The Delaware State Bar Association

Ethically Speaking

Final Warning

by Charles Slanina, Esquire

Ethically Speaking sets aside our regularly scheduled column to bring this important update. I intended to provide a "substantive" article with pithy advice and supporting caselaw. However, I have just finished my sixth disciplinary hearing defending our brethren charged with books and records and tax violations. I thought it time (although perhaps too late for some) to issue a final warning.

If you have not noticed from the "IN RE:" digests of disciplinary cases, the Office of Disciplinary Counsel, the Board on Professional Responsibility and the Supreme Court are intent on insuring that books and records are maintained in compliance with Rule 1.15 of the Professional Conduct Rules and that all attorney taxes are filed and paid when due. In the past, books and records transgressions such as a failure to reconcile escrow accounts on a monthly basis, prompted a letter from the Lawyer's Fund or the ODC requesting proof that the problem had been corrected. Except in egregious cases, the most serious consequence was the likelihood that the attorney or firm would be re-audited at their own expense. However, since the introduction of the Certificate of Compliance as part of the Annual Registration Statement (to which attorneys must attest), the situation has become much more serious.

The same books and records violations are now compounded by the fact that the attorney has filed a "false" Statement, which the Court uncharitably views as a violation of Rule 8.4 of the Professional Conduct Rules, 8.4(c) involving dishonesty, fraud, deceit or misrepresentation; or 8.4(d) conduct prejudicial to the administration of justice or both.

The random or targeted audits of the Lawyer's Fund for Client Protection are also noting tax delinquencies. I strongly suggest that you take measures to review the work done by your bookkeepers, office managers, payroll service and even your accountants to confirm that all employee withholding taxes such as the Federal 941's are being timely filed and paid. As a number of my former clients could now tell you, the monthly or quarterly voucher must be filed when due even if the money is unavailable to pay the withholding. Failure to pay the taxes when due is still a disciplinary matter but a record of having filed the returns when due and entering into a payment plan with the tax authorities greatly enhances your position. Failure to both timely file and pay compounds the matter.

Above all, do not file your Annual Registration Statement unless or until you have confirmed that your books and records are maintained in compliance with Rule 1.15 and that all personal and professional taxes have been timely filed and paid. To gain the confidence necessary to sign the Certificate of Compliance, I also recommend that you employ a Certified Public Accountant to pre-certify your compliance.

Preferably, that accountant should be familiar with the Rule 1.15 books and records requirements and the certification process. If not, your accountant can contact Martin Zukoff, The Lawyer's Fund accountant, or download the audit checklist from the Supreme Court website to determine the requirements of the re-certification. Such pre-certifications may not ward off compliance audits. However, if a problem is later determined as a result of the audit, they serve as excellent evidence of the attorney's good faith in signing the Certificate accompanying the Annual Registration Statement.

Today, most sanctions for books and records violations coupled with "false" certifications or tax delinquencies with "false" certifications or both, have resulted in public reprimands and probation. Neither the Board nor the Court have been persuaded by the argument that the matter had been entrusted to staff and that the attorney was unaware of the violations. Such a defense argument is likely to add an additional count in the Petition alleging a Rule 5.3 violation for failure to adequately supervise non-lawyer assistants.

As you all know by now, a large part of my practice is disciplinary defense and this recent crack-down by ODC has kept me busy. While I strongly recommend that you review these issues with your office staff, your accountant and with your own eyes, if you fail to do so, I certainly appreciate the business.
Additional Update

As we go to press, the new Model Rules on Multi-Jurisdictional Practice has passed the ABA House of Delegates at the annual meeting in Washington, DC. The Model Rules would allow a lawyer licensed and in good standing in one state to practice temporarily in the following circumstances: