THE COURTS
Title 204--JUDICIAL SYSTEM GENERAL PROVISIONS
PART V. PROFESSIONAL ETHICS AND CONDUCT
[204 PA. CODE CH. 83]
Amendments to the Pennsylvania Rules of Disciplinary Enforcement Regarding the Client Security Fund
[36 Pa.B. 1363] Notice is hereby given that the Pennsylvania Lawyers Fund for Client Security is considering recommending to the Supreme Court of Pennsylvania that the Court amend the Pennsylvania Rules of Disciplinary Enforcement, as set forth in Annex A. The proposed changes closely follow the Model Rules for Client Protection as adopted by the American Bar Association.
Interested persons are invited to submit written comments regarding the proposed amendments to the Executive Director, Pennsylvania Lawyers Fund for Client Security, 4909 Louise Drive, Suite 101, Mechanicsburg, PA 17055, on or before May 12, 2006.
By the Pennsylvania Lawyers Fund for Client Security
KATHRYN J. PEIFER, Esq.,
Executive Director
Annex A
TITLE 204. JUDICIAL SYSTEM GENERAL PROVISIONS
PART V. PROFESSIONAL ETHICS AND CONDUCT
Subpart B. DISCIPLINARY ENFORCEMENT
CHAPTER 83. PENNSYLVANIA RULES OF DISCIPLINARY ENFORCEMENT
Subchapter E. CLIENT SECURITY FUND
GENERAL PROVISIONS Rule 501. Definitions.
The following words and phrases, when used in this subchapter shall have, unless the context clearly indicates otherwise, the meaning given to them in this section:
* * * * * ''Covered [attorney] Attorney.'' An individual defined in Rule 512 (relating to covered attorney).
''Claimant.'' A person who makes application to the Board for a disbursement from the [fund] Fund.
''Dishonest [conduct] Conduct.'' Conduct defined in Rule 513 (relating to dishonest conduct).
* * * * * ''Reimbursable [losses] Losses.'' Losses defined in Rule 514 (relating to reimbursable losses).
Rule 502. Pennsylvania Lawyers Fund for Client Security.
(a) General rule. [There is hereby established in the Administrative Office of Pennsylvania Courts] The Supreme Court shall establish a separate fund to be known as the ''Pennsylvania Lawyers Fund for Client Security.'' The [fund] Fund shall consist of such amounts as shall be transferred to the [fund] Fund pursuant to this subchapter. The [fund] Fund is created by contributions of the members of the Bar to aid in ameliorating the losses caused to clients and others by defalcating members of the Bar acting as attorney or fiduciary. No [claimant] Claimant or other person shall have any legal interest in such [fund] Fund or right to receive any portion thereof, except for discretionary disbursements therefrom directed by the Board or the Supreme Court, all payments from the [fund] Fund being a matter of grace and not of right. There shall be no appeal from a decision of the Board. A decision of the Board to grant or deny payment to a Claimant shall not be subject to judicial review by any court. The Supreme Court reserves the right to amend or repeal this subchapter.
(b) Additional assessment. Every attorney who is required to pay an annual assessment under [Enforcement] Rule 219 (relating to periodic assessment of attorneys; voluntary inactive status) shall pay an additional annual fee of $45.00 for [the use of the fund] use by the Fund. Such additional annual assessment shall be added to, and collected with and in the same manner as, the basic annual assessment, but the statement mailed by the Administrative Office pursuant to [Enforcement] Rule 219 shall separately identify the additional assessment imposed pursuant to this subdivision. All amounts received pursuant to this subdivision shall be credited to the [fund] Fund.
(c) Transfers to fund. The Administrative Office shall transfer to the [fund] Fund all bequests and gifts hereafter made for [the use of the fund] use by the Fund. All monies or other assets of the Fund shall constitute a trust and shall be held in the name of the Fund, subject to the direction of the Board.
