Proposed Rule Amendments

Amendments Pending Supreme Court Approval

At its meeting on April 25, 2025, the Council voted to adopt the following rule amendments for transmission to the North Carolina Supreme Court for its approval. (For the complete text of the rule amendments, see the Spring 2025 edition of the Journal or visit the State Bar website: ncbar.gov.

Amendments to the Rules Governing the Election, Succession and Duties of Officers

27 N.C.A.C. 1A, Section .0400, Rule .0404, Elections

The rule amendment eliminates the requirement that elections for State Bar Council officers be held by secret ballot in conformance with G.S. 143-318.13(b), which states that “a public body may not vote by secret or written ballot.”

Amendments to the Rules Governing the Procedures for Fee Dispute Resolution

27 N.C.A.C. 1D, Section .0700, Rule .0706, Powers and Duties of the Vice-Chairperson

27 N.C.A.C. 1D, Section .0700, Rule .0707, Processing Requests for Fee Dispute Resolution

27 N.C.A.C. 1D, Section .0700, Rule .0708, Settlement Conference Procedure

The rule amendments clarify procedural aspects of the fee dispute resolution process, allow staff to determine that a matter is not appropriate for the program due to characteristics that would require expenditure of disproportionate program resources, and reallocate certain decision-making authority—including allowing staff to determine that a matter has reached impasse without input from the councilor overseeing the fee dispute program.

Proposed Amendments

At its meeting on April 25, 2025, the council voted to publish for comment the following proposed rule amendments.

Proposed Amendments to the Rules Governing Continuing Legal Education Program

27 N.C.A.C. 1D, Section .1500, Rules Governing Continuing Legal Education Program

The proposed amendment to the CLE rules requires sponsors to submit approval applications for all online programs, including but not limited to on-demand programs. Lawyers would no longer be permitted to submit course applications for any online program.

Rule .1520, Requirements for Program Approval

(a)…

(1) Program Application and Processing Fees. Program applications submitted by sponsors shall comply with the deadlines and Fee Schedule set by the Board and approved by the Council, including any additional processing fees for late or expedited applications.

...

(3) Member Applications. Members may submit a program application for a previously unapproved out of state, in-person program after the program is completed, accompanied by a reduced application fee. Online On-demand program applications must be submitted by the program sponsor.

...

Proposed Amendments to the Rules Governing Discipline and Disability of Attorneys

27 N.C.A.C. 1B, Section .0100, Rules Governing Discipline and Disability of Attorneys

The proposed amendments effectuate recommendations of the 2024 Legislative Committee to eliminate the process whereby grievance complainants are notified that a respondent lawyer received private written discipline or a private letter of warning or caution, as this notification allows complainants to publicize what is supposed to be a private outcome.

Rule .0125, Notice to Complainant

(a) Notice of Public Discipline - If the Grievance Committee finds probable cause and imposes public written discipline, the chairperson of the Grievance Committee will notify the complainant of the action of the committee.

(b) Referral to for Disciplinary Commission Hearing - If the Grievance Committee finds probable cause and refers the matter to the commission, the chairperson of the Grievance Committee Office of Counsel will advise the complainant that the grievance has been received and was considered by the committee and has been referred to the commission for hearing.

(c) Notice of Dismissal or Private Resolution - If the Grievance Committee finds that there is no probable cause to believe that misconduct occurred and votes to dismisses a grievance, dismisses a grievance with a letter of warning or letter of caution, finds probable cause and imposes a private admonition, or offers the respondent the opportunity to participate in a deferral program, the chairperson of the Grievance Committee will advise notify the complainant that the committee did not find probable cause to justify imposing discipline and dismissed the grievance was considered by the committee and has been resolved privately, either by dismissal, deferral, or private action.

(d) Notice of Letter of Caution or Letter of Warning - If final action on a grievance is taken by the Grievance Committee in the form of a letter of caution or a letter of warning, the chairperson of the Grievance Committee will so advise the complainant. The communication to the complainant will explain that the letter of caution or letter of warning is not a form of discipline.

