Samuel C. Stretton.

In-house counsel must be licensed in Pennsylvania to practice.

You have written several articles about in-house counsel and the problems they face if they are not licensed in Pennsylvania. Is it still a problem in Pennsylvania?

It is still a problem and in-house corporate counsel are putting themselves in a very difficult position with the Office of Disciplinary Counsel when they are not properly licensed. Despite several articles on the subject (that apparently no one reads), many in-house corporate counsel are neglecting to be licensed in Pennsylvania and are suffering the consequences.

What is the problem? The problem is the way most older lawyers were taught. In the '70s, '80s, and '90s, in-house corporate counsel admitted to practice in some place were presumed to be able to function as corporate counsel anywhere, unless they went into a courtroom. That was a myth that prevailed and which, to some extent, was taught in law schools 30 or 40 years ago.

Unfortunately, the world changed in the last 20 or so years. Boards of law examiners have developed a concept called limited in-house corporation licenses. The Pennsylvania Bar Admission rule has this limited in-house corporate counsel license at Rule 302. That rule was adopted in March 2004 and became effective Sept. 27, 2004. Before that rule was adopted, the world was viewed as it had been for 100 years. A lawyer licensed anyplace could be in-house corporate counsel in any other state as long as they don't go into court. But, once that rule was passed, a limited license is now required. Other states similarly have passed rules for limited admission for in-house corporate counsel.

Therefore, if a lawyer is in-house counsel and practicing as in-house counsel in Pennsylvania, but not licensed in Pennsylvania, then the lawyer has to get this limited in-house corporate counsel license or seek to be admitted to practice law before the Pennsylvania Supreme Court either by waiving in if they have been practicing five of the past seven years in the state where they are licensed or taking the bar exam and passing the character and fitness requirements.

This myth or misunderstanding about the duties of in-house corporate counsel continues to create problems for many lawyers who are hired by corporations in Pennsylvania, either as general counsel or assistant counsel or some other category of in-house corporate counsel. If that lawyer is licensed in another state but not admitted in Pennsylvania, if they do not get that limited in-house corporate counsel license and strictly comply with it, these lawyers would be in violation of the unauthorized practice of law (Rule of Professional Conduct 5.5). In Pennsylvania, the unauthorized practice of law is taken very seriously by the Office of Disciplinary Counsel. Oftentimes, the Office of Disciplinary Counsel will seek a year and a day suspension or more if there is a long period of time when the in-house corporate counsel is engaged in the unauthorized practice of law since either they are not admitted in Pennsylvania, or did not seek the limited in-house corporate counsel license in Pennsylvania. A year and a day requires a reinstatement petition that which normally takes between one to two years before the reinstatement process is concluded and the reinstatement is granted, assuming the lawyer meets the requirements to be reinstated. Therefore, a mistake like this could be extremely costly and devastating for in-house corporate counsel.

Further, if the lawyer is suspended in Pennsylvania (and it doesn't make a difference whether the lawyer had a Pennsylvania law license), that lawyer will then face reciprocal discipline in the jurisdiction for which they are licensed. So, if a lawyer is licensed in Delaware but not in Pennsylvania, comes to Pennsylvania as in-house corporate counsel and doesn't get licensed in Pennsylvania, that lawyer when suspended for the unauthorized practice of law will face reciprocal discipline in the state of Delaware. Reciprocal discipline is almost impossible to defeat as long as there was proper due process in Pennsylvania, and as long as the penalty is not way out of line in terms of what the other state would do.

There is also another category of lawyers who are licensed in Pennsylvania or even licensed in other states, but for reasons of being pennywise but pound foolish allow their law licenses to be placed on inactive status by not paying the annual fee or not taking the CLE courses.

That is another myth that when practicing as in-house counsel or as a government attorney, then the lawyer does not have to keep their law license active. That is just plain wrong. Lawyers who do that have gotten themselves in real trouble. Lawyers who work for state governments and have let their license go inactive have been disciplined for practicing law without a license. An inactive lawyer who practices law is engaged in the unauthorized practice of law under Rule 5.5.

