State Bar of California Proceeds with Recommendations from the Committee on Special Discipline Case Audit for the Development of a California Trust Account Program

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By Ian Ross

On November 19, 2021, the State Bar of California’s Committee on Special Discipline Case Audit (Committee) submitted its Report to the Board of Trustees, recommending that the Board establish a Client Trust Account Protection Program (CTAPP) to increase the State Bar’s ability to effectively and proactively regulate attorney-client trust accounts (CTAs) and thereby enhance public protection. The Board established the Committee at a special meeting on July 1, 2021, to analyze the audit report on closed discipline cases against Thomas Girardi and to develop a proposed corrective action plan that would be approved by either the Regulation and Discipline Committee (RAD) or the Board of Trustees.

The Report details the Committee’s research of other jurisdictions’ programs designed to regulate and protect client funds and makes a series of recommendations for the State Bar of California. Of note, the Committee recommends that each licensed attorney, as part of the annual license renewal process, would be required to report to the Bar whether they are responsible for any CTAs and if so, they must list each account they are responsible for, by account number and financial institution. This information would not be considered public, but would allow the Bar to ascertain which attorneys maintain trust accounts and would therefore be subject to additional regulatory measures.

The Committee also recommends that each licensed attorney who is responsible for CTAs would be required to annually certify in writing that they are knowledgeable about and compliant with the provisions of the Rules of Professional Conduct rule 1.15, “Safekeeping Funds and Property of Clients and Other Persons.” In addition, each attorney responsible for CTAs would be required to annually complete a self-assessment, reporting on key indicators of client trust account management for attorneys. The assessment results would assist the bar in identifying accounts that appear to be at risk for mismanagement.

In addition to recommending specific additions and amendments to the Rules of Professional Conduct to implement the program, the report details a series of other recommendations including compliance reviews of selected attorneys by independent Certified Public Accountants, risk review and follow up, required continuing legal education courses on CTA management for attorneys who manage CTAs, and public education and outreach.

The Report also addresses the potential cost of the proposed program, finding that its implementation would cost an estimated $3.35 million annually and an additional one-time investment of $500,000. The Committee recognized that the State Bar does not currently maintain sufficient funds to implement the CTAPP and recommended an increase in licensing fees to support the program. It also recommended a phased implementation of the program so that certain recommendations might be implemented in the near term.

At its November meeting, the Board of Trustees reviewed the Committee’s recommendations and approved resolutions 1) directing staff to finalize the CTAPP’s design per the Committee’s recommendations and effectuate rule proposals for the Board’s January or March meeting, 2) referring the Committee’s proposed changes to rules 1.15 and 1.4 of the Rules of Professional Conduct to the Committee on Professional Responsibility and Conduct (COPRAC), 3) directing staff to study the potential role of bonds and insurance on CTA protection, and 4) extending the deadline for public comment on all recommendations stemming from the Committee’s work to June 30, 2022.

At its February 18, 2022 meeting, COPRAC considered the recommendations and developed language for proposed rule revisions pursuant to the Board’s request. According to the presentation of this item at the COPRAC meeting, the Board is expected to consider the recommended rule revisions at its March 24, 2022 meeting.

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