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THE COURTS

Title 204--JUDICIAL SYSTEM GENERAL PROVISIONS

PART V.  PROFESSIONAL ETHICS AND CONDUCT

[204 PA. CODE CHS. 81 AND 83]

Amendments to the Pennsylvania Rules of Professional Conduct and the Pennsylvania Rules of Disciplinary Enforcement Relating to Safekeeping Property and Funds of Clients and Third Persons--Mandatory Overdraft Notification

[37 Pa.B. 394]
[Saturday, January 27, 2007]

   On June 10, 2006, The Disciplinary Board of the Supreme Court of Pennsylvania published a Notice of Proposed Rulemaking, Volume 36, Pennsylvania Bulletin, page 2801. In light of the comments received in response to that Notice, the Disciplinary Board has made changes to the proposed amendments to Pennsylvania Rule of Professional Conduct 1.15 and Pennsylvania Rule of Disciplinary Enforcement 221.

   Notice is hereby given that The Disciplinary Board is considering recommending to the Supreme Court that these Rules be amended as set forth in Annex A and Annex B. The changes to Rule of Professional Conduct 1.15 permit attorneys acting as fiduciaries to exercise appropriate fiduciary judgment, make prudent investments, and administer fiduciary assets in accordance with law and accepted practice. The definition of ''Financial Institution'' is broadened to permit deposit of IOLTA funds in various instrumentalities in addition to traditional banks and savings and loan associations to the extent that such instrumentalities chose to qualify as ''Eligible Institutions'' under Rule of Disciplinary Enforcement 221(h), as well as to permit investment of entrusted funds in or through such entities, consistent with the Prudent Investor Rule or other applicable law.

   Interested persons are invited to submit written comments regarding the proposed amendments to the Office of the Secretary, The Disciplinary Board of the Supreme Court of Pennsylvania, First Floor, Two Lemoyne Drive, Lemoyne, PA 17043, on or before March 1, 2007.

By The Disciplinary Board of the
Supreme Court of Pennsylvania

ELAINE M. BIXLER,   
Secretary

Annex A

TITLE 204.  JUDICIAL SYSTEM
GENERAL PROVISIONS

PART V.  PROFESSIONAL ETHICS AND CONDUCT

Subpart A.  PROFESSIONAL RESPONSIBILITY

CHAPTER 81.  RULES OF
PROFESSIONAL CONDUCT

Subchapter A.  RULES OF
PROFESSIONAL CONDUCT

§ 81.4.  Rules of Professional Conduct.

   The following are the Rules of Professional Conduct:

CLIENT-LAWYER RELATIONSHIP

Rule 1.15.  Safekeeping Property.

   (a)  The following definitions are applicable to Rule 1.15:

   (1)  Eligible Institution. An Eligible Institution is a Financial Institution which has been approved as a depository of Trust Accounts pursuant to Pa.R.D.E. 221(h).

   (2)  Fiduciary. A Fiduciary is a lawyer acting as a personal representative, guardian, conservator, receiver, trustee, agent under a durable power of attorney, or other similar position.

   (3)  Fiduciary Funds. Fiduciary Funds are Rule 1.15 Funds which the lawyer holds as a Fiduciary. Fiduciary Funds may be either Qualified Funds or Non-Qualified Funds.

   (4)  Financial Institution. A Financial Institution is an entity which is authorized by federal or state law and licensed to do business in the Commonwealth of Pennsylvania as one of the following: a bank, bank and trust company, trust company, credit union, savings bank, savings and loan association or foreign banking corporation, the deposits of which are insured by an agency of the federal government, or as an investment adviser registered under the Investment Advisers Act of 1940 or with the Pennsylvania Securities Commission, an investment company registered under the Investment Company Act of 1940, or a broker dealer registered under the Securities Exchange Act of 1934.

   (5)  Interest On Lawyer Trust Account (IOLTA Account). An IOLTA Account is an income producing Trust Account from which funds may be withdrawn upon request as soon as permitted by law. Qualified Funds are to be held or deposited in an IOLTA Account.

   (6)  IOLTA Board. The IOLTA Board is the Pennsylvania Interest On Lawyers Trust Account Board.

