsidiary ledger balances, determined by
listing and totaling the balances in the individual client ledgers and
the ledger for account fees and charges, as of the reporting date;
and
(3) the adjusted balance, determined by adding outstanding deposits
and other credits to the balance in the financial institution's monthly
statement and subtracting outstanding checks and other deductions from
the balance in the monthly statement.
(2) Non-demand accounts. Complete records of a trust
account that is a non-demand account shall include:
a. all monthly or other periodic statements provided by the financial
or investment institution to the lawyer or law firm; and
b. all transaction records, including passbooks, records of
electronic fund transactions, duplicates of any instrument issued by the
financial institution from funds held in the account, duplicate deposit
slips identifying the source of any deposit, and duplicate withdrawal
slips identifying the purpose of any withdrawal.
(3) Trust property other than funds.
a. Property ledger. A lawyer who receives trust
property other than funds shall maintain a property ledger, identifying
the property, date of receipt, owner, client or matter, and the location
of the property. The ledger shall also identify the disposition of all
such property.
b. Receipt upon taking custody. Upon taking custody
of such property, the lawyer shall provide to the previous custodian a
signed receipt, with a description of the property, and the date of
receipt.
c. Dispositional receipt. Upon disposition of the
property, the lawyer shall obtain a signed receipt, with a description
of the property and the date of disposition, from the recipient.
(4) Electronic record retention.
a. Back-up of records. A lawyer who maintains trust
account records by computer must maintain the transaction register,
client ledgers, and reconciliation reports in a form that can be
reproduced to printed hard copy. Electronic records must be regularly
backed up by an appropriate storage device.
b. IOLTA account records. In addition to the
requirements of SCR 20:1.15(f)(4)(a), the transaction register, the
subsidiary ledger, and the reconciliation report shall be printed every
30 days for the IOLTA account. The printed copy shall be retained for at
least six (6) years, pursuant to the requirements of SCR
20:1.15(e)(6).
(g) Withdrawal of fees from trust account
(1) Notice to client. At least five (5) business
days before the date on which a disbursement is made from a trust
account for the purpose of paying fees, with the exception of contingent
fees, the lawyer shall deliver to the client in writing the
following:
a. an itemized bill or other accounting showing the services
rendered;
b. written notice of the amount owed and the anticipated date of the
withdrawal; and
c. a statement of the balance of the client's funds in the lawyer
trust account after the withdrawal.
(2) Objection to disbursement. If a client objects
to the disbursement, the funds shall remain in the trust account until
the dispute is resolved. If the client objects after the funds have been
withdrawn, the disputed portion shall be returned to the trust
account.
(h) Dishonored instrument notification; (Overdraft
notices)
All demand trust accounts and demand fiduciary accounts shall comply
with the following provisions on dishonored instrument notification:
(1) Overdraft reporting agreement. A lawyer shall
maintain demand trust accounts only in a financial institution or
investment institution that has agreed to provide an overdraft report to
the Office of Lawyer Regulation, pursuant to SCR 20:1.15(h)(3).
(2) Identification of accounts subject to SCR
20:1.15(h). A lawyer or law firm shall notify the financial
institution at the time a trust account or fiduciary account is
established that the account is subject to SCR 20:1.15(h), and shall
provide the financial institution with a list of all existing accounts
at that institution that are subject to SCR 20.15(h).
(3) Overdraft report. In the event any properly
payable instrument is presented against a lawyer trust account
containing insufficient funds, whether or not the instrument is honored,
the financial institution or investment institution shall report the
overdraft to the Office of Lawyer Regulation.
(4) Content of report. All reports made by a
financial institution pursuant to SCR 20:1.15(h) shall be substantially
in the following format:
a. In the case of a dishonored instrument, the notice shall be
identical to the overdraft notice customarily forwarded to the depositor
or investor, accompanied by the dishonored instrument, if a copy is
normally provided to the depositor or investor.
b. In the case of instruments that are presented against insufficient
funds and are honored, the notice shall identify the financial
institution or investment institution involved, the lawyer or law firm,
the account number, the date on which the instrument is paid, and the
amount of overdraft created by the payment.
(5) Timing of report. A report made pursuant to SCR
20:1.15(h) shall be made simultaneously with the overdraft notice given
to the depositor or investor.
