COURT Of APPEALS DIGEST
UP E E E E UR URT ERS
S U P RR MM C OC OT O R D O R D E R S
Supreme Court Order 06-04:
Court Amends Lawyers’
Trust Account Rules
T h e W i s c o n s i n S u p r e m e C o u r t , f o l l o w i n g s t u d y o f t h e p e t i t i o n s a d v a n c e d a n d a d d i t i o n a l r e v i e w, h a s
a d o p t e d a p e t i t i o n b y t h e Tr u s t A c c o u n t R u l e Wo r k i n g G r o u p t o a m e n d t h e l a w y e r s ’ t r u s t a c c o u n t r u l e s ,
effective July 1, 2007.
of advanced fees, flat fees and retainers, lawyers’ fund for client protection:
Trust Account Rule
obtained input from the administrator of creation and purpose; definitions.
In the matter of Creating SCR the Wisconsin Lawyers’ Fund for Client Section 2. 12.04 (1) of the Supreme
20:1.15 Safekeeping Property; and Protection, and sought further input and Court Rules is renumbered SCR 12.04.
Amending SCR 20:1.0 Definitions; comments from members of the State Section 3. 12.04 (2) of the Supreme
Bar of Wisconsin. On April 5, 2007, the Court Rules is renumbered SCR 12.045, and
SCR 21.16 Discipline; and SCR
Working Group submitted a report of its SCR 12.045 (5) and (7), as renumbered, are
12.04 Wisconsin Lawyers’ Fund for post-hearing work, including modifications amended to read:
Client Protection (2007 WI 48) to the proposed amendments. In addition, 12.045 (5) “Dishonest Conduct” means
a number of individual attorneys and law any of the following:
Order 06-04 firms filed letters with the court generally (a) a A willful act committed by an
On May 22, 2006, the Office of Lawyer expressing support for the petition. Some attorney that causes a reimbursable loss
Regulation and the State Bar of Wisconsin criminal law practitioners wrote expressing to a client in the manner of defalcation or
filed a joint petition proposing certain concern about the treatment of flat fees embezzlement of money.or
modifications to SCR 20:1.15, the “trust under the proposed amendments. (b) the The intentional taking or
account” rule, together with related On April 12, 2007, the court conducted conversion of money, property or other
amendments to SCR 20:1.0 (Definitions), an open administrative conference at things of value. which causes a reimbursable
SCR 21.16 (Discipline), and SCR 12.04 which members of the Working Group loss to a client.
(Wisconsin Lawyers’ Fund for Client responded to questions from the court (c) The failure to refund an unearned
Protection). A public hearing on the petition regarding the petition. The court voted advanced fee.
was conducted on Jan. 17, 2007. At the 6:1 to adopt the petition, as amended 12.045 (7) (a) “Reimbursable Loss” is
ensuing open administrative conference by the modifications recommended in means a loss of money or other property of
the court expressed concern about aspects the post-hearing report. Justice Bradley a client which that meets all of the following
of the proposal, notably the complexity of dissented from that portion of the petition conditions:
the proposal and the absence of nonlawyers permitting alternative protection for (i) 1. The loss was caused by the
on the Trust Account Rule Working Group advanced fees, SCR 20:1.15(b)(4m). The dishonest conduct of an attorney while
responsible for the proposal. The court court indicated it would like the language performing services under his or her license
directed the petitioners to convene a review of the rule to clarify that submission of a to practice law in Wisconsin;.
committee consisting of nonlawyers and fee dispute to binding arbitration requires (ii) 2. The attorney was acting either as
certain other interested parties to review the client’s consent, and recommended attorney in the matter out of which the loss
the proposal in light of the court’s concerns. that fee agreements reflecting these new arose or in a fiduciary capacity customary to
The court stated it would reconsider the rules clarify that an attorney should obtain the practice of law;.
petition following this review at an open a client’s consent to the election of the (iii) 3. The attorney has:
administrative conference on April 12, 2007. alternative set forth in 20:1.15(b)(4m), 1. a. died, Died;
In response to the court’s concerns, the as described herein. Finally, the court 2. b. been Been adjudicated a bankrupt,;
Trust Account Rule Working Group added ruled that the effective date of these 3. c. been Been adjudicated an
five public members to the Working Group amendments shall be July 1, 2007. incompetent,;
and conducted two additional meetings Therefore, 4. d. been Been disbarred or suspended
to elicit comments and concerns from the IT IS ORDERED that: from the practice of law,; or has
public members. The Working Group also Section 1. 12.04 (title) of the e. consented Consented to the
researched trust account rules throughout Supreme Court Rules is amended to read: revocation of his or her license to practice
the country with respect to the handling SCR 12.04 (title) Wisconsin law,;
PA G E 2 8 – W I S C O N S I N L AW Y E R – J U N E 2 0 0 7
SUPREME COURT ORDERS
f. Failed to refund an unearned upon services, or for a fixed, agreed-upon lawyer should identify whether any portion,
advanced fee; stage in a representation, regardless of the and if so what portion, of the fee is a true
5. g. become Become a judgment time required of the lawyer to perform the retainer. A true nonrefundable retainer
debtor of the person claiming the loss,; service or reach the agreed-upon stage in is a fee that a lawyer charges the client
6. h. been Been adjudicated guilty of a the representation. A flat fee, sometimes not necessarily for specific services to be
crime, which adjudication shall have been referred to as “unit billing,” is not an performed but, for example, to ensure the
based upon the dishonest conduct of the advance against the lawyer’s hourly rate lawyer’s availability whenever the client may
attorney,; or and may not be billed against at an hourly need legal services. These fees become the
7. i. left Left the jurisdiction or cannot rate. Flat fees become the property of property of the lawyer when received and
be found. the lawyer upon receipt and are subject may not be deposited into the lawyer’s trust
(iv) 4. The act which that occasioned the to the requirements of SCR 20:1.5, SCR account. In addition, they are presumed
loss occurred on or after March 1, 1981. 20:1.15(b)(4) or (4m), SCR 20:1.15(e)(4)h., to be nonrefundable, provided that they
The following are not reimburseable SCR 20:1.15(g), and SCR 20:1.16(d). meet the “reasonable” standard of SCR
losses: 20:1.0 (mm) “Retainer” denotes an 20:1.5. subject to SCR 20:1.15 and SCR
(b) “Reimbursable Loss” does not amount paid specifically and solely to secure 20:1.16. Such retainers Retainers are to be
include any of the following: the availability of a lawyer to perform distinguished from an “advance” “advanced
(i) 1. Losses of a spouse, child, parent, services on behalf of a client, whether fee” which generally is considered to be is
grandparent, sibling, partner, associate, or designated a “retainer,” “general retainer,” paid for future services and earned only as
employee of the attorney(s) attorney or “engagement retainer,” “reservation services are performed, and which should
attorneys causing the losses. fee,” “availability fee,” or any other be deposited into the lawyer’s trust account.
(ii) 2. Losses covered by any bond, characterization. This amount does not See Advanced fees are subject to SCR
surety agreement or insurance contract to constitute payment for any specific legal 20:1.5, SCR 20:1.15, and SCR 20:1.16.
the extent covered thereby, including any services, whether past, present, or future These funds do not belong to the lawyer
loss to which any bondsman or surety or and may not be billed against for fees or and should be returned if not earned. SCR
insurer is subrogated to the extent of that costs at any point. A retainer becomes the 20:1.16(d) expressly provides that any
subrogated interest. property of the lawyer upon receipt, but is “advance payment of fee that has not been
(iii) 3. Losses of any financial institution subject to the requirements of SCR 20:1.5 earned” should be returned to the client
that could be recoverable under a “banker’s and SCR 20:1.16(d). upon termination of the representation.
blanket bond” or similar insurance or surety Section 7. The following Comment to See also State Bar of Wis. Comm. on Prof’l
contract, whether or not the institution had SCR 20:1.0 (dm) is not adopted, but will Ethics, Formal Op. E-93-4 (1993).
such bond or contract in force. be published and may be consulted for Section 9. SCR 20:1.9 (b) (2), as
(iv) 4. Losses which that are recoverable guidance in interpreting and applying the affected by Supreme Court Order Number
from some other source. Wisconsin Rules of Professional Conduct: 04-07, is amended to read:
(v) 5. Losses barred under any 20:1.9(b)(2) about whom the lawyer
applicable statute of limitations. Wisconsin Comment: The definition of had acquired information protected by sub.