(e) Referral to Board of Continuing Legal Education - If a grievance is referred to the Board of Continuing Legal Education, the chairperson of the Grievance Committee will advise the complainant of that fact and the reason for the referral. If the respondent successfully completes the prescribed training and the grievance is dismissed, the chairperson of the Grievance Committee will advise the complainant. If the respondent does not successfully complete the prescribed course of training, the chairperson of the Grievance Committee will advise the complainant that investigation of the original grievance has resumed.

Rule .0127, Imposition of Discipline; Findings of Incapacity or Disability; Notice to Courts

(a) Imposition of Discipline - Upon the final determination of a disciplinary proceeding wherein discipline is imposed, one of the following actions will be taken:

(1) Admonition - An admonition will be prepared by the chairperson of the Grievance Committee or the chairperson of the hearing panel depending upon the agency ordering the admonition. The admonition will be served upon the defendant. The An admonition imposed by the Grievance Committee will not be recorded in the judgment docket of the North Carolina State Bar and will not be a public document. Where the admonition is imposed by the Grievance Committee, the complainant will be notified that the defendant has been admonished, but will not be entitled to a copy of the admonition. An order of admonition imposed by the commission will be a public document.

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Proposed Amendments to the Rules Governing Practical Training of Law Students

27 N.C.A.C. 1C, Section .0200, Rules Governing Practical Training of Law Students

The proposed rule amendments would permit law school graduates who have a pending application for admission to the North Carolina State Bar to engage in limited supervised practice at government agencies and legal services organizations.

Subchapter 1C, Rules Governing the Board of Law Examiners and the Training of Law Students and Law Graduates

Section .0200, Rules Governing the Practical Training of Law Students and Law Graduates

Rule .0201, Purpose

The rules in this subchapter are adopted for the following purposes: 1) to support the development of experiential legal education programs at North Carolina’s law schools in order that the law schools may provide their students with supervised practical training of varying kinds during the period of their formal legal education; 2) to enable law students and law school graduates to obtain supervised practical training while serving as certified law students and certified law school graduates for government agencies and legal services organizations; and 3) to assist law schools in provideing substantial opportunities for certified law students participation and experience tial education in pro bono service.

Rule .0202, Definitions

The following definitions shall apply to the terms used in this section:

(a) ...

(d) Certified law school graduate – a law school graduate who has a pending application for admission to the North Carolina State Bar and is certified to work in conjunction with a supervising attorney to provide legal services through a government agency or legal services organization under the provisions of this subchapter.

(Relettering of remaining paragraphs.)

...

(lm) Supervising attorney - An active member of the North Carolina State Bar, or an attorney who is licensed in another jurisdiction as appropriate for the legal work to be undertaken, who has practiced law as a full-time occupation for at least two years, and who supervises one or more certified law students or certified law school graduates pursuant to the requirements of the rules in this subchapter.

Rule .0203, Eligibility

(a) To engage in activities permitted by these rules, a law student must satisfy the following requirements:

(a1) be enrolled as a J.D. or LL.M. student in a law school approved by the Council of the North Carolina State Bar;

(b2) be certified in writing by a representative of his or her law school, authorized by the dean of the law school to provide such certification, as being of good character with requisite legal ability and legal education to perform as a certified law student, which education shall include satisfaction of the prerequisites for participation in the clinic, externship, or other student practice placement;

(c3) be introduced by an attorney admitted to practice in the tribunal or agency to every judicial official who will preside over a matter in which the student will appear, and, pursuant to Rule .0206(c) of this subchapter, obtain the tribunal’s or agency’s consent to appear subject to any limitations imposed by the presiding judicial official; such introductions do not have to occur in open court and the consent of the judicial official may be oral or written;

(d4) neither ask for nor receive any compensation or remuneration of any kind from any eligible person to whom he or she renders services, but this shall not prevent an attorney, legal services organization, law school, or government agency from paying compensation to the law student or charging or collecting a fee for legal services performed by such law student; and

(e5) attest in writing that he or she has read the North Carolina Rules of Professional Conduct and is familiar with the opinions interpretive thereof.

