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  • July 16, 2010

    Changes to advanced fee and credit card trust account rules, effective Jan. 1

    The Wisconsin Supreme Court recently adopted several changes to Wisconsin's trust account rule, SCR 20:1.15, effective Jan. 1, 2011. The changes affect how lawyers deal with advanced fees and credit card trust accounts.
    Timothy PierceBy Tim Pierce, Ethics Counsel, State Bar of Wisconsin

    July 16, 2010 – In Order 06-04A, the Wisconsin Supreme Court recently adopted several changes to Wisconsin’s trust account rule, SCR 20:1.15, effective Jan. 1, 2011. The changes affect how lawyers deal with advanced fees and credit card trust accounts.

    In particular, the new rules clarify dispute procedures when a lawyer uses alternative protection for advanced fees and allow lawyers to accept earned fees by credit card into a credit card trust account. This article reviews these changes.

    Submitting disputes to fee arbitration under the alternative protection for advanced fees

    Advance Fees and Credit Card Trust Account Rules

    Currently, SCR 20:1.15(b)(4m) is inconsistent in the type of dispute with former clients that requires a lawyer to submit the dispute to fee arbitration.

    The current SCR 20:1.15(b)(4m)a.5 requires a lawyer using the alternative protection for advanced fees to notify a client upon receipt of an advanced fee that “the lawyer is required to submit any dispute about a requested refund of advanced fees to binding arbitration within 30 days of receiving a request for such a refund.”

    The current SCR 20:1.15(b)(4m)b.2 requires a lawyer using the alternative protection for advanced fees, upon termination of the representation, to provide the client “notice that, if the client disputes the amount of the fee and wants that dispute to be submitted to binding arbitration, the client must provide written notice of the dispute to the lawyer within 30 days of the mailing of the accounting.”

    Thus, it is currently unclear whether any dispute about the fee requires a lawyer to submit the dispute to fee arbitration or whether only disputes about the return of advanced fee payments trigger the lawyer’s obligation to submit the dispute to fee arbitration.

    For example, if a lawyer requires an advanced fee payment of $3,000, earns that amount and later submits a final bill to the client for an additional $2,000, it is unclear if the client’s objection to paying anything beyond the initial payment of $3,000 triggers the lawyer’s obligation to submit the dispute to fee arbitration.

    The new rule clarifies that, if a lawyer uses the alternative protection for advanced fees, any dispute about the fee will trigger the lawyer’s obligation to attempt to resolve the dispute and, if unsuccessful, submit the matter to fee arbitration.

    Court approval exemption

    The current SCR 20:1.15(b)(4m) exempts a lawyer from the requirement to place advanced fees in trust “provided that a court of competent jurisdiction must ultimately approve the lawyer’s fee” in the matter. It is unclear how this exemption applies.

    For example, for fees of guardians ad litem in a divorce, courts routinely order the parties to pay the fees, and will hear the parties’ complaints about those fees if raised. However, the court does not routinely actively supervise and approve those fees.

    Similarly, in bankruptcy proceedings, while a trustee may object to a lawyer’s fees and bring the matter before the court, the court usually does not actively approve the fees.

    It is uncertain whether these situations fall within the current rule’s exemption, because in many situations, a court does not affirmatively approve the lawyer’s fee.

    The revisions clarify that the exemption applies in any proceeding the fee relates to in which judicial review of the lawyer’s fee is readily available, even if not automatic.

    The court adopted additional language to the rule’s comment further clarifying that this exemption applies to bankruptcy, formal probate proceedings, and proceedings in which a GAL’s fees may be subject to judicial review at the parties’ request.

    This exemption will not apply to any proceedings in which judicial review of the lawyer’s fees is only available by a separate action.

    Credit card trust accounts

    The current SCR 20:1.15(e)(4)h contains an exception to the general prohibition on credit card deposits into trust accounts. This section allows lawyers to establish a credit card trust account “solely” for the purpose of receiving advanced fee and cost payments by credit card.

    Essentially, this credit card trust account functions as a pass-through account to protect funds held in trust from chargebacks and provide a means of identifying the client or matter to which a payment relates.

    Credit card payments are initially deposited to the credit card trust account, but then shortly thereafter transferred to the IOLTA account with a check identifying the client or matter on its memo line. Lawyers also can accept earned fee payments by credit card directly into the lawyer’s operating account.

    The phrase “solely for the purpose of receiving advanced payments of legal fees and costs,” restricts the use of the credit card trust account. Currently, lawyers who wish to accept both earned and advanced fee payments by credit card must have two separate credit card accounts – one for the operating account and one for the credit card trust account.

    This imposes additional expense and provides no additional safeguards for clients because the credit card trust account functions only as a pass-through account.

    The changes eliminate the prohibition of accepting earned fees by credit card into the credit card trust account. Thus, lawyers will be able to establish one credit card account (the credit card trust account) and accept both earned and advanced fee and cost payments through the single account.

    Background

    The Wisconsin Supreme Court adopted the current trust account rule in 2007. A review of the rule’s functionality in May 2010 resulted in recommendations for changes to clarify certain provisions made by the State Bar Trust Account Working Group, the Office of Lawyer Regulation, and others. Following a public hearing, the court adopted the revisions on May 27, 2010, in Order 06-04A, effective Jan. 1, 2011.

    The members of the Trust Account Working Group include attorneys Michael Olds (chair), Barry Cohen, Diane Diel, Dean Dietrich, Len Leverson, Gerry Mowris, Sheila Rommell, Dan Shneidman, Keith Sellen (OLR), and Tim Pierce (State Bar) and Mary Hoeft Smith (OLR).


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