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    Wisconsin Lawyer
    August 07, 2009

    Supreme Court Orders

    In order 07-11A, the Wisconsin Supreme Court amended a rule governing the transfer of cases to tribal courts. In order 08-03, the court amended SCR 20:1.15 regarding the interest comparability rule for IOLTA accounts. In order 08-24, the court amended a rule relating to special responsibilities of a prosecutor. In order 09-04, the court amended its internal procedures regarding the Appointment Selection Committee.

    Wisconsin LawyerWisconsin Lawyer
    Vol. 82, No. 8, August 2009

    Discretionary Transfer of Cases to Tribal Court

    In the matter of the petition to create a rule governing the discretionary transfer of cases to tribal court.

    Order 07-11A

    On July 31, 2008, this court created Wis. Stat. § 801.54 governing the discretionary transfer of cases to tribal court. See S. Ct. Order 07-11, 2008 WI 114 (issued Jul. 31, 2008, eff. Jan. 1, 2009) (Roggensack, J., dissenting).

    On Feb. 9, 2009, the Wisconsin Department of Children and Families (“the Department”) submitted a letter to the court asking the court to create a narrow exception to the rule to facilitate transfer of post-judgment child support cases to tribes under certain circumstances. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), as amended by the Balanced Budget Act of 1997, authorized the direct funding of tribal child support enforcement programs by the federal government. The Department of Health and Human Services (“DHSS”) published rules1 providing the mechanism for tribes to submit child support enforcement plans and, upon approval, to receive direct federal funding of tribally operated programs. As part of this program, federal regulations governing state IV-D plans were amended to require states to cooperate with tribal IV-D programs.2 In Wisconsin, the Oneida Nation has received funding to establish such a program and assume the management of certain post-judgment child support cases from state circuit courts.3

    Accordingly, the Department has been working on the transfer of approximately 4,000 post-judgment child support cases from state court to the Oneida Nation as part of this program. However, the Department has ascertained that complying with the affirmative notice requirements of Wis. Stat. § 801.54(2) will make these transfers cost-prohibitive to effectuate. The Department supports the adoption of a narrow exception that will facilitate these transfers while still affording the individual parties an opportunity to object to the transfer. The Department indicates that the Oneida Nation and the Brown County Circuit Court acknowledge the need for this request. The Department has also consulted with the Wisconsin Department of Justice regarding this proposal. The Department asks the court to expedite its consideration of this request because the Oneida Nation’s participation in the federal program and its receipt of federal funds may be jeopardized as a result of the delay in transferring these cases. Expedited consideration by the court is permissible pursuant to Wis. S. Ct. IOP III-A.

    The court discussed this matter at its open administrative conference on March 9, 2009. Justice Patience Drake Roggensack reiterated her objection to the court’s adoption of the rule. A majority of the court voted to grant the request of the Department. Justice Roggensack sought additional feedback on the proposed amendment from the Wisconsin Department of Justice. The court also requested the Department prepare the forms that will be used to notify parties of a prospective case transfer. The Wisconsin Tribal Judge’s Association and the Wisconsin State-Tribal Justice Forum submitted written statements in support of the amendment. Mr. Rick Cornelius submitted a statement opposing the rule.

    The court discussed this matter again at an open administrative conference on May 1, 2009. The court agreed to amend the proposal to reflect a suggestion from the Wisconsin Department of Justice requiring an explicit finding of concurrent jurisdiction as part of the amendment. The court discussed the proposed forms prepared by the Department and voted to advise the records management committee, acting on behalf of the Judicial Conference, to develop standard forms to effectuate this amendment that are substantially similar to the forms attached to this order as exhibits A and B. A majority of the court then confirmed its decision to grant the request of the Department. Justice Patience Drake Roggensack stated she dissented from the adoption of the amendment and made a statement on the record explaining the basis for her dissent. She was joined by Justice Ziegler and Justice Gableman.

    Accordingly, effective the date of this order:

    Section 1. 801.54 (1) of the statutes is amended to read:

    801.54 (1) Scope. In a civil action where a circuit court and a court or judicial system of a federally recognized American Indian tribe or band in Wisconsin (“tribal court”) have concurrent jurisdiction, this rule authorizes the circuit court, in its discretion, to transfer the action to the tribal court under sub. (2m) or when transfer is warranted under the factors set forth in sub. (2). This rule does not apply to any action in which controlling law grants exclusive jurisdiction to either the circuit court or the tribal court.

    Section 2. 801.54 (2m) of the statutes is created to read:

    801.54 (2m) Tribal Child Support Programs. The circuit court may, on its own motion or the motion of any party, after notice to the parties of their right to object, transfer a post-judgment child support, custody or placement provision of an action in which the state is a real party in interest pursuant to s. 767.205(2) to a tribal court located in Wisconsin that is receiving funding from the federal government to operate a child support program under Title IV-D of the federal Social Security Act (42 U.S.C. 654 et al.). The circuit court must first make a threshold determination that concurrent jurisdiction exists. If concurrent jurisdiction is found to exist, the transfer will occur unless a party objects in a timely manner. Upon the filing of a timely objection to the transfer the circuit court shall conduct a hearing on the record considering all the relevant factors set forth in sub. (2).

    IT IS ORDERED that the court directs the records management committee, acting on behalf of the Judicial Conference, to develop standard forms to effectuate this amendment that are substantially similar to the forms attached to this order as Exhibits A and B.

    IT IS FURTHER ORDERED that notice of this amendment of Wis. Stat. § 801.54 be given by a single publication of a copy of this order in the official state newspaper and in an official publication of the State Bar of Wisconsin.

    Dated at Madison, Wis., this 1st day of July, 2009.

    By the court:

    David R. Schanker, Clerk of Supreme Court

    Exhibit A

    STATE OF WISCONSIN CIRCUIT COURT BRANCH___ ___COUNTY

    In re

    _______

    Petitioner

    v. Case No. ___

    _______

    Respondent

    REQUEST FOR HEARING ON CASE TRANSFER TO [Name of tribe] TRIBE TO THE CIRCUIT COURT JUDGE OF ___ COUNTY:

    I request a hearing to contest the transfer of my case regarding the issues of legal custody, physical placement and child support to the [Name of Tribe] Tribe of Indians.

    _______

    Signature

    _______

    Name (please print)

    _______

    Date

    --------FOR AGENCY USE ONLY----------

    The above requested hearing is scheduled for:

    Date: ________

    Time: ________

    Room:________

    Presiding Official:_______

    Address:_______________

    Exhibit B

    ___ COUNTY

    CHILD SUPPORT AGENCY

    123 ___Lane

    ___ Floor

    _______, WI

    Mailing Address: P.O. Box 00000, ___, WI 54000-0000

    TEL: (000) 000-0000

    FAX: (000) 000-0000

    TDD: (000) 000-0000

    http://www.co.___.wi.us/child_support/

    Party Name Date

    Address Case No.:

    Dear <NAME>

    The [Name of Tribe] has received federal approval to operate a tribal child support agency. The Tribe has enacted laws authorizing the establishment of paternity and enforcement of child support.

    You or the other parent in your case is a member of the [Name of Tribe] Tribe. Therefore, your child support case may be transferred to the [Tribal] Child Support Agency. If the case is transferred in part, the issues of (1) legal custody, (2) physical placement and (3) child support will be under the jurisdiction of [Name of Tribal Court]. Other aspects of your family law case, such as maintenance, will remain with the [Insert County] family court.

    This is your formal notice of [Name of County]___ County’s intent to transfer your child support case to the [Tribal] Child Support Agency. You have a right to object to this transfer.