(b) To engage in activities permitted by these rules, a law school graduate must satisfy the following requirements:

(1) obtain a juris doctor from a law school approved by the Council of the North Carolina State Bar;

(2) be introduced by an attorney admitted to practice in the tribunal or agency to every judicial official who will preside over a matter in which the certified law school graduate will appear and, obtain the tribunal’s or agency’s consent to appear subject to any limitations imposed by the presiding judicial official; such introductions do not have to occur in open court and the consent of the judicial official may be oral or written;

(3) obtain a score on the Multistate Professional Responsibility Exam sufficient for admission to the North Carolina State Bar;

(4) has not failed a character and fitness review conducted by the North Carolina Board of Law Examiners or any other professional licensing agency;

(5)  neither ask for nor receive any compensation or remuneration of any kind from any eligible person to whom he or she renders services, but this shall not prevent a legal services organization, or government agency from paying compensation to the certified law school graduate or charging or collecting a fee for legal services performed by such certified law school graduate; and

(6)  attest in writing that he or she has read the North Carolina Rules of Professional Conduct and is familiar with the opinions interpretive thereof.

Rule .0204, Form and Duration of Certification

(a) Upon receipt of the written materials required by Rule .0203(ba) and (e) and Rule .0205(b), the North Carolina State Bar shall certify that the law student may serve as a certified law student. The certification shall be subject to the following limitations:

(a1) Duration. The certification shall be effective for 18 consecutive months or until the announcement of the results of the first bar examination following the certified law student’s graduation whichever is earlier. Certification shall terminate at the end of the designated period of supervision or upon the supervising attorney notifying the State Bar that supervision has ended, whichever occurs first. If the certified law student passes the bar examination, the certification shall remain in effect until the certified law student is sworn-in by a court and admitted to the bar provided the certified law student has obtained a passing score on the Multistate Professional Responsibility Exam required for admission to the North Carolina State Bar and. For the duration of the certification, the certification shall be transferrable from one student practice placement or law school clinic to another student practice placement or law school clinic, provided that (i) all student practice placements are approved by the law school prior to the certified law student’s graduation, and (ii) the supervision and filing requirements in Rule .0205 of this subchapter are at all times satisfied.

(b2) Withdrawal of Certification. The certification shall be withdrawn by the State Bar, without hearing or a showing of cause, upon receipt of any of the following:

(1A) notice from a representative of the certified law student’s law school, authorized to act by the dean of the law school, that the student has not graduated but is no longer enrolled;

(2B) notice from a representative of the certified law student’s law school, authorized to act by the dean of the law school, that the student is no longer in good standing at the law school;

(3C) notice from a supervising attorney that the supervising attorney is no longer supervising the certified law student and that no other qualified attorney has assumed the supervision of the student; or

(4D) notice from a judge before whom the certified law student has appeared that the certification should be withdrawn; or.

(5E) notice that the certified law student no longer meets the eligibility requirements under Rule .0203 of this chapter.

(b) Upon receipt of the written materials required by Rule .0203(b) and Rule .0205(b), the North Carolina State Bar shall certify that the law school graduate may serve as a certified law school graduate. The certification shall be subject to the following limitations:

(1) Duration. The certification shall be effective until the announcement of the results of the third bar examination following the certified law school graduate’s graduation. Certification shall terminate at the end of the designated period of supervision or upon the supervising attorney notifying the State Bar that supervision has ended, whichever occurs first. If the certified law school graduate passes the bar examination, the certification shall remain in effect until the certified law school graduate is sworn-in by a court and admitted to the bar provided the supervision and filing requirements in Rule .0205 of this subchapter are at all times satisfied.

(2) Withdrawal of Certification. The certification shall be withdrawn by the State Bar, without hearing or a showing of cause, upon receipt of any of the following:

(A) notice from a supervising attorney that the supervising attorney is no longer supervising the certified law school graduate and that no other qualified attorney has assumed the supervision of the graduate;

(B) notice from a judge before whom the certified law school graduate has appeared that the certification should be withdrawn;

(C) notice that the certified law school graduate no longer meets the eligibility requirements under Rule .0203 of this chapter; or

(D) notice that the certified law school graduate did not apply to sit for the next available North Carolina bar exam prior to the application deadline set by the North Carolina Board of Law Examiners.