Section 4. SCR 12.045 (title) is created flat fee specifies that flat fees “become (c) and SCR 20:1.6 and SCR 20:1.9 (c) that
to read: the property of the lawyer upon receipt.” is material to the matter; unless the former
12.045 (title) Definitions. Notwithstanding, the lawyer must either client gives informed consent, confirmed in
Section 5. Supreme Court Rule 20:1.0 deposit the advanced flat fee in trust until a writing signed by the client.
(a), as affected by Supreme Court Order earned, or comply with the alternative in Section 10. SCR 20:1.15, as affected
Number 04-07, is renumbered 20:1.0(ar). SCR 20:1.15(b)(4m), alternative protection by Supreme Court Order Number 04-07, is
Section 6. Supreme Court Rule 20:1.0 for advanced fees. In addition, as specified repealed and recreated to read:
(ag), (dm) and (mm) are created to read: in the definition, flat fees are subject to the SCR 20:1.15 Safekeeping property;
20:1.0 (ag) “Advanced fee” denotes an requirements of all rules to which advanced trust accounts and fiduciary accounts.
amount paid to a lawyer in contemplation fees are subject. (a) Definitions.
of future services, which will be earned Section 8. The Wisconsin Committee In this section:
at an agreed-upon basis, whether hourly, Comment to SCR 20:1.5, pertaining to (1) “Demand account” means an
flat, or another basis. Any amount paid to a advances and retainers, as affected by account upon which funds are disbursed
lawyer in contemplation of future services Supreme Court Order Number 04-07, is through a properly payable instrument.
whether on an hourly, flat or other basis, is amended to read: (2) “Fiduciary” means an agent,
an advanced fee regardless of whether that In addition, paragraph (b) differs attorney-in-fact, conservator, guardian,
fee is characterized as an “advanced fee,” from the Model Rule in requiring that personal representative, special
“minimum fee,” “nonrefundable fee,” or the purpose and effect of any retainer administrator, trustee, or other position
any other characterization. Advanced fees or advance fee paid to the lawyer shall requiring the lawyer to safeguard the
are subject to the requirements of SCR be communicated in writing and that a property of a 3rd party.
20:1.5, SCR 20:1.15(b)(4) or (4m), SCR lawyer shall promptly respond to a client’s (3) “Fiduciary account” means an
20:1.15(e)(4)h., SCR 20:1.15(g), and SCR request for information concerning fees account in which the lawyer deposits
20:1.16(d). and expenses. The lawyer should inform fiduciary property.
20:1.0 (dm) “Flat fee” denotes a fixed the client of the purpose and effect of any (4) “Fiduciary property” means funds
amount paid to a lawyer for specific, agreed- retainer or advance fee. Specifically, the or property of a client or 3rd party that is in
J U N E 2 0 0 7 – W I S C O N S I N L AW Y E R – PA G E 2 9
SUPREME COURT ORDERS
the lawyer’s possession in a fiduciary capacity acronym, such as “IOLTA,” “IOTA,” or client must provide written notice of the
that directly arises in the course of, or as a “LTAB,” without further elaboration, does dispute to the lawyer within 30 days of the
result of, a lawyer-client relationship or an not clearly designate the account as a client mailing of the accounting; and
appointment by a court. Fiduciary property account or trust account. 3. notice that, if the lawyer is unable to
includes, but is not limited to, property (3) Lawyer funds. No funds belonging resolve the dispute to the satisfaction of the
held as agent, attorney-in-fact, conservator, to the lawyer or law firm, except funds client within 30 days after receiving notice of
guardian, personal representative, special reasonably sufficient to pay monthly the dispute from the client, the lawyer shall
administrator, or trustee, subject to the account service charges, may be deposited submit the dispute to binding arbitration.
exceptions identified in sub. (k). or retained in a trust account. c. Upon timely receipt of written notice
(5) “Financial institution” means a bank, (4) Unearned fees and cost of a dispute from the client, the lawyer shall
savings bank, trust company, credit union, advances. Except as provided in par. (4m), attempt to resolve that dispute with the
savings and loan association, or investment unearned fees and advanced payments of client, and if the dispute is not resolved,
institution, including a brokerage house. fees shall be held in trust until earned by the lawyer shall submit the dispute to
(6) “Immediate family member” the lawyer, and withdrawn pursuant to sub. binding arbitration with the State Bar Fee
means the lawyer’s spouse, child, stepchild, (g). Funds advanced by a client or 3rd party Arbitration Program or a similar local bar
grandchild, sibling, parent, grandparent, for payment of costs shall be held in trust association program within 30 days of the
aunt, uncle, niece, or nephew. until the costs are incurred. lawyer’s receipt of the written notice of
(7) “Interest of Lawyer Trust Account (4m) Alternative protection for dispute from the client.
(“IOLTA”)” means a pooled, interest-bearing, advanced fees. A lawyer who accepts d. Upon receipt of an arbitration award
demand account, separate from the lawyer’s advanced payments of fees may deposit requiring the lawyer to make a payment
business and personal accounts, via which the funds in the lawyer’s business account, to the client, the lawyer shall pay the
the lawyer deposits, holds, and disburses provided that a court of competent arbitration award within 30 days, unless
funds received in trust on behalf of a client jurisdiction must ultimately approve the the client fails to agree to be bound by the
or 3rd party, the interest on which does not lawyer’s fee, or that the lawyer complies award of the arbitrator.
go to the client. Typical funds that would be with each of the following requirements: (6) Trust property other than
placed in an IOLTA account include earnest a. Upon accepting any advanced funds. Unless the client otherwise directs
monies, loan proceeds, settlement proceeds, payment of fees pursuant to this subsection, in writing, a lawyer shall keep securities
collection proceeds, cost advances, and the lawyer shall deliver to the client a notice in bearer form in a safe deposit box at
advance payments for fees that have not yet in writing containing all of the following a financial institution authorized to do
been earned. These accounts are subject to information: business in Wisconsin. The safe deposit
the provisions of SCR Chapter 13, Interest 1. the amount of the advanced box shall be clearly designated as a “Client
on Trust Accounts Program. payment; Account” or “Trust Account.” The lawyer
(8) “Properly payable instrument” means 2. the basis or rate of the lawyer’s fee; shall clearly identify and appropriately
an instrument that, if presented in the normal 3. any expenses for which the client will safeguard other property of a client or 3rd
course of business, is in a form requiring be responsible; party.
payment pursuant to the laws of this state. 4. that the lawyer has an obligation to (7) Multi-jurisdictional practice.
(9) “Trust account” means an account in refund any unearned advanced fee, along If a lawyer also licensed in another state
which the lawyer deposits trust property. with an accounting, at the termination of is entrusted with funds or property in
(10) “Trust property” means funds or the representation; connection with a representation in the
property of clients or 3rd parties that is in 5. that the lawyer is required to submit other state, the provisions of this rule shall
the lawyer’s possession in connection with any dispute about a requested refund of not supersede the applicable rules of the
a representation, which is not fiduciary advanced fees to binding arbitration within other state.
property. 30 days of receiving a request for such a (c) Types of trust accounts.
