OTLA Trial Lawyer Winter 2021

51 Trial Lawyer • Winter 2021 By Hong Dao A utumn Lee recently left her law firm, in which she had been a partner, to start her solo practice. With the help of an IT expert, she quickly set up the technological infrastructure to automate many of her office systems and to help her be more cloud-based and paperless. Her knack for client development and the few firm clients that followed her ensured she had adequate business. For almost a year, everything was going well until she received a phone call from her bank, saying that she had overdrafted her lawyer trust account by $3,500. She quickly deposited her own funds to cover the difference and thought that was the end of the story. Unfortunately, the bank’s phone call was just the beginning of her troubles. Many lawyers can go through their entire legal career without knowing Hong Dao much about the mechanics behind their lawyer trust account. This is especially true for lawyers in firms where a book- keeper or another non-lawyer staff person handles their trust accounting. Law school ethics classes don’t usually teach this topic. Professors might provide a reference to Oregon Rules of Profes- sional Conduct 1.15-1 and 1.15-2, or a reminder to put clients’ money in a special trust account and a caution against stealing from them, but nothing more comprehensive is provided to law students. Every year, new lawyers start their legal careers without understanding their obligation to handle clients’ funds and how to account for them. So it’s not surprising when we get our monthly issue of the OSB Bulletin and see lawyers being disciplined for trust account viola- tions. Even a lawyer with 17 years of experi- ence like Autumn Lee can still make trust accounting mistakes that lead to actions from the Oregon State Bar disciplinary counsel’s office. These mistakes can be easily avoided with some basic under- standing of trust accounting. Not waiting for funds to clear The mistake that led Lee to overdraft her trust account was that she did not wait for funds to clear before disbursing them. Lee received a settlement check on behalf of Client Alpha for $10,000. The next day, she wrote a check to Alpha for her portion of the settlement fund ($7,000) and a check to herself for at- torney fees ($3,000). Both she and the client then cashed the checks at their respective banks. It turned out the settle- ment check did not clear the issuing bank because the insurance company made an error in issuing the check. At the time the disbursements were made, the trust account had a balance of $6,500. The two cashed checks totalling $10,000 overdrafted the account by $3,500. Lee deposited $3,500 of her own money to correct the overdraft imbal- ance. The Bar charged her with violating ORPC 1.15-1(b) for depositing her own funds into the trust account for reasons other than to pay for bank service fees or meeting the minimum balance require- ment. Tip: Stay clear from this minefield by waiting for funds to clear before disburs- ing funds and cashing checks. While recent changes in the banking rules may have sped up the clearing process, many exceptions can still cause a hold to be put on the funds and prevent them from clearing. Use the 3-5-10-day guideline to help you. Wait three banking days for local checks to clear, five banking days for in- state checks to clear and 10 banking days for out-of-state checks to clear. You can also call your bank and ask it to call the issuing bank to verify that the Trust Accounting Tips for Newbies How to Avoid the OSB Disciplinary Counsel See Trust Accounting p 52