At its meeting on April 21, 2017, the State Bar Council adopted the ethics opinion summarized below:
2017 Formal Ethics Opinion 1
Text Message Advertising
Opinion rules that lawyers may advertise through a text message service that allows the user to initiate live telephone communication.
Ethics Committee Actions
At its meeting on April 20, 2017, the Ethics Committee voted to continue to table Proposed 2016 Formal Ethics Opinion 1, Contesting Opposing Counsel’s Fee Request to Industrial Commission, pending the conclusion of appellate action on cases relevant to the proposed opinion. The committee also voted to publish the three new proposed opinions that appear below.
The comments of readers on proposed opinions are welcomed. Comments received by July 14, 2017, will be considered at the next meeting of the Ethics Committee. Comments may be emailed to firstname.lastname@example.org.
Proposed opinion rules that a lawyer representing an estate must maintain the checking account for the estate in accordance with Rule 1.15 if the lawyer has control over the account.
On June 9, 2016, the North Carolina Supreme Court approved amendments to Rule 1.15, Safekeeping Property, and its subparts (frequently referred to as the “trust accounting rules”). The following opinion concerns a lawyer’s obligations with respect to a fiduciary account, such as an estate account. Inquiries are answered based upon the rule as amended.
A’s will names Lawyer as executor. After A dies, Lawyer opens a client file for the estate in his law office and begins serving as the personal representative for the estate. Lawyer intends to seek compensation for his services. Lawyer opens a checking account for the estate, makes himself the signatory on the account, and manages the checking account throughout the administration of the estate. What are Lawyer’s management obligations for the account under Rule 1.15?
The checking account must be established as a lawyer’s fiduciary account and managed in accordance with the provisions of Rule 1.15 and its subparts.
As the personal representative for the estate, Lawyer will serve in the role of a fiduciary and provide professional fiduciary services. The phrase “professional fiduciary services” is defined and explained in Rule 1.15-1(l) and cmt.  as service by a lawyer in any one of the various fiduciary roles undertaken by a lawyer that is not, of itself, the practice of law, but is frequently undertaken in conjunction with the practice of law. This includes service as a trustee, guardian, personal representative of an estate, attorney-in-fact, and escrow agent, as well as service in other fiduciary roles “customary to the practice of law.” Rule 1.15, cmt. .
The funds Lawyer receives for the benefit of the estate are fiduciary funds and must be deposited in a fiduciary account. Fiduciary funds, another term defined in Rule 1.15-1, denotes funds belonging to someone other than the lawyer that are received by or placed under the control of the lawyer in connection with the performance of professional fiduciary services. Rule 1.15-1(g). A “fiduciary account,” also defined in Rule 1.15-1, is “an account, designated as such, maintained by a lawyer solely for the deposit of fiduciary funds or other entrusted property of a particular person or entity.” Rule 1.15-1(f).
Any property belonging to the estate received by or placed under the control of the lawyer in connection with the lawyer’s furnishing of legal services or professional fiduciary services must be handled and maintained in accordance with all of the applicable provisions of Rule 1.15, including but not limited to:
• Rule 1.15-2: General Rules
• Rule 1.15-3(a): Check Format
• Rule 1.15-3(b) or (c)(as appropriate): Minimum Records
• Rule 1.15-3(f): Accountings for Fiduciary Property
• Rule 1.15-3(g): Minimum Record Keeping Period
• Rule 1.15-3(i): Reviews
See Rule 1.15, cmts. , -.
These duties include promptly depositing all fiduciary funds received by or placed under the control of the lawyer in a fiduciary account. Rule 1.15-2(c). They also include (1) review of the monthly bank statements and canceled checks for the account each month (the “monthly review”); (2) for each quarter, review of the statement of costs and receipts, client ledger, and cancelled checks of a random sample of representative transactions completed during the quarter (the “quarterly review”); (3) resolution within 10 days of any discrepancies found during the monthly or quarterly reviews; and (4) preparation of a signed and dated report on each monthly and quarterly review. Rule 1.15-3(i). This list is not exhaustive and Lawyer is obligated to review Rules 1.15-2 and 1.15-3 to ensure compliance with the rules.