(b) Segregation of trust property. refund; and (1) IOLTA accounts. A lawyer who
(1) Separate account. A lawyer shall 6. the ability of the client to file a claim receives client funds shall maintain a pooled
hold in trust, separate from the lawyer’s own with the Wisconsin lawyers’ fund for client interest-bearing, demand account for
property, that property of clients and 3rd protection if the lawyer fails to provide a deposit of client or 3rd-party funds that are:
parties that is in the lawyer’s possession in refund of unearned advanced fees. a. nominal in amount or expected to be
connection with a representation. All funds of b. Upon termination of the held for a short period of time; or
clients and 3rd parties paid to a lawyer or law representation, the lawyer shall deliver to b. not deposited in an account or
firm in connection with a representation shall the client in writing all of the following: investment under par. (2); or
be deposited in one or more identifiable trust 1. a final accounting, or an accounting c. not eligible for an account or
accounts. from the date of the lawyer’s most recent investment under par. (2), because the
(2) Identification of account. Each statement to the end of the representation, client is a corporation or organization
trust account shall be clearly designated regarding the client’s advanced fee payment not permitted by law to maintain such an
as a “Client Account,” a “Trust Account,” with a refund of any unearned advanced account or the terms of the account are
or words of similar import. The account fees; not consistent with a need to make funds
shall be identified as such on all account 2. notice that, if the client disputes the available without delay.
records, including signature cards, monthly amount of the fee and wants that dispute (1m) The interest accruing on an
statements, checks, and deposit slips. An to be submitted to binding arbitration, the account under par. (1), less any transaction
PA G E 3 0 – W I S C O N S I N L AW Y E R – J U N E 2 0 0 7
SUPREME COURT ORDERS
costs, shall be paid to the Wisconsin Trust (4) Professional judgment. The trust until the dispute is resolved. Disputes
Account Foundation, Inc., which shall be determination whether funds to be invested between the lawyer and a client are subject
considered the beneficial owner of the could be utilized to provide a positive to the provisions of sub. (g)(2).
accrued interest, pursuant to SCR Chapter net return to the client rests in the sound (e) Operational requirements for
13, Interest on Trust Accounts Program. A judgment of the lawyer or law firm. If a trust accounts.
lawyer may notify the client of the intended lawyer acts in good faith in making this (1) Location. Each trust account shall
use of these funds. determination, the lawyer is not subject to be maintained in a financial institution that
(2) Other client accounts. A lawyer any charge of ethical impropriety or other is authorized by federal or state law to do
shall deposit all client funds in an account breach of the Rules of Professional Conduct. business in Wisconsin and that is located
specified in par. (1) unless the funds are (5) WisTAF. For accounts created in Wisconsin or has a branch office located
deposited in any of the following: under par. (1), the lawyer or law firm shall in Wisconsin, and which agrees to comply
a. a separate interest-bearing trust direct the financial institution to remit to the with the overdraft notice requirements of
account for the particular client or client’s Wisconsin Trust Account Foundation, Inc., sub. (h).
matter, the interest on which shall be paid to also known as “WisTAF,” at least quarterly, (2) Insurance requirements. Each
the client, less any transaction costs; all of the following: trust account shall be maintained at a
b. a pooled interest-bearing trust a. the interest or dividends, less any financial institution that is insured by the
account with sub-accounting by the financial service charges or fees, on the average federal deposit insurance corporation,
institution, the lawyer, or the law firm that monthly balance in the account or as the national credit union share insurance
will provide for computation of interest otherwise computed in accordance with an fund, the Wisconsin credit union savings
earned by each client’s funds and the institution’s standard accounting practice; insurance corporation, the securities
payment of the interest to the client, less any and investor protection corporation, or any
transaction costs; b. a statement showing the name of other investment institution financial
c. an income-generating investment the lawyer or law firm for whose account guaranty insurance.
vehicle selected by the client and designated the remittance is sent, the rate of interest (3) Interest requirements. An
in specific written instructions from the applied, the amount of service charges interest-bearing trust account shall bear
client or authorized by a court or other deducted, if any, and the account balance interest at a rate of not less than that
tribunal, on which income shall be paid for the period for which the report is made. applicable to individual accounts of the
to the client or as directed by the court or A copy of the statement shall be provided to same type, size, and duration and in which
other tribunal, less any transaction costs; or the lawyer or law firm. withdrawals or transfers can be made
d. an income generating investment (d) Prompt notice and delivery of without delay when funds are required,
vehicle selected by the lawyer to protect property. subject only to any notice period that
and maximize the return of funds in a (1) Notice and disbursement. Upon the depository institution is required to
bankruptcy estate, which investment vehicle receiving funds or other property in which observe by law.
is approved by the trustee in bankruptcy and a client has an interest, or in which the (4) Prohibited transactions.
by a bankruptcy court order, consistent with lawyer has received notice that a 3rd party a. Cash. No disbursement of cash shall
11 U.S.C. s. 345; or has an interest identified by a lien, court be made from a trust account or from a
e. a demand deposit or other non- order, judgment, or contract, the lawyer deposit to a trust account, and no check
interest-bearing account for funds that are shall promptly notify the client or 3rd party shall be made payable to “Cash.”
neither nominal in amount nor expected in writing. Except as stated in this rule or b. Telephone transfers. No deposits
to be held for a short term, if the client otherwise permitted by law or by agreement or disbursements shall be made to or from
specifically so approves. with the client, the lawyer shall promptly a pooled trust account by a telephone
(3) Selection of account. In deciding deliver to the client or 3rd party any funds transfer of funds. This section does not
whether to use the account specified or other property that the client or 3rd party prohibit any of the following:
in par. (1) or an account or investment is entitled to receive. 1. wire transfers.
vehicle specified in par. (2), a lawyer shall (2) Accounting. Upon final distribution 2. telephone transfers between
determine, at the time of the deposit, of any trust property or upon request by the separate, non-pooled demand and
whether the client funds could be utilized to client or a 3rd party having an ownership separate, non-pooled, non-demand trust
provide a positive net return to the client by interest in the property, the lawyer shall accounts that a lawyer maintains for a
taking into consideration all of the following: promptly render a full written accounting particular client.
a. the amount of income that the funds regarding the property. c. Internet transactions. A
would earn during the period the funds are (3) Disputes regarding trust lawyer shall not make deposits to or
expected to be on deposit; property. When the lawyer and another disbursements from a trust account by way
b. the cost of establishing and person or the client and another person of an Internet transaction.
administering the account, including the claim ownership interest in trust property d. Electronic transfers by 3rd
cost of the lawyer’s services and the cost identified by a lien, court order, judgment, parties. A lawyer shall not authorize a
of preparing any tax reports required for or contract, the lawyer shall hold that 3rd party to electronically withdraw funds
income accruing to a client’s benefit; and property in trust until there is an accounting from a trust account. A lawyer shall not
c. the capability of financial institutions and severance of the interests. If a dispute authorize a 3rd party to deposit funds into
to calculate and pay interest or other income arises regarding the division of the property, the lawyer’s trust account through a form
to individual clients. the lawyer shall hold the disputed portion in of electronic deposit that allows the 3rd
J U N E 2 0 0 7 – W I S C O N S I N L AW Y E R – PA G E 3 1
SUPREME COURT ORDERS
party making the deposit to withdraw the advances by credit card, debit card or trust account to the IOLTA trust account
funds without the permission of the lawyer. other electronic deposit. A lawyer may immediately upon becoming available for
e. Credit card transactions. A establish a trust account, separate from the disbursement; and
lawyer shall not authorize transactions lawyer’s IOLTA trust account, solely for the 4. within 3 business days of receiving
by way of credit card to or from a trust purpose of receiving advanced payments actual notice that a chargeback or surcharge
account. However, earned fees may of legal fees and costs by credit card, debit has been made against the credit card
be deposited by way of credit card to a card or other electronic deposit, subject to trust account, the lawyer shall replace any
lawyer’s business account. the following conditions: and all funds that have been withdrawn
f. Debit card transactions. A lawyer 1. the separate trust account shall be from the credit card trust account by the
shall not use a debit card to make deposits entitled: “Credit Card Trust Account”; financial institution or card issuer; and shall
to or disbursements from a trust account. 2. lawyer and law firm funds, reimburse the account for any shortfall or
g. Exception: Collection trust reasonably sufficient to cover all monthly negative balance caused by a chargeback or
accounts. Upon demonstrating to account fees and charges and, if necessary, surcharge. The lawyer shall not accept new
the office of lawyer regulation that a any deductions by the financial institution payments to the credit card trust account
transaction prohibited by sub. (e)(4)c., or card issuer from a client’s payment by until the lawyer has reimbursed the credit
e., or f., constitutes an integral part credit card, debit card, or other electronic card trust account for the chargeback or
of the lawyer’s practice, a lawyer may deposit, shall be maintained in the credit surcharge.
petition that office for a separate, written card trust account, and a ledger for account (5) Availability of funds for
agreement, permitting the lawyer to fees and charges shall be maintained; disbursement.
continue to engage in the prohibited 3. each payment by credit card, debit a. Standard for trust account
transaction, provided the lawyer identifies card or other electronic deposit, including, transactions. A lawyer shall not disburse
the excepted account, provides adequate if necessary, a reimbursement by the funds from any trust account unless the
account security, and complies with lawyer or law firm for any deduction by deposit from which those funds will be
specific record-keeping and production the financial institution or card issuer disbursed has cleared, and the funds are
requirements. from the gross amount of each payment, available for disbursement.
h. Exception: Fee and cost shall be transferred from the credit card b. Exception: Real estate
transactions. In closing a real estate
transaction, a lawyer’s disbursement of
closing proceeds from funds that are
received on the date of the closing, but that
have not yet cleared, shall not violate sub.