    If you want to object to this transfer, you must complete the enclosed Request for Hearing. Then, within ten (10) business days of the date of this letter, you must send the completed Request for Hearing to the ___ County Child Support Agency, P.O. Box 00000, ___, WI 54000-0000. If you return the request within the appropriate time period, a hearing will be scheduled in ___ County Court, and all parties will be sent a notice of the hearing date, time and location.

    If you do not complete and return the Request for Hearing form on a timely basis, we will ask ___ County Court to sign an order transferring your case to the [Tribal] Child Support Agency.

    This agency is an equal opportunity employer and service provider. If you have a disability and need information in an alternative format, or if you need it translated to another language, please contact us at the phone number or address listed at the top of this letter. 

    Sincerely,

    Agency Attorney, Child Support Agency

    ¶1 PATIENCE DRAKE ROGGENSACK, J. (dissenting). The majority of this court chooses to disregard the effect that its decision has on the fundamental constitutional rights of parents, gives no direction to circuit courts in regard to the standards under which concurrent subject matter jurisdiction could exist in tribal court and abrogates the rights of litigants who have chosen Wisconsin circuit courts as their forums. Once again, this court has exceeded the authority that the legislature granted in Wis. Stat. § 751.12. Accordingly, I respectfully dissent. 

    I. BACKGROUND

    ¶2 On July 1, 2008, a majority of this court legislated to create Wis. Stat. § 801.54, which permits the transfer of civil cases pending in Wisconsin circuit courts to tribal courts, over the objections of litigants and when all of the litigants are not tribal members. S. Ct. Order 07-11, 2008 WI 114, 307 Wis. 2d xxi (eff. Jan. 1, 2009). I dissented from that order. Id. at xxiii. I did so because: (1) tribal court concurrent subject matter jurisdiction rarely exists when non-tribal members are parties; (2) § 801.54 gave no guidance on the standards to be applied in evaluating whether tribal courts have concurrent subject matter jurisdiction; (3) § 801.54 contravenes Wis. Stat. § 751.12(1) by altering substantive rights of the parties to civil litigation; and (4) no information was provided about the substantive and procedural rights that are available in the various tribal courts to which we authorized transfers. Id.

    ¶3 Today, a majority of this court expands the potential for infringement of the constitutional rights of non-tribal and tribal members by permitting the transfer of “post-judgment child support, custody or placement provision of an action in which the state is a real party in interest pursuant to s. 767.205(2) to a tribal court located in Wisconsin,” without a hearing. S. Ct. Order 07-11A, supra at 4.

    II. DISCUSSION

    ¶4 Today’s change is a further deprivation of the rights of litigants in cases involving custody, placement and child support because Wis. Stat. § 801.54, as originally enacted, required the circuit court to provide notice and to hold a hearing in each case before a transfer could be made. § 801.54(2). During that hearing the circuit court was required to first determine whether concurrent subject matter jurisdiction existed in the tribal court, and then to examine 11 listed factors, as well as any other factors that the court deemed relevant, in order to determine whether to order the transfer to tribal court. Id.

    A. Constitutional Concerns

    ¶5 The majority now eliminates the obligation to hold a hearing in each individual custody, placement and child support matter. However, custody and placement decisions involve the most fundamental of constitutional rights: the right to the care and custody of one’s children. Stanley v. Illinois, 405 U.S. 645, 651 (1972); State v. Shirley E., 2006 WI 129, ¶¶23-24, 298 Wis. 2d 1, 724 N.W.2d 623.

    ¶6 The fundamental rights of parents are protected by the Due Process Clause of the Fourteenth Amendment, Meyer v. Nebraska, 262 U.S. 390, 399 (1923), and the Equal Protection Clause of the Fourteenth Amendment, Skinner v. Oklahoma ex rel. Williamson, 316 U.S. 535, 541 (1942). However, this latest amendment to Wis. Stat. § 801.54 is contrary to our obligation to uphold the Constitutions of the United States and the State of Wisconsin.

    ¶7 As the United States Supreme Court has explained, the United States Constitution is not binding on tribal courts. Plains Commerce Bank v. Long Family Land & Cattle Co., 128 S. Ct. 2709, 2724 (2008) (citing Talton v. Mayes, 163 U.S. 376, 382-85 (1896)). However, litigants in Wisconsin courts are protected by the United States Constitution and the Wisconsin Constitution. Helgeland v. Wis. Municipalities, 2008 WI 9, ¶13, 307 Wis. 2d 1, 745 N.W.2d 1. The Constitutions provide the framework in which the courts of the State of Wisconsin are obligated to operate. Id. That constitutional framework includes the United States Constitution’s Bill of Rights and the Wisconsin Constitution’s Declaration of Rights. Id. However, as separate sovereigns antedating the Constitutions, Indian tribes have “historically been regarded as unconstrained by those [federal] constitutional provisions framed specifically as limitations on federal or state authority.” Santa Clara Pueblo v. Martinez, 436 U.S. 49, 56 (1978).

    ¶8 In considering transfers of child custody and placement issues to tribal courts, it is also important to note that both the United States Constitution and the Wisconsin Constitution require the separation of church and state. U.S. Const. amend. I; Wis. Const. art. I, § 18. Separation of church and state is one of the basic tenets of our democracy. However, tribal courts do not separate church and state; instead, tribal courts impose their religious values as custom and tradition that informs the tribal courts’ view of the law.4

    ¶9 Wisconsin courts have no power to review decisions on child support or custody and placement that may be made after transfer to tribal court because those decisions will be made by an independent sovereign. Even federal courts cannot review tribal court decisions in the normal course of a federal court review. Duro v. Reina, 495 U.S. 676, 709 (1990). Instead, federal review of tribal court decisions is provided by a separate action for habeas corpus. Id. This lack of direct review of tribal court decisions is a significant deprivation of guaranteed procedural rights. As Justice Kennedy recognized,
    “[t]he political freedom guaranteed to citizens by the federal structure is a liberty both distinct from and every bit as important as those freedoms guaranteed by the Bill of Rights.” United States v. Lara, 541 U.S. 193, 214 (2004) (Kennedy, J., concurring).

    ¶10 I recognize that holding a hearing in each case is more expensive, uses more court time and is generally more difficult than giving a notice to unrepresented parents and presuming both that the parents know how their interests will be addressed in tribal court and that they will ask for a hearing if they object to the transfer. However, neither presumption has merit.

    ¶11 First, how are litigants to know what procedures and substantive rights will be accorded in tribal court? I do not have the answers to those questions, nor does the majority of this court, although I repeatedly requested that the majority get this information before Wis. Stat. § 801.54 was enacted on July 1, 2008. Second, if litigants do not know how matters proceed in tribal court, how can they make an informed decision about whether to object to the transfer and how can they know what concerns to bring to the circuit court if they do file an affirmative objection to the transfer?

    ¶12 The process the majority has established runs roughshod over the constitutional rights of parents. Stanley, 405 U.S. at 656-57 (instructing that efficient procedures cannot trump the constitutional rights of parents). Furthermore, the genesis of the tribes’ petition for this amendment to Wis. Stat. § 801.54 was asserted to be the tribes’ desire to collect federal funds that would be forthcoming if the tribes established mechanisms for the collection of delinquent child support. It was not necessary to that purpose to connect child custody and placement decisions to the collection of child support, and doing so impacts the most fundamental of constitutional rights, the right to the care and custody of one’s child.

    B. Concurrent Jurisdiction

    ¶13 I continue to have concerns that, as circuit courts attempt to comply with Wis. Stat. § 801.54’s requirement to determine whether tribal court concurrent subject matter jurisdiction exists, they will not recognize that tribal court concurrent subject matter jurisdiction is almost nonexistent when a non-tribal member is a party to the lawsuit. Plains Commerce Bank, 128 S. Ct. at 2722. The law the majority enacts has given them no direction.

