New Time Limits for Holding Client Funds: What California Personal Injury Lawyers Need to Know
California attorneys have always had a duty to responsibly manage client funds held in trust. However, following the Tom Girardi scandal, the State Bar of California amended Rule 1.15 of the California Rules of Professional Conduct (“RPC 1.15”) to impose significant new duties on lawyers when it comes to management of funds and property belonging to a client or third person.
Under the newly amended RPC 1.15(d), California attorneys must now ensure:
Timely Notification: When an attorney receives funds or property belonging to a client or third person (“claimant”), the attorneys must inform the claimant of that fact within 14 days.
Prompt Disbursement: When an attorney receives funds or property belonging to a claimant, the attorney must disburse the undisputed portion of the funds or property to the claimant within 45 days. Failure to do so will create a rebuttable presumption that the attorney violated RPC 1.15(d)(7).
These changes are relevant to–and are indeed targeted toward–personal injury practice, and have major implications for settlement disbursement timing, lien resolution, and trust accounting compliance. Personal injury firms must adopt more proactive strategies to avoid ethics violations and potential disciplinary actions.
This article highlights key updates to client fund time limits, how they impact personal injury law firms, and best practices to ensure compliance under the new rules.
The New Rules: What Changed?
RPC 1.15(d) now requires:
14-day Notification
When an attorney receives funds or property belonging to a client or third person (“claimant”), the attorneys must inform the claimant of that fact within 14 days. (RPC 1.15(d)(1)).
45-day Disbursement
When an attorney receives funds or property belonging to a claimant, the attorney must “promptly” disburse the undisputed portion of the funds or property to the claimant. (RPC 1.15(d)(7))
RPC 1.15(d)(7) doesn’t define what “promptly” means; however, RPC 1.15(f) states that, absent good cause, failure to disburse all “undisputed” funds within 45 days of receipt will create a rebuttable presumption that the lawyer has violated RPC 1.15(d)(7).
Implications for Plaintiff Firms in California
Increased Pressure on the Lien Resolution Process
The black letter of Rule 1.15(d)(7) seems to require that the lien resolution process–which can take months, if not years–conclude within 45 days of the receipt of settlement funds.
This puts pressure on personal injury firms to begin lien resolution earlier in the settlement process, which can strain a firm’s lien resolution resources.
It also gives lienholders a leg up in the resolution process, as they can now use the 45-day “clock” against personal injury lawyers in the negotiation process.
Increased Pressure on Trust Account Management
Beyond reconciliation of accounts, firms must now ensure the prompt (45-day) disbursement of all undisputed funds in their IOLTAs.
This will require increased controls and place heightened pressure on firms’ accounting staff.
Non-Compliance Could Devastate Your Firm
In this post-Girardi world, the State Bar of California is likely to heavily scrutinize personal injury firms’ compliance with the newly amended RPC 1.15. I’d expect that any firm found in non-compliance will be extensively audited (at the firm’s expense) and prosecuted as an example to all others that non-compliance will not be tolerated. This is especially true of larger, more well-known personal injury firms.
Best Practices for Compliance
To ensure full compliance with California’s updated trust account and settlement distribution rules, personal injury lawyers should implement the following:
Set Internal Deadlines for Settlement Disbursement
Implement a 14-day and 45-day deadline system for client notifications and payments.
If you realize that you’re going to miss your 45-day deadline, contact the client or third person whose property you’re holding and try to get their written permission to continue holding the property beyond the deadline. This will likely be easier with clients than with lienholders.
Proactively Address Liens Early
Begin lien negotiations immediately to prevent delays once funds arrive.
Maintain Clear & Consistent Client Communication
Notify clients as soon as funds are available and provide regular updates on lien resolution. Consider automating the resolution process. The rule does not specify the method of notification, so automated emails or phone calls could be sufficient (with emails being better than automated phone calls).
Use Trust Accounting Software
Ensure all transactions are tracked, and trust ledgers are accurate to avoid mismanagement.
Consult Ethics Counsel When in Doubt
If there’s uncertainty about compliance, consult a legal ethics attorney to help prevent your firm from making costly mistakes.
Final Thoughts: It’s Time to Adapt Your Firm’s Practices
Personal injury firms must adapt their processes to comply with California’s stricter rules around holding client funds. Ignoring these updates could lead to bar investigations, ethics violations, and potential disciplinary actions.
By taking proactive steps now, firms can ensure they maintain compliance, avoid unnecessary risk, and protect their clients’ interests.
We Can Help You Navigate The Rules
Non-compliance with California’s newly updated RPC 1.15 can lead to serious disciplinary action. Don’t put your firm at risk. Contact Little today for trusted legal ethics counsel.
We specialize in helping personal injury firms like yours comply with California’s rules and avoid costly ethics violations. Whatever you’re going through, we’ve likely seen it and counseled a client through it.
So, if you need ethics advice, contact Little and let us help you Do the Right Thing.
