THE COURTS
PART V. PROFESSIONAL ETHICS AND CONDUCT
[204 PA. CODE CHS. 81 AND 83]
Establishment of an Interest on Lawyer Trust Accounts Program; No. 252; Doc. No. 3
[26 Pa.B. 3624]
Order Per Curiam:
And Now, this 17th day of July, 1996, it is ordered pursuant to Article V, Section 10, of the Constitution of Pennsylvania that:
1. To the extent that notice of proposed rulemaking would be required by Rule 103 of the Pennsylvania Rules of Judicial Administration or otherwise with respect to the rules adopted hereby, the immediate adoption of such rules is hereby found to be required in the interests of justice.
2. Rule 1.15 of the Pennsylvania Rules of Professional Conduct is hereby amended by adding paragraphs (d)--(i) as follows.
3. The Pennsylvania Rules of Disciplinary Enforcement are hereby amended to read as follows.
4. For the purpose of staggering the terms of members of the IOLTA Board created by this Order, the expiration of the initial terms of the members of the IOLTA Board shall be as follows:
(1) Term expiring August 31, 1997: three members
(2) Term expiring August 31, 1998: three members
(3) Term expiring August 31, 1999: three members
5. The IOLTA Board shall, to the extent not inconsistent with the provisions of this Order, the rules adopted by this Order and the rules adopted by the IOLTA Board, administer the IOLTA program to the extent practicable as a continuation of the program administered by the Lawyer Trust Account Board pursuant to the act of April 29, 1988 (P. L. 373, No. 59), known as The Interest on Lawyers' Trust Accounts Act.
6. This Order, and the rule changes promulgated hereby, shall take effect on September 1, 1996.
Annex A
TITLE 204. JUDICIAL SYSTEM GENERAL PROVISIONS
PART V. PROFESSIONAL ETHICS AND CONDUCT
Subpart A. PROFESSIONAL RESPONSIBILITY
CHAPTER 81. RULES OF PROFESSIONAL CONDUCT
CLIENT-LAWYER RELATIONSHIP Rule 1.15. Safekeeping Property.
* * * * * (d) Notwithstanding paragraphs (a), (b) and (c), and except as provided below in paragraph (e), a lawyer shall place all funds of a client or of a third person in an interest bearing account. All qualified funds received by the lawyer shall be placed in an Interest On Lawyer Trust Account in a depository institution approved by the Supreme Court of Pennsylvania. All other funds of a client or a third person received by the lawyer shall be placed in an interest bearing account for the benefit of the client or third person or in an other investment vehicle specifically agreed upon by the lawyer and the client or third party.
(1) Qualified funds are monies received by a lawyer in a fiduciary capacity that, in the good faith judgment of the lawyer, are nominal in amount or are reasonably expected to be held for such a short period of time that sufficient interest income will not be generated to justify the expense of administering a segregated account.
(2) Depository institutions are financial institutions approved by the Supreme Court of Pennsylvania pursuant to Rule 221 of the Pennsylvania Rules of Disciplinary Enforcement.
(3) An Interest On Lawyer Trust Account (IOLTA Account) is an unsegregated interest-bearing deposit account with a depository institution for the deposit of qualified funds by a lawyer. The rate of interest payable on an IOLTA Account shall not be less than the rate paid by the depository 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 depository institution at which the account is maintained shall:
(i) Remit at least quarterly any interest earned on the account to the IOLTA Board (as hereinafter defined).
(ii) Transmit to the IOLTA Board with each remittance a statement showing at least the name of the account, service charges or fees deducted, if any, and the amount of interest remitted from the account.
(iii) Transmit 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, and the amount of interest remitted from the account.
(e) A lawyer shall be exempt from the provisions of paragraph (d) only upon exemption requested and granted by the IOLTA Board. Exemptions shall be granted if: (i) the nature of the lawyer's practice does not require the routine maintenance of a trust account in Pennsylvania; (ii) compliance with paragraph (d) 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 depository institution which is described in paragraph (d)(2), or on other compelling and necessitous factors; or (iii) the lawyer's historical annual trust account experience, based on information from the depository institution in which the lawyer deposits trust funds, demonstrates that service charges on the account would significantly and routinely exceed any interest generated.
(f) A lawyer shall not be liable in damages or held to have breached any fiduciary duty or responsibility because monies are deposited in an IOLTA Account pursuant to the lawyer's judgment in good faith that the monies deposited were qualified funds.