Lawyer represents Estate of B and the personal representative of Estate of B in her official capacity. See RPC 137. Lawyer opens a checking account for the estate and designates the personal representative as the signatory on the account. Lawyer intends to manage the estate account and retain possession of the checkbook, preparing checks for the personal representative’s signature as needed and depositing estate funds into the account when obtained. What are Lawyer’s obligations for the account under Rule 1.15?
The requirements of Rule 1.15-2 and 1.15-3 apply when a lawyer has control over the estate account. A lawyer has control over an estate account when he has signatory authority for the checking account. In the instant inquiry, Lawyer has possession of the checkbook, but does not have signatory authority. Therefore, Lawyer does not have control over the estate account and is not obligated to follow the requirements of Rule 1.15 and its subparts.
Nevertheless, Lawyer represents the estate and the personal representative in her official capacity. Therefore, Lawyer has a duty to provide competent and diligent representation. Rule 1.1 and Rule 1.3. Competent and diligent representation requires Lawyer to advise the personal representative of her fiduciary responsibilities relative to the safekeeping of the funds of the estate and her duty to administer the estate in compliance with the law. See generally 2002 FEO 3 (lawyer for estate may seek removal of personal representative if the personal representative’s breach of fiduciary duties constitutes grounds for removal under the law).
Lawyer represents Estate of C and the personal representative of Estate of C in her official capacity. The personal representative opens the checking account for the estate and manages the account, including the preparation of checks at Lawyer’s direction. What are Lawyer’s obligations for the account under Rule 1.15?
Lawyer is not obligated to follow Rule 1.15. See Opinion #2.
Lawyer represents Estate of C and the personal representative of Estate of C in her official capacity. The personal representative opens a checking account for the estate and manages the account, including receipt of the bank statements and the preparation of checks. The personal representative, however, asks Lawyer’s paralegal to take possession of the checkbook. Each month, the personal representative goes to Lawyer’s law firm, writes checks, and gives the bills and the checks to paralegal. Paralegal then mails out the checks. What are Lawyer’s obligations to the estate account under these circumstances?
See Opinion #2.
Did the June 2016 amendments to Rule 1.15 change or add to the obligations of a lawyer with respect to a fiduciary account, or otherwise change the answers to Inquiries #1 and #2 above?
Yes. The 2016 amendments found in Rule 1.15-3(i) now require monthly and quarterly reviews for fiduciary accounts as well as general trust accounts.
In the representations described in Inquiries #1 and #2 above, may Lawyer delegate the management of the fiduciary account to a nonlawyer assistant?
Day-to-day management of the account may be delegated to a nonlawyer assistant. However, the responsibility for conducting the monthly and quarterly reviews required by Rule 1.15-3(i) may not be delegated. The rule specifies that “the lawyer” shall review the records. To fulfill the intended purpose of this provision, the lawyer, rather than an assistant, must conduct these reviews. Lawyer must periodically review underlying bank records, independently of any records prepared or provided by the assistant, to ensure that the nonlawyer’s conduct is compatible with the professional obligations of the lawyer. As explained in comment  to Rule 1.15:
The mandatory monthly and quarterly reviews and oversight measures in Rule 1.15-3(i) facilitate early detection of internal theft and early detection and correction of errors. They are minimum fraud prevention measures necessary for the protection of funds on deposit in a firm trust or fiduciary account from theft by any person with access to the account. Internal theft from trust accounts by insiders at a law firm can only be timely detected if the records of the firm’s trust accounts are routinely reviewed. For this reason, Rule 1.15-3(i)(1) requires monthly reviews of the bank statements and cancelled checks for all general, dedicated, and fiduciary accounts.