   (7)  Non-IOLTA Account. A Non-IOLTA Account is an income producing Trust Account from which funds may be withdrawn upon request as soon as permitted by law in which a lawyer deposits Rule 1.15 Funds. Only Nonqualified Funds are to be held or deposited in a Non-IOLTA Account. A Non-IOLTA Account shall be established only as:

   (i)  a separate client Trust Account for the particular client or matter on which the net income will be paid to the client or third person; or

   (ii)  a pooled client Trust Account with sub-accounting by the Eligible Institution or by the lawyer, which will provide for computation of net income earned by each client's or third person's funds and the payment thereof to the client or third person.

   (8)  Nonqualified Funds. Nonqualified Funds are Rule 1.15 Funds, whether cash, check, money order or other negotiable instrument, which are not Qualified Funds.

   (9)  Qualified Funds. Qualified Funds are Rule 1.15 Funds which are nominal in amount or are reasonably expected to be held for such a short period of time that sufficient income will not be generated to justify the expense of administering a segregated account.

   (10)  Rule 1.15 Funds. Rule 1.15 Funds are funds which the lawyer receives from a client or third person in connection with a client-lawyer relationship, or as an escrow agent, settlement agent or representative payee, or as a Fiduciary, or receives as an agent, having been designated as such by a client or having been so selected as a result of a client-lawyer relationship or the lawyer's status as such. When the term ''property'' appears with ''Rule 1.15 Funds,'' it means property of a client or third person which the lawyer receives in any of the foregoing capacities.

   (11)  Trust Account. A Trust Account is an account in an Eligible Institution in which a lawyer holds Rule 1.15 Funds. A Trust Account must be maintained either as an IOLTA Account or as a Non-IOLTA Account.

   (b)  A lawyer shall hold all Rule 1.15 Funds and property [of clients or third persons that is in a lawyer's possession in connection with a client-lawyer relationship] separate from the lawyer's own property. Such property shall be identified and appropriately safeguarded.

   (c)  Complete records of the receipt, maintenance and disposition of [such] Rule 1.15 Funds and property shall be preserved for a period of five years after termination of the client-lawyer or Fiduciary relationship or after distribution or disposition of the property, whichever is later. A lawyer shall maintain, in electronic or hard copy form, with backup at least monthly on a separate electronic storage device, the following books and records for each Trust Account and for any other account in which Fiduciary Funds are held pursuant to Rule 1.15(l):

   (1)  all transaction records provided to the lawyer by the Financial Institution or other investment entity, such as periodic statements, cancelled checks, deposited items and records of electronic transactions; and

   (2)  check register or separately maintained ledger, which shall include the payee, date and amount of each check, withdrawal and transfer, the payor, date, and amount of each deposit, and the matter involved for each transaction.

   [(b)] (d)  Upon receiving Rule 1.15 Funds or property [of a client or third person in connection with a client-lawyer relationship], a lawyer shall promptly notify the client or third person, consistent with the requirements of applicable law.

   (e)  Except as stated in this Rule or otherwise permitted by law, or by agreement with the client or third person, a lawyer shall promptly deliver to the client or third person any property, including but not limited to Rule 1.15 Funds, that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding [such] the property.

   [(c)] (f)  When in [connection with a client-lawyer relationship a lawyer is in possession of] possession of funds or property in which two or more persons, one of whom may be the lawyer, claim an interest, the funds or property shall be kept separate by the lawyer until the dispute is resolved. The lawyer shall promptly distribute all portions of the funds or property, including Rule 1.15 Funds, as to which the interests are not in dispute.

   [(d)  In those parts of this Rule dealing with funds of clients or third persons which the lawyer receives in connection with a client-lawyer relationship, excluding funds which the lawyer receives while acting as fiduciary for an estate, trust, guardianship or conservatorship, the following definitions are applicable:

   (1)  Trust Account means an interest-bearing account in a financial institution, as defined in Rule of Disciplinary Enforcement 221, in which the lawyer deposits such funds.

   (2)  Qualified funds means such funds when they are nominal in amount or are reasonably expected to be held for such a short period of time that sufficient income will not be generated to justify the expense of administering a segregated account.

   (3)  Nonqualified Funds means all other such funds.

   (4)  An Interest On Lawyer Trust Account (IOLTA Account) is an unsegregated Trust Account for the deposit of Qualified Funds by a lawyer.

   (5)  The IOLTA Board means the Pennsylvania Interest on Lawyers Trust Account Board.

   (e)] (g)  The responsibility for identifying an account as a Trust Account shall be that of the lawyer in whose name the account is held.