(d) Audit. The Board shall annually obtain an independent audit of the [fund] Fund by a certified public accountant, and shall file a copy of such audit with the Supreme Court.
Rule 503. Pennsylvania Lawyers Fund for Client Security Board.
(a) General rule. The Supreme Court shall appoint a board to be known as the ''Pennsylvania Lawyers Fund for Client Security Board'' which shall consist of five members of the bar of this Commonwealth and two non-lawyer public members. One of the members shall be designated by the Court as Chair and another as Vice-Chair. A majority of the members of the Board shall designate a member of the Board to act as Treasurer.
* * * * * (c) Vacancies. Vacancies shall be filled by appointment by the Supreme Court for any unexpired terms.
(d) Powers. The Board shall have the power and duty:
(1) To appoint hearing committees. Each committee shall consist of three members who are members of the bar of the Supreme Court or who are current members of the Board [of the Pennsylvania Lawyers Fund for Client Security].
(2) To investigate applications by [claimants] Claimants for disbursements from the [fund] Fund.
(3) To authorize disbursements from the [fund] Fund and to fix the amount thereof.
(4) To determine in January of each year, and to report to the Supreme Court, whether the [fund] Fund is of sufficient amount to pay adjudicated claims and other anticipated claims.
* * * * * (7) With prior approval of the Supreme Court to give financial assistance to Pennsylvania non-profit corporations whose purpose it is to assist alcohol or drug impaired Pennsylvania lawyers and judges to regain their health and to restore them to professional competence, or to such other Supreme Court Committees or Boards as the Court may direct.
(8) To prudently invest, per the direction of the Investment Advisory Board or the Court, such portions of the funds as may not be needed currently to pay losses, and to maintain sufficient reserves as appropriate.
(9) To prosecute claims for restitution to which the Fund is entitled.
[(d) Assistance and] (e) Compensation; expenses. [The Administrative Office shall provide necessary clerical assistance to the Board and shall pay the cost thereof and the necessary travel and other expenses of members of the Board and hearing committees out of the fund.] Members of the Board shall serve without compensation but shall be reimbursed for their actual and necessary expenses incurred in the discharge of their duties.
(f) Conflict of interest.
(1) A member of the Board who has or has had a client-attorney relationship or a financial relationship with a Claimant or a Covered Attorney shall not participate in the investigation or adjudication of a claim involving that Claimant or Covered Attorney;
(2) A member of the Board who has or has had a relationship, other than as provided in subparagraph (1) above, with a Claimant or Covered Attorney, or who has other potential conflicts of interest, shall disclose such relationship to the Board and, if the Board deems appropriate, that Board member shall not participate in the investigation or adjudication of a claim involving that Claimant or Covered Attorney;
(3) Claims based upon alleged Dishonest Conduct by members of the Board shall be submitted directly to the Supreme Court. Claims based upon alleged dishonest conduct by Counsel to the Board or Staff shall be submitted directly to the Board for disposition.
(g) Immunity. Members of the Board, members of hearing committees, Counsel to the Board and Staff shall be immune from civil suit for any conduct in the course of their official duties. All communications to the Board, a hearing committee, Counsel to the Board or Staff relating to Dishonest Conduct by a Covered Attorney and all testimony given in a proceeding conducted pursuant to this subchapter shall be absolutely privileged and the person making the communication or giving the testimony shall be immune from civil suit based upon such communication or testimony, except that such immunity shall not extend to any action that violates Rule 402 or Rule 504 (relating to confidentiality).
Official Note: The provisions of subdivision (g) of the Rule recognize that the submission and receipt of applications by Claimants for disbursements from the Fund, and investigation, hearing, decision and disposition of such claims, are all parts of a judicial proceeding conducted pursuant to the inherent power of the Supreme Court of Pennsylvania. The immunity from civil suit recognized to exist in subsection (g) is that which exists for all participants in judicial proceedings under Pennsylvania law, so long as their statements and actions are pertinent, material and during the regular course of a proceeding. Communications made or revealed in violation of the confidentiality requirements of Rules 402 and 504 are not pertinent to the proceeding and, thus, do not entitle the person who publishes them to absolute immunity.