Although Lawyer may delegate day-to-day management of the account to a nonlawyer assistant, Lawyer remains professionally responsible for compliance with the requirements of Rule 1.15 and its subparts. Therefore, the assistant must be appropriately instructed, trained, and supervised concerning the requirements of the rule. Rule 5.3.
If Lawyer delegates the day-to-day management of a fiduciary account to a nonlawyer assistant, may that assistant be a signatory on the account?
The trust accounting rules do not prohibit this. However, the practice increases the risk of internal fraud. See, e.g., Rule 1.15-2(s) (prohibiting an assistant responsible for reconciling a trust account from being a signatory on the account). A lawyer should not permit an assistant to be a signatory on a fiduciary account unless the lawyer or law firm has established fraud prevention procedures that will protect the fiduciary funds from internal theft. See Rule 1.15, cmt. .
Proposed opinion rules that a billboard advertisement need not contain the lawyer’s name, firm name, or the firm’s office address if the URL address on the advertisement lands on the lawyer’s website where such information can be easily found.
Editor’s Note: The opinion is not limited to billboard advertisements; it applies to all forms of legal advertisement.
Law Firm owns numerous Uniform Resource Locators (URLs) such as www.ABCtowndwi.com. Each of the URLs is a “landing page” for Law Firm’s website. Law Firm’s website includes Law Firm’s full name, the names of the individual lawyers in Law Firm, and Law Firm’s office address.
Law Firm would like to start a billboard advertising campaign. Law firm does not want to include Law Firm’s full name, the names of the individual lawyers in Law Firm, or Law Firm’s office address in the advertisement, but does intend to include one of the URLs.
Is the proposed billboard campaign permissible under the Rules of Professional Conduct?
Yes. Rule 7.1 requires all communications about a lawyer and the lawyer’s services to be truthful and not misleading. Rule 7.2(c) requires any communication about a lawyer or a lawyer’s services to include the name and office address of at least one lawyer or law firm responsible for its content.
Traditionally, Rule 7.2(c) has been applied so as to require all forms of print and media legal advertising to include the listed information to avoid misleading the public about the identity of the responsible lawyer or firm and the location of the firm. However, the Rules of Professional Conduct are rules of reason to be applied in a reasonable manner under the circumstances. See Rule 0.2, Scope, cmt. . For example, in 2012 FEO 6, the Ethics Committee determined that a law firm may use a leased time-shared office address or a post office address to satisfy the address disclosure requirement for advertising communications in Rule 7.2(c). In 2005 FEO 14, the Ethics Committee concluded that, “as long as a URL of a law firm is not otherwise misleading or false and the homepage of the website identifies the sponsoring law firm or lawyer, the URL does not have to contain language specifically identifying the website as one belonging to a law firm.” Similarly, 2017 FEO 1 holds that a text message advertisement that does not include the lawyer’s office address but does include the lawyer’s website address, where the office address can be found, satisfies the requirements of Rule 7.2(c).
A law firm’s website will generally contain more than enough information to satisfy the requirements of Rule 7.2(c) and avoid misleading the public. Utilizing a website address in an advertisement actually provides a consumer with the ability to access more information about the lawyer or law firm than an advertisement that contains only the lawyer’s or the firm’s name and office address. Therefore, an advertisement that includes a URL for a law firm’s website complies with Rule 7.2(c) so long as the law firm’s website contains the law firm’s official name or trade name, or the name of a responsible lawyer, and the firm’s office address. The firm name, trade name, or the name of the lawyer must appear on the website homepage. The firm’s office address need not appear on the homepage provided it can be easily found on the website.
Proposed opinion rules that a lawyer is prohibited from disbursing settlement funds pursuant to the client’s directive if the funds are subject to a perfected lien.