(6) Confidentiality of report. A report made by a
financial institution or an investment institution pursuant to SCR
20:1.15(h) shall be subject to SCR 22.40 Confidentiality.
(7) Withdrawal of report by financial institution.
The office shall hold each overdraft report for ten (10) business days
to enable the financial institution or investment institution to
withdraw a report provided by inadvertence or mistake. The deposit of
additional funds by the lawyer or law firm shall not constitute reason
for withdrawing an overdraft report.
(8) Lawyer compliance. Every lawyer practicing or
admitted to practice in this state shall comply with the reporting and
production requirements of SCR 20:1.15(h).
(9) Service charges. SCR 20:1.15(h) does not
preclude a financial institution or investment institution from charging
a particular lawyer or law firm for the reasonable costs of producing
the reports and records required by this rule.
(10) Immunity of financial institution. This rule
does not create a claim against a financial institution or investment
institution or its officers, directors, employees, and agents for
failure to provide a trust account overdraft report or for compliance
with any provision of SCR 20:1.15(h).
(i) Certification of compliance with trust account
rules
(1) Annual requirement. A member of the State Bar of
Wisconsin shall file with the State Bar annually, with payment of the
member's State Bar dues or upon such other date as approved by the
Supreme Court, a certificate stating whether the member is engaged in
the practice of law in Wisconsin. If so, the lawyer shall also state the
number of each trust account, and the name of each financial institution
in which the member maintains a trust account, safe deposit box, or
both, as required by SCR 20:1.15. The State Bar shall supply to each
member, with the annual dues statement or at such other time as directed
by the Supreme Court,
a form on which the certification must
be made.
(2) Trust account record compliance. Each member
shall explicitly certify on the State Bar certificate that he or she has
complied with each of the record keeping requirements set forth in SCR
20:1.15(f) and SCR 20:1.15(j)(5).
(3) Certification by law firm. A law firm shall file
one certificate on behalf of the lawyers in the firm who are required to
file a certificate, pursuant to SCR 20:1.15(i)(1). The law firm shall
give a copy of the certificate to each lawyer in the firm.
(4) Suspension for non-compliance. The failure of a
member to file the required certificate is grounds for automatic
suspension of the member's membership in the State Bar in the same
manner as provided in SCR 10.03(6) for nonpayment of dues. The filing of
a false certificate is unprofessional conduct and is grounds for
disciplinary action.
(j) Fiduciary property
(1) Separate account. A lawyer shall hold in trust,
separate from the lawyer's own funds or property, those funds or
property of clients or third persons that are in the lawyer's possession
when acting in a fiduciary capacity that directly arises in the course
of or as a result of a lawyer-client relationship. When a lawyer is in
possession of fiduciary property of a probate estate, the lawyer shall
maintain the property in a separate account subject to the requirements
of SCR 20:1.15(j).
(2) Location. Each fiduciary account shall be
maintained in a financial institution or an investment institution in
the state where the lawyer's office is situated, or elsewhere as
provided by the written authorization of the client, the governing trust
agreement, organizational by-laws, or order of a court.
(3) Prohibited transactions.
a. Cash. No disbursement of cash shall be made from
a fiduciary account or from a deposit to a fiduciary account, and no
check shall be made payable to "Cash."
b. Internet transactions. A lawyer shall not make
deposits to or disbursements from a fiduciary account via an Internet
transaction.
c. Credit card transactions. A lawyer shall not
authorize transactions via credit card to or from a fiduciary
account.
d. Debit card transactions. A lawyer shall not use a
debit card to make deposits to or disbursements from a fiduciary
account.
(4) Availability of funds for disbursement. A lawyer
shall not disburse funds from a fiduciary account unless the deposit
from which those funds will be disbursed has cleared, and the funds are
available for disbursement. However, the exception for real estate
transactions, pursuant to SCR 20:1.15(e)(5)(b), shall apply to fiduciary
accounts.
(5) Records. For each fiduciary account, the lawyer
shall retain records of receipts and disbursements as necessary to
document the transactions. The lawyer shall maintain:
a. all monthly or other periodic statements provided by the financial
or investment institution to the lawyer or law firm; and
b. all transaction records, including canceled or imaged checks,
passbooks, records of electronic fund transactions, and deposit slips,
identifying the source of the deposit.