Rule .0205, Supervision

(a) Supervision Requirements. A supervising attorney shall:

(1) for a law school clinic, concurrently supervise an unlimited number of certified law students if the supervising attorney is a full-time, part-time, or adjunct member of a law school’s faculty or staff whose primary responsibility is supervising certified law students in a law school clinic and, further provided, the number of certified law students concurrently supervised is not so large as to compromise the effective and beneficial practical training of the certified law students or the competent representation of clients;

(2) for a student practice placement, concurrently supervise no more than two certified law students; however, a greater number of certified law students may be concurrently supervised by a single supervising attorney if (i) an appropriate faculty member of each certified law student’s law school determines, in his or her reasoned discretion, that the effective and beneficial practical training of the certified law students will not be compromised, and (ii) the supervising attorney determines that the competent representation of clients will not be compromised;

(3) for a government agency or legal services organization, concurrently supervise no more than two certified law students or certified law school graduates; however, a greater number of certified law school students or graduates may be concurrently supervised by a single supervising attorney if the supervising attorney determines that the competent representation of clients will not be compromised;

(34) assume personal and professional responsibility for any work undertaken by a certified law student or certified law school graduate while under his or her supervision, including maintaining the status quo of a client matter and taking action as necessary to protect the interests of the client until the certified law student or certified law school graduate is available or a new certified law student or certified law school graduate is assigned to the matter;

(45) assist and counsel with a certified law student or certified law school graduate in the activities permitted by these rules and review such activities with the certified law student or certified law school graduate, all to the extent required for the proper practical training of the student and the competent representation of the client;

(56) read, approve, and personally sign any pleadings or other papers prepared by a certified law student or certified law school graduate prior to the filing thereof, and read and approve any documents prepared by a certified law student or certified law school graduate for execution by a client or third party prior to the execution thereof; and

(67) for externships and internships (other than placements at government agencies), ensure that any activities by the certified law student that are authorized by Rule .0206 are limited to representations of eligible persons.

(b) Filing Requirements.

(1) Prior to commencing supervision, a supervising attorney in a law school clinic shall provide a signed statement to the North Carolina State Bar (i) assuming responsibility for the supervision of identified certified law students, (ii) stating the period during which the supervising attorney expects to supervise the activities of the identified certified law students, and (iii) certifying that the supervising attorney will adequately supervise the certified law students in accordance with these rules.

(2) Prior to the commencement of a student practice placement for a certified law student, the site supervisor shall provide a signed statement to the North Carolina State Bar and to the certified law student’s law school (i) assuming responsibility for the administration of the field placement in compliance with these rules, (ii) identifying the participating certified law student and stating the period during which the certified law student is expected to participate in the program at the placement, (iii) identifying the supervising attorney at the placement, and (iv) certifying that the supervising attorney will adequately supervise the certified law student in accordance with these rules.

(2) Prior to commencing supervision, a supervising attorney shall provide a signed statement to the North Carolina State Bar (i) identifying the participating certified law student(s) or certified law school graduate(s) and the supervising attorney, (ii) assuming responsibility for the supervision of the identified certified law student(s) or certified law school graduate(s), (iii) stating the period during which the supervising attorney expects to supervise the activities of the identified certified law student(s) or certified law school graduate(s), and (iv) certifying that the supervising attorney will adequately supervise the certified law student(s) or certified law school graduate(s) in accordance with these rules.

(3) A supervising attorney in a law school clinic and a site supervisor for a certified law student program at a student practice placement shall notify the North Carolina State Bar in writing promptly whenever the supervision of a certified law student or certified law school graduate concludes prior to the designated period of supervision.

(c) Responsibilities of Law School Clinic in Absence of Certified Law Student. During any period when a certified law student is not available to provide representation due to law school seasonal breaks, graduation, or other reason, the supervising attorney shall maintain the status quo of a client matter and shall take action as necessary to protect the interests of the client until the certified law student is available or a new certified law student is assigned to the matter. During law school seasonal breaks, or other periods when a certified law student is not available, if a law school clinic or a supervising attorney is presented with an inquiry from an eligible person or a legal matter that may be appropriate for representation by a certified law student, the representation may be undertaken by a supervising attorney to preserve the matter for subsequent representation by a certified law student. Communications by a supervising attorney with a prospective client to determine whether the prospective client is eligible for clinic representation may include providing immediate legal advice or information even if it is subsequently determined that the matter is not appropriate for clinic representation.