    ¶14 As an initial matter, tribal court subject matter jurisdiction is established by federal laws and United States Supreme Court precedent. Nat’l Farmers Union Ins. Cos. v. Crow Tribe of Indians, 471 U.S. 845, 851-52 (1985). Stated otherwise, “whether a tribal court has adjudicative authority over nonmembers is a federal question”; it is not decided under state law or tribal law. Plains Commerce Bank, 128 S. Ct. at 2716 (citing Iowa Mut. Ins. Co. v. LaPlante, 480 U.S. 9, 15 (1987)).

    ¶15 The United States Supreme Court has explained that tribal court concurrent subject matter jurisdiction is extremely limited when non-tribal members are among the parties to an action. Montana v. United States, 450 U.S. 544, 565-66 (1981). The United States Supreme Court recently has affirmed that tribal court jurisdiction over nonmembers for conduct that occurs off tribal land is almost nonexistent, having been upheld on only one occasion. Plains Commerce Bank, 128 S. Ct. at 2722. The Court has also said, “[T]ribes do not, as a general matter, possess authority over non-Indians who come within their borders: ‘[T]he inherent sovereign powers of an Indian tribe do not extend to the activities of nonmembers of the tribe.’” Id. at 2718-19 (quoting Montana, 450 U.S. at 565).

    ¶16 Even when nonmember conduct occurs on tribal land, the general rule is that tribes lack subject matter jurisdiction over nonmembers. Montana, 450 U.S. at 565. Tribes “may” have concurrent subject matter jurisdiction over nonmembers: (1) to “regulate … the activities of nonmembers who enter consensual relationships with the tribe or its members, through commercial dealing, contracts, leases, or other arrangements,” and (2) to regulate nonmember conduct that “threatens or has some direct effect on the political integrity, the economic security, or the health or welfare of the tribe.” Id. at 565-66. But as the Court’s recent discussion of Montana in Plains Commerce Bank shows, the two exceptions to the lack of subject matter jurisdiction in tribal courts are not to be broadly interpreted; rather, they are extremely limited. Plains Commerce Bank, 128 S. Ct. at 2720.

    ¶17 In Plains Commerce Bank, tribal members (the Longs) sued a nonmember (Plains Commerce Bank) in tribal court, alleging that the bank discriminated against them when it sold property. Id. at 2715. The Longs further alleged that the property sales had arisen directly from their preexisting commercial relationship with the bank, and accordingly, the sales fell within the first Montana exception to the general rule that tribes lack jurisdiction over nonmembers. Id. at 2715-16. The tribal jury awarded $750,000 in damages. Id. at 2716. The bank then brought a declaratory judgment action in federal court asserting that the tribal court lacked subject matter jurisdiction to adjudicate the claims, and therefore, the judgment was void. Id.  

    ¶18 The Supreme Court agreed with the bank. The Court began by explaining that the sovereign powers of tribes are limited by virtue of the tribes’ “incorporation into the American republic.”5 Id. at 2719. In so incorporating, the tribes generally lost the right to govern persons coming within tribal territory except for tribal members.6 Id.

    ¶19 In any attempt to exert jurisdiction over nonmembers, “[t]he burden rests on the tribe to establish one of the exceptions to Montana’s general rule” that precludes jurisdiction over nonmembers. Id. at 2720. The burden of proof rests with the tribe to establish that concurrent jurisdiction exists in tribal courts because of the general rule that tribal courts do not have subject matter jurisdiction to adjudicate claims involving nonmembers. Wisconsin Stat. § 801.54 is in conflict with that requirement of federal law because under § 801.54(2), a circuit court can transfer a case to tribal court on its own motion. Therefore, the tribe would not be a moving party who carries the burden of proof explained by the United States Supreme Court in Plains Commerce Bank. The circuit courts of Wisconsin cannot make a discretionary transfer to tribal courts, sua sponte, and still comply with this aspect of federal law because meeting that tribal burden is one prerequisite for the exercise of concurrent subject matter jurisdiction by tribal courts.

    ¶20 The United States Supreme Court also has explained that “a tribe’s adjudicative jurisdiction does not exceed its legislative jurisdiction.” Id. at 2720 (quoting Strate v. A-1 Contractors, 520 U.S. 438, 440 (1997)). This is an important principle because if a tribe could not pass a law that bound the conduct and the parties whose claims and defenses a tribal court attempts to adjudicate, then the tribal court lacks concurrent subject matter jurisdiction over those claims and defenses.7 Id. Tribes do not have the legislative jurisdiction to enact a law that will establish a non-tribal member’s custody and placement rights to his or her child. See Jacobs v. Jacobs, 138 Wis. 2d 19, 26-28, 405 N.W.2d 668 (Ct. App. 1987).

    ¶21 It is not a simple matter for a circuit court to determine whether a case fits within one of the two very narrow Montana exceptions to the tribal courts’ lack of subject matter jurisdiction over nonmembers. Wisconsin Stat. § 801.54 is completely inadequate in addressing this major obstacle to the exercise of tribal court jurisdiction over nonmembers; yet, it is a critical decision that must be made before any transfer can occur. This is so because the contention that a court lacks subject matter jurisdiction may be raised at any time, even after judgment. See Arbaugh v. Y&H Corp., 546 U.S. 500, 506-07 (2006); see also Fed. R. Civ. P. 12(h)(3). Furthermore, “subject matter jurisdiction cannot be created by waiver or consent.” United States v. Hazlewood, 526 F.3d 862, 864 (5th Cir. 2008) (quoting Howery v. Allstate Ins. Co., 243 F.3d 912, 919 (5th Cir. 2001)). The majority continues to give the circuit courts no legal guidelines to assist with this weighty legal task.

    C. Wisconsin Stat. § 751.12(1)

    ¶22 This court’s power to legislate, which we speak of as “rule-making,” is derived from Wis. Stat. § 751.12(1), which provides in relevant part:

    The state supreme court shall, by rules promulgated by it from time to time, regulate pleading, practice, and procedure in judicial proceedings in all courts, for the purposes of simplifying the same and of promoting the speedy determination of litigation upon its merits. The rules shall not abridge, enlarge, or modify the substantive rights of any litigant.

    (Emphasis added.)

    ¶23 Prior to the creation of Wis. Stat. § 801.54, all litigants who satisfied the statutory provisions for jurisdiction in Wisconsin courts had a statutory right to avail themselves of the Wisconsin court system. See Wis. Stat. § 801.04. Wisconsin’s open courthouse doors provide a significant, substantive right for tribal as well as non-tribal litigants. However, since § 801.54 has become effective, the courthouse doors of Wisconsin can be closed to some litigants, both tribal members and nonmembers. This limitation of the substantive rights of litigants is contrary to the express provisions of Wis. Stat. § 751.12(1), which provides that any statute that this court creates “shall not abridge, enlarge, or modify the substantive rights of any litigant.”

    ¶24 The latest amendment to Wis. Stat. § 801.54 permits a court to eliminate the right to litigate in state courts without holding a hearing before transferring the matter to tribal courts. In so doing, the majority eliminates not only the substantive right to litigate in state courts, but it eliminates the right to a hearing unless a party affirmatively requests one. This new law abridges the rights of litigants contrary to the express directive of Wis. Stat. § 751.12(1).

    III. CONCLUSION

    ¶25 In conclusion, the majority of this court chooses to disregard the effect that its decision has on the fundamental constitutional rights of parents, gives no direction to circuit courts in regard to the standards under which concurrent subject matter jurisdiction could exist in tribal court and abrogates the rights of litigants who have chosen Wisconsin circuit courts as their forums. Once again, the majority has exceeded the authority that the legislature granted in Wis. Stat. § 751.12. Accordingly, I respectfully dissent.

