BusinessReport.com

It’s been two years since the Louisiana Attorney Disciplinary Board focused its microscope on how lawyers handle client money.

To bring that problem into view, the board checked with other states and discovered it was adopting a rule of professional conduct based on what was discovered to be an early indicator of a problem in these cases.

“There was certainly a problem longstanding here and elsewhere in the country,” says Charles Plattsmier, LADB’s chief disciplinary counsel in Baton Rouge. “Almost without exception, an overdraft had occurred in these problems before they got out of hand.”

Although Plattsmier says the majority of the state’s estimated 20,500 lawyers “are doing right,” there have been cases ranging from mishandling these accounts to outright stealing of client money.

About 60% of Louisiana’s disbarments in the past 25 years have involved “financial improprieties,” so the board agreed some type of early intervention was warranted. By spring 2006, the board joined more than 30 states by adopting its own rule to more proactively monitor trust accounts—where lawyers keep client money in certain cases until that money has been earned.

The rule requires that lawyers set up the accounts in financial institutions that agree to notify the board of overdrafts on these accounts, and Plattsmier says results have been positive, though specific numbers were not available.

“They’ve gotten a lot more careful,” he says. “We’ve seen a lot more trust account compliance since the new rule in protecting the public and policing ourselves.”

There are four ways to pay a lawyer in Louisiana. Three do not involve holding client money: a general retainer fee to secure availability of a lawyer; a fixed fee for a specific legal task such as representation for a DWI; and a contingency fee [a percentage of a recovery or settlement amount from cases like those involving an injury].

But the fourth does, requiring a client’s advanced deposit or payment for cases like divorce. Those cases draw greater scrutiny. The lawyer holds the payment in a trust or escrow account in a financial institution and draws on it based on a mutually agreed hourly rate for services as rendered. If more money is needed to complete services, the lawyer asks the client to deposit more money; if not, the remainder is supposed to be returned to the client.

According to the rule, Plattsmier says the board must determine if an overdraft notice was caused by a bank or bookkeeper error, or a more serious problem of a lawyer “converting client funds” or stealing them. If action is warranted, it is taken and this early intervention has helped avoid these cases getting out of hand.

Not allowing a lawyer to co-mingle money with a client’s money ensures accountability. There have been incidents of lawyers “borrowing” from a trust account to cover other expenses, intending to repay it and thinking the client wouldn’t know about it, he says. Typically, the situation worsened into what he called a “rolling conversion,” where the lawyer “robs Peter to pay Paul” or ends up stealing from Client 2 to cover Client 1 and then owes money to two clients.

“We have found, typically, lawyers can keep this going for some time, but eventually they trip up,” Plattsmier says. And, typically, they tripped up with an overdraft.

“You will get disbarred very quickly if you screw up your trust account,” says Janice Villarrubia, an estate planning and probate attorney who uses advanced deposits and trust accounts for payment and agrees with the rule and its impact. “It’s a very serious infraction because the attorney is in a position of trust.”

Keith Nordyke, a family lawyer with Nordyke and Greenfield, agrees mishandling these accounts has gotten lawyers in trouble in the past, “and that will still get you in big trouble. They take this very seriously. The Office of Disciplinary Counsel checks this quickly if they learn of lawyers abusing the trust accounts.”

Although many lawyers initially considered the rule another intrusion in their lives, Nordyke says he’s come to consider it “a great sentinel or canary in the coal mine.” Not only does he use trust accounts in most of his cases, but he has defended lawyers accused of disciplinary infractions related to these accounts.

In his own experience, the lawyers tended to be “on the margins of the profession and have difficulty making a living” and usually involved the rollover effect in borrowing. More often, he says, these incidents result from poor judgment.

“Even though there may be a large balance in the account, it belongs to someone else. If a check bounces, there is by definition a problem,” he says. “If there is an area that is deserving of public trust, it ought to be that your lawyer won’t steal your money.”

Villarrubia and Nordyke also agree the best way to avoid potential problems is to do the homework on finding the best lawyer for the job and negotiating fees.

Nordyke advises his clients extensively on what to expect to avoid misunderstandings and puts the fee arrangement in writing early in the relationship. Also called an IOLTA [Interest on Lawyer Trust Account], he places a client’s money in it, which he says is typically held there for a short amount of time until the job is done. An escrow account on a house purchase is example of a trust account.

Although finding a lawyer can be an intimidating process, Villarrubia says securing the right one makes a difference in the quality of service and the financial investment. Even though she’s a lawyer, finding one to handle family business recently gave her a new perspective on how challenging it can be to find a good match. Like doctors, some are generalists and others specialists, and those experienced in the particular type of case at hand can better estimate anticipated charges, hopefully avoiding billing issues.

Nordyke warns against hiring a lawyer solely on cost, adding, “I wouldn’t want to be sitting on the space shuttle built by the lowest bidder. I want to go to someone competent, and the rates are secondary. You get what you pay for.” To find a lawyer, rely on word of mouth, he says, though a recent client said he used Google to find Nordyke, which singled him out for his specialty.

“Louisiana is really monitoring its lawyers—and they should,” Villarrubia says. “We have to go through a background check before we receive our licenses, which looks at past behavior as an indicator of possible future behavior. Lawyers who handle these trust accounts need to be supervised because there is a real potential for them to do a lot of harm—and they do sometimes.”