   (h)  A lawyer shall not deposit the lawyer's own funds in a Trust Account except for the sole purpose of paying [bank services] service charges on that account, and only in an amount necessary for that purpose.

   (i)  A lawyer shall deposit into a Trust Account legal fees and expenses that have been paid in advance, to be withdrawn by the lawyer only as fees are earned or expenses incurred, unless the client gives informed consent, confirmed in writing, to the handling of fees and expenses in a different manner.

   (j)  At all times while a lawyer holds [funds of a client or third person in connection with a client-lawyer relationship] Rule 1.15 Funds, the lawyer shall also maintain another account that is not used to hold such funds.

   [(f)] (k)  All Nonqualified Funds which are not Fiduciary Funds shall be placed in a [Trust] Non-IOLTA Account or in another investment vehicle specifically agreed upon by the lawyer and the client or third person which owns the funds.

   (l)  All Fiduciary Funds shall be placed in a Trust Account (which, if the Fiduciary Funds are also Qualified Funds, must be an IOLTA Account) or in another investment which is authorized by the law applicable to the entrustment or the terms of the instrument governing the Fiduciary Funds.

   [(g)] (m)  All Qualified Funds which are not Fiduciary Funds shall be placed in an IOLTA Account. [The rate of interest payable on an IOLTA Account shall not be less than the highest rate or dividend generally available from the financial institution to its non-IOLTA Account customers when the IOLTA Account meets or exceeds the same minimum balance and other account eligibility qualifications applicable to those other accounts. In no event shall the rate of interest payable on an IOLTA Account be less than the rate paid by the financial institution on negotiable order of withdrawal accounts (NOW) or super negotiable order of withdrawal accounts. An account shall not be considered an IOLTA Account unless the financial institution at which the account is maintained shall:

   (1)  Remit at least quarterly any interest earned on the account to the IOLTA Board.

   (2)  Transmit to the IOLTA Board with each remittance and to the lawyer who maintains the IOLTA Account a statement showing at least the name of the account, service charges or fees deducted, if any, the amount of interest remitted from the account and the average daily balance, if available.

   (h)] (n)  A lawyer shall be exempt from the requirement that all Qualified Funds be placed in an IOLTA Account only upon exemption requested and granted by the IOLTA Board. If an exemption is granted, the lawyer must hold Qualified Funds in a Trust Account which is not income producing. Exemptions shall be granted if:

   (1)  the nature of the lawyer's practice does not require the routine maintenance of a Trust Account in Pennsylvania;

   (2)  compliance with this paragraph would work an undue hardship on the lawyer or would be extremely impractical, based either on the geographical distance between the lawyer's principal office and the closest [financial institution] Eligible Institution, or on other compelling and necessitous factors; or

   (3)  the lawyer's historical annual Trust Account experience, based on information from the [financial institution] Eligible Institution in which the lawyer deposits funds, demonstrates that the service charges on the account would significantly and routinely exceed any [interest] income generated.

   (o)  An account shall not be considered an IOLTA Account unless the Eligible Institution at which the account is maintained shall:

   (1)  Remit at least quarterly any income earned on the account to the IOLTA Board;

   (2)  Transmit to the IOLTA Board with each remittance and to the lawyer who maintains the IOLTA Account a statement showing at least the name of the account, service charges or fees deducted, if any, the amount of income remitted from the account, and the average daily balance, if available; and

   (3)  Pay a rate of interest or dividends no less than the highest interest rate or dividend generally available from the Eligible Institution to its non-IOLTA customers when the IOLTA Account meets the same minimum balance or other eligibility qualifications, and comply with the Regulations of the IOLTA Board with respect to service charges, if any.

   [(i)] (p)  *  *  *

   [(j)] (q)  There is hereby created the Pennsylvania Interest On Lawyers Trust Account Board, which shall administer the IOLTA program. The IOLTA Board shall consist of nine members who shall be appointed by the Supreme Court. Two of the appointments shall be made from a list provided to the Supreme Court by the Pennsylvania Bar Association in accordance with its own rules and regulations. With respect to these two appointments, the Pennsylvania Bar Association shall submit three names to the Supreme Court, from which the Court shall make its final selections. The term of each member shall be three years and no member shall be appointed for more than two consecutive three year terms. The Supreme Court shall appoint a Chairperson. In order to administer the IOLTA program, the IOLTA Board shall promulgate rules and regulations consistent with this Rule for approval by the Supreme Court. [Additionally, upon approval of the Supreme Court, the IOLTA Board shall distribute and/or expend IOLTA funds for the purpose set forth in this Rule.]

