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Brass Tacks Post: Known Unknowns

Illinois lawyers should be aware that the Supreme Court recently amended Rule 1.15 to address the problem of what to do with unidentifiable funds residing in an IOLTA. There has long been an answer to the question of what to do with unclaimed funds: follow the procedures outlined in the Uniform Disposition of Unclaimed Property Act, 765 ILCS 1025/1. But until now, unidentifiable funds – whose owner is not known or able to be determined – represented a knottier problem.

Now, under new Rule 1.15(i), a lawyer must remit unidentifiable funds to the Lawyers Trust Fund, the agency that administers the IOLTA program and uses funds for the benefit of Illinois legal services programs. A remittance under Rule 1.15(i) may come as a lawyer winds down a practice, or as she closes out one IOLTA while opening another. These are times when lawyers could conceivably notice the presence of unidentified funds in an IOLTA, having not specifically accounted for them before. The press release announcing the amendment of the rule explains that unidentified funds may exist because of “mathematical errors, faulty recordkeeping…mistaken deposits by banks of IOLTA interest…[or] past legal fees that lawyers did not collect and now lack sufficient records to claim.” Implicit in that quote is the idea that there can be innocuous reasons why a lawyer might not have been aware of the funds prior to a final reconciliation, or why the funds’ owner cannot be determined. That seems logical.

But how could the situation unfold in a disciplinary context?

Assume that a lawyer is winding down a solo law practice and planning to retire. She has $2,500 that she could not account for in her IOLTA, and she remits those funds to the Lawyers Trust Fund as Rule 1.15(i) directs. In the process of winding down the firm and closing out the IOLTA, the lawyer’s bank erroneously charges a service fee to the lawyer’s IOLTA, resulting in an overdraft which is then reported to the ARDC. An investigation is initiated, and the lawyer must respond to an inquiry regarding the circumstances of the overdraft. She does so, explaining the bank error and providing the records the ARDC requested, including records relating to the $2,500 remittance to the Lawyers Trust Fund.

Will the ARDC inquire further about why the lawyer couldn’t identify the owner of the funds? Will it require her to produce other records that might lead to further information about the owner? How far back will that inquiry go? Could the inquiry ever lead to a charge that the lawyer handled the funds improperly, or that she kept insufficient records under Rule 1.15(a)?

It’s likely that at a minimum, the ARDC will inquire further and require a detailed explanation of the lawyer’s inability to determine the owner of the funds. Beyond that, it’s hard to predict exactly what would happen or how the lawyer’s conduct would be viewed. But in any event, the hypothetical situation above shows that the disposition of unidentifiable property may not always be easy or uncomplicated.

Not every lawyer should expect to deal with these matters, and I do not intend to state or imply that disposing of unidentifiable funds in the way contemplated by new Rule 1.15(i) is some kind of discipline trap. But in this – as in every instance in which they handle funds –  lawyers should be very careful, keep the best records they can, and seek help when necessary.

photo credit: MicroAssist (CC)

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