The Risk Manager, Spring 2006

A North Dakota lawyer received a reprimand and was required to refund $2,750 to a client because he had no records to prove he had earned all of a retainer (In Re Ward, N.D., No. 20050092, 7/25/05). The lawyer received a $6,000 advance on future fees from a client that he deposited in his client trust account. Subsequently, the lawyer was charged by bar counsel with failing to maintain billing records proving that he earned all of the advance fees. This charge was based on the North Dakota rule of professional conduct that requires lawyers to keep records for at least six years after the termination of a representation to show that client funds were properly expended. Kentucky has a similar rule requiring maintenance of billing records for five years (SCR 3.130(1.15 Safekeeping Property)).

The lawyer defended by asserting that he suspected that an agent of the client who had access to the client file had stripped it of records showing he had earned the advance fee and that a computer virus destroyed his backup records. The North Dakota Supreme Court found that: “There is no evidence to support [the lawyer’s] contention that the billing records were removed from his client file by … Mickelson. Although it is unfortunate that a computer virus destroyed [his] backup billing record files, it does not relieve him of his duty to maintain records.” The Court concluded that the lawyer’s failure to maintain duplicate billing records enabling him to prove that he earned advance fees was misconduct and, in addition to refunding the $2,750 in question, required him to pay disciplinary counsel costs of over $3,000.

There is no surer way of being disciplined by the Bar than mishandling client funds. In the publication Client Trust Account Principles & Management for Kentucky Lawyers we advised that:

There is no prohibition against using computers to compile client trust account records. Numerous affordable computer software programs are available that offer all the functions needed to properly administer client trust accounts. Given the efficiency and accuracy of these programs they are an improvement over a manual system. Care must be taken, however, to backup the system and produce paper records for the file. In time electronic records alone may be acceptable for compliance with professional responsibility requirements, but until then the chart of accounts, statements, and reconciliation reports should be routinely printed out and filed. It is essential to backup financial data and maintain an off-site storage facility for it that is refreshed at least weekly.

We will be glad to send you a copy of Client Trust Account Principles & Management for Kentucky Lawyers – just give us a call or send an e-mail requesting a copy.