   (r)  The IOLTA Board shall comply with the following:

   (1)  The IOLTA Board shall prepare an annual audited statement of its financial affairs.

   (2)  [Disbursement and allocation of IOLTA funds shall be subject to the prior approval of the Supreme Court.] The IOLTA Board shall submit to the Supreme Court for its approval a copy of its audited statement of financial affairs, clearly setting forth in detail all funds previously approved for disbursement under the IOLTA program[. Additionally, a copy of] and the IOLTA Board's proposed annual budget [will be provided to the Court], designating the uses to which IOLTA Funds are recommended.

   (3)  Upon approval of the Supreme Court, the IOLTA Board shall distribute and/or expend IOLTA Funds.

   [(k)  Interest] (s)  Income earned on IOLTA Accounts (IOLTA Funds) may be used only for the following purposes:

*      *      *      *      *

   [(l)] (t)  *  *  *

Comment

   (1)  A lawyer should hold property of others with the care required of a professional fiduciary. The obligations of a lawyer under this Rule apply when the lawyer has come into possession of property of clients or third persons because the lawyer is acting or has acted as a lawyer in a client-lawyer relationship with same person, or when the lawyer is acting as a Fiduciary, or as an escrow agent, a settlement agent or a representative payee, or as an agent, having been designated as such by a client or having been so selected as a result of a client-lawyer relationship or the lawyer's status as such. Securities should be [kept in a safe deposit box, except when some other form of safekeeping is warranted by special circumstances] appropriately safeguarded. All property which is the property of clients or third persons, including prospective clients, must be kept separate from the lawyer's business and personal property and, if [monies] Rule 1.15 Funds, in one or more Trust Accounts, or, if a Fiduciary entrustment, in an investment authorized by applicable law or a governing instrument. The responsibility for identifying an account as a Trust Account shall be that of the lawyer in whose name the account is held. Whenever a lawyer holds [funds of a client or third person] Rule 1.15 Funds, the lawyer must maintain at least two accounts: one in which those funds are held and another in which the lawyer's own funds may be held.

   (2)  A lawyer should maintain on a current basis books and records in accordance with sound accounting practices consistently applied and comply with any recordkeeping rules established by law or court order, including those records identified in paragraph (c).

   [(2)  The following books and records shall be maintained for each Trust Account:

   (i)  bank statements and check registers (which shall include the payee, date, amount and the client matter involved);

   (ii)  all transaction records returned by the financial institution, including canceled checks in whatever form and records of electronic transactions;

   (iii)  records of deposits and a ledger separately listing each deposited item and the client or third person for whom the deposit is being made.

   (3)  The records required by this Rule may be maintained in electronic or other form if they can be retrieved in printed hard copy. Electronic records must be regularly backed up by an appropriate storage device.

   (4)] (3)  While normally it is impermissible to commingle the lawyer's own funds with [client] Rule 1.15 funds, paragraph [(e)] (h) provides that it is permissible when necessary to pay [bank] service charges on that account. Accurate records must be kept regarding [that part of] the funds [which are the lawyer's].

   (4)  A lawyer's obligations with respect to funds of clients and third persons depend on the capacity in which the lawyer receives them, on whether they are Fiduciary Funds as defined in paragraph (a)(3) and on whether they are Nonqualified Funds or Qualified Funds as defined in paragraphs (a)(8) or (9) respectively. If the lawyer receives them in one of the capacities identified in paragraph (a)(10), the obligations in paragraphs (b) through (h), such as safeguarding, notification, and recordkeeping, apply. Nonqualified Funds other than Fiduciary Funds are to be placed in a Non-IOLTA Account, as defined in paragraph (a)(7), in an Eligible Institution, as defined in paragraph (a)(1), unless the client or third person specifically agrees to another investment vehicle for the benefit of the client or third person. Qualified Funds other than Fiduciary Funds must, subject to certain exceptions, be placed in an IOLTA Account defined in paragraph (a)(5).

   (5)  If the funds, whether Qualified Funds or Nonqualified Funds, are Fiduciary Funds, they may be placed in an investment authorized by the law applicable to the entrustment or authorized by the terms of the instrument governing the Fiduciary Funds. In such investment they shall be subject to the obligations of safeguarding, notification and recordkeeping.