(d) Supervision of a certified law student or certified law school graduate may be shared by two or more attorneys employed by the organization, entity, law firm, or government agency, provided one attorney acts as site supervisor, assuming administrative responsibility for the certified law student or certified law school graduate program at the placement and filing with the State Bar the statements required by Rule .0205(b) of this subchapter. All supervising attorneys shall comply with the requirements of Rule .0205(a).

(de) Independent Legal Practice. Nothing in these rules prohibits a supervising attorney in a law school clinic from providing legal services to third parties outside of the scope of the supervising attorney’s employment by the law school operating the law school clinic.

Rule .0206, Activities

(a) A properly certified law student or certified law school graduate may engage in the activities provided in this rule under the supervision of an attorney qualified and acting in accordance with the provisions of Rule .0205 of this subchapter.

(b) Without the presence of the supervising attorney, a certified law student or certified law school graduate may give advice to a client, including a government agency, on legal matters provided that the certified law student or certified law school graduate gives a clear prior explanation that the certified law student or certified law school graduate is not an attorney and the supervising attorney has given the certified law student or certified law school graduate permission to render legal advice in the subject area involved.

(c) A certified law student or certified law school graduate may represent an eligible person, the state in criminal prosecutions, a criminal defendant who is represented by the public defender, or a government agency in any proceeding before a federal, state, or local tribunal, including an administrative agency, if prior consent is obtained from the tribunal or agency upon application of the supervising attorney. Each appearance before the tribunal or agency shall be subject to any limitations imposed by the tribunal or agency including, but not limited to, the requirement that the supervising attorney physically accompany the certified law student or certified law school graduate.

(d) In all cases under this rule in which a certified law student or certified law school graduate makes an appearance before a tribunal or agency on behalf of a client who is an individual, the certified law student or certified law school graduate shall have the written consent in advance of the client. The client shall be given a clear explanation, prior to the giving of his or her consent, that the certified law student or certified law school graduate is not an attorney. This consent shall be filed with the tribunal and made a part of the record in the case. In all cases in which a certified law student or certified law school graduate makes an appearance before a tribunal or agency on behalf a government agency or legal services organization under the supervision of an attorney employed by or affiliated with the government agency or legal services organization, the consent of the government agency or legal services organization shall be presumed if the certified law student is participating in a law school externship program or an internship program of the government agency. A statement advising the court of the certified law student’s participation in an externship or internship program at the government agency shall be filed with the tribunal and made a part of the record in the case.

(e) In all cases under this rule in which a certified law student or certified law school graduate is permitted to make an appearance before a tribunal or agency, subject to any limitations imposed by the tribunal, the certified law student or certified law school graduate may engage in all activities appropriate to the representation of the client, including, without limitation, selection of and argument to the jury, examination and cross-examination of witnesses, motions and arguments thereon, and giving notice of appeal.

Rule .0207, Use of Student’s Name

(a) A certified law student’s or certified law school graduate’s name may properly

(1) be printed or typed on briefs, pleadings, and other similar documents on which the certified law student or certified law school graduate has worked with or under the direction of the supervising attorney, provided the certified law student or certified law school graduate is clearly identified as a student or law school graduate certified under these rules, and provided further that the certified law student shall not exclusively sign his or her name to such briefs, pleadings, or other similar documents;

(2) be signed to letters written on the letterhead of the supervising attorney, legal aid clinic, or government agency, provided there appears below the certified law student’s or certified law school graduate’s signature a clear identification that the student individual is certified under these rules. An appropriate designation is “[Certified Law Student] [or Certified Law School Graduate] under the Supervision of [supervising attorney]”,; and

(3) be printed on a business card, provided the name of the supervising attorney also appears on the business card and there appears below the certified law student’s or certified law school graduate’s name a clear statement that the student is certified under these rules. An appropriate designation is “[Certified Law Student] [or Certified Law School Graduate] under the Supervision of [supervising attorney].”

(b) A certified law student’s or certified law school graduate’s name may not appear on the letterhead of a supervising attorney, legal aid clinic, or government agency.