Client was injured in a vehicular collision. Client was not at fault for the collision. Client incurred various medical expenses as a result of the collision. Lawyer represents Client in her personal injury case against the driver who caused the collision. All medical providers perfected liens on Client’s anticipated recovery pursuant to the requirements for perfection of a medical lien on a personal injury settlement set forth in N.C. Gen. Stat. § 44-49. With Client’s consent, Lawyer settled the matter. Lawyer received and deposited Client’s settlement proceeds in his trust account. The settlement proceeds do not cover the entirety of Client’s medical expenses, so Lawyer prepared a proposed pro rata disbursement plan, consistent with N.C. Gen. Stat. §44-50 (lien “shall in no case, exclusive of attorney’s fees, exceed 50% of the amount of damages recovered”), and submits the proposal to Client for approval.
Client disapproves of the proposed disbursement, explaining that she does not want one particular medical provider (Provider A) to receive any funds from the settlement. Lawyer advises Client of Provider A’s perfected lien, but Client instructs Lawyer not to pay Provider A.
May Lawyer disburse Client’s settlement proceeds in accordance with Client’s instructions not to pay Provider A such that the funds designated for Provider A are disbursed to Client instead?
No, if the lien is perfected. Generally, a lawyer must follow a client’s directives as to the disbursement of settlement proceeds. Rule 1.15-2(n) provides that a lawyer “shall promptly pay or deliver to the client, or to third persons as directed by the client, any entrusted property belonging to the client and to which the client is currently entitled.” However, Provider A has perfected a lien against the settlement proceeds pursuant to N.C Gen. Stat. § 44-49. The perfected lien creates a question as to whether Client is “currently entitled” to the share of the settlement proceeds designated for Provider A.
Comment  to Rule 1.15 recognizes that a third party may have a lawful claim (such as a medical provider lien) against specific funds in a lawyer’s custody, and a lawyer “may have a duty under applicable law to protect such third-party claims against wrongful interference by the client.”
The applicable law provides that a lien exists upon any sums recovered as damages for personal injury in any civil action. N.C. Gen. Stat. § 44-49(a). The lien is in favor of any provider to whom the injured person may be indebted for any medical attention rendered in connection with the injury. Id. The lien attaches to all funds paid to a lawyer in compensation for or settlement of the personal injury claim. To perfect the lien, the medical provider must furnish an itemized statement, hospital record or medical report, without charge, for the lawyer to use in the resolution of the personal injury claim and give written notice to the lawyer of the lien claim. N.C. Gen. Stat. § 44-49(b).
Before disbursing settlement proceeds subject to a perfected lien, N.C. Gen. Stat. § 44-50 provides that the lawyer “shall retain out of any recovery or any compensation so received a sufficient amount to pay the just and bona fide claims.” Section 44-50 further states that a client’s instructions for the disbursement of settlement proceeds are “not binding on the disbursing attorney” to the extent that the instructions conflict with the requirements of the medical lien statutes. However, when the client disputes the amount of the claim, N.C. Gen. Stat. § 44-51 provides that payment of the claim is not compelled until the claim is “fully established and determined, in the manner provided by law.” Comment  to Rule 1.15 provides that when a third-party claim “is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client until the claim is resolved” (emphasis added). Therefore, when a statute requires a lawyer not to disburse settlement funds to a client, the lawyer must comply with the law regardless of any instructions by the client to the contrary.
Lawyer must determine whether Provider A’s lien is perfected. If so, Lawyer must segregate and retain the funds in question in Lawyer’s trust account and inform Client that, absent a prompt resolution of Provider A’s claim that is satisfactory to both parties, Lawyer will eventually be obligated to deposit the funds into the court for disposition. In the interim, if a final judgment is entered on Provider A’s claim such that the claim is no longer in dispute, pursuant to N.C. Gen. Stat. § 44-50, Lawyer must pay Provider A over the client’s objections.
To the extent that RPC 69 and RPC 125 conflict with this opinion, they are overruled.