The Delaware State Bar Association

Ethically Speaking

Fall Round-Up

by Charles Slanina, Esquire

Like leftover squash in the garden, I am harvesting all of the items accumulated during the summer which, although they did not merit a column on their own, collectively, they are too good to toss. So, like the squash, I am giving them out to the neighbors.

Overdraft Notification
Delaware has finally adopted a requirement for notification when there is an overdraft of a trust fund. Effective January 1, 2003 lawyer trust funds may only be deposited with an approved bank. That bank will be required to notify the Client Security Trust Fund whenever an item is returned for insufficient funds - even if the account has overdraft protection. In an interview with Disciplinary Counsel Mary Johnston, I was advised that a Rule change is expected before the Rule even takes effect. Notifications will go directly to the Office of Disciplinary Counsel.

The Rule will not take into account the $500 deposit of personal or firm funds that the lawyer is permitted to maintain in the account to cover costs and fees. The notification requirement will only apply to those accounts which the attorney has self-designated as a trust account.

Per Ms. Johnston, she expects her office to handle notifications of overdrafts the same as they have in the past. Attorneys will be asked for a prompt explanation of the overdraft. If the explanation is both timely and satisfactory, the matter will not be treated as disciplinary. However, if an explanation is not forthcoming, or if there are multiple instances, the handling of the issue will be different.

Multi-Jurisdictional Practice
Could Fortress Delaware have a breach in the wall? Delaware has remained steadfast in refusing to permit reciprocity for attorneys admitted in other states. Popular sentiment is that the flood gates would open and attorneys would pour into the State.

This protectionism may end. The American Bar Association adopted a Model Rule that would allow veteran lawyers to apply for a permanent admission in any State without taking the Bar Exam. The ABA House Delegates passed the measure 157/150 as part of a package of multi-jurisdictional practice resolutions.

Admission by Motion is permitted in approximately 15 states. Delaware currently permits only pro hac vice admissions limited to specific cases and severely limited in the number and frequency of such admissions.

The new Model Rule on Admission by Motion would not require a bar examination for lawyers holding a degree from an ABA accredited law school who have been engaged in the active practice of law for five of the seven preceding years.

The measure falls short of a national bar admission since individual states would still be entitled to impose regulations that are tantamount to residency requirements. Delaware currently requires that an attorney maintained a bona fide office before they can file pleadings. Similarly, each State could require Admission by Motion attorneys to maintain trust accounts, pay into the Client Security Trust Fund, participate in CLE requirements and other restrictions under the local rules.

Will Delaware rush to adopt this Model Rule? Stay tuned.

In-House Counsel and Insurance Defense
Ethically Speaking has previously discussed the role of "captive firms" used by insurance carriers. Per this arrangement, insurance companies either create or foster a firm to provide legal representation to their insureds. In the extreme instance, the attorneys of the captive firm are salaried, full-time employees of the Carrier who are not permitted to do any other work. The insureds may or may not be told of this special arrangement between their attorney and their insurance carrier.

A number of states have looked at the issue as to whether or not the Carrier is engaged in the unauthorized practice of law by doing so. Recently, the California Fourth District Court of Appeal ruled that "an insurance company does not engage in the practice of law due to the mere employment relationship between the insurer and the attorneys defending its insured against third-party claims." Gafcon v. Ponser, Travelers Property Casualty Corp.

The ruling was based in part on the Court's finding that the Carrier had a financial interest in the outcome of the case. The Court rejected the argument that the relationship between the captive firm and the Carrier creates a presumption that the in-house counsel will always favor the insurer's interest.

Extreme Measures
A Pittsburgh, Pennsylvania lawyer was found in Contempt of Court and ordered jailed for six months for missing two trial dates. Attorney Joseph Hudak was representing a criminal defendant charged with armed robbery, drug possession and assault. His client had been in jail for 18 months awaiting trial. There was reported to be eight delays in the case, seven caused by Hudak. The finding of contempt was imposed without any prior warning although Mr. Hudak is reported to have apologized. The above is based on a story by Mike Crissey of Associated Press.