Proposed Amendments to the Rules Governing the Administration of the Client Security Fund of the North Carolina State Bar

27 N.C.A.C. 1D, Section .1400, Rules Governing the Administration of the Client Security Fund of the North Carolina State Bar

The proposed amendments (1) provide for the Client Security Fund (CSF) to receive funds maintained in attorney trust accounts that are frozen pursuant to an injunction and cannot be identified due to an attorney’s trust accounting deficiencies; (2) allow the Office of Counsel to seek court-ordered disbursement of such unidentified funds to CSF; (3) allow for the CSF to reimburse claimants who suffered a loss occasioned by an attorney’s mismanagement and/or mishandling of funds rather than through dishonesty; and (4) allow reimbursement of claims when an attorney takes an advance fee and fails to perform any meaningful legal services on behalf of the client.

Rule .1401, Purpose; Definitions

(a) The Client Security Fund of the North Carolina State Bar was established by the Supreme Court of North Carolina pursuant to an order dated August 29, 1984. The fund is a standing committee of the North Carolina State Bar Council pursuant to an order of the Supreme Court dated October 10, 1984, as amended. Its purpose is to reimburse, in whole or in part in appropriate cases and subject to the provisions and limitations of the Supreme Court’s orders and these Rules, clients who have suffered financial loss as the result of misuse of entrusted property by attorneys dishonest conduct of lawyers engaged in the private practice of law in North Carolina, which conduct occurred on or after January 1, 1985.

(b) As used herein the following terms have the meaning indicated.

(1) “Applicant” shall mean a person who has suffered a reimbursable loss because of the dishonest conduct of an attorney and has filed an application for reimbursement.

(2) “Attorney” shall mean an attorney who, at the time of alleged dishonest conduct resulting in a reimbursable loss, was licensed to practice law by the North Carolina State Bar. The fact that the alleged dishonest conduct took place outside the state of North Carolina does not necessarily mean that the attorney was not engaged in the practice of law in North Carolina.

(3) “Board” shall mean the Board of Trustees of the Client Security Fund.

(4) “Council” shall mean the North Carolina State Bar Council.

(5) “Dishonest conduct” shall mean wrongful acts committed by an attorney against an applicant in the nature of embezzlement from the applicant or the wrongful taking or conversion of monies or other property of the applicant, which monies or other property were entrusted to the attorney by the applicant by reason of an attorneyclient relationship between the attorney and the applicant or by reason of a fiduciary relationship between the attorney and the applicant customary to the practice of law. Dishonest conduct may include an attorney’s failure to provide meaningful legal services for which an applicant advanced fees.

(6) “Entrusted property” denotes trust funds, fiduciary funds, and other property belonging to someone other than the attorney which is in the attorney’s possession or control in connection with the performance of legal services or professional fiduciary services.

(76) “Fund” shall mean the Client Security Fund of the North Carolina State Bar.

(8) “General trust account” shall mean an account maintained by an attorney for the deposit of trust funds that is not dedicated for the sole benefit of a single client or transaction.

(9) “Mishandling of funds” shall mean failing to properly receive, deposit, or disburse entrusted funds.

(10) “Mismanagement of a general trust account” shall mean failing to create or maintain sufficient records to identify the client for whom entrusted were received or disbursed, the amount of funds held in the trust account for each client at any given time, and/or the recipients and amounts of all disbursements from the trust account.

(11)  “Misuse of entrusted property” shall mean actions of an attorney that

(A)   deprived a client of entrusted property to which the client was entitled, and

(B)   that were dishonest or that constituted mishandling of funds or mismanagement of a general trust account.

(127) “Reimbursable losses” shall mean only those losses of money or other property which meet all of the following tests:

(A) the dishonest conduct which occasioned the loss occurred on or after January 1, 1985;

(B) the loss was caused by misuse of entrusted property in the following circumstances:

(1) by the dishonest conduct of an attorney acting either as an attorney for the applicant or in a fiduciary capacity for the benefit of the applicant customary to the private practice of law in the matter in which the loss arose; and/or

(2) by mismanagement of a general trust account or by mishandling of funds, by an attorney who was subsequently enjoined by court order from handling trust or fiduciary funds, where the claimant was a client of the attorney, where the attorney received entrusted property from or for the benefit of the claimant, and where a court ordered funds from that enjoined attorney’s general trust account to be disbursed to the Fund; and

(C) the applicant has exhausted all viable means to collect applicant’s losses and has complied with these Rules.