(6) Record retention. Complete records of fiduciary
accounts and other fiduciary property shall be maintained by the lawyer
during the course of the fiduciary relationship. A lawyer shall maintain
a complete record of the fiduciary account for the six (6) most recent
years of the account's existence and shall maintain, at minimum, a
summary accounting of the fiduciary account for prior years of the
account's existence. After the termination of the fiduciary
relationship, complete records shall be preserved for a period of at
least six (6) years.
(7) Production of records. All fiduciary account
records shall be deemed to have public aspects as related to a lawyer's
fitness to practice. Upon request of the Office of Lawyer Regulation, or
upon direction of the Supreme Court, the records shall be submitted to
the Office for its inspection, audit, use and evidence under such
conditions to protect the privilege of clients as the Court may provide.
The records, or an audit thereof, shall be produced at any disciplinary
proceeding involving the lawyer, wherever material. Failure to produce
the records shall constitute unprofessional conduct and grounds for
disciplinary action.
(8) Fiduciary property other than funds.
a. Property ledger. A lawyer who receives fiduciary
property other than funds shall maintain a property ledger, identifying
the property, date of receipt, owner, and the location of the property.
The ledger shall also identify the disposition of all such property.
b. Receipt upon taking custody. Upon taking custody
of such property, the lawyer shall provide to the previous custodian a
signed receipt, with a description of the property, and the date of
receipt.
c. Dispositional receipt. Upon disposition of the
property, the lawyer shall obtain a signed receipt, with a description
of the property and the date of disposition, from the recipient.
(9) Dishonored instrument notification or alternative
protection. A lawyer who holds fiduciary property in a demand
account shall be required to take one of the following actions:
a. comply with the requirements of SCR 20:1.15(h), Dishonored
instrument notification (Overdraft notices); or
b. have the account independently audited by a certified public
accountant on at least an annual basis; or
c. hold the funds in a demand account, which requires the approving
signature of a co-trustee, co-agent, co-guardian, or co-personal
representative before funds may be disbursed from the account.
(10) Certification requirements. Funds held by a
lawyer in a fiduciary account that is a demand account shall be required
to comply with the certification requirements of SCR 20:1.15(i).
(k) Exceptions to SCR 20:1.15
The provisions of SCR 20:1.15 shall not be applicable to the
following instances in which a lawyer is acting in a fiduciary
capacity:
(1) the lawyer is serving as a bankruptcy trustee subject to the
oversight and accounting requirements of the bankruptcy court; or
(2) the property held by the lawyer when acting in a fiduciary
capacity is property held for the benefit of an "immediate family
member" of the lawyer, as defined in SCR 20:1.15(a)(6); or
(3) the lawyer serves in a fiduciary capacity for a civic, fraternal
or non-profit organization, which is not a client and has other officers
or directors participating in the governance of the organization.
Comment: A lawyer should hold property of
others with the care required of a professional fiduciary. All property
that is the property of clients or third persons must be kept separate
from the lawyer's business and personal property and, if monies, in one
or more trust accounts.
SCR 20:1.15(b)(4) Advances for fees and costs
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 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.
Lawyers also receive cost advances from clients or third parties.
Since Jan. 1, 1987, the Court has required cost advances to be held in
trust. Prior to that date, the applicable trust account rule [SCR
20.50(1)], specifically excluded such advances from the funds that the
Court required lawyers to hold in trust accounts. However, by order,
dated March 21, 1986, the Court amended SCR 20.50(1) as follows:
All funds of clients paid to a lawyer or law firm, other than
advances for costs and expenses, shall be deposited in one or
more identifiable bank trust accounts as provided in
sub. (3) maintained in the state in which the law office is situated
and no funds belonging to the lawyer or law firm may be deposited in
such an account except as follows...
This requirement is specifically addressed in SCR 20:1.15(b)(4).
SCR 20:1.15(b)(5) Probate accounts
With respect to probate matters, a lawyer's role may be to represent
the estate's personal representative, to serve as the personal
representative, or to act as both personal representative and attorney
for an estate. SCR 20:1.15(b)(5) identifies the rules that apply when a
lawyer holds trust property as the attorney for a client/personal
representative. Those rules, SCR 20:1.15(b) - (i), also apply when the
lawyer serves as both the attorney and personal representative for an
estate. However, if the lawyer serves solely as an estate's personal
representative, the lawyer acts as a fiduciary and must maintain the
fiduciary property in a separate account that is subject to the
requirements of SCR 20:1.15(j).