(e)(5)a. if those proceeds are deposited no
later than the first business day following the
closing and are comprised of the following
types of funds:
1. a certified check;
2. a cashier’s check, teller’s check,
bank money order, official bank check
or electronic transfer of funds, issued or
transferred by a financial institution insured
by the federal deposit insurance corporation
or a comparable agency of the federal or
3. a check drawn on the trust account
of any lawyer or real estate broker licensed
under the laws of any state;
4. a check issued by the state of
Wisconsin, the United States, or a political
subdivision of the state of Wisconsin or the
5. a check drawn on the account of
or issued by a lender approved by the
federal department of housing and urban
development as either a supervised or a
nonsupervised mortgagee as defined in 24
C.F.R. s. 202.2;
6. a check from a title insurance
company licensed in Wisconsin, or from a
title insurance agent of the title insurance
company, if the title insurance company has
PA G E 3 2 – W I S C O N S I N L AW Y E R – J U N E 2 0 0 7
SUPREME COURT ORDERS
guaranteed the funds of that title insurance unprofessional conduct and grounds for deposit item, the client or matter associated
agent; disciplinary action. with each deposit item, and the date of the
7. a non-profit organization check in (8) Business account. Each lawyer deposit. The lawyer shall maintain a copy or
an amount not exceeding $5000 per closing who receives trust funds shall maintain duplicate of each deposit slip. All deposits
if the lawyer has reasonable and prudent at least one demand account, other than shall be made intact. No cash, or other form
grounds to believe that the deposit will be the trust account, for funds received and of disbursement, shall be deducted from
irrevocably credited to the trust account; disbursed other than in the lawyer’s trust a deposit. Deposits of wired funds shall
and capacity, which shall be entitled “Business be documented in the account’s monthly
8. a personal check or checks in an Account,” “Office Account,” “Operating statement.
aggregate amount not exceeding $5000 per Account,” or words of similar import. e. Disbursement records.
closing if the lawyer has reasonable and (f) Record-keeping requirements for 1. Checks. Checks shall be pre-printed
prudent grounds to believe that the deposit trust accounts. and pre-numbered. The name and address
will be irrevocably credited to the trust (1) Demand accounts. Complete of the lawyer or law firm, and the name of
account. records of a trust account that is a demand the account shall be printed in the upper left
bm. Without limiting the rights of the account shall include a transaction register; corner of the check. Trust account checks
lawyer against any person, it shall be the individual client ledgers; a ledger for account shall include the words “Client Account,” or
responsibility of the disbursing lawyer to fees and charges, if law firm funds are held “Trust Account,” or words of similar import
reimburse the trust account for any funds in the account pursuant to sub. (b)(3); in the account name. Each check disbursed
described in sub. (e)(5)b. that are not deposit records; disbursement records; from the trust account shall identify
collected and for any fees, charges, and monthly statements; and reconciliation the client matter and the reason for the
interest assessed by the financial institution reports, subject to all of the following: disbursement on the memo line.
on account of the funds being disbursed a. Transaction register. The 2. Canceled checks. Canceled
before the related deposit has cleared and transaction register shall contain a checks shall be obtained from the financial
the funds are available for disbursement. chronological record of all account institution. Imaged checks may be
The lawyer shall maintain a subsidiary transactions, and shall include all of the substituted for canceled checks.
ledger for funds of the lawyer that are following: 3. Imaged checks. Imaged checks
deposited in the trust account to reimburse 1. the date, source, and amount of all shall be acceptable if they provide both the
the account for uncollected funds and deposits; front and reverse of the check and comply
to accommodate any fees, charges, and 2. the date, check or transaction with the requirements of this paragraph.
interest. number, payee and amount of all The information contained on the reverse
c. Exception: Collection trust disbursements, whether by check, wire side of the imaged checks shall include any
accounts. When handling collection work transfer, or other means; endorsement signatures or stamps, account
for a client and maintaining a separate trust 3. the date and amount of every other numbers, and transaction dates that appear
account to hold funds collected on behalf deposit or deduction of whatever nature; on the original. Imaged checks shall be
of that client, a lawyer’s disbursement 4. the identity of the client for whom of sufficient size to be readable without
to the client of collection proceeds that funds were deposited or disbursed; and magnification and as close as possible to the
have not yet cleared, does not violate 5. the balance in the account after each size of the original check.
sub. (e)(5)a. so long as those collection transaction. 4. Wire transfers. Wire transfers shall
proceeds have been deposited prior to the b. Individual client ledgers. A be documented by a written withdrawal
disbursement. subsidiary ledger shall be maintained for authorization or other documentation, such
(6) Record retention. A lawyer each client or matter for which the lawyer as a monthly statement of the account that
shall maintain complete records of trust receives trust funds, and the lawyer shall indicates the date of the transfer, the payee,
account funds and other trust property and record each receipt and disbursement of and the amount.
shall preserve those records for at least 6 that client’s funds and the balance following f. Monthly statement. The monthly
years after the date of termination of the each transaction. A lawyer shall not disburse statement provided to the lawyer or law firm
representation. funds from the trust account that would by the financial institution shall identify the
(7) Production of records. All trust create a negative balance with respect to any name and address of the lawyer or law firm
account records have public aspects related individual client or matter. and the name of the account.
to a lawyer’s fitness to practice. Upon c. Ledger for account fees and g. Reconciliation reports. For each
request of the office of lawyer regulation, charges. A subsidiary ledger shall be trust account, the lawyer shall prepare and
or upon direction of the supreme court, the maintained for funds of the lawyer deposited retain a printed reconciliation report on a
records shall be submitted to the office of in the trust account to accommodate regular and periodic basis not less frequently
lawyer regulation for its inspection, audit, monthly service charges. Each deposit and than every 30 days. Each reconciliation
use, and evidence under any conditions expenditure of the lawyer’s funds in the report shall show all of the following
to protect the privilege of clients that the account and the balance following each balances and verify that they are identical:
court may provide. The records, or an transaction shall be identified in the ledger. 1. the balance that appears in the
audit of the records, shall be produced d. Deposit records. Deposit slips transaction register as of the reporting date;
at any disciplinary proceeding involving shall identify the name of the lawyer or law 2. the total of all subsidiary ledger
the lawyer, whenever material. Failure firm, and the name of the account. The balances for IOLTA accounts and other
to produce the records constitutes deposit slip shall identify the amount of each pooled accounts, determined by listing and
J U N E 2 0 0 7 – W I S C O N S I N L AW Y E R – PA G E 3 3
SUPREME COURT ORDERS
totaling the balances in the individual client statements provided by the financial property or securities in bearer form shall
ledgers and the ledger for account fees and institution to the lawyer or law firm; and maintain a property ledger that identifies
charges, as of the reporting date; and b. all transaction records, including the property, date of receipt, owner, client
3. the adjusted balance, determined by passbooks, records of electronic fund or matter, and location of the property. The
adding outstanding deposits and other credits transactions, duplicates of any instrument ledger shall also identify the disposition
to the balance in the financial institution’s issued by the financial institution from of all of the trust property received by the
monthly statement and subtracting funds held in the account, duplicate lawyer.
outstanding checks and other deductions deposit slips identifying the source of any b. Receipt upon taking custody.
from the balance in the monthly statement. deposit, and duplicate withdrawal slips Upon taking custody, in trust, of any
(2) Non-demand accounts. Complete identifying the purpose of any withdrawal. tangible personal property or securities in
records of a trust account that is a non- (3) Tangible trust property and bearer form, the lawyer shall provide to the
demand account shall include all of the bearer securities. previous custodian a signed receipt, with a
following: a. Property ledger. A lawyer who description of the property and the date of
a. all monthly or other periodic receives, in trust, tangible personal receipt.
c. Dispositional receipt. Upon
disposition of any tangible personal property
or securities in bearer form held in trust, the
lawyer shall obtain a signed receipt, with a
description of the property and the date of
disposition, from the recipient.