   (6)  This Rule does not require a Fiduciary to liquidate entrusted investments or investments made in accordance with applicable law or a governing instrument or to transfer non-income producing fiduciary account balances to an IOLTA Account. This Rule does not prohibit a Fiduciary from making an investment in accordance with applicable law or a governing instrument. Funds which are controlled by a non-lawyer professional co-fiduciary shall not be considered to be Rule 1.15 Funds for the purposes of this Rule.

   [(5)] (7)  Lawyers often receive funds from which the lawyer's fee will be paid. Unless the fee is non-refundable, it should be deposited to a Trust Account and drawn down as earned. The lawyer is not required to remit to the client funds that the lawyer reasonably believes represent fees owed. However, a lawyer may not hold funds to coerce a client into accepting the lawyer's contention. The disputed portion of the funds must be kept in a Trust Account 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.

   [(6)  Paragraph (c) also recognizes that third] (8)  Third parties may have lawful claims against specific funds or other property in a lawyer's custody such as a client's creditor who has a lien on funds recovered in a personal injury action. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client. In such cases, when the third party claim is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client unless the claims are resolved. A lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party. When there are substantial grounds for dispute as to the person entitled to the funds, the lawyer may file an action to have a court resolve the dispute.

   [(7)] (9)  Other applicable law may impose pertinent obligations upon a lawyer independent of [any] and in addition to the obligations arising from this Rule. For example, a lawyer who [serves only] receives funds as an escrow agent [is governed by the law relating to fiduciaries even though the lawyer does not render legal service in the transaction and is not governed by this Rule. A lawyer who receives funds while serving as an executor or trustee remains subject to the formal accounting procedures and other supervision of the Orphans Court; when such funds are nominal in amount or reasonably expected to be held for such a short period that sufficient will not be generated to justify maintaining a segregated account such funds may, in the discretion of the lawyer, be deposited into the IOLTA account of the lawyer even though such deposit is not required.], a representative payee, or a Fiduciary remains subject to the law applicable to the entrustment, such as the Probate, Estates and Fiduciaries Code, Orphans' Court Rules, the Social Security Act, and to the terms of the governing instrument. When the lawyer who is serving as a Fiduciary reasonably expects that the funds cannot earn income for the client or third person in excess of the cost incurred to secure such income while the funds are held, the lawyer may, in the discretion of the lawyer, deposit the funds into the IOLTA Account of the lawyer.

   [(8)] (10)  A lawyer must participate in the Pennsylvania Lawyers Fund for Client Security established in Rule 503 of the Pennsylvania Rules of Disciplinary Enforcement. It is a means through the collective efforts of the bar to reimburse persons who have lost money or property as a result of dishonest conduct of a lawyer.

   [(9)] (11)  Paragraphs [(g)] (q) through [(l)] (t) provide for the Interest on Lawyer Trust Account (IOLTA) program[, and the definitions in paragraph (d) distinguish two types of funds of clients and third persons held by a lawyer: Qualified Funds, which must be placed in an IOLTA account, and Nonqualified Funds, which are to be placed in an interest bearing account unless the client or third person specifically agrees to another investment vehicle for the benefit of the client or third person]. There are further instructions relating to the IOLTA program in Rules 219 and 221 of the Pennsylvania Rules of Disciplinary Enforcement and in the Regulations of the Interest [on] On Lawyers Trust Account Board, 204 Pa. Code, § 81.1 et seq., which are referred to as the IOLTA Regulations.

Annex B

Subpart B.  DISCIPLINARY ENFORCEMENT

CHAPTER 83.  PENNSYLVANIA RULES OF DISCIPLINARY ENFORCEMENT

Subchapter B.  MISCONDUCT

Rule 221.  Funds of clients and third persons. Mandatory overdraft notification.

   (a)  For purposes of this rule, [a] the following definitions apply:

   (1)  Eligible Institution. An Eligible Institution is a Financial Institution which has been approved as a depository of Trust Accounts pursuant to section(h), infra.

   (2)  Financial Institution. A Financial Institution is an entity which is authorized by federal or state law licensed to do business in the Commonwealth of Pennsylvania as one of the following: a bank, bank and trust company, trust company, credit union, savings bank, savings and loan association or foreign banking corporation, the deposits of which are insured by an agency of the federal government, or as an investment adviser registered under the Investment Advisers Act of 1940 or with the Pennsylvania Securities Commission, an investment company registered under the Investment Company Act of 1940, or a broker dealer registered under the Securities Exchange Act of 1934.