(138) The following shall not be deemed “reimbursable losses”:

(A) losses of spouses, parents, grandparents, children and siblings (including foster and half relationships), partners, associates or employees of the attorney(s) causing the losses;

(B) losses covered by any bond, security agreement or insurance contract, to the extent covered thereby;

(C) losses incurred by any business entity with which the attorney or any person described in Rule Part 1.(b)(138)(A) of this Rule is an officer, director, shareholder, partner, joint venturer, promoter or employee;

(D) losses, reimbursement for which has been otherwise received from or paid by or on behalf of the attorney who caused the loss committed the dishonest conduct;

(E) losses arising in investment transactions in which there was neither a contemporaneous attorneyclient relationship between the attorney and the applicant nor a contemporaneous fiduciary relationship between the attorney and the applicant customary to the practice of law. By way of illustration but not limitation, for purposes of this rule Rule [RulePart .1401(b)(138)(E) of this Rule], an attorney authorized or permitted by a person or entity other than the applicant as escrow or similar agent to hold funds deposited by the applicant for investment purposes shall not be deemed to have a fiduciary relationship with the applicant customary to the practice of law.

(149) “State Bar” shall mean the North Carolina State Bar.

(1510) “Supreme Court” shall mean the North Carolina Supreme Court.

(1611) “Supreme Court orders” shall mean the orders of the Supreme Court dated August 29, 1984, and October 10, 1984, as amended, authorizing the establishment of the Client Security Fund of the North Carolina State Bar and approving the rules of procedure of the Fund.

(17) “Trust funds” and “entrusted funds” shall mean funds belonging to someone other than the attorney that are received by or placed under the control of the attorney in connection with the performance of legal services.

Rule .1412, Source of Funds

Funds for the program carried out by the board shall come from

(a) assessments of members of the State Bar as ordered by the Supreme Court,

(b) voluntary contributions,

(c) general trust accounts when a court determines that the owners of the funds in the account cannot be identified and orders that the contents be delivered to the Fund, and

(d) as may otherwise be received by the Fund.

Funds for the program carried out by the board shall come from assessments of members of the State Bar as ordered by the Supreme Court, from voluntary contributions, and as may otherwise be received by the Fund.

Rule .1417, Applications for Reimbursement

(a) The board shall prepare a form of application for reimbursement which shall require the following minimum information, and such other information as the board may from time to time specify:

(1) the name and address of the applicant;

(2) the name and address of the attorney who is alleged to have caused the reimbursable loss engaged in dishonest conduct;

(3) the amount of the alleged loss for which application is made;

(4) the date on or period of time during which the alleged loss occurred;

(5) a general statement of facts relative to the application;

(6) a description of any relationship between the applicant and the attorney of the kinds described in Rule .1401(b)(128)(A) and (C) of this Section;

(7)  if the claim is based upon mismanagement of an attorney general trust account or mishandling of funds by an attorney who was subsequently enjoined by court order from handling trust or fiduciary funds, documentation that the claimant was a client of the attorney, that the attorney received entrusted property from or for the benefit of the claimant, and documentation establishing that a court ordered funds from that enjoined attorney’s general trust account to be disbursed to the Fund;

(78) verification by the applicant;

(89) all supporting documents, including:

(A) copies of any court proceedings against the attorney;

(B) copies of all documents showing any reimbursement or receipt of compensation funds in payment of any portion of the loss.

(b) ...

Rule .1418 Processing Applications

(a) The board shall cause an investigation of all applications filed with the State Bar to determine whether the application is for a reimbursable loss and the extent, if any, to which the applicant application should be paid from the Fund.

(b) The chairperson of the board shall assign each application to a member of the board for review and report. Wherever possible, the member to whom such application is referred shall practice in the county wherein the attorney practices or practiced.

(c) A copy of the application shall be served upon or sent by certified registered mail to the last known address of the attorney who it is alleged to have caused a reimbursable loss committed an act of dishonest conduct.

(d) After considering a report of investigation as to an application, any board member may request that testimony be presented concerning the application. In all cases, the alleged defalcating attorney or his or her representative will be given an opportunity to be heard by the board if the attorney so requests.