(4) Electronic record retention.
a. Back-up of records. A lawyer
who maintains trust account records by
computer shall maintain the transaction
register, client ledgers, and reconciliation
reports in a form that can be reproduced to
printed hard copy. Electronic records must
be regularly backed up by an appropriate
b. IOLTA account records. In
addition to the requirements of sub. (f)(4)a.,
the transaction register, the subsidiary
ledger, and the reconciliation report shall
be printed every 30 days for the IOLTA
account. The printed copy shall be retained
for at least 6 years, as required under sub.
(g) Withdrawal of non-contingent
fees from trust account.
(1) Notice to client. At least 5
business days before the date on which a
disbursement is made from a trust account
for the purpose of paying fees, with the
exception of contingent fees or fees paid
pursuant to court order, the lawyer shall
transmit to the client in writing all of the
a. an itemized bill or other accounting
showing the services rendered;
b. notice of the amount owed and the
anticipated date of the withdrawal; and
c. a statement of the balance of the
client’s funds in the lawyer trust account
after the withdrawal.
(1m) Alternative notice to client. The
lawyer may withdraw earned fees on the
date that the invoice is transmitted to the
client, provided that the lawyer has given
prior notice to the client in writing that
earned fees will be withdrawn on the date
PA G E 3 4 – W I S C O N S I N L AW Y E R – J U N E 2 0 0 7
SUPREME COURT ORDERS
that the invoice is transmitted. The invoice a. In the case of a dishonored member maintains a trust account, a safe
shall include each of the elements required instrument, the report shall be identical to deposit box, or both, as required by this
by sub. (g)(1)a., b., and c. an overdraft notice customarily forwarded section. The state bar shall supply to each
(2) Objection to disbursement. to the depositor or investor, accompanied member, with the annual dues statement, or
If a client makes a particularized and by the dishonored instrument, if a copy at any other time directed by the supreme
reasonable objection to the disbursement is normally provided to the depositor or court, a form on which the certification must
described in sub. (g)(1), the disputed investor. be made.
portion shall remain in the trust account b. In the case of instruments that are (2) Trust account record
until the dispute is resolved. If the client presented against insufficient funds and compliance. Each state bar member shall
makes a particularized and reasonable are honored, the report shall identify the explicitly certify on the state bar certificate
objection to a disbursement described in financial institution involved, the lawyer described in par. (1) that the member has
sub. (g)(1) or (1m) within 30 days after the or law firm, the account number, the date complied with each of the record-keeping
funds have been withdrawn, the disputed on which the instrument is paid, and the requirements set forth in subs. (f) and (j)(5).
portion shall be returned to the trust amount of overdraft created by the payment. (3) Certification by law firm. A law
account until the dispute is resolved, unless (5) Timing of report. A report firm shall file one certificate on behalf of the
the lawyer reasonably believes that the made under this subsection shall be made lawyers in the firm who are required to file a
client’s objections do not present a basis simultaneously with the overdraft notice certificate under par. (1). The law firm shall
to hold funds in trust or return funds to given to the depositor or investor. give a copy of the certificate to each lawyer
the trust account under this subsection. (6) Confidentiality of report. A report in the firm.
The lawyer will be presumed to have a made by a financial institution under this (4) Suspension for non-compliance.
reasonable basis for declining to return subsection shall be subject to SCR 22.40, The failure of a state bar member to file
funds to trust if the disbursement was Confidentiality. the certificate is grounds for automatic
made with the client’s informed consent, in (7) Withdrawal of report by suspension of the member’s membership in
writing. The lawyer shall promptly advise financial institution. The office of lawyer the state bar in the same manner provided in
the client in writing of the lawyer’s position regulation shall hold each overdraft report SCR 10.03(6) for nonpayment of dues. The
regarding the fee and make reasonable for 10 business days to enable the financial filing of a false certificate is unprofessional
efforts to clarify and address the client’s institution to withdraw a report provided conduct and is grounds for disciplinary
objections. by inadvertence or mistake. The deposit of action.
(h) Dishonored instrument additional funds by the lawyer or law firm (j) Fiduciary property.
notification; (Overdraft notices). shall not constitute reason for withdrawing (1) Separate account. A lawyer shall
All demand trust accounts and an overdraft report. hold in trust, separate from the lawyer’s
demand fiduciary accounts are subject to (8) Lawyer compliance. Every own funds or property, those funds or that
the following provisions on dishonored lawyer practicing or admitted to practice in property of clients or 3rd parties that are
instrument notification: Wisconsin shall comply with the reporting in the lawyer’s possession when acting in a
(1) Overdraft reporting agreement. and production requirements of this fiduciary capacity that directly arises in the
A lawyer shall maintain demand trust subsection. course of, or as a result of, a lawyer-client
accounts only in a financial institution that (9) Service charges. A financial relationship or by appointment of a court.
has agreed to provide an overdraft report institution may charge a lawyer or law firm (1m) Other fiduciary accounts. A
to the office of lawyer regulation under par. for the reasonable costs of producing the lawyer shall deposit all fiduciary funds
(3). reports and records required by this rule. specified in par. (1) in any of the following:
(2) Identification of accounts (10) Immunity of financial a. a pooled interest-bearing fiduciary
subject to this subsection. A lawyer or institution. This subsection does not account with sub-accounting by the financial
law firm shall notify the financial institution create a claim against a financial institution institution, the lawyer, or the law firm that
at the time a trust account or fiduciary or its officers, directors, employees, or will provide for computation of interest
account is established that the account is agents for failure to provide a trust account earned by each fiduciary entity’s funds and
subject to this sub. (h) and shall provide the overdraft report or for compliance with this the proportionate allocation of the interest
financial institution with a list of all existing subsection. to the fiduciary entity, less any transaction
accounts at that institution that are subject (i) Certification of compliance with costs;
to this subsection. trust account rules. b. an income-generating investment
(3) Overdraft report. In the event (1) Annual requirement. A member vehicle, on which income shall be paid to
any properly payable instrument is of the state bar of Wisconsin shall file with the fiduciary entity or its beneficiary or
presented against a lawyer trust account the state bar of Wisconsin annually, with beneficiaries, less any transaction costs;
containing insufficient funds, whether or payment of the member’s state bar dues c. an income-generating investment
not the instrument is honored, the financial or upon any other date approved by the vehicle selected by the lawyer and approved
institution shall report the overdraft to the supreme court, a certificate stating whether by a court for guardianship funds if the
office of lawyer regulation. the member is engaged in the practice of law lawyer serves as guardian for a ward under
(4) Content of report. All reports in Wisconsin. If the member is practicing chs. 54 and 881, stats.;
made by a financial institution under this law, the member shall state the account d. an income-generating investment
subsection shall be substantially in the number of any trust account, and the name vehicle selected by the lawyer to protect
following form: of each financial institution in which the and maximize the return on funds in a
J U N E 2 0 0 7 – W I S C O N S I N L AW Y E R – PA G E 3 5
SUPREME COURT ORDERS
bankruptcy estate, which investment vehicle transactions. The lawyer shall maintain all description of the property, and the date of
is approved by the trustee in bankruptcy and of the following: receipt.
