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Ethics Advisory Opinion 06-05

April 13, 2006

South Carolina Bar Ethics Advisory Opinion 06-05

RULES 1.1, 1.15(f), 5.2, 5.3 and 5.4(c)

Date: March 17, 2006

Facts

Law Firm is exclusively in South Carolina with a main office, where the sole owner of the firm works, and a satellite office 20 miles away, which has an associate attorney.  Law Firm (both offices) practices almost exclusively in real estate transactions.  Each office has its own IOLTA account, with the associate attorney having signature authority on the trust account for the satellite office.  The owner attorney rarely goes to the satellite office to do closings, or much of anything, as he trusts the associate attorney to handle the satellite office and is busy enough in his own office.  Law Firm employs Bookkeeper 1 who works primarily in main office but goes to the satellite office to reconcile the IOLTA account.  Law Firm will be hiring Bookkeeper 2, who will work primarily in the satellite office with duties to include cutting checks for real estate closings and reconciling the satellite office’s operations and IOLTA accounts. When Bookkeeper 2 is hired, access to the operations and trust accounts on the computer will be limited to the owner attorney and Bookkeepers 1 and 2, which will make Bookkeeper 2 the sole person primarily in the satellite office with access to review the accounts, including the trust account.  

Question

Is this situation permissible under the Rules of Professional Conduct, namely the safekeeping of property, Rule 1.15 (the money in the IOLTA account) combined with Rule 5.3 (supervision of non-lawyers)?  Or is this setup impermissible given that the lawyer is the only one in the office who can sign the trust account checks, even though he would not be made aware of any problems in the trust account.  Or this is a close call, close enough that the associate attorney can rely on Rule 5.2?

Summary

It is possible that the situation is ethically permissible. A subordinate lawyer must preserve independent professional judgment. See Rule 5.4(c). He must do so even at the peril of losing his employment with the firm.  He cannot permit a supervisor to instruct him to act not in accordance with the law or his professional responsibilities, but he may rely on the supervisor’s resolution of an ethical obligation.  See Rule 5.2.  Rule 1.15(f) requires, in part, a lawyer not to disburse funds from an account containing the funds of more than one client or third person unless the funds to be disbursed have been deposited in the account and are collected funds.  Rules 5.3(a) and (b) require that someone in the firm actively supervise Bookkeeper 2 regarding the ethical propriety of his or her conduct, and Rule 5.3(c) holds supervisory lawyers responsible, in some circumstances, for any conduct by Bookkeeper 2 that would violate the Rules of Professional Conduct if engaged in by a lawyer.
“Although a lawyer is not relieved of responsibility for a violation by the fact that the lawyer acted at the direction of a supervisor, that fact may be relevant in determining whether a lawyer had the knowledge required to render conduct a violation of the Rules.” Rule 5.2(a). A lawyer’s duty under Rule 1.15(f) to ensure that funds in an IOLTA account be deposited and collected prior to disbursement is not arguable under Rule 5.2(b), nor is his duty to enact measures governing non-lawyers’ conduct and his duty to appropriately supervise their conduct under Rule 5.3.  “Supervision” might reasonably be interpreted to require direct lawyer access to the books and to the IOLTA account and certainly requires actual authority over the bookkeeper. See Rule 5.3, Cmt. [1].

Discussion

Rule of Professional Conduct 5.2, entitled Responsibilities of a Subordinate Lawyer states that a subordinate lawyer does not violate the Rules of Professional Conduct if that lawyer acts in accordance with a supervisory lawyer's reasonable resolution of an arguable question of professional duty. The Comment to this rule states “When lawyers in a supervisor-subordinate relationship encounter a matter involving professional judgment as to ethical duty, the supervisor may assume responsibility for making the judgment. Otherwise, a consistent course of action or position could not be taken.” The Comment goes on to state that if a question is reasonably arguable, the authority to determine the course of action ordinarily rests with the supervisor, and the subordinate may be guided accordingly.

A subordinate lawyer is bound by the Rules of Professional Conduct even if he acts at the direction of another lawyer. See Rule 5.2. Section (b) creates a safe-harbor if the associate acts in accordance with a partner’s reasonable resolution of an arguable question of professional duty. It does not permit the associate to act in a manner which would clearly violate the Rules and case law.

Further, the subordinate lawyer must preserve independent professional judgment. See Rule 5.4(c). He must do so even at the peril of losing his employment with the firm. He cannot permit a partner to instruct him to act not in accordance with the law or his professional responsibilities.

One of those professional responsibilities is to supervise non-lawyers.  Rule 5.3(a) requires that someone in the firm enact reasonable measures to assure that conduct of non-lawyers generally “is compatible with the professional obligations of the lawyer.”  Rule 5.3(b) requires the lawyer with supervisory authority over a non-lawyer to ensure that that individual’s conduct is also compatible with the lawyer’s professional obligations.  See Rule 5.3, Cmt. [2].  This requires actual supervision by a lawyer.  A lawyer must give assistants, such as Bookkeeper 2, “appropriate instruction and supervision concerning the ethical aspects of their employment … and should be responsible for their work product.” Rule 5.3, Cmt. [1].  This supervision may come from either the owner-attorney or the subordinate associate but, if the owner-attorney does not have the time or inclination to reasonably supervise Bookkeeper 2 as the facts presented suggest, then only the associate can realistically fulfill this duty.  Without access to the books and authority over the bookkeeper, no lawyer can reasonably fulfill this duty of supervision.

Furthermore, whichever lawyer assumes the supervisory authority over Bookkeeper 2 becomes responsible for Bookkeeper 2’s conduct under Rule 5.3(c) if that conduct fails to comport with any of the Rules of Professional Conduct.  Since Rule 1.15(f) requires, in part, a lawyer not to disburse funds from a trust account unless the funds to be disbursed have been deposited in the account and are collected funds, the subordinate lawyer, as the disbursing party, should, ideally, have access to the IOLTA account to ensure compliance with Rule 1.15.  Furthermore, when he disburses from the trust account at real estate closings on behalf of borrowers, lenders, sellers and other parties, he may fall short of his obligation under Rule 1.1 to provide competent representation to clients if Bookkeeper 2’s conduct in fact does not comport with the lawyer’s professional obligations, regardless of which lawyer supervises Bookkeeper 2. 

The associate may rely on the owner-attorney for supervision of Bookkeeper 2 as long as he believes that the supervision actually satisfies Rule 5.3.  If the associate questions whether the owner-attorney’s supervision fulfills this rule, and the question is arguable, the associate may rely on the owner-attorney’s reasonable resolution of that question according to Rule 5.2(b).  If the associate is supervising Bookkeeper 2, he takes on Rule 5.3(b) and (c) responsibilities.  If not, and the associate believes that the owner-attorney is not actually supervising Bookkeeper 2 in accordance with Rule 5.3, then the associate’s reliance on the unsupervised bookkeeper to keep him in compliance with his ethical obligations is improper.print