SCR 20:1.15(d) Interests of third parties
Third parties, such as client's creditors, may have just claims
against funds or other property in a lawyer's custody. A lawyer may have
a duty under applicable law, including SCR 20:1.15(d), to protect such
third-party claims against wrongful interference by the client, and
accordingly, may refuse to surrender the property to the client.
However, a lawyer should not unilaterally assume to arbitrate a dispute
between the client and the third party.
If a lawyer holds property belonging to one person and a second
person has a contractual or similar claim against that person but does
not claim to own the property or have a security interest in it, the
lawyer is free to deliver the property to the person to whom it
belongs.
SCR 20:1.15(e)(2) Insurance requirements
Pursuant to SCR 20:1.15(e)(2), trust funds are required to be held in
accounts that are insured by the Federal Deposit Insurance Corporation,
the National Credit Union Share Insurance Fund, the Wisconsin Credit
Union Savings Insurance Corporation, the Securities Investor Protection
Corporation or other investment institution financial guaranty
insurance. However, since federal law limits the amount of the insurance
coverage by account holder, rather than by account, whenever a lawyer
has one or more accounts at a particular financial institution, and the
total balance in all of the accounts exceeds the FDIC maximum, the
excess amount is not insured. Consequently, the purpose of the insurance
requirement is not to guarantee that all funds are adequately insured.
Rather, it is to assure that trust funds are held in reputable financial
institutions.
SCR 20:1.15(e)(5)(b) Real estate transactions
SCR 20:1.15(e)(5)(b) establishes an exception to the requirement that
a lawyer only disburse funds that are available for disbursement, i.e.,
funds that have been credited to the account. This exception was created
in recognition of the fact that real estate transactions in Wisconsin
require a simultaneous exchange of funds. However, even under this
exception, the funds from which a lawyer disburses the proceeds of the
real estate transaction, i.e., the lender's check, draft, wire transfer,
etc., must be deposited on the date of the closing. In refinancing
transactions, the lender's funds must be deposited as soon as possible,
but no later than the date on which the transaction is finalized and the
loan proceeds are distributed. This is generally three days after the
closing date.
SCR 20:1.15(e)(7) Inspection of records
The duty of the lawyer to produce client trust account records for
inspection under SCR 20:1.15(e)(7) is a specific exception to the
lawyer's responsibility to maintain the confidentiality of the client's
information as required by SCR 20:1.6.
SCR 20:1.15(i) and SCR 20:1.15(j)(10) Certification of
compliance
The current rule is intended to implement the Court's order of April
11, 2001; certification is required for "all trust accounts and safe
deposit boxes in which the lawyer deposits clients' funds or property
held in connection with a representation or held in a fiduciary capacity
that directly arises in the course
of or as a result of a lawyer-client
relationship."
SCR 20:1.15(j) Lawyer as professional fiduciary
A lawyer must hold property of others with the care required of a
professional fiduciary. All property which is the property of clients or
third persons must be kept separate from the lawyer's business and
personal property and, if monies, in one or more trust accounts. SCR
20:1.15(j) specifies the requirements and responsibilities for a
lawyer's management of fiduciary property.
SCR 20:1.15(j)(1) Separate account
With respect to probate matters, a lawyer's role may be to represent
the estate's personal representative, to serve as the personal
representative, or to act as both personal representative and attorney
for an estate. SCR 20:1.15(j)(1) states that "(w)hen a lawyer is in
possession of fiduciary property of a probate estate, the lawyer shall
maintain the property in a separate fiduciary account subject to the
requirements of SCR 20:1.15(j). SCR 20:1.15(j) applies only when the
lawyer serves solely as an estate's personal representative. If the
lawyer represents a client/personal representative, or when the lawyer
serves as both personal representative and attorney for the estate, the
lawyer is responsible for trust property and is subject to the
requirements of SCR 20:1.15(b)-(i).