by a bankruptcy court order, consistent with a. all monthly or other periodic c. Dispositional receipt. Upon
11 U.S.C. s. 345; or statements provided by the financial disposition of any tangible personal property
e. a demand deposit or other non- institution to the lawyer or law firm; and or securities in bearer form held by the
interest bearing account when, in the b. all transaction records, including lawyer as a fiduciary, the lawyer shall obtain
sound professional judgment of the lawyer, canceled or imaged checks, passbooks, a signed receipt, with a description of the
placement in such an account is consistent records of electronic fund transactions, property and the date of disposition, from
with the needs and purposes of the fiduciary duplicates of any instrument issued by the the recipient.
entity or its beneficiary or beneficiaries. financial institution from funds held in the (9) Dishonored instrument
(2) Location. Each fiduciary account account, duplicate deposit slips identifying notification or alternative protection.
shall be maintained in a financial institution the source of any deposit, and duplicate A lawyer who holds fiduciary property
as provided by the written authorization of withdrawal slips identifying the purpose of in a demand account from which funds
the client, the governing trust instrument, any withdrawal. are disbursed through a properly payable
organizational by-laws, an order of a court (6) Record retention. A lawyer instrument issued directly by the lawyer or
or, absent such direction, in a financial shall maintain complete records of a member or employee of the lawyer’s firm
institution that, in the lawyer’s professional fiduciary accounts and other fiduciary shall take one of the following actions:
judgment, will best serve the needs and property during the course of the fiduciary a. comply with the requirements of
purposes of the client or 3rd party for whom relationship. A lawyer shall maintain a sub. (h) dishonored instrument notification
the lawyer serves as fiduciary. If a lawyer acts complete record of the fiduciary account (overdraft notices); or
in good faith in making this determination, for the 6 most recent years of the account’s b. have the account independently
the lawyer is not subject to any charge of existence and shall maintain, at a minimum, audited by a certified public accountant on
ethical impropriety or other breach of the a summary accounting of the fiduciary at least an annual basis; or
Rules of Professional Conduct. When the account for prior years of the account’s c. hold the funds in a demand account,
fiduciary property is held in a demand existence. After the termination of the which requires the approving signature of
account from which funds are disbursed fiduciary relationship, the lawyer shall a co-trustee, co-agent, co-guardian, or co-
through a properly payable instrument preserve complete records for at least 6 personal representative before funds may be
issued directly by the lawyer or a member years. disbursed from the account.
or employee of the lawyer’s firm and the (7) Production of records. All (10) Certification requirements.
account is at a financial institution that is not fiduciary account records have public Funds held by a lawyer in a fiduciary
located in Wisconsin or authorized by state or aspects related to a lawyer’s fitness to account shall comply with the certification
federal law to do business in Wisconsin, the practice. Upon request of the office of requirements of sub. (i).
lawyer shall comply with the requirements of lawyer regulation, or upon direction of (k) Exceptions to this section.
sub. (j)(9)b. or c. the supreme court, the records shall This rule does not apply in any of the
(3) Prohibited transactions. be submitted to the office of lawyer following instances in which a lawyer is
a. Cash. No disbursement of cash shall regulation for its inspection, audit, use, acting in a fiduciary capacity:
be made from a fiduciary account or from a and evidence under any conditions to (1) the lawyer is serving as a bankruptcy
deposit to a fiduciary account, and no check protect the privilege of clients that the trustee, subject to the oversight and
shall be made payable to “Cash.” court may provide. The records, or an accounting requirements of the bankruptcy
b. Internet transactions. A lawyer shall audit of the records, shall be produced court;
not make deposits to or disbursements from at any disciplinary proceeding involving (2) the property held by the lawyer
a fiduciary account by way of an Internet the lawyer, whenever material. Failure when acting in a fiduciary capacity
transaction. to produce the records constitutes is property held for the benefit of an
c. Credit card transactions. A lawyer unprofessional conduct and grounds for “immediate family member” of the lawyer;
shall not authorize transactions by way of disciplinary action. (3) the lawyer is serving in a fiduciary
credit card to or from a fiduciary account. (8) Tangible fiduciary property and capacity for a civic, fraternal, or non-profit
d. Debit card transactions. A lawyer bearer securities. organization that is not a client and has other
shall not use a debit card to make deposits to a. Property ledger. A lawyer who, officers or directors participating in the
or disbursements from a fiduciary account. as a fiduciary, receives tangible personal governance of the organization; or
(4) Availability of funds for property or securities in bearer form shall (4) the lawyer is acting in the course of
disbursement. A lawyer shall not disburse maintain a property ledger that identifies the lawyer’s employment by an employer
funds from a fiduciary account unless the the property, date of receipt, owner, and not itself engaged in the practice of law,
deposit from which those funds will be location of the property. The ledger shall provided that the lawyer’s employment is not
disbursed has cleared, and the funds are also identify the disposition of all such ancillary to the lawyer’s practice of law.
available for disbursement. However, the fiduciary property received by the lawyer.
exception for real estate transactions under b. Receipt upon taking custody. Wisconsin Comment: A lawyer must hold
sub. (e)(5)b. shall apply to fiduciary accounts. Upon taking custody, as a fiduciary, of any the property of others with the care required
(5) Records. For each fiduciary account, tangible personal property or securities in of a professional fiduciary. All property that
the lawyer shall retain records of receipts and bearer form, the lawyer shall provide to the is the property of clients or 3rd parties must
disbursements as necessary to document the previous custodian a signed receipt, with a be kept separate from the lawyer’s business
PA G E 3 6 – W I S C O N S I N L AW Y E R – J U N E 2 0 0 7
SUPREME COURT ORDERS
and personal property and, if monies, in one from which the fee is to be paid. However, a be deposited in such an account except as
or more trust or fiduciary accounts. lawyer may not hold funds to coerce a client follows ….
SCR 20:1.15(b)(1) Separate into accepting the lawyer’s contention. The This requirement is specifically
accounts. disputed portion of the funds should be addressed in SCR 20:1.15(b)(4).
With respect to probate matters, a kept in trust, and the lawyer should suggest SCR 20:1.15(b)(4m) Alternative
lawyer’s role may be to represent the estate’s means for prompt resolution of the dispute, protection for advanced fees.
personal representative, to serve as the such as arbitration. The undisputed portion This section allows lawyers to
personal representative, or to act as both of the funds shall be promptly distributed. deposit advanced fees into the lawyer’s
personal representative and attorney for Lawyers also receive cost advances business account, as an alternative to
an estate. SCR 20:1.15(b) identifies the from clients or 3rd parties. Since January 1, SCR 20:1.15(b)(4). The lawyer’s fee
rules that apply when a lawyer holds trust 1987, the supreme court has required cost remains subject to the requirement of
property as the attorney for a client/personal advances to be held in trust. Prior to that reasonableness (SCR 20:1.5) as well as the
representative. Those rules, SCR 20:1.15(b)- date, the applicable trust account rule, SCR requirement that unearned fees be refunded
(i), also apply when the lawyer serves as both 20.50(1), specifically excluded such advances upon termination of the representation
the attorney and personal representative from the funds that the supreme court [SCR 20:1.16(d)]. A lawyer must comply
for an estate. However, if the lawyer serves required lawyers to hold in trust accounts. either with SCR 20:1.15(b)(4), or with SCR
solely as an estate’s personal representative, However, by order, dated March 21, 1986, 20:1.15(b)(4m), and a lawyer’s failure to
the lawyer acts as a fiduciary and is subject the supreme court amended SCR 20.50(1) do so shall be professional misconduct and
to the requirements of SCR 20:1.15(j). as follows: grounds for discipline.