    ¶26 I am authorized to state that Justices ANNETTE KINGSLAND ZIEGLER and MICHAEL J. GABLEMAN join in this dissent.

    1The DHHS published its final rule on March 30, 2004. See 69 Fed. Reg. 16,638 (Mar. 30, 2005) codified at 45 C.F.R. Part 309.

    2 69 Fed. Reg. 16,638 (Mar. 30, 2005).

    3The Forest County Potawatomi Community, the Lac du Flambeau Band of Lake Superior Chippewa Indians, and the Menominee tribe of Wisconsin have already established such programs with the assistance of the Department of Children and Families. However, the transfer of cases in these matters occurred prior to the effective date of Wis. Stat. § 801.54.

    4Tribal Law and Order Act of 2008: Hearing Before the S. Comm. on Indian Affairs, 1-2 (July 24, 2008) (statement of Roman J. Duran, Vice President, National American Indian Court Judges Association).

    5The court in Plains Commerce Bank v. Long Family Land & Cattle Co., 128 S. Ct. 2709, 2721 (2008), cited two limited types of exceptions that involved the regulation of nonmember activities on reservation land “that had a discernable effect on the tribe or its members”: Williams v. Lee, 358 U.S. 217 (1959) (concluding the tribe had jurisdiction over a contract dispute about “the sale of merchandise by a non-Indian to an Indian on the reservation”) and Washington v. Confederated Tribes of Colville Indian Reservation, 447 U.S. 134 (1980) (upholding tribal determination of the taxing authority of the tribe for activities by non-Indians on reservation land). The Court cited other cases that also upheld tribal determinations involving taxes for activities within tribal land.

    6In Plains Commerce Bank, the Court pointed out that tribal courts lack jurisdiction over: a “tort suit involving an accident on non-tribal land”; the regulation of “hunting and fishing on non-Indian fee land”; and taxation of nonmember activities on non-Indian fee land. Id. at 2722.

    7In Plains Commerce Bank, the tribe lacked “the civil authority to regulate the Bank’s sale of its fee land,” and therefore, the tribal court could not adjudicate the circumstances under which the land sales were made. Id. at 2720-21 (citations omitted).

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    Trust Accounts and Fiduciary Accounts

    In the matter of amendment of SCR 20:1.15 Safekeeping property; trust accounts and fiduciary accounts.

    Order 08-03

    On March 12, 2008, the Wisconsin Trust Account Foundation, Inc. (WisTAF) Board of Directors petitioned this court to amend Supreme Court Rule 20:1.15, relating to interest paid on Interest on Lawyers Trust Accounts (IOLTA accounts). On Aug. 22, 2008, WisTAF Board of Directors filed an amended petition. WisTAF requested the court adopt an interest comparability rule for IOLTA accounts. Petitioner’s proposed amendments would require attorneys to hold IOLTA funds in the account with the highest interest rate that is available to other customers at that financial institution when the IOLTA account meets the same minimum balance and other account qualifications.

    The court held a public hearing and administrative conference on Nov. 18, 2008, on the petition. Following modifications to the amended petition, the court held administrative conferences on May 4 and May 22, 2009. Upon consideration of matters presented at the public hearing and submissions made in response to the proposed amendment, the court granted the petition with modifications. Justice Ziegler did not participate. Justice Roggensack dissented from the adoption of the removal provision, SCR 20:1.15 (cm)(2)d., of the rule, and Justice Roggensack and Justice Gableman dissented from the adoption of that portion of the rule which permits the use of sweep accounts for IOLTA accounts. On July 1, 2009, the court sent a directive to the State Bar of Wisconsin and WisTAF to explore options that may guarantee the principal transferred to sweep accounts under this rule amendment.

    Therefore,

    IT IS ORDERED that effective Jan. 1, 2010:

    Section 1. SCR 20:1.15 (a) (1) of the Supreme Court Rules is repealed.

    Section 2. SCR 20:1.15 (a) (1m) of the Supreme Court Rules is created to read:

    20:1.15 (a) (1m) “Draft account” means an account upon which funds are disbursed through a properly payable instrument.

    Section 3. SCR 20:1.15 (a) (7) of the Supreme Court Rules is amended to read:

    20:1.15 (a) (7) “Interest of on Lawyer Trust Account or (“IOLTA account)” means a pooled, interest-bearing, or dividend-paying demand draft trust account, separate from the lawyer’s business and personal accounts, via which the lawyer deposits, holds, and disburses funds received in trust on behalf of a client or 3rd party, the interest on which does not go to the client. An IOLTA account must be established in an IOLTA participating institution pursuant to SCR 20:1.15 (cm) (1) and (2), and may contain only funds that cannot earn income for the benefit of the client or 3rd party in excess of the costs to secure that income. 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 An IOLTA account is subject to the provisions of SCR Chapter 13, Interest on Trust Accounts Program and the trust account provisions of subs. (a) to (i), including the IOLTA account provisions of sub. (cm)

    Section 4. SCR 20:1.15 (a) (7m) of the Supreme Court Rules is created to read:

    20:1.15 (a) (7m) “IOLTA participating institution” means a financial institution that voluntarily offers IOLTA accounts and certifies to WisTAF annually that it meets the IOLTA account requirements of SCR 20:1.15 (cm) (3) to (6) and that it reports overdrafts on draft trust accounts and draft fiduciary accounts of lawyers and law firms to the office of lawyer regulation, pursuant to the financial institution’s agreements with those lawyers and law firms. WisTAF shall confirm the accuracy of the certifications and publish, at least annually, a list of IOLTA participating institutions.

    Section 5. SCR 20:1.15 (a) (11) of the Supreme Court Rules is created to read:

    20:1.15 (a) (11) “WisTAF” means the Wisconsin Trust Account Foundation, Inc.

    Section 6. SCR 20:1.15 (c) (1) (intro.) of the Supreme Court Rules is renumbered SCR 20:1.15 (c) (1) and amended to read:

    20:1.15 (c) (1) IOLTA accounts. A lawyer or law firm who receives client or 3rd-party funds that the lawyer or law firm determines to be nominal in amount or that are expected to be held for a short period of time such that the funds cannot earn income for the benefit of the client or 3rd party in excess of the costs to secure that income, shall maintain a pooled interest-bearing, or dividend-paying demand draft trust account for deposit of client or 3rd-party funds that are: in an IOLTA participating institution.

    Section 7. SCR 20:1.15 (c) (1) a., b., and c. of the Supreme Court Rules are repealed.

    Section 8. SCR 20:1.15 (c) (1m) of the Supreme Court Rules is repealed.

    Section 9. SCR 20:1.15 (c) (2) (intro.), a., b., c. and e., and (3) of the Supreme Court Rules are amended to read:

    20:1.15 (c) (2) Other client Non-IOLTA accounts. A lawyer shall deposit all client funds in an account specified in par. (1) unless the funds are deposited in any of the following: or law firm who receives client or 3rd-party funds that the lawyer or law firm determines to be capable of earning income for the benefit of the client or 3rd party shall maintain an interest-bearing or dividend-paying non-IOLTA trust account. A non-IOLTA trust account shall be established as any of the following:

    a. a separate interest-bearing or dividend-paying trust account maintained for the particular client or client’s matter 3rd party, the interest or dividends on which shall be paid to the client or 3rd party, less any transaction costs;

    b. a pooled interest-bearing or dividend-paying trust account with sub-accounting by the financial institution, the lawyer, or the law firm that will provide for computation of interest or dividends earned by each client’s or 3rd party’s funds and the payment of the interest or dividends to the client or 3rd party, less 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 a court or other tribunal, on which income shall be paid to the client or 3rd party or as directed by the court or other tribunal, less any transaction costs; or

    e. a demand deposit draft account or other non-interest-bearing account that does not bear interest or pay dividends because it holds for funds that the lawyer has determined are not eligible for deposit in an IOLTA account because they are neither nominal in amount nor expected to be held for a short term, if the client specifically so approves such that the funds cannot earn income for the client or 3rd party in excess of the costs to secure the income, provided that such account has been designated in specific written instructions from the client or 3rd party.