Rule 504. [Immunity] Confidentiality.
(a) [Claims submitted to the Board shall be confidential. Members of the Board, members of hearing committees, General Counsel and staff shall be immune from civil suit for any conduct in the course of their official duties. All communications to the Board, a hearing committee, General Counsel or staff relating to dishonest conduct by a covered attorney and all testimony given in a proceeding conducted pursuant to this subchapter shall be absolutely privileged and the person making the communication or giving the testimony shall be immune from civil suit based upon such communication or testimony, except that such immunity shall not extend to any action that violates Rule 402 (relating to confidentiality).] All claims filed with the Fund shall be confidential and shall not be disclosed. This confidentiality requirement extends to all documents and things made and/or obtained, and all investigations and proceedings conducted and/or held by the Fund in connection with the filing of a claim.
(b) [Claims based upon alleged dishonest conduct by members of the Board shall be submitted directly to the Supreme Court. Claims based upon alleged dishonest conduct by General Counsel or staff shall be submitted directly to the Board for disposition.] Notwithstanding subsection (a), the Fund, after an award is approved, may disclose the following information:
(1) the name of the Claimant (if Claimant has granted permission to disclose);
(2) the name of the Covered Attorney;
(3) the amount claimed;
(4) the amount awarded; and
(5) a summary of the claim.
(c) Nothing in this Rule shall preclude the Fund from utilizing confidential information in the release of statistical data or in the pursuit of the Fund's subrogation rights.
(d) This Rule shall not be construed to preclude disclosure, at any time during the investigation and/or proceeding, for confidential information requested by the following entities:
(1) authorized agencies investigating the qualifications of judicial candidates;
(2) the Judicial Conduct Board and/or its counterpart in other jurisdictions conducting an investigation;
(3) authorized agencies investigating qualifications for government employment;
(4) federal courts and/or other jurisdictions investigating qualifications for admission to practice law;
(5) Office of Disciplinary Counsel and/or the Disciplinary Board investigating misconduct by the Covered Attorney;
(6) lawyer discipline agencies and client protection funds in other jurisdictions conducting an investigation; or
(7) law enforcement authorities investigating and/or prosecuting the Covered Attorney for a criminal offense.
(e) Requests for the release of confidential information by any person or entity, other than those identified in subsection (d), must be made to the Fund through the issuance of a subpoena; requests for same made under the Freedom of Information Act will not be honored.
[Official Note: The provisions of subdivision (a) of the rule recognize that the submission and receipt of applications by claimants for disbursements from the fund, and the investigation, hearing, decision and disposition of such claims, are all parts of a judicial proceeding conducted pursuant to the inherent power of the Supreme Court of Pennsylvania. The immunity from civil suit recognized to exist in subsection (a) is that which exists for all participants in judicial proceedings under Pennsylvania law, so long as their statements and actions are pertinent, material and during the regular course of a proceeding. Communications made or revealed in violation of the confidentiality requirement of Rule 402 are not pertinent to the proceeding and, thus, do not entitle the person who publishes them to absolute immunity. ]
DISHONEST CONDUCT OF ATTORNEY Rule 511. Reimbursement of certain losses authorized.
The Board in its discretion may authorize a disbursement from the [fund] Fund in an amount not exceeding the [reimbursable loss] Reimbursable Loss caused by the [dishonest conduct of a covered attorney] Dishonest Conduct of a Covered Attorney.
Rule 512. Covered attorney.
