Attorneys need to be careful when monies are deposited in escrow and be aware when the funds will clear.

I received a check that I was to place into my IOLTA account, which I did. The deposit slip indicated the funds would be available the next day. I then made a distribution and the check was returned because, apparently, the funds did not clear the next day, but the day after. Did I do anything wrong? 

Samuel C. Stretton.

Any lawyer has to be careful when monies are deposited in escrow and be aware when the funds are actually going to clear. This is particularly true if one is putting monies into their IOLTA/escrow account and then writing checks out almost immediately. If a lawyer bounces a check on the IOLTA account, the Client Security Fund is immediately notified. That fund will then ask the lawyer for an explanation. If the bounce was not because of any bank error, but because of something the lawyer did, then it is usually referred over to the Office of Disciplinary Counsel.

The Office of Disciplinary Counsel's investigation will require a production of bank statements over a number of months and then the review of the bank records and usually a request for more records. If the records aren't properly maintained, the lawyer can face professional discipline.

When a lawyer places or deposits a check into the IOLTA/escrow account, the lawyer has to be very careful not to write a check too quickly or else the check might not clear.

Many bank deposit slips state when the monies are available. The normal bank deposit slip says "X number of dollars are available now and the balance will be available the next day." That can be misleading. Traditionally, there is a three-day window at least for in-state checks before they clear  It was five days for an out-of-state check, although that practice may have changed because of the modern world of technology.

If a lawyer deposits a check in his IOLTA account and writes the client a check the next day relying on the bank deposit slip saying the funds are available and then the check doesn't clear, the lawyer could have a significant problem. If the lawyer has written a check off his IOLTA account when the funds weren't in there, then other clients' monies have been misused.

In talking with persons from the Office of Disciplinary Counsel, they believe a lawyer should wait at least three days, which according to them is a bank rule for checks to clear. Assuming that bank rule is still in effect, it's hard to reconcile that with the bank deposit slip the lawyer receives stating the funds are available the next day or the same day. But the point of this article is not about when money clears, but the problems a lawyer can have if the Office of Disciplinary Counsel takes the position that writing checks the next day off of an escrow account could create problems if the monies do not, in fact, clear, despite what the bank deposit slip says. There was at least one attorney who is being prosecuted for a similar type of situation.

There are many good lawyers who run into trouble in terms of how they manage their office or their bank accounts. Being a good lawyer doesn't immunize an attorney from discipline if his bank records aren't properly maintained or if they are not current on files, etc. It behooves all lawyers to review Rule 1.15 of the Rules of Professional Conduct and Rule 221 of the Pennsylvania Rules of Disciplinary Enforcement that set forth the recordkeeping requirements. Also, these rules clearly talk about responsibilities for the IOLTA account. These records have to be maintained and more and more the Office of Disciplinary Counsel is prosecuting lawyers from not having individual ledger sheets, not reconciling accounts each month. Though most lawyers really don't have the time or resources to do these things as they would like, the Office of Disciplinary Counsel and the Pennsylvania Supreme Court are requiring the maintaining of these records and the monthly reconciliation.

Every lawyer should be aware that when they deposit monies into an account, particularly one's IOLTA account, it might be wiser to wait the three days before writing checks thereafter. Unfortunately, not waiting and checks bouncing, particularly if it occurs on several occasions, could significantly impact on the lawyer's license and may result in professional discipline.

Representing multiple clients can create conflicts.

I am representing a number of clients—over 30—in a civil lawsuit against a defendant that has excellent insurance coverage. The defendant is willing to now engage in serious settlement negotiations. What are my obligations to each client or do I have a conflict?

It's usually never a good idea to represent multiple clients either in a criminal case or a civil case. This becomes particularly evident in a criminal case if one party wants to cooperate. Then then everyone else has to get a new lawyer because that client's lawyer has learned too much. Also, in a civil case, if there is a settlement and there are limited funds then, obviously, a conflict is created.

The appropriate rule is Rule 1.8(g) of the Rules of Professional Conduct. That rule reads as follows: "A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the clients … unless each client gives informed consent. The lawyer's disclosure shall include the existence and nature of all the claims or pleas involved and the participation of each person in the settlement."

Rule 1.8 is the specialized conflict of interest rule. Obviously representing multiple clients can create conflicts. Many times, the better practice is not to represent multiple clients because it can create problems down the line with disqualifications due to conflicts of interest or attorney-client privilege issues. On the civil side this could create a very definite conflict if there is a limited pot of monies to settle from, but there are multiple claims and the same lawyer is representing all multiple claims.

For a lawyer to settle these multiple claims, there has to be full and complete disclosure. It should be done in writing. Comment 13 to the rule is more specific. Comment 13 notes as follows: "Differences in willingness to make or accept an offer of settlement are among the risks of common representations of multiple clients by a single lawyer. Under Rule 1.7, this is one of the risks that should be discussed before undertaking the representation as part of the process of obtaining the clients' informed consent."

This Comment 13 also discusses Rule 1.2 setting forth the scope of representation in the fee agreements with multiple clients. Comment 13 notes for any settlement, "the lawyer must inform each of them about all the material terms of the settlement, including what the other clients will receive or pay if the settlement or plea offer is accepted." The comment talks about class actions and how the notifications might be somewhat different. The comment does talk about informed consent. The informed consent is defined under the definition rules under Rule 1.0. Under 1.0(e), the following is noted: "Informed consent denotes the consent by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risk of reasonably available alternatives to the proposed course of action."

Although the rule is not specific, it would be wise,when doing this informed consent, to do it all in writing and to get any waivers back in writing. When one looks at the Model Rules of the American Bar Association, the model rules require the informed consent to be in writing. The model rules require informed consent to be signed by each client. Pennsylvania rules don't, but a wise lawyer might follow the standard of the model rules.

Obviously, if there is unlimited insurance coverage then the conflict wouldn't be as severe. But when there is a limitation then the various policies are going to all push against the limited insurance company, the conflict becomes glaring and can create many problems.

But the most important thing to remember is that when one is representing many multiple clients, there has to be full informed consent to any settlements and that includes telling each client what the other clients are getting or what the offer is going to be.

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.