    (3) Selection of account. In deciding whether to use the account specified in par. (1) or an account or investment vehicle specified in par. (2), a lawyer shall determine, at the time of the deposit, whether the client or 3rd party funds could be utilized to provide a positive net return to the client or 3rd party by taking into consideration all of the following:

    a. the amount of interest, dividends, or other income that the funds would earn or pay during the period the funds are expected to be on deposit;

    b. the cost of establishing and administering the a non-IOLTA trust 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 or 3rd party’s benefit; and

    c. the capability of the financial institutions institution, lawyer, or law firm to calculate and pay interest, dividends, or other income to individual clients. or 3rd parties; and

    Section 10. SCR 20:1.15 (c) (3) d. of the Supreme Court Rules is created to read:

    20:1.15 (c) (3) d. any other circumstance that affects the ability of the client’s or 3rd party’s funds to earn income in excess of the costs to secure such income for the client or 3rd party.

    Section 11. SCR 20:1.15 (c) (4) of the Supreme Court Rules is amended to read:

    SCR 20:1.15 (c) (4) Professional judgment. The determination whether funds to be invested could be utilized to provide a positive net return to the client or 3rd party 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.

    Section 12. SCR 20:1.15 (c) (5) of the Supreme Court Rules is repealed.

    Section 13. SCR 20:1.15 (cm) of the Supreme Court Rules is created to read:

    20:1.15 (cm) Interest on Lawyer Trust Account (IOLTA) requirements. An IOLTA account must meet the following requirements:

    (1) Location. An IOLTA account shall be held in an IOLTA participating institution that shall comply with location requirements of sub. (e) (1).

    (2) Certification by IOLTA participating institutions.

    a. Each IOLTA participating institution shall certify to WisTAF annually that the financial institution meets the requirements of sub. (cm) (3) to (6) for IOLTA accounts and that it reports overdrafts on draft trust accounts and draft fiduciary accounts of lawyers and law firms to the office of lawyer regulation, pursuant to the institution’s agreements with those lawyers and law firms. WisTAF shall by rule adopted under SCR 13.03(1) establish the date by which IOLTA participating institutions shall certify their compliance.

    b. WisTAF shall confirm annually, by a date established by WisTAF by rule adopted under SCR 13.03(1), the accuracy of a financial institution’s certification under sub. (cm)(2)a. by reviewing one or more of the following:

    1. the IOLTA comparability rate information form submitted by the financial institution to WisTAF;

    2. rate and product information published by the financial institution; and

    3. other publicly or commercially available information regarding products and interest rates available at the financial institution.

    c. WisTAF shall publish annually, no later than the date on which the state bar mails annual dues statements to members of the bar, a list of all financial institutions that have certified, and have been confirmed by WisTAF as IOLTA participating institutions. WisTAF shall update the published list located on its website to add newly confirmed IOLTA participating institutions and to remove financial institutions that WisTAF cannot confirm as IOLTA participating institutions.

    d. Prior to removing any financial institution from the list of IOLTA participating institutions or failing to include any financial institution on the list of IOLTA participating institutions, WisTAF shall first provide the financial institution with notice and sufficient time to respond. In the event a financial institution is removed from the list of IOLTA participating institutions, WisTAF shall notify the office of lawyer regulation and provide that office with a list of the lawyers and law firms maintaining IOLTA accounts at that financial institution. The office of lawyer regulation shall notify those lawyers and law firms of the removal of the financial institution from the list, and provide time for those lawyers and law firms to move their IOLTA accounts to an IOLTA participating institution.

    e. Lawyers and law firms shall be entitled to rely on the most recently published list of IOLTA participating institutions for purposes of compliance with sub. (c) (1), except when the office of lawyer regulation notifies the lawyer or law firm of removal, in accordance with sub. (cm) (2) d.

    (3) Insurance and safety requirements.

    a. An IOLTA participating institution shall comply with the insurance and safety requirements of sub. (e) (2).

    b. A repurchase agreement utilized for an IOLTA account may be established only at an IOLTA participating institution deemed to be “well-capitalized” or “adequately capitalized” as defined by applicable federal statutes and regulations.

    c. An open-end money market fund utilized for an IOLTA account may be established only at an IOLTA participating institution in a fund that holds itself out as a money market fund as defined under the Investment Act of 1940 and, at the time of investment, has total assets of at least $250,000,000.

    (4) Income requirements.

    a. Beneficial owner. The interest or dividends accruing on an IOLTA account, less any allowable reasonable fees, as allowed under par. (5), shall be paid to WisTAF, which shall be considered the beneficial owner of the earned interest or dividends, pursuant to SCR Chapter 13.

    b. Interest and dividend requirements. An IOLTA account shall bear the highest non-promotional interest rate or dividend that is generally available to non-IOLTA customers at the same branch or main office location when the IOLTA account meets or exceeds the same eligibility qualifications, if any, including a minimum balance, required at that same branch or main office location. In determining the highest rate or dividend available, the IOLTA participating institution may consider factors in addition to the IOLTA account balance that are customarily considered by the institution at that branch or main office location when setting interest rates or dividends for its customers, provided the institution does not discriminate between IOLTA accounts and accounts of non-IOLTA customers and that these factors do not include that the account is an IOLTA account. However, IOLTA participating institutions may voluntarily choose to pay higher rates. 

    c. IOLTA account. An IOLTA participating institution may establish an IOLTA account as, or convert an IOLTA account to, any of the following types of accounts, assuming the particular financial institution at that branch or main office location offers these account types to its non-IOLTA customers, and the particular IOLTA account meets the eligibility qualifications to be established as this type of account at the particular branch or main office location:

    1. a business checking account with an automated or other automatic investment sweep feature into a daily financial institution repurchase agreement or open-end money market fund. A daily financial institution repurchase agreement must be invested in United States government securities. An open-end money market fund must consist solely of United States government securities or repurchase agreements fully collateralized by United States government securities, or both. In this subd. c. 1., “United States government securities” include securities of government-sponsored entities, such as, but not limited to, securities of, or backed by, the federal national mortgage association, the government national mortgage association, and the federal home loan mortgage corporation;

    2. a checking account paying preferred interest rates, such as money market or indexed rates;

    3. an interest-bearing checking account such as a negotiable order of withdrawal (NOW) account or business checking account with interest; and

    4. any other suitable interest-bearing or dividend-paying account offered by the institution to its non-IOLTA customers.

    d. Options for compliance.

    1. An IOLTA participating institution may establish the comparable product for qualifying IOLTA accounts, subject to the direction of the lawyer or law firm; or,

    2. an IOLTA participating institution may pay the highest non-promotional interest rate or dividend, as defined in sub. (cm) (4) b., less any allowable reasonable fees charged in connection with the comparable highest interest rate or dividend product, on the IOLTA checking account in lieu of actually establishing the comparable highest interest rate or dividend product.

    e. Paying rates above comparable rates. An IOLTA participating institution may pay a set rate above its comparable rates on the IOLTA checking account negotiated with WisTAF that is fixed over a period of time set by WisTAF, such as 12 months.