This subchapter covers conduct of [an active] a member of the bar of the Supreme Court, including attorneys admitted pro hac vice and formerly admitted attorneys whose clients reasonably believed the former attorney to be licensed to practice when the Dishonest Conduct occurred, an active foreign legal consultant, an active military attorney, or a person holding an active Limited In-House Corporate Counsel License, which conduct forms the basis of the application to the Board. The conduct complained of need not have taken place in this Commonwealth for application to the Board to be considered by the Board and an award granted, except that an award shall not be granted with respect to conduct outside of this Commonwealth of a foreign legal consultant, military attorney or person holding a Limited In-House Corporate Counsel License unless the conduct related to the provision of legal services to a resident of this Commonwealth.
Rule 513. Dishonest conduct.
For the purposes of this subchapter, dishonest conduct [consists of wrongful acts or omissions committed by a covered attorney in the manner of defalcation or embezzlement of money, or the wrongful taking or conversion of money, property or other things of value] means wrongful acts committed by a Covered Attorney in the nature of theft or embezzlement of money or the wrongful taking or conversion of money or property or other things of value.
Rule 514. Reimbursable losses.
(a) General rule. For the purposes of this subchapter reimbursable losses consist of those losses of money, property or other things of value which meet all of the following requirements:
(1) The loss was caused by the [dishonest conduct of a covered attorney] Dishonest Conduct of a Covered Attorney when acting:
* * * * * (2) The loss was that of money, property or other things of value which came into the hands of the [covered attorney] Covered Attorney by reason of having acted in the capacity described in paragraph (1) of this subdivision. Consequential or incidental damages, such as lost interest, or attorney fees or other costs incurred in seeking recovery of a loss, may not be considered in determining the Reimbursable Loss.
(3) The loss, or the reimbursable portion thereof, was not covered by any insurance or by any fidelity or similar bond or fund, whether of the [covered lawyer] Covered Attorney, or the [claimant] Claimant or otherwise.
(4) The loss was not incurred by:
(i) the spouse or other close relative, partner, associate, employer or employee of the [covered attorney] Covered Attorney, or a business entity controlled by the [covered attorney] Covered Attorney, or any entity controlled by any of the foregoing;
(ii) an insurer, surety or bonding agency or company, or any entity controlled by any of the foregoing; [or]
(iii) any government unit[.];
(iv) any financial institution that may recover under a ''banker's blanket bond'' or similar commonly available insurance or surety contract; or
(v) an individual or business entity suffering a loss arising from personal or business investments not arising in the course of the client-attorney relationship.
(5) In cases of extreme hardship or special and unusual circumstances, the Board may, in its discretion, and consistent with the purpose of the Fund, recognize a claim which would otherwise be excluded under this subchapter.
(6) In cases where it appears that there will be unjust enrichment, or the Claimant unreasonably or knowingly contributed to the loss, the Board may, in its discretion, deny the claim.
(7) A payment from the [fund] Fund, by way of subrogation or otherwise, will not benefit any entity specified in paragraph (4) of this subdivision.
(b) Maximum recovery. The maximum amount which may be disbursed from the [fund] Fund to any one [claimant] Claimant with respect to the [dishonest conduct of any one covered attorney] Dishonest Conduct of any one Covered Attorney shall be $75,000.
(c) No lawyer shall accept payment for assisting a Claimant with the filing of a claim with the Fund, unless such payment has been approved by the Board.
PAYMENT OF CLAIMS Rule 521. Investigation and payment of claims.
(a) Cooperation with Disciplinary Board. At the request of the Board, the Disciplinary Board of the Supreme Court of Pennsylvania shall make available to the Board all reports of investigations and records of formal proceedings conducted under these rules with respect to any attorney whose conduct is alleged to amount to [dishonest conduct causing reimbursable loss to a claimant] Dishonest Conduct causing Reimbursable Loss to a Claimant, and shall otherwise cooperate fully with the Board. The Board shall cooperate fully with the Disciplinary Board of the Supreme Court of Pennsylvania and shall preserve the confidential nature of any information which is required to be kept confidential under these rules.