(e) The board shall operate the Fund so that, taking into account assessments ordered by the Supreme Court but not yet received and anticipated investment earnings, a principal balance of approximately one million dollars($1,000,000) is maintained. Subject to the foregoing, the board shall, in its discretion, determine the amount of loss, if any, for which each applicant should be reimbursed from the Fund. In making such determination, the board shall consider, inter alia, the following:

(1) the negligence, if any, of the applicant which contributed to the loss;

(2) the comparative hardship which the applicant suffered because of the loss;

(3) the total amount of reimbursable losses of applicants on account of any one attorney or firm or association of attorneys;

(4) the total amount of reimbursable losses in previous years for which total reimbursement has not been made and the total assets of the Fund;

(5) the total amount of insurance or other source of funds available to compensate the applicant for any reimbursable loss.

(f) The board may, in its discretion, allow further reimbursement in any year of a reimbursable loss reimbursed in part by it in prior years.

(g) Provided, however, and the foregoing notwithstanding, in no case shall the Fund reimburse the otherwise reimbursable losses sustained by any one applicant as a result of the dishonest conduct of one attorney in an amount in excess of one hundred thousand dollars ($100,000).

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(k) All applications, proceedings, investigations, and reports involving applicants for reimbursement shall be kept confidential until and unless the board authorizes reimbursement to the applicant, or the attorney alleged to have caused a reimbursable loss engaged in dishonest conduct requests that the matter be made public. All participants involved in an application, investigation, or proceeding (including the applicant) shall conduct themselves so as to maintain the confidentiality of the application, investigation or proceeding. This provision shall not be construed to deny relevant information to be provided by the board to disciplinary committees or to anyone else to whom the council authorizes release of information.

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Proposed Amendments to the Rules of Professional Conduct

27 N.C.A.C. 02, Section .0100, Rules of Professional Conduct

The proposed amendments remove reference to State Bar Trust Account Compliance Counsel, as that position was eliminated in the recent restructuring of the Trust Account Compliance Department.

Rule 1.15-2, General Rules

(a) …

(p) Duty to Report Misappropriation. A lawyer who discovers or reasonably believes that entrusted property has been misappropriated or misapplied shall promptly inform the North Carolina State Bar’s Trust Account Compliance Department Counsel (TACC) in the North Carolina State Bar Office of Counsel. Discovery of intentional theft or fraud must be reported to the Trust Account Compliance Department TACC immediately. When an accounting or bank error results in an unintentional and inadvertent use of one client’s trust funds to pay the obligations of another client, the event must be reported unless the misapplication is discovered and rectified on or before the next quarterly reconciliation required by Rule 1.15-3(d)(1). This rule requires disclosure of information otherwise protected by Rule 1.6 if necessary to report the misappropriation or misapplication.

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Rule 1.15 Comment to Rule 1.15 and all subparts

[1] The purpose of a lawyer’s trust account or fiduciary account is to segregate the funds belonging to others from those belonging to the lawyer. Money received by a lawyer while providing legal services or otherwise serving as a fiduciary should never be used for personal purposes. Failure to place the funds of others in a trust or fiduciary account can subject the funds to claims of the lawyer’s creditors or place the funds in the lawyer’s estate in the event of the lawyer’s death or disability…

Duty to Report Misappropriation or Misapplication

[27] A lawyer is required by Rule 1.15-2(p) to report to the Trust Account Compliance Counsel Department of the North Carolina State Bar Office of Counsel if the lawyer knows or reasonably believes that entrusted property, including trust funds, has been misappropriated or misapplied. The rule requires the reporting of an unintentional misapplication of trust funds, such as the inadvertent use of one client’s funds on deposit in a general trust account to pay the obligations of another client, unless the lawyer discovers and rectifies the error on or before the next scheduled quarterly reconciliation. A lawyer is required to report the conduct of lawyers and non-lawyers as well as the lawyer’s own conduct. A report is required regardless of whether information leading to the discovery of the misappropriation or misapplication would otherwise be protected by Rule 1.6. If disclosure of confidential client information is necessary to comply with this rule, the lawyer’s disclosure should be limited to the information that is necessary to enable the State Bar to investigate. See Rule 1.6, cmt. [15].

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