    (5) Allowable reasonable fees on IOLTA accounts.

    a. Allowable reasonable fees on an IOLTA account shall be as follows:

    1. per check charges;

    2. per deposit charges;

    3. fees in lieu of minimum balance;

    4. sweep fees;

    5. an IOLTA administrative fee approved by WisTAF; and

    6. federal deposit insurance fees.

    b. Allowable reasonable fees may be deducted from interest earned or dividends paid on an IOLTA account, provided that such charges shall be calculated in accordance with an IOLTA participating institution’s standard practice for non-IOLTA customers. Fees in excess of the interest earned or dividends paid on the IOLTA account for any month or quarter shall not be taken from interest or dividends of any other IOLTA accounts. No fees that are authorized under this subsection shall be assessed against or deducted from the principal of any IOLTA account. All other fees are the responsibility of, and may be charged to, the lawyer or law firm maintaining the IOLTA account. IOLTA participating institutions may elect to waive any or all fees on IOLTA accounts.

    (6) Remittance and reporting requirements. A lawyer or law firm shall direct the IOLTA participating institution at which the lawyer or law firm’s IOLTA account is located to do all of the following, on at least a quarterly basis:

    a. Remit to WisTAF the interest or dividends, less allowable reasonable fees as allowed under par. (5), if any, on the average monthly balance in the account or as otherwise computed in accordance with the IOLTA participating institution’s standard accounting practice.

    b. Provide to WisTAF a remittance report showing for each IOLTA account the name of the lawyer or law firm for whose IOLTA account the remittance is sent, the rate and type of interest or dividend applied, the amount of allowable reasonable fees deducted, if any, the average account balance for the period for which the report is made, and the amount of remittance attributable to each IOLTA account.

    c. Provide to the depositing lawyer or law firm a remittance report in accordance with the participating institution’s normal procedures for reporting account activity to depositors.

    d. Respond to reasonable requests from WisTAF for information needed for purposes of confirming the accuracy of an IOLTA participating institution’s certification.

    Section 14. SCR 20:1.15 (e) (1) of the Supreme Court Rules is renumbered SCR 20:1.15 (e) (1) a.

    Section 15. SCR 20:1.15 (e) (1) b. of the Supreme Court Rules is created to read:

    20:1.15 (e) (1) b. In addition to the requirement of subd. a., IOLTA accounts shall be maintained only at IOLTA participating institutions that meet the IOLTA account requirements under sub. (cm).

    Section 16. SCR 20:1.15 (e) (2) of the Supreme Court Rules is renumbered SCR 20:1.15 (e) (2) a. and amended to read:

    20:1.15 (e) (2) Insurance and safety requirements.

    a. 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 any other investment institution financial guaranty insurance.

    Section 17. SCR 20:1.15 (e) (2) b. of the Supreme Court Rules is created to read:

    20:1.15 (e) (2) b. IOLTA accounts shall also comply with the requirements of sub. (cm) (3).

    Section 18. SCR 20:1.15 (e) (3) of the Supreme Court Rules is renumbered SCR 20:1.15 (e) (3) a. and amended to read:

    20:1.15 (e) (3) Interest requirements.

    a. An interest-bearing trust account Non-IOLTA accounts shall bear interest at a rate of not less than that applicable to individual interest-bearing accounts of the same type, size, and duration and in which. All trust accounts shall allow withdrawals or transfers can to be made without delay when funds are required, subject only to any notice period that the depository institution is required to observe by law.

    Section 19. SCR 20:1.15 (e) (3) b. of the Supreme Court Rules is created to read:

    20:1.15 (e) (3) b. IOLTA accounts shall comply with the requirements of sub. (cm) (4) b.

    Section 20. SCR 20:1.15 (e) (4) b. 2. of the Supreme Court Rules is amended to read:

    20:1.15 (e) (4) b. 2. telephone transfers between separate, non-pooled demand draft and separate, non-pooled, non-demand non-draft trust accounts that a lawyer maintains for a particular client.

    Section 21. SCR 20:1.15 (e) (4) h. (intro.) and 3. of the Supreme Court Rules are amended to read:

    20:1.15 (e) (4) h. Exception: Fee and cost advances by credit card, debit card or other electronic deposit. (intro.) A lawyer may establish a trust account, separate from the lawyer’s IOLTA trust account, solely for the purpose of receiving advanced payments of legal fees and costs by credit card, debit card or other electronic deposit, subject to the following conditions:

    3. each payment by credit card, debit card or other electronic deposit, including, if necessary, a reimbursement by the lawyer or law firm for any deduction by the financial institution or card issuer from the gross amount of each payment, shall be transferred from the credit card trust account to the IOLTA trust account immediately upon becoming available for disbursement; and

    Section 22. SCR 20:1.15 (e) (8) of the Supreme Court Rules is amended to read:

    20:1.15 (e) (8) Business account. Each lawyer who receives trust funds shall maintain at least one demand draft 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,” “Office Account,” “Operating Account,” or words of similar import.

    Section 23. SCR 20:1.15 (f) (title), (1) (intro.), b. and g. 2. of the Supreme Court Rules are amended to read:

    20:1.15 (f) (title) Record-keeping requirements for all trust accounts.

    (1) Demand Draft accounts. (intro.) Complete records of a trust account that is a demand draft account shall include a transaction register; individual client ledgers for IOLTA accounts and other pooled trust accounts; a ledger for account fees and charges, if law firm funds are held in the account pursuant to sub. (b) (3); deposit records; disbursement records; monthly statements; and reconciliation reports, subject to all of the following:

    b. Individual client ledgers. A subsidiary ledger shall be maintained for each client or matter 3rd party for which whom the lawyer receives trust funds that are deposited in an IOLTA account or any other pooled trust account, and the. The lawyer shall record each receipt and disbursement of that a client’s or 3rd party’s funds and the balance following each transaction. A lawyer shall not disburse funds from the an IOLTA account or any pooled trust account that would create a negative balance with respect to any individual client or matter.

    g. 2. the total of all subsidiary ledger balances for IOLTA accounts and other pooled trust accounts, 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

    Section 24. SCR 20:1.15 (f) (2) (intro.) of the Supreme Court Rules is amended to read:

    20:1.15 (f) (2) Non-demand Non-draft accounts. (intro.) Complete records of a trust account that is a non-demand non-draft account shall include all of the following:

    Section 25. SCR 20:1.15 (h) (intro.) and (1) of the Supreme Court Rules are amended to read:

    20:1.15 (h) Dishonored instrument notification (Over-draft notices). (intro.) All demand draft trust accounts and demand draft fiduciary accounts are subject to the following provisions on dishonored instrument notification: 

    (1) Overdraft reporting agreement. A lawyer shall maintain demand draft trust accounts only in a financial institution that has agreed to provide an overdraft report to the office of lawyer regulation under par. (3).

    Section 26. SCR 20:1.15 (h) (8) of the Supreme Court Rules is amended to read:

    20:1.15 (h) (8) Lawyer compliance. Every lawyer practicing or admitted to practice in Wisconsin shall comply with the reporting and production requirements of this subsection, including filing of an overdraft notification agreement for each IOLTA account, each draft-type trust account and each draft-type fiduciary account that is not subject to an alternative protection under sub. (j) (9).

    Section 27. SCR 20:1.15 (j) (1m) a. and e. of the Supreme Court Rules are amended to read:

    20:1.15 (j) (1m) a. a pooled interest-bearing or dividend-paying fiduciary account with sub-accounting by the financial institution, the lawyer, or the law firm that will provide for computation of interest or dividends earned by each fiduciary entity’s funds and the proportionate allocation of the interest or dividends to each of the fiduciary entity entities, less any transaction costs;

    e. a demand deposit draft account or other non-interest bearing account that does not bear interest or pay dividends when, in the sound professional judgment of the lawyer, placement in such an account is consistent with the needs and purposes of the fiduciary entity or its beneficiary or beneficiaries.