   (3)  Fiduciary Funds. Fiduciary Funds are Rule 1.15 Funds which the lawyer holds as a Fiduciary, as defined in Rule 1.15(a)(2) of the Pennsylvania Rules of Professional Conduct. Fiduciary funds may be either Qualified Funds or Non-Qualified Funds.

   (4)  Rule 1.15 Funds. Rule 1.15 Funds are funds which the lawyer receives from a client or third person in connection with a client-lawyer relationship, or as an escrow agent, settlement agent or representative payee, or as a Fiduciary, or receives as an agent, having been designated as such by a client or having been so selected as a result of a client-lawyer relationship or the lawyer's status as such. When the term ''property'' appears with ''Rule 1.15 Funds,'' it means property of a client or third person which the lawyer receives in any of the foregoing capacities.

   (5)  Trust Account. A Trust Account [of an attorney] is an account in an Eligible Institution in which an attorney[, in accordance with Rule 1.15 of the Pennsylvania Rules of Professional Conduct, deposits] holds Rule 1.15 funds [received from a client or a third person in connection with a client-lawyer relationship, excluding funds which the attorney receives while acting as fiduciary for an estate, trust, guardianship or conservatorship]. A Trust Account must be maintained either as an IOLTA Account or as a Non-IOLTA Account, as defined in Rule 1.15(a)(5) and (7) of the Pennsylvania Rules of Professional Conduct.

   (b)  An attorney shall maintain a Trust Account with respect to his/her practice in this Commonwealth only in [a financial institution] an Eligible Institution approved by the Supreme Court of Pennsylvania for the maintenance of such accounts. Subject to the provisions set forth herein, the Disciplinary Board shall establish regulations governing approval and termination of approval for [financial institutions] Eligible Institutions, shall make appropriate recommendations to the Supreme Court of Pennsylvania concerning approval and termination, and shall periodically publish a list of [approved financial institutions] Eligible Institutions.

   (c)  [A financial institution shall be approved as a depository for Trust Accounts of attorneys if it shall file with the Disciplinary Board an agreement (in a form provided by the Board) to make a prompt report to the Lawyers Fund for Client Security Board whenever any check or similar instrument is presented against a Trust Account when such account contains insufficient funds to pay the instrument, regardless of

   (1)  whether the instrument is honored, or

   (2)  whether funds are subsequently deposited that cover the overdraft or the dishonored instrument is made good.

   (d)  For purposes of this Rule, a Trust Account shall not be deemed to contain insufficient funds to pay a check or similar instrument solely because it contains insufficient collected funds to pay the instrument, and no report shall be required in the case of an instrument presented against uncollected or partially uncollected funds. This provision shall not be deemed an endorsement of the practice of drawing checks against uncollected funds.

   (e)  The term ''financial institution'' means banks, bank and trust companies, trust companies, savings and loan associations, credit unions, savings banks or foreign banking corporations, whether incorporated, chartered, organized or licensed under the laws of the Commonwealth of Pennsylvania or the United States, doing business in Pennsylvania and insured by the Federal Deposit Insurance Corporation, the National Credit Union Administration or an alternative share insurer.]

   All Fiduciary Funds shall be placed in a Trust Account (which, if the Fiduciary Funds are also Qualified Funds as defined in Rule 1.15(a)(9) of the Pennsylvania Rules of Professional Conduct, must be an IOLTA Account). Fiduciary Funds as defined in Rule 1.15(a)(3) of the Pennsylvania Rules of Professional Conduct may be placed in another investment which is authorized by the law applicable to the entrustment or the terms of the instrument governing the Fiduciary Funds.

   [(f)] (d)  The responsibility for identifying an account as a Trust Account shall be that of the attorney in whose name the account is held.

   [(g)  The] (e)  An attorney shall maintain the following books and records [shall be maintained] for each Trust Account and for any other account in which Rule 1.15 Funds are held:

   (1)  [bank statements and check registers (which shall include the payee, date, amount and the client matter involved);

   (2)]  all transaction records [returned] provided to the attorney by the [financial institution] Financial Institution, [including] such as periodic statements, canceled checks in whatever form, deposited items and records of electronic transactions; and

   [(3)  records of deposits and a ledger separately listing each deposited item and the client or third person for whom the deposit is being made.]