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Procedures for Lawyer Regulation System
In the matter of amendments to Supreme Court Rules chapter 22
- Procedures for the Lawyer Regulation System
Order 03-01
On Jan. 24, 2003, the Office of Lawyer Regulation filed a petition
seeking to amend Supreme Court Rules 22.04, 22.11, 22.25, 22.30, 22.40,
and 22.42 relating to procedures for the lawyer regulation system. The
petition proposes to correct references to subpoena authority, create
reciprocal subpoena authority with other jurisdictions, authorize the
filing of a reciprocal discipline complaint without the need for
submission to the preliminary review committee for a finding of cause to
proceed, clarify that the Supreme Court reviews allegations of
malfeasance against special investigators and members of the special
preliminary review panel, eliminate the requirement that notices of
reinstatement hearings be published in the official publication of the
State Bar of Wisconsin, and allow disclosure of relevant information to
the United States Attorney in situations where jurisdiction lies with
the federal government.
IT IS ORDERED that a public hearing on the petition shall be held in
the Supreme Court Room in the State Capitol, Madison, Wis., on Thursday,
Sept. 18, 2003, at 9 a.m.
IT IS FURTHER ORDERED that the court's conference in the matter shall
be held promptly following the public hearing on this matter and rule
petition 02-06.
IT IS FURTHER ORDERED that notice of the hearing be given by a single
publication of a copy of this order and of the petition in the official
state newspaper and in an official publication of the State Bar of
Wisconsin not more than 60 days nor less than 30 days before the date of
the hearing.
Dated at Madison, Wis., this 11th day of June, 2003.
By the court:
Cornelia G. Clark, Clerk of Supreme Court
Petition
The Petitioner, Keith L. Sellen, Director of the Office of Lawyer
Regulation, hereby petitions the Supreme Court of Wisconsin for an order
that amends Supreme Court Rules (SCR) relating to the Lawyer Regulation
System as described in the following paragraphs.
Proposed Amendments
SCR 22.04 Referral to district committee. (1) The
director may refer a matter to a district committee for assistance in
the investigation. A respondent has the duty to cooperate specified in
SCR 21.15(4) and 22.03(2) in respect to the district committee. The
committee may subpoena and compel the production of documents specified
in SCR 22.03(7 8) and 22.42. [Purpose: to
correct the reference to the subpoena authority.]
SCR 22.11 Initiation of Proceeding. (2) The
complaint shall set forth only those facts and misconduct allegations
for which the preliminary review panel determined there was cause to
proceed and may set forth the discipline or other disposition sought.
Facts and misconduct allegations arising under SCR 22.22, may be set
forth in a complaint without a preliminary review panel finding of cause
to proceed. [Purpose: to authorize the filing of a reciprocal
discipline complaint without the need for submission to the Preliminary
Review Committee for a finding of cause to proceed.]
SCR 22.25 Misconduct and malfeasance allegations against
lawyer regulation system participants. (8) Allegations of
malfeasance against the director, retained counsel, a member of a
district committee, a member of the preliminary review committee, a
member of the board of administrative oversight, a special
investigator, a member of the special preliminary review panel, or a
referee shall be referred by the director to the supreme court for
appropriate action. [Purpose: to clarify that the Supreme Court
reviews allegations of malfeasance against special investigators and
members of the special preliminary review panel.]
SCR 22.30 Reinstatement procedure. (3) At least 30
days prior to the hearing, the director shall publish a notice in a
newspaper of general circulation in any county in which the petitioner
maintained an office for the practice of law prior to suspension or
revocation and in the county of the petitioner's residence during the
suspension or revocation and in an official publication of the
state bar of Wisconsin . [Purpose: to shorten the lead-time
required to schedule reinstatement hearings. Publication lead-time for
the Wisconsin Lawyer delays hearing dates longer than would otherwise be
required. Publication in newspapers of general circulation is sufficient
to protect the public interest.]
SCR 22.40 Confidentiality. (3) The director may
provide relevant information to a district attorney or a United
States Attorney where there is substantial evidence of an attorney's
possible criminal conduct. [Purpose: to authorize disclosure in
situations where jurisdiction lies with the federal
government.]
SCR 22.42 Subpoena. (6) Reciprocal subpoena
authority.
(a)Subpoena pursuant to law of another jurisdiction. Whenever a
subpoena is sought in Wisconsin pursuant to the law of another
jurisdiction for use in lawyer discipline or disability investigations
or proceedings in that jurisdiction, and where the application for
issuance of the subpoena has been duly approved or authorized under the
law of that jurisdiction, the director may issue a subpoena as provided
in this chapter to compel the attendance of witnesses and production of
documents in Wisconsin, or elsewhere as agreed by the witnesses, for use
in such foreign investigations or proceedings or in defense
thereof.