(g) There is hereby created the Pennsylvania Interest On Lawyers Trust Account Board (herein called the IOLTA Board), which shall administer the IOLTA program. The IOLTA Board shall consist of nine members who shall be appointed by the Supreme Court exclusively from a list provided to it by the Pennsylvania Bar Association in accordance with its own rules and regulations. The Pennsylvania Bar Association shall submit three names to the Supreme Court for every vacancy on the IOLTA Board 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. 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, thus 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 the IOLTA Board's proposed annual budget will be provided to the Court, designating the uses to which IOLTA Funds are recommended.
(h) Interest earned on IOLTA Accounts (IOLTA Funds) may be used only for the following purposes:
(1) delivery of civil legal assistance to the poor and disadvantaged in Pennsylvania by non-profit corporations described in section 501(c)(3) of the Internal Revenue Code of 1986, as amended;
(2) educational legal clinical programs and internships administered by law schools located in Pennsylvania;
(3) administration and development of the IOLTA program in Pennsylvania; and
(4) the administration of justice in Pennsylvania.
(i) The IOLTA Board shall hold the beneficial interest in IOLTA Funds. Monies received in the IOLTA program are not state or federal funds and are not subject to Article VI of the act of April 9, 1929 (P. L. 177, No. 175) known as The Administrative Code of 1929, or the act of June 29, 1976 (P. L. 469, No. 117).
Subpart B. DISCIPLINARY ENFORCEMENT
CHAPTER 83. PENNSYLVANIA RULES OF DISCIPLINARY ENFORCEMENT
Subchapter B. MISCONDUCT Rule 219. Periodic assessment of attorneys; voluntary inactive status.
* * * * * (d) [(1)] On or before July 1 of each year all persons required by this rule to pay an annual fee shall file with the Administrative Office a signed statement on the form prescribed by the Administrative Office [setting forth] in accordance with the following procedures:
(1) The statement shall set forth:
* * * * * (iii) The name of each financial institution in this Commonwealth in which the attorney on May 1 of the current year or at any time during the preceding 12 months held funds[: (A)] of a client or a third person subject to Rule 1.15 of the Pennsylvania Rules of Professional Conduct. The statement shall include the name and account number for each account in which the lawyer holds such funds, and each IOLTA Account shall be identified as such.[;
(B) in a fiduciary capacity customary to the practice of law, such as administrator, executor, trustee of an express trust, guardian or conservator; or
(C) as an escrow agent or other fiduciary, having been designated as such by a client or having been so selected as a result of the client-attorney relationship.
(D) A certification reading as follows: ''I certify that all fiduciary accounts that I maintain in Pennsylvania are in financial institutions that have been approved by the Supreme Court of Pennsylvania for the maintenance of such accounts pursuant to Pennsylvania Rule of Disciplinary Enforcement 221 (relating to mandatory overdraft notification).'']
(iv) A statement that the attorney is familiar and in compliance with Rule 1.15 of the Pennsylvania Rules of Professional Conduct regarding the handling of funds and other property of clients and others and the maintenance of IOLTA Accounts, and with Rule 221 of the Pennsylvania Rules of Disciplinary Enforcement regarding the mandatory reporting of overdrafts on fiduciary accounts.
* * * * * Rule 221. Mandatory overdraft notification.
(a) For purposes of this rule, a fiduciary account of an attorney is [any account in which or with respect to which an attorney:
(1) holds funds of a client,
(2) holds funds in a fiduciary capacity customary to the practice of law, such as administrator, executor, trustee of an express trust, guardian or conservator, or
(3) holds funds as an escrow agent or other fiduciary, having been so selected as a result of a client-attorney relationship.] an IOLTA Account as defined in Rule 1.15(d)(3) of the Pennsylvania Rules of Professional Conduct.
* * * * * (e) The term ''financial institution'' [includes] means banks, bank and trust companies, trust companies, savings and loan associations, credit unions, savings banks [and any other business which accepts for deposit funds held in trust by attorneys] 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.
* * * * *
Subchapter F. PROVISIONS OF LAW SAVED AND ABROGATED Rule 601. Statutes and other authorities suspended or abrogated.
* * * * * (d) The act of April 29, 1988 (P. L. 373, No. 59), known as the Interest on Lawyers' Trust Accounts Act, is hereby suspended, effective September 1, 1996, to the extent it requires remittance to the IOLTA fund established under the act of interest earned on IOLTA accounts; and the act is hereby suspended in its entirety at such time after September 1, 1996 as all remaining monies in such IOLTA fund have been disbursed by the Lawyer Trust Account Board established under the act.
[Pa.B. Doc. No. 96-1244. Filed for public inspection August 2, 1996, 9:00 a.m.]
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