   (2)  check register or separately maintained ledger, which shall include the payee, date and amount of each check, withdrawal and transfer, the payor, date, and amount of each deposit, and the matter involved for each transaction.

   [(h)] (f)  The records required by this rule may be maintained in electronic or [other form if they can be retrieved in printed] hard copy form. [Electronic records must be regularly backed up by an appropriate storage device.] If records are kept only in electronic form, then such records shall be backed up at least monthly on a separate electronic storage device.

   [(i)] (g)  The records required by this rule may be subject to subpoena and must be produced in connection with an investigation or hearing pursuant to these rules. Failure to produce such records may result in the initiation of proceedings pursuant to Enforcement Rule 208(f) (relating to emergency temporary suspension orders and related relief), which permits disciplinary counsel to commence a proceeding for the temporary suspension of a respondent-attorney who refuses to comply with a valid subpoena.

   [(j)  For purposes of this rule, funds deposited in an account prior to the close of business on the calendar date of presentation of an instrument shall be considered to be in the account at the close of business on that date notwithstanding the financial institution's treatment of such funds, for other purposes, as being received at the opening of the next banking day pursuant to 13 Pa.C.S. § 4107(b) (relating to items or deposits received after cutoff hour).

   (k)  For purposes of the rule, a check or draft against a Trust Account shall be deemed to be presented at the close of business on the date of presentation.

   (l)  No report need be made when the financial institution determines that the instrument presented against insufficient funds had been issued in reliance on a deposited instrument that was ultimately dishonored. This provision shall not be deemed an endorsement of the practice of drawing checks against uncollected funds.

   (m)  A failure on the part of a financial institution to make a report called for by this rule may be cause for termination of approval by the Supreme Court, but such failure shall not, absent gross negligence, give rise to a cause of action, by any person who is proximately caused harm thereby.]

   (h)  An Eligible Institution shall be approved as a depository for Trust Accounts of attorneys if it shall be in compliance with applicable provisions of Rule 1.15 of the Pennsylvania Rules of Professional Conduct and the Regulations of the IOLTA Board and shall file with the Disciplinary Board an agreement (in a form provided by the Board) to make a prompt report to the Lawyers Fund for Client Security Board whenever any check or similar instrument is presented against a Trust Account when such account contains insufficient funds to pay the instrument, regardless of

   (1)  whether the instrument is honored, or

   (2)  whether funds are subsequently deposited that cover the overdraft or the dishonored instrument is made good.

   (i)  For purposes of this rule:

   (1)  A Trust Account shall not be deemed to contain insufficient funds to pay a check or similar instrument solely because it contains insufficient collected funds to pay the instrument, and no report shall be required in the case of an instrument presented against uncollected or partially uncollected funds. This provision shall not be deemed an endorsement of the practice of drawing checks against uncollected funds.

   (2)  Funds deposited in an account prior to the close of business on the calendar date of presentation of an instrument shall be considered to be in the account at the close of business on that date notwithstanding the treatment of such funds by the Eligible Institution, for other purposes, as being received at the opening of the next banking day pursuant to 13 Pa.C.S. § 4108(b) (relating to items or deposits received after cutoff hour).

   (3)  A check or draft against a Trust Account shall be deemed to be presented at the close of business on the date of presentation.

   (j)  No report need be made when the Eligible Institution determines that the instrument presented against insufficient funds had been issued in reliance on a deposited instrument that was ultimately dishonored. This provision shall not be deemed an endorsement of the practice of drawing checks against uncollected funds.

   (k)  A failure on the part of an Eligible Institution to make a report called for by this rule may be cause for termination of approval by the Supreme Court, but such failure shall not, absent gross negligence, give rise to a cause of action, by any person who is proximately caused harm thereby.

   [(n)  Financial institutions] (l)  Eligible Institutions shall be immune from suit for the filing of any reports required by this Rule or believed in good faith to be required by this Rule.

   [(o)  A financial institution] (m)  An Eligible Institution shall be free to impose a reasonable service charge upon the attorney in whose name the account is held for the filing of the report required by this rule.

   [(p)](n)  *  *  *

   [(q)] (o)  *  *  *

   [(r)] (p)  *  *  *

[Pa.B. Doc. No. 07-114. Filed for public inspection January 26, 2007, 9:00 a.m.]



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