The best advice anyone can give a lawyer is do not put your law license on inactive status or retired inactive status or emeritus inactive or anything like that. There is no reason or benefit to do so other than saving perhaps the $200 registration fee and the cost of CLEs. But presumably every lawyer, whether they practice or not, would want to keep up on the CLEs and the $200 is not enough money to cause someone not to want to keep their license active. Lawyers spent many years going to law school and developing their legal skills. To put one's license on inactive status is foolish, particularly since at some point the lawyer may want to practice again.

I have seen lawyers who have Pennsylvania licenses and are practicing in other states, such as New Jersey with an active New Jersey license, let their Pennsylvania license lapse and go inactive. This is now called administrative suspension. When that happens, a lawyer has three years to reinstate themselves or after that, they can't be automatically reinstated. They have to go through the reinstatement process, which could include a hearing for administrative reinstatement. A problem occurs if a lawyer is practicing in New Jersey for an insurance company and then gets hired by a Pennsylvania company to practice and be their general or assistant general counsel. For example, a lawyer who had their Pennsylvania license inactive for four years then comes over to Pennsylvania as a general assistant counsel and starts acting in that role. The lawyer then calls to get their inactive law license reinstated, but finds out they can't because they've been inactive for more than three years. The lawyer then applies for reinstatement and when the lawyer lists what they have been doing, they must put in that they are the new general counsel for this Pennsylvania corporation. At that point, probably a month or two has passed. That places the lawyer in jeopardy for practicing law without a license in Pennsylvania for two months. The lawyer cannot be reinstated administratively and now has to face disciplinary charges in terms of the unauthorized practice of law, which could result in their suspension from the practice of law.

Someone who is on inactive status in Pennsylvania can't try to get around the problems by getting a limited in-house corporate license in Pennsylvania. If an attorney already has a law license in Pennsylvania, but the license is on inactive status, then the attorney is not eligible for applying for the limited in-house corporate counsel license.

Therefore, what happens to those who are inactive, particularly inactive in Pennsylvania but now employed as in-house counsel in Pennsylvania, can result in a major disaster with a license suspension and reciprocal discipline elsewhere.

Suddenly now, the Disciplinary Board is accusing them of the unauthorized practice of law (and it's true, they are engaged in that) and potentially seeking a year and a day or more suspension or even a six-month suspension. At that point, the lawyer who has done a good job throughout their life now has serious problems. There is a good chance they are going to lose their in-house counsel job because they are not able to do it. There is a good chance they could be suspended in Pennsylvania. If they are suspended in Pennsylvania, then they can't seek administrative reinstatement. More importantly, if they have an active law license elsewhere, such as Delaware, New Jersey, New York, Georgia, etc.,that state is going to give them reciprocal discipline. So suddenly this hardworking promising career lawyer is now in a situation where he is going to be suspended in Pennsylvania, lose his job, and then be suspended in another state for the same time period. That can be a career-breaker. For a younger lawyer this creates serious family problems because the source of family income is substantially reduced. Good intentions are not a defense in this particular area.

Having said this, it is amazing that organizations for in-house corporate counsel, whether in Pennsylvania or nationwide, do not warn in-house corporate lawyers. This has happened far too often where in-house lawyers are suddenly faced with charges of the unauthorized practice of law when they had no intention of doing so, but were under the misconceptions as to either inactive status or what an in-house corporate counsel could do if they weren't in court.

Therefore, there are still many problems and it's still happening more than anyone wants to admit. It's time that the in-house corporate bar and in-house counsel pay attention to these requirements of the improperly licensed. It's further time for lawyers to stop using inactive status or administrative suspension because there is really no great benefit for doing so with many potential problems down the line.

Lawyers must be careful when dealing with outstanding doctors' bills.

A chiropractor has made a complaint with the Disciplinary Board stating I did not honor his bill and pay it out of the personal injury settlement. I did not sign any agreement to pay the doctor. The client told me not to. Do I have a disciplinary problem?