    Section 28. SCR 20:1.15 (j) (2) of the Supreme Court Rules is amended to read:

    20:1.15 (j) (2) Location. Each fiduciary account shall be maintained in a financial institution as provided by the written authorization of the client, the governing trust instrument, organizational by-laws, an order of a court or, absent such direction, in a financial institution that, in the lawyer’s professional judgment, will best serve the needs and purposes of the client or 3rd party for whom the lawyer serves as fiduciary. 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. When the fiduciary property is held in a demand draft account from which funds are disbursed through a properly payable instrument issued directly by the lawyer or a member or employee of the lawyer’s firm and the account is at a financial institution that is not located in Wisconsin or authorized by state or federal law to do business in Wisconsin, the lawyer shall comply with the requirements of sub. (j) (9) b. or c.

    Section 29. SCR 20:1.15 (j) (9) and c. of the Supreme Court Rules are amended to read:

    20:1.15 (j) (9) Dishonored instrument notification or alternative protection. A lawyer who holds fiduciary property in a demand draft account from which funds are disbursed through a properly payable instrument issued directly by the lawyer or a member or employee of the lawyer’s firm shall take one of the following actions:

    c. hold the funds in a demand draft 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.

    Section 30. The following Comment to SCR 20:1.15 (cm) (3) is not adopted, but will be published and may be consulted for guidance in interpreting and applying the Wisconsin Rules of Professional Conduct:

    COMMENT

    SCR 20:1.15 (cm) (3) Insurance and safety requirements.

    Pursuant to SCR 20:1.15 (cm) (3), IOLTA accounts are required to be held in IOLTA participating institutions that are insured by the federal deposit insurance corporation (FDIC), the national credit union share insurance fund, the securities investor protection corporation or any other investment institution financial guaranty insurance. However, since federal law dictates the amount of available insurance coverage, funds in excess of the limit are not insured. Consequently, the purpose of the insurance and safety requirements is not to guarantee that all funds are adequately insured. Rather, it is to assure that trust funds are held in reputable IOLTA participating institutions.

    Section 31. The following Comment to SCR 20:1.15 (cm) (4) is not adopted, but will be published and may be consulted for guidance in interpreting and applying the Wisconsin Rules of Professional Conduct:

    COMMENT

    SCR 20:1.15 (cm) (4) Risk associated with sweep account option.

    Pursuant to SCR 20:1.15 (cm) (4), IOLTA accounts shall bear the highest non-promotional interest rate or dividend that is generally available to non-IOLTA customers at the same branch or main office location when the IOLTA account meets or exceeds the same eligibility qualifications, if any, including a minimum balance. Investment products, including repurchase agreements and shares of mutual funds, are neither deposits nor federally or FDIC-insured. An investment in a repurchase agreement or money market fund may involve investment risk including possible loss of the principal amount invested. The rule, however, provides safeguards to minimize any potential risk by limiting investment products to repurchase agreements and open-end money market funds that invest in United States government securities only.

    Section 32. The Comment to SCR 20:1.15 (e) (2) pertaining to insurance requirements is amended to read:

    SCR 20:1.15 (e) (2) Insurance and safety requirements.

    Pursuant to SCR 20:1.15 (e) (2), trust funds accounts are required to be held in accounts financial, investment, or IOLTA participating institutions that are insured by the federal deposit insurance corporation (FDIC), the national credit union share insurance fund, the Wisconsin credit union savings insurance corporation, the securities investor protection corporation or any other investment institution financial guaranty insurance. However, since federal law limits the amount of the available insurance coverage, funds in excess of the limit are not insured. Consequently, the purpose of the insurance requirement and safety requirements is not to guarantee that all funds are adequately insured. Rather, it is to assure that trust funds are held in reputable financial, investment, or IOLTA participating institutions.

    IT IS ORDERED that notice of this amendment of Supreme Court Rule 20:1.15 be given by a single publication of a copy of this order in the official state newspaper and in an official publication of the State Bar of Wisconsin.

    ANNETTE KINGSLAND ZIEGLER, J., did not participate.

    Dated at Madison, Wis., this 1st day of July, 2009.

    By the court:

    David R. Schanker, Clerk of Supreme Court

    ¶1 PATIENCE DRAKE ROGGENSACK, J. (dissenting). Because lawyers have a fiduciary duty to those for whom they hold funds in trust, which includes the funds held in IOLTA trust accounts, and because Supreme Court Rule 20:1.15(cm)(4)c.1. requires lawyers to take risks with IOLTA trust account funds that are inconsistent with the fiduciary duties of lawyers, I write in dissent from SCR 20:1.15(cm)(4)c.1., which requires lawyers to use “sweep accounts” for IOLTA trust accounts.

    ¶2 SCR 20:1.15 was amended in 2009 to create 20:1.15(cm)(4)c.1., at the request of the Wisconsin Trust Account Foundation, Inc. (WisTAF) to require lawyers to place IOLTA trust account funds into accounts that have “sweep” features, if that type of account has the potential of a higher rate of interest than other types of accounts. Funds held in sweep accounts may be moved into investment accounts comprised of United States government securities, including, but not limited to, securities of, or backed by, the federal national mortgage association (also known as “Fannie Mae”) and the federal home loan mortgage corporation (also known as “Freddie Mac”).1 SCR 20:1.15(cm)(4)c.1.

    ¶3 The earnings on IOLTA trust accounts are not paid to the clients or third parties whose funds the trust account holds. Rather, the earnings on IOLTA trust accounts are paid to WisTAF. SCR 20:1.15(cm)(4)a.

    ¶4 WisTAF is a corporation created at the request of the Board of Governors of the State Bar of Wisconsin to provide legal services to the poor. WisTAF pays for those services with the earnings it receives on IOLTA trust accounts.

    ¶5 The prices of the securities into which the IOLTA trust accounts may be swept under SCR 20:1.15(cm)(4)c.1. may rise and fall with the fluctuations of the financial markets on which those securities are traded. If an IOLTA trust account is swept into an account investing in those securities, the hope of WisTAF and the majority of this court is that more earnings will be generated as a result of the sweep. However, in addition to increasing in value, those securities also may decline in value.2 If they decline in value during the sweep, the principal in the account will be lower than that deposited by the lawyer, when the IOLTA trust account funds are returned to the financial institution into which the lawyer deposited them. When the principal balance in the IOLTA trust account is reduced due to the fluctuation of the securities into which it was swept, the lawyer will have insufficient principal in the IOLTA trust account to satisfy the lawyer’s fiduciary obligation to pay over to clients and third parties all of the funds the lawyer was entrusted with holding.

    ¶6 There is no potential financial benefit to lawyers’ clients or to third parties whose funds the lawyer places in an IOLTA trust account due to IOLTA trust account funds being swept into the types of security accounts set out in SCR 20:1.15(cm)(4)c.1. This is so because all the interest earned belongs to WisTAF. SCR 20:1.15(4)a. Yet, it is the clients’ and third parties’ funds that the Supreme Court has put at risk by this rule change.

    ¶7 There is no potential financial benefit to lawyers that can arise by permitting IOLTA trust funds to be swept into the types of security accounts set out in SCR 20:1.15(cm)(4)c.1. Yet, the lawyer is required to permit the IOLTA approved financial institution to use sweep accounts if that produces the highest non-promotional rate of interest. SCR 20:1.15(cm)(4)b. However, it is the lawyers who will be required to cover any shortfall in the principal balance in the trust account in order to pay clients and third parties what the lawyer has collected or held for them. The majority of this court takes no heed of this, although I have brought it to their attention repeatedly.  