SCR 20:1.15(b)(4) Advances for fees All funds of clients paid to a lawyer or The writing required by SCR
and costs. law firm, other than advances for costs and 20:1.15(b)(4m)a. must contain language
Lawyers often receive funds from 3rd expenses, shall be deposited in one or more informing the client that the lawyer is
parties from which the lawyer’s fee will identifiable bank trust accounts as provided obligated to refund any unearned advanced
be paid. If there is risk that the client may in sub. (3) maintained in the state in which fee at the end of the representation, that the
divert the funds without paying the fee, the the law office is situated and no funds lawyer will submit any dispute regarding a
lawyer is not required to remit the portion belonging to the lawyer or law firm may refund to binding arbitration, such as the
J U N E 2 0 0 7 – W I S C O N S I N L AW Y E R – PA G E 3 7
SUPREME COURT ORDERS
programs run by the State Bar of Wisconsin corporation, the securities investor full amount of the payment and absorb the
and Milwaukee Bar Association, within 30 protection corporation or any other charges. Before holding a client responsible
days of receiving a request for refund, and investment institution financial guaranty for such charges, a lawyer needs to disclose
that the lawyer is obligated to comply with insurance. However, since federal law limits this practice to the client in advance, and
an arbitration award within 30 days of the the amount of the insurance coverage, assure that the client understands and
award. The client is not obligated to arbitrate funds in excess of the limit are not insured. consents to the charges.
the fee dispute and may elect another forum Consequently, the purpose of the insurance In addition, the lawyer needs to
in which to resolve the dispute. The writing requirement is not to guarantee that all investigate the following concerns before
must also inform the client of the opportunity funds are adequately insured. Rather, it accepting payments by credit card:
to file a claim in the event an unearned is to assure that trust funds are held in 1. Does the credit card issuer
advanced fee is not refunded, and should reputable financial institutions. prohibit a lawyer/vendor from requiring
provide the address of the Wisconsin lawyers’ SCR 20:1.15(e)(4)d. Electronic the customer to pay the charge? If
fund for client protection. transfers by 3rd parties. a lawyer intends to credit the client for
If the client’s fees have been paid Many forms of electronic deposit anything less than the full amount of the
by one other than the client, then the allow the transferor to remove the funds credit card payment, the lawyer needs to
lawyer’s responsibilities are governed by without the consent of the account holder. assure that this practice is not prohibited by
SCR 20:1.8(f). If there is a dispute as to A lawyer must not only be aware of the the credit card issuer’s regulations and/or
the ownership of any refund of unearned bank’s policy but also federal regulations by the agreement between the lawyer and
advanced fees paid by one other than the pertaining to the specific form of electronic the credit card issuer. Entering into an
client, the unearned fees should be treated as deposit, and must ensure that the transferor agreement with a credit card issuer with the
trust property pursuant to SCR 20:1.15(d)(3). is prohibited from withdrawing deposited intent to violate this type of requirement
This alternative applies only to advanced funds without the lawyer’s consent. may constitute conduct involving dishonesty,
fees for legal services. Cost advances must be SCR 20:1.15(e)(4)g. Exception: fraud, or deceit, in violation of SCR
deposited into the lawyer’s trust account. Collection trust accounts. 20:8.4(c).
Advanced fees deposited into the This exception was adopted in response 2. Does the credit card issuer
lawyer’s business account pursuant to this to concerns raised by members of the require services to be rendered before
subsection may be paid by credit card, debit collection bar who presently rely on certain a credit card payment is accepted? If
card, or an electronic transfer of funds. A cost electronic banking practices that were not a lawyer intends to accept fee advances
advance cannot be paid by credit card, debit expressly prohibited prior to the adoption by credit card, the lawyer needs to assure
card, or an electronic transfer of funds under of this rule. The court acknowledges that fee advances are not prohibited by
this section. Such payments are subject to that electronic banking practices are the credit card issuer’s regulations and/or
SCR 20:1.15(b)(1) or SCR 20:1.15(e)(4)h. increasingly used in the practice of law. by the agreement between the lawyer and
SCR 20:1.15(d) Interest of 3rd However, the court also acknowledges the credit card issuer. Entering into an
parties. that such transactions will require new agreement with a credit card issuer with the
Third parties, such as a client’s creditors, approaches to alleviate legitimate concerns intent to violate this type of requirement
may have just claims against funds or other about the potential for fraud and risk of may constitute conduct involving dishonesty,
property in a lawyer’s custody. A lawyer may conversion with respect to their usage in fraud, or deceit, in violation of SCR
have a duty under applicable law, including connection with trust accounts. Collection 20:8.4(c).
SCR 20:1.15(d), to protect such 3rd-party lawyers may be able to satisfy these 3. By requiring clients to pay the
claims against wrongful interference by concerns because of security measures credit cards charges, is the lawyer
the client, and accordingly, may refuse inherent in their practice. This exception is required to make certain specific
to surrender the property to the client. intended as a temporary measure, pending disclosures to such clients and offer
However, a lawyer should not unilaterally further consideration of the issue and cash discounts to all clients? If a lawyer
assume to arbitrate a dispute between the eventual adoption of a rule that will permit intends to require clients to pay credit card
client and the 3rd party. electronic banking procedures in additional charges, the lawyer needs to assure that the
If a lawyer holds property belonging practice areas, conditioned upon the lawyer complies with all state and federal
to one person and a second person has a implementation of appropriate safeguards. laws relating to such transactions, including,
contractual or similar claim against that The agreement referenced in the exception but not limited to, Regulation Z of the Truth
person but does not claim to own the is available from the office of lawyer in Lending Act, 12 C.F.R. s. 206.
property or have a security interest in it, the regulation. SCR 20:1.15(e)(5)b. Real estate
lawyer is free to deliver the property to the SCR 20:1.15(e)(4)h.3. Exception: transactions.
person to whom it belongs. Fee and cost advances by credit card, SCR 20:1.15(e)(5)b. establishes an
SCR 20:1.15(e)(2) Insurance debit card or other electronic deposit. exception to the requirement that a lawyer
requirements. Financial institutions, as credit card only disburse funds that are available for
Pursuant to SCR 20:1.15(e)(2), trust issuers, routinely impose charges on disbursement, i.e., funds that have been
funds are required to be held in accounts vendors when a customer pays for goods credited to the account. This exception was
that are insured by the federal deposit or services with a credit card. That charge created in recognition of the fact that real
insurance corporation (FDIC), the national is deducted directly from the customer’s estate transactions in Wisconsin require a
credit union share insurance fund, the payment. Vendors who accept credit cards simultaneous exchange of funds. However,
Wisconsin credit union savings insurance routinely credit the customer with the even under this exception, the funds from
PA G E 3 8 – W I S C O N S I N L AW Y E R – J U N E 2 0 0 7
SUPREME COURT ORDERS
which a lawyer disburses the proceeds of suggested employment of that method to A lawyer must hold the property
the real estate transaction, i.e., the lender’s resolve a dispute between a client and a of others with the care required of a
check, draft, wire transfer, etc., must be 3rd party over funds held in trust by the professional fiduciary. All property which is
deposited no later than the first business lawyer. See Riegleman v. Krieg, 2004 WI the property of clients or 3rd parties must
day following the date of the closing. In App 85, 271 Wis. 2d 798, 679 N.W.2d 857, be kept separate from the lawyer’s business
refinancing transactions, the lender’s funds 2004 Wisc. App. LEXIS 229 (2004). and personal property and, if monies, in
must be deposited as soon as possible, Additionally, when a lawyer’s fees are one or more segregated accounts. SCR
but no later than the first business day subject to final approval by a court, such as 20:1.15(j) identifies the requirements and
after the loan proceeds are distributed. fees paid to a guardian ad litem or lawyer’s responsibilities of a lawyer with respect to
Proceeds are generally distributed three fees in formal probate matters, objections the management of fiduciary property.
days after the closing date. to disbursements by clients or 3rd party SCR 20:1.15(j)(1) Separate accounts.
