Following high-profile scandals involving misuse and misappropriation of client trust funds, the California State Bar implemented the Client Trust Account Protection Program, or CTAPP – a series of new rules governing the handling of funds and reporting compliance. In the words of the Bar, the goal of CTAPP is to “strengthen public protection and better support attorneys in fulfilling their client trust accounting duties.” (See, https://www.calbar.ca.gov/Attorneys/Conduct-Discipline/Client-Trust-Accounting-IOLTA/Client-Trust-Account-Protection-Program.) These new rules, and revisions to related rules, took effect on January 1, 2023.
Revisions to California Rules of Profession Conduct (“CRPC”) 1.15 and 1.4
CRPC 1.15(d)(1) now provides that when a lawyer receives funds or other property, the lawyer must, absent good cause, notify the client or other person entitled to the funds or property of that fact no later than 14 days of receipt. The 14-day compliance period replaces the former standard which only provided that notice must be “promptly” given to the client or other person entitled to the funds.
Amended CRPC 1.15(d)(7) requires a lawyer to “promptly distribute any undisputed funds or property in the possession of the lawyer or law firm that the client or other person is entitled to receive.” The former rule provided that the distribution requirement was triggered only upon request. Amended CRPC 1.15(f) provides that unless agreed in writing by the client or other person entitled to funds, the property or funds must be distributed within 45 days of the time those funds or property become undisputed. If the lawyer fails to comply with this requirement, a violation of the rule is rebuttably presumed in any related disciplinary action. Under CRPC 1.15(g), “undisputed funds or property” means “funds or property, or a portion of any such funds or property, in the possession of a lawyer or law firm where the lawyer knows or reasonably should know that the ownership interest of the client or other person in the funds or property, or any portion thereof, has become fixed and there are no unresolved disputes as to the client’s or other person’s entitlement to receive the funds or property.” See Comments [6] and [7] of CRPC 1.15 for illustrative examples.
Comment [1] to CRPC 1.4 now clarifies that “a lawyer’s receipt of funds on behalf of a client requires communication with the client pursuant to [CRPC] 1.15, paragraphs (d)(1) and (d)(4) and ordinarily is also a significant development requiring communication with the client pursuant to this rule.”
New California Rule of Court 9.8.5 and State Bar Rule 2.5
California Rule of Court 9.8.5 and State Bar Rule 2.5 establish and define the procedures of CTAPP. All California lawyers must be familiar with these new rules because all licensees must comply with some level of reporting. Specifically, all licensees must annually report “whether or not, at any time during the prior year, they were responsible for client funds and funds entrusted by others under the provisions of rule 1.15 of the Rules of Professional Conduct and (2) if they were responsible, certify that they are knowledgeable about, and in compliance with, applicable rules and statutes governing client trust accounts and the safekeeping of funds entrusted by clients and others.” CRC 9.8.5(a)(1)-(2). This report can be made through the MyStateBar portal on the State Bar website. Lawyers responsible for trust funds are also required to register the relevant trust accounts with the Bar, unless their law firm registers the information on the lawyer’s behalf. See, https://www.calbar.ca.gov/Attorneys/For-Attorneys/About-Your-State-Bar-Profile/Fees-Payment/Agency-Billing. Lawyers and law firms should be aware that the trust fund registration requirement is not limited to funds held in California accounts, but also accounts maintained out of state for which a licensee is responsible, as defined above. See FAQs (“Requirements for Lawyers Practicing in Multiple Jurisdictions”), https://www.calbar.ca.gov/Portals/0/documents/ctapp/CTAPP-FAQ.pdf.
A licensee “responsible” for trust funds includes any licensee who represents a client in which trust funds are received by the licensee or licensee’s firm and “has responsibility for complying with any of the requirements and prohibitions of [CRPC] 1.15 . . .” State Bar Rule 2.5(A)(1)(a). Thus, compliance and certification duties have been expanded to include not only licensees with direct managerial authority over trust fund accounts, but also those who communicate with the clients regarding receipt and distribution of trust funds.
Reporting Compliance
CTAPP involves three phases. The first phase involves licensees and law firms reporting trust account information and registering the trust accounts as described above. Responsible licensees must also complete a self-assessment form. The second phase involves the State Bar’s compliance review process following the reporting and registration deadline. The third phase is yet to be determined but will be informed by the first two phases.
The first-phase deadline to report trust account information and register accounts is February 1, 2023 – the same deadline to pay license renewal fees and report CLE compliance. However, there is a 60-day grace period for 2023, and the State Bar will not impose penalties until April 2, 2023.
For a full review of CTAPP, including links to helpful resources, please visit the link above. Lawyers are encouraged to attend the webinars offered by the State Bar as set forth in the resources link.