    ¶8 A trustee is to use the prudent man standard in managing the trust funds of another. Wis. Stat. § 881.01; Hammes v. First Nat’l Bank & Trust Co., 79 Wis. 2d 355, 368, 255 N.W.2d 555 (1977). The trustee has a duty of loyalty to the owners of the funds that the trustee manages. § 881.01(6). We also discipline lawyers on a regular basis for shortfalls in their trust accounts. Furthermore, the current financial climate requires increased caution when dealing with funds that are being held in trust for another. All of these principles and concerns are affected by SCR 20:1.15(cm)(4)c.1.

    ¶9 The majority of the court is intent on the possibility that IOLTA trust funds could generate more earnings for WisTAF, and therefore, the Supreme Court Rules have been amended. However, it is not the court’s finances that the court puts at risk, but those of clients, third parties, and the lawyers who will be expected to cover any shortfall should the securities into which the IOLTA trust funds are swept decline during the sweep. Although few would argue that generating income to provide legal services for the poor is not a worthwhile goal, I cannot condone the risk the court creates with this rule change. Accordingly, I dissent.

    ¶10 I am authorized to state that Justice MICHAEL J. GABLEMAN joins in this dissent.

    1Both Fannie Mae and Freddie Mac were taken over by the United States government in September 2008 due to extensive losses.

    2In part because the Federal Reserve is injecting billions of dollars into the United States economy by buying troubled assets from failing banks, United States Treasury notes sold at lower prices on May 21, 2009, and May 22, 2009, than Treasuries did earlier in May 2009. Associated Press, Dollar Hits New Multimonth Low vs. Euro, Pound, Yen, Breitbart.com, May 22, 2009, http://www.breitbart.com/article.php?id=D98BCFJO0&show_article=1.

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    Special Responsibilities of a Prosecutor

    In the matter of amendment of Supreme Court Rules Chapter 20, Rules of Professional Conduct for Attorneys.

    Order 08-24

    On Sept. 19, 2008, the Wisconsin District Attorney’s Association, through its president, Ralph Uttke, District Attorney for Langlade County, filed a petition requesting this court modify Supreme Court Rule (SCR) 20:3.8 to adopt the substance of recent changes to the American Bar Association Model Rule 3.8 relating to special responsibilities of a prosecutor. A public hearing was conducted on March 9, 2009. Attorney Uttke and Attorney Pat Kenney presented the petition to the court. In addition, the court heard testimony and/or received written statements from the Office of the State Public Defender, the Wisconsin Department of Justice, the Wisconsin Association of Criminal Defense Attorneys (WACDA), the Wisconsin Criminal Justice Study Commission, Professor Ben Kempinen on behalf of the University of Wisconsin Law School’s Remington Center, the State Bar of Wisconsin, and the Board of Administrative Oversight. All participants supported the petition, but several advocated adopting the language of the ABA Model Rule, rather than the modified language proposed by the petitioner. The court discussed the petition at the ensuing open administrative conference and voted unanimously to adopt the petition with certain modifications as set forth herein. Accordingly, effective July 1, 2009, SCR 20:3.8 is amended as follows:

    Section 1. 20:3.8 (g) of the Supreme Court Rules is created to read:

    20:3.8 (g) When a prosecutor knows of new, credible, and material evidence creating a reasonable likelihood that a convicted defendant did not commit an offense of which the defendant was convicted, the prosecutor shall do all of the following:

    (1) promptly disclose that evidence to an appropriate court or authority; and

    (2) if the conviction was obtained in the prosecutor’s jurisdiction:

    (i) promptly make reasonable efforts to disclose that evidence to the defendant unless a court authorizes delay; and

    (ii) make reasonable efforts to undertake an investigation or cause an investigation to be undertaken, to determine whether the defendant was convicted of an offense that the defendant did not commit.

    Section 2. 20:3.8 (h) of the Supreme Court Rules is created to read:

    20:3.8 (h) When a prosecutor knows of clear and convincing evidence establishing that a defendant in the prosecutor’s jurisdiction was convicted of an offense that the defendant did not commit, the prosecutor shall seek to remedy the conviction.

    Section 3. The following Comments to SCR 20:3.8(g) and (h) are not adopted, but will be published and may be consulted for guidance in interpreting and applying the Wisconsin Rules of Professional Conduct for Attorneys:

    Wisconsin Comment

    Wisconsin prosecutors have long embraced the notion that the duty to do justice requires both holding offenders accountable and protecting the innocent. New Rule 20:3.8(g) and (h) reinforces this notion. The Wisconsin rule differs slightly from the new A.B.A. rule to recognize limits in the investigative resources of Wisconsin prosecutors.

    This rule was not designed to address significant changes in the law that might affect the incarceration status of a number of prisoners, such as where a statute is declared unconstitutional. 

    ABA Comments

    [7] When a prosecutor knows of new, credible and material evidence creating a reasonable likelihood that a person outside the prosecutor’s jurisdiction was convicted of a crime that the person did not commit, paragraph (g) requires prompt disclosure to the court or other appropriate authority, such as the chief prosecutor of the jurisdiction where the conviction occurred. If the conviction was obtained in the prosecutor’s jurisdiction, paragraph (g) requires the prosecutor to examine the evidence and undertake further investigation to determine whether the defendant is in fact innocent or make reasonable efforts to cause another appropriate authority to undertake the necessary investigation, and to promptly disclose the evidence to the court and, absent court-authorized delay, to the defendant. Consistent with the objectives of Rules 4.2 and 4.3, disclosure to a represented defendant must be made through the defendant’s counsel, and, in the case of an unrepresented defendant, would ordinarily be accompanied by a request to a court for the appointment of counsel to assist the defendant in taking such legal measures as may be appropriate.

    [8] Under paragraph (h), once the prosecutor knows of clear and convincing evidence that the defendant was convicted of an offense that the defendant did not commit, the prosecutor must seek to remedy the conviction. Necessary steps may include disclosure of the evidence to the defendant, requesting that the court appoint counsel for an unrepresented indigent defendant and, where appropriate, notifying the court that the prosecutor has knowledge that the defendant did not commit the offense of which the defendant was convicted.

    [9] A prosecutor’s independent judgment, made in good faith, that the new evidence is not of such nature as to trigger the obligations of sections (g) and (h), though subsequently determined to have been erroneous, does not constitute a violation of this Rule.

    IT IS ORDERED that notice of this amendment of SCR 20:3.8 be given by a single publication of a copy of this order in the official state newspaper and in an official publication of the State Bar of Wisconsin.

    Dated at Madison, Wis., this 17th day of June, 2009.

    By the court:

    David R. Schanker, Clerk of Supreme Court

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    Supreme Court Internal Operating Procedures

    In the matter of Amendment of the Supreme Court Internal Operating Procedures.

    Order 09-04

    The Supreme Court, on its own motion, has considered the advisability of amending its Internal Operating Procedures to update a reference to a state agency. In January 2007 the Wisconsin Legislature created the Wisconsin Government Accountability Board (G.A.B.) by merging the former State Elections Board and former State Ethics Board.1

    IT IS ORDERED that, effective the date of this order, IV.A. of the Wisconsin Supreme Court Internal Operating Procedures is amended to read:

    A. Appointment Selection Committee

    The Appointment Selection Committee (Committee) consists of the following 12 persons:

    One nonlawyer member of the public designated by the chair of the State Ethics Board Wisconsin Government Accountability Board.

    ....

    IT IS FURTHER ORDERED that notice of this amendment of the Supreme Court Internal Operating Procedures be given by a single publication of a copy of this order in the official state newspaper and in an official publication of the State Bar of Wisconsin.

    Dated at Madison, Wis., this 17th day of June, 2009.

    By the court:

    David R. Schanker, Clerk of Supreme Court

    12007 Wis. Act 1. 

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