SCR 20:1.15(e)(7) Inspection of payors are properly brought before the With respect to probate matters,
records. court having jurisdiction over the matter. A a lawyer’s role may be to represent the
The duty of the lawyer to produce lawyer should hold disputed funds in trust estate’s personal representative, to serve
client trust account records for inspection until such time as the appropriate court as the personal representative, or to act as
under SCR 20:1.15(e)(7) is a specific resolves the dispute. both personal representative and attorney
exception to the lawyer’s responsibility to SCR 20:1.15(i) and SCR for an estate. SCR 20:1.15(j) applies only
maintain the confidentiality of the client’s 20:1.15(j)(10) Certification of when the lawyer serves solely as an estate’s
information as required by SCR 20:1.6. compliance. personal representative. If the lawyer
SCR 20:1.15(g) Withdrawal The current rule is intended to represents a client/personal representative,
of non-contingent fees from trust implement the supreme court’s order of or when the lawyer serves as both personal
account. April 11, 2001; certification is required representative and attorney for the estate,
This section applies to attorney for “all trust accounts and safe deposit the lawyer is responsible for “trust” property
fees, other than contingent fees. It does boxes in which the lawyer deposits clients’ and is subject to the requirements of SCR
not apply to filing fees, expert witness funds or property held in connection with 20:1.15(b)-(i).
fees, subpoena fees, and other costs a representation or held in a fiduciary Section 11. Supreme Court Rule 21.16
and expenses that a lawyer may incur capacity that directly arises in the (intro.) and (1) to (6) are renumbered SCR
on behalf of a client in the course of a course of or as a result of a lawyer-client 21.16 (1m) (intro.) and (a) to (f).
representation. relationship.” Section 12. SCR 21.16 (1m) (em)
In addition, this section does not SCR 20:1.15(j) Lawyer as and (2m) of the Supreme Court Rules are
require contingent fees to remain in professional fiduciary. created to read:
the trust account or to be returned to
the trust account if a client objects to
the disbursement of the contingent
fee, provided that the contingent fee
arrangement is documented by a written
fee agreement, as required by SCR
20:1.5(c). While a client may dispute the
reasonableness of a lawyer’s contingent
fee, such disputes are subject to SCR
20:1.5(a), not to this subsection.
A client’s objection under sub. (g)(3)
must offer a specific and reasonable basis
for the fee dispute in order to trigger the
lawyer’s obligation to keep funds in the
lawyer’s trust account or return funds to CORRIS
the lawyer’s trust account. A generalized
objection to the overall amount of the fees
or a client’s unilateral desire to abrogate
the terms of a fee agreement should not
ordinarily be considered sufficient to
trigger the lawyer’s obligation. A lawyer
may resolve a dispute over fees by offering
to participate and abide by the decision of
a fee arbitration program. In addition, a
lawyer may bring an action for declaratory
judgment pursuant to s. 806.04, Wis.
Stats. to resolve a dispute between the
lawyer and a client regarding funds held in
trust by the lawyer. The court of appeals
J U N E 2 0 0 7 – W I S C O N S I N L AW Y E R – PA G E 3 9
SUPREME COURT ORDERS
21.16(1m) (em) Restitution, as provided ¶1 ANN WALSH BRADLEY, J. Against Scanlan, 2006 WI 38, 290 Wis. 2d
under sub. (2m). (concurring in part, dissenting in part). 30, 712 N.W.2d 877 (six-month suspension
21.16(2m) (a) An attorney may be Prior to the majority’s adoption of the for placing advanced fees into his business
ordered to do any of the following as advanced fee alternative rule, SCR checking account rather than his trust
restitution under sub. (1m)(em): 20:1.15(b)(4m),1 attorneys were required account, other trust account violations, and
1. Pay monetary restitution to the to deposit advances of unearned hourly failure to cooperate with OLR).
person whose money or property was fees into their trust accounts and draw out ¶7 Admittedly, the cases cited above
misappropriated or misapplied in the amount amounts as they were earned. See SCR involved discipline for offenses in addition
or value of such money or property as found 20:1.15(b)(4) and former SCR 20:1.15(a).2 to discipline for conversion. The court
in the disciplinary proceedings. Now, under the new rule, attorneys can does not break down how much of the
2. Reimburse the Wisconsin lawyers’ deposit advances of hourly fees directly discipline is attributable to what violation.
fund for client protection for awards made into their general business accounts rather Yet, undeniably, some period of the above
to the person whose money or property was than into their trust accounts. This allows suspensions are attributable to conversion.
misappropriated or misapplied. them to spend their clients’ money before ¶8 The adoption of this rule favors the
(b) Any payment made as restitution it is earned. ease of enforcement over the protection of
under par. (a) does not limit, preclude or ¶ 2 Although I join the majority clients.
impair any liability for damages in any civil in all other respects, I cannot join the ¶9 Part of the justification for
action or proceeding for an amount in excess majority in the adoption of the advanced proposing this new advanced fee
of the payment. fee alternative rule. I believe the adoption alternative rule was that it was difficult
(c) Upon ordering restitution to the of this rule is fundamentally wrong, calls to enforce the old rule on conversion. It
Wisconsin lawyers’ fund for client protection into question our prior decisions which makes no sense to me to make conversion
under par. (a)2., the supreme court shall imposed discipline for conversion of client lawful simply because it is difficult to
issue a judgment and furnish a transcript of funds, and favors the ease of enforcement enforce. The protection of clients’ funds is
the judgment to the Fund. The transcript of over the protection of clients. paramount, and I fear that the adoption of
the judgment may be filed and docketed in ¶ 3 The adoption of the new rule is this rule compromises that protection.
the office of the clerk of court in any county fundamentally wrong. ¶10 For the above stated reasons, I
and shall have the same force and effect as ¶ 4 In determining whether we respectfully dissent to the adoption of SCR
judgments docketed under ss. 809.25 and should adopt this portion of the petition, 20:1.15(b)(4m).
806.16, stats. we need do nothing more than apply
IT IS FURTHER ORDERED that fourth grade playground ethics: it is wrong 1
SCR 20:1.15(b)(4m) reads in part:
notice of the repeal and recreation of SCR to spend money that is not yours. Some (4m) Alternative protection for advanced fees.
20:1.15 and the amendments to SCR 12.04, call that stealing. As applied to attorneys, A lawyer who accepts advanced payments
20:1.0, and 21.16 be given by a single of fees may deposit the funds in the lawyer’s
we used to call that conversion. Under
business account, provided that a court of
publication of a copy of this order in the the majority’s decision, we now call that competent jurisdiction must ultimately ap-
official state newspaper and in an official lawful. prove the lawyer’s fee, or that the lawyer com-
publication of the State Bar of Wisconsin. ¶ 5 The adoption of the advanced plies with each of the following requirements:
Dated at Madison, Wis., this 2nd day of fee alternative rule calls into question our a. Upon accepting any advanced payment of
fees pursuant to this subsection, the lawyer
May, 2007. prior decisions which imposed discipline shall deliver to the client a notice in writing
for conversion of client funds. containing all of the following information ….
By the court: ¶ 6 We have on several occasions in 2
SCR 20:1.15(b)(4), effective July 1, 2004,
David R. Schanker the past imposed discipline for the very provides in relevant part:
Clerk of Supreme Court (b) Segregation of trust property…
conduct that we are now condoning.
(4) Unearned fees and cost advances. Unearned
As recently as April 19, 2007, the court fees and advanced payments of fees shall be
found that an attorney who failed to hold held in trust until earned by the lawyer, and
funds belonging to his client in trust was withdrawn pursuant to SCR 20:1.15(g)….
guilty of violating former SCR 20:1.15(a). Former SCR 20:1.15(a) applied to misconduct
committed prior to July 1, 2004, and provided
Disciplinary Proceedings Against Winch, in relevant part:
2007 WI 41, __ Wis. 2d __, __ N.W.2d __
(a) A lawyer shall hold in trust, separate from
(one-year suspension for failing to hold the lawyer’s own property, that property of
funds in trust and other trust account clients and third persons that is in the lawyer’s
violations). See, e.g., other recent cases possession in connection with a representa-
in which an attorney was disciplined tion or when acting in a fiduciary capacity…
All funds of clients and third persons paid
for conduct which SCR 20:1.15(b)(4m) to a lawyer or law firm shall be deposited in
now condones: Disciplinary Proceedings one or more identifiable trust accounts ….
Against Cooper, 2007 WI 37, __ Wis. The trust account shall be clearly designated
2d __, 729 N.W.2d 206 (three-year as “Client’s Account” or “Trust Account” or
words of similar import. No funds belonging
suspension for 35 instances of professional
to the lawyer or law firm, except funds reason-
misconduct, including depositing $13,000 ably sufficient to pay or avoid imposition of
into his personal account rather than a account service charges, may be deposited in
trust account); Disciplinary Proceedings such an account….
PA G E 4 0 – W I S C O N S I N L AW Y E R – J U N E 2 0 0 7