The answer is yes. For those who do personal injury law, dealing with chiropractor's bills has been a problem for many lawyers. There must be seminars taught to chiropractors that push going to the Disciplinary Board first to collect an unpaid lawyer bill. The chiropractic doctors use the Disciplinary Board as an expedient means of collection, which apparently saves them from going to collection agencies or hiring a lawyer to pursue the bad debt.

Lawyers have to be careful in dealing with outstanding medical bills and chiropractic bills when there is a settlement or judgment. Some lawyers sign protection agreements with the doctor or chiropractor to get the medical reports. That's all well and good if the client agrees, but the lawyer has to then honor the protection agreement and pay the doctor's bill out of the settlement or judgment. Some lawyers take the position if the client won't let the attorney pay the doctor, the client states they will pay the doctor. This a very foolish position to take since the lawyer is obligated by the protection agreement to pay the doctor and could be found in violation of Rule 1.15 by not paying the doctor out of the funds that are held in escrow at the time of the settlement or judgment.

There are some situations where the doctor and the lawyer have not signed any protection agreements. But, sometimes, particularly the chiropractic doctors, have the clients sign the lengthy assignment agreement which sets forth that the lawyers pay the bill. Some of these agreements are ridiculous and talk about the Uniform Commercial Code and everything else. Even though the lawyer did not sign the protection agreement, there is still a problem in paying the client directly and ignoring the doctor's request.

Most lawyers focus too much on the issue of I'm not responsible since I didn't sign the protection agreement. But, also under Rule 1.15, the rule requiring safeguarding a property includes keeping funds in an IOLTA account in the short run or an interest-bearing escrow account in the long run. There is a requirement to hold funds in escrow if the lawyer knows there is a dispute as to the funds. Rule of Professional Conduct 1.15(f) states as follows: “When in possession of funds or property in which two or more people, 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 should promptly distribute all portions of the fund or property, including Rule 1.15 funds, as to which the interests are not in dispute.”

That's an important rule because if someone else has a claim to the monies a lawyer is holding in escrow for the client, then the lawyer cannot distribute that portion of those monies. Even if a lawyer thinks the other person's claim is bogus or has little or no merit, that's not the job of the lawyer to make that decision. The lawyer has to hold the monies until the client and the third party resolve that dispute or go to court and have the court resolve it.

Therefore, when a lawyer is holding settlement funds in escrow and a doctor claims an interest in the funds to pay a medical bill, the lawyer must hold the funds in escrow until the dispute is resolved. The lawyer can't release the funds because now the funds are disputed and the amount has to be held in the escrow account. The monies are to be kept in the IOLTA account for a short period of time and if the funds are substantial and the dispute is going to be ongoing then the lawyer should put the disputed funds into an interest-bearing escrow account as required also by Rule 1.15 of the Rules of Professional Conduct.

Rule 1.15 doesn't preclude a lawyer from seeking to compromise bills with chiropractors, doctors, hospitals, etc. That's done all the time when the settlement is not as much and the bills are higher. But, whatever the amount that is agreed upon or if the amount is not agreed then the amount claimed, then the amount claimed cannot be distributed by the lawyer to the client unless there is an agreement by the creditor. The fact that the client says I'll pay the funds is not enough. If the lawyer wants to be foolish enough to distribute to the client, the lawyer then will have disciplinary problems for not holding the money in escrow and will probably end up having to pay the money to the third party creditor or doctor. The chance of the client paying the creditor or doctor once the client receives the money is not great as most personal injury lawyers know. There are times when clients have a sense of integrity, but most are so desperate for the funds that the client spends the money themselves and will not pay the doctor or chiropractor, therefore, leaving the lawyer in the middle, responsible for paying.

Any lawyer who practices personal injury law or any kind of law where the funds are collected in which third parties also have a claim should be well aware of Rule 1.15(f). Unfortunately, failure to comply with that rule can result in serious professional discipline.

Chester County lawyer Samuel C. Stretton has practiced in the area of legal and judicial ethics for more than 35 years. He welcomes questions and comments from readers. If you have a question, call Stretton directly at 610-696-4243 or write to him at 301 S. High St. P.O. Box 3231, West Chester, Pennsylvania, 19381.