(b) Request for foreign subpoena in aid of proceeding in this
jurisdiction. In a lawyer discipline or disability investigation or
proceeding pending in this jurisdiction, the director, special
investigator, or respondent may apply for the issuance of subpoenas in
other jurisdictions, pursuant to the rules of those jurisdictions, where
such application is in aid of such investigation or proceeding or in
defense thereto, and to the extent that the director, special
investigator, or respondent could issue compulsory process or obtain
formal prehearing discovery under the provisions of this
chapter.
[Purpose: to provide reciprocal subpoena authority with other
jurisdictions that have similar reciprocal authority. This provision is
intended to honor disciplinary system subpoenas from other jurisdictions
and to enable the Office of Lawyer Regulation to have subpoenas honored
in other jurisdictions based upon reciprocal authority.]
Top of page
Discovery in CHIPS Cases
In the matter of the amendment of Wis. Stat.
§§ 48.293, 48.295, and 804.01, relating to discovery in
CHIPS cases
Order 03-02
On Feb. 12, 2003, the Judicial Council filed a petition seeking to
amend Wis. Stat. §§ 48.293, 48.295, and 804.01 to address
concerns regarding discovery in CHIPS cases and to clarify when and by
whom reports described in § 48.293(1) and (2) are to be
provided. The Council's petition also proposes a provision that would
allow the agency possessing such reports to seek a protective order.
IT IS ORDERED that a public hearing on the petition shall be held in
the Supreme Court Room in the State Capitol, Madison, Wis., on
Wednesday, Oct. 1, 2003, at 9 a.m.
IT IS FURTHER ORDERED that the court's conference in the matter shall
be held promptly following the public hearing on this matter and rule
petition 03-03.
IT IS FURTHER ORDERED that notice of the hearing be given by
publication of a copy of this order and of the petition in the official
state newspaper once each week for three consecutive weeks and in an
official publication of the State Bar of Wisconsin not more than 60 days
nor less than 30 days before the date of the hearing.
Dated at Madison, Wis., this 11th day of June, 2003.
By the court:
Cornelia G. Clark, Clerk of Supreme Court
Petition
The Judicial Council, pursuant to its authority under §758.13,
Stats., to receive, consider, and in its discretion investigate
suggestions from any source pertaining to the administration of justice,
and to recommend changes in the statutes and rules governing procedure
in the courts of Wisconsin, hereby petitions the court to adopt the
following statutory and rule changes under §751.12, Stats.
A. In the CHIPS case In the Interest of F.Q., et
al. v. Milwaukee County Department of Social Services, 162 Wis. 2d
607, 611-12, 470 N.W.2d 1, 2 (Ct. App. 1991), the court of appeals held
that the respondent, Milwaukee County DSS, was permitted to obtain a
judgment using summary judgment procedure because "CHIPS proceedings are
civil proceedings[,]" and the Code of Civil Procedure applies.
Like summary judgment, discovery is also a part of the Code of Civil
Procedure and is therefore also available in CHIPS proceedings. Attorney
Gretchen Viney, a former member and chairperson of the Judicial Council,
represented that abuses of discovery have occurred in CHIPS proceedings,
complaining that discovery has been employed to question young children
who are the alleged victims in CHIPS petitions, e.g., young children
whose parents may be alleged to be perpetrators of abuse upon the
children, thereby frightening, intimidating, confusing and otherwise
violating the children's best interests. One can easily imagine the
potential for inappropriate use of deposition or other discovery
mechanisms on a reporting child. Attorney Viney provided anecdotal
accounts.
Following Attorney Viney's suggestion, the Judicial Council referred
the issue to its Evidence and Civil Procedure Committee. The committee
agreed that, without some limitation protecting a child's best
interests, potential existed for abusive use of discovery. The
committee, therefore, developed and proposed amendments to §48.293,
Stats., and the Judicial Council has adopted them. Primarily, the
proposal sets limitations on discovery, intending to protect an alleged
victim-child's best interests. These can be seen in the proposed
§48.293(1) and (2) and §48.295, Stats. A correlative clause
and comment is added to §804.01, Stats. (Rule), the general civil
discovery statute. The proposed amendments are attached as Appendix A.
Section 48.293 in its present form is attached as Appe
Wisconsin Lawyer