(b) Hearing committees. The Board may utilize a hearing committee to conduct any hearings under this subchapter for the purpose of resolving factual issues. Imposition of discipline under Rule 204 (relating to types of discipline) or otherwise shall not be a prerequisite for favorable action by the Board with respect to a claim against the [fund] Fund, but the [covered attorney] Covered Attorney involved shall be given notice of and an opportunity to contest any claim made with [request] respect to his or her alleged [dishonest conduct] Dishonest Conduct.
(c) Subpoenas. At any stage of an investigation under this subchapter the Board, a [claimant] Claimant and a contesting [covered attorney] Covered Attorney shall have the right to summon witnesses before a hearing committee and require production of records before the same by issuance of subpoenas in substantially the same manner, and with the effect provided by Rule 213(b), (e), (f), (g) and (h), and if applicable, (c) and (d) (relating to subpoena power, depositions and related matters).
(d) Factors to be considered. In exercising its discretion under Rule 511 (relating to reimbursement of certain losses authorized) the Board may consider, among other things:
(1) The amount available and likely to become available to the [fund] Fund for payment to [claimants] Claimants.
* * * * * (3) The total amount of losses caused by [dishonest conduct] Dishonest Conduct by any one [covered attorney] Covered Attorney or associated group of [covered attorneys] Covered Attorneys.
(4) The degree of hardship the [claimant] Claimant has suffered by the loss.
(e) The Claimant or Covered Attorney may request a reconsideration of the denial or approval of an award. Such request for a reconsideration shall be made in writing and shall be received by the Fund within 30 days of the date of the notification of the Board's denial or approval of an award. If the Claimant or Covered Attorney fails to make such a request, or the request is denied, the decision of the Board is final and there is no further right of appeal.
(f) Conditions. In addition to such other conditions and requirements as it may impose, the Board shall:
(1) require each [claimant] Claimant, as a condition of payment, to execute such instruments, to take such action, and to enter into any agreements, including assignments of claims and subrogation agreements, as may be feasible in order to maximize the possibility that the [fund] Fund will be appropriately reimbursed for payments made from it. Amounts recovered pursuant to any such arrangements shall be paid to the [Administrative Office for reimbursement of the fund; and] Fund;
(2) require each [claimant] Claimant, as a condition of payment, to file a formal complaint with the Disciplinary Board of the Supreme Court of Pennsylvania against the [covered attorney] Covered Attorney and to cooperate in the fullest with the Disciplinary Board or other authorities in connection with other investigations of the alleged [dishonest conduct.] Dishonest Conduct; and
(3) require a Claimant who has commenced an action to recover unreimbursed losses against the Covered Attorney, or another entity or third party who may be liable for the Claimant's loss, to notify the Board of such action.
REINSTATEMENT Rule 531. Restitution a condition for reinstatement.
The Board shall file with the Supreme Court a list containing the names of all formerly admitted attorneys with respect to the [dishonest conduct] Dishonest Conduct of which the Board has made unrecovered disbursements from the [fund] Fund. No person will be reinstated by the Supreme Court under Rule 218 (relating to reinstatement), Rule 219(h) (relating to periodic assessment of attorneys; voluntary inactive status), [or] Rule 301(h) (relating to proceedings where an attorney is declared to be incompetent or is alleged to be incapacitated) [or], Pennsylvania Rules for Continuing Legal Education, Rule 111(b) (relating to noncompliance with continuing legal education rules) or who has been suspended from the practice of law for any period of time, including, but not limited to suspensions under Rule 208(f) (relating to emergency temporary suspension) until the [fund] Fund has been repaid in full, plus 10% per annum interest, for all disbursements made from the [fund] Fund with respect to the [dishonest conduct] Dishonest Conduct of such person.
[Pa.B. Doc. No. 06-477. Filed for public inspection March 24, 2006, 9:00 a.m.]
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