Can an out-of-state partner who is not licensed in South Carolina be the sole signatory on the firm's South Carolina IOLTA trust account?

Plain-English summary

An attorney is the sole employee of the Columbia, South Carolina office of a Texas-based firm and opened a South Carolina IOLTA account. A partner based in Virginia, where the firm's accounting office sits, instructed the attorney to send the account's checks to Virginia. Under the plan, the attorney would deposit client funds and inform the partner, the attorney would submit disbursement requests, and the partner would have the sole ability to write checks on the South Carolina IOLTA account. The partner is licensed in Texas, Virginia, and D.C., but not South Carolina, and agreed to follow South Carolina record-keeping requirements and to send regular reports. The attorney asked whether the arrangement is permissible under Rule 1.15 and Rule 412, SCACR.

The committee concluded the arrangement appears to comply with Rule 1.15 and Rule 412, SCACR, but does not comply with Rule 417, SCACR. Rule 1.15(a) requires client funds to be kept separate, in an account in the state where the lawyer's office is situated (or elsewhere with consent), with complete records preserved for six years, and directs compliance with Rule 417. In September 2011, the South Carolina Supreme Court adopted a revised Rule 417, including new Rule 2(a), which provides that "only a lawyer admitted to practice law or a person under the direct supervision of the lawyer shall be an authorized signatory or authorize transfers from a client trust account." The comment to Rule 2 stresses the lawyer's nondelegable duty to protect trust funds and that nonlawyer access should be limited and closely monitored.

The committee read the term "nonlawyer" in Rule 2 to include lawyers admitted in jurisdictions other than South Carolina, such as the partner here. The arrangement fails Rule 417(2)(a) because the partner is not admitted in South Carolina and is not under the attorney's direct supervision in either a geographical or hierarchical sense: the partner is hundreds of miles away, and the attorney appears subordinate to the partner. The committee compared Rule 5.2 on the responsibilities of a subordinate lawyer.

In practice

The opinion holds that, under Rule 417, SCACR, as it stood after the 2011 amendment, only a lawyer admitted in South Carolina or a person under that lawyer's direct supervision may be an authorized signatory on a South Carolina client trust account, so an out-of-state partner not licensed in South Carolina may not be the sole signatory on the firm's South Carolina IOLTA account. The opinion treats a lawyer admitted only in other jurisdictions as a "nonlawyer" for purposes of Rule 2, and finds the partner is not under the local attorney's direct supervision given the geographic distance and the local attorney's subordinate position. The opinion notes the arrangement otherwise appears to satisfy Rule 1.15 and Rule 412, SCACR. Because the analysis turns on the specific text of Rule 417 as then amended, the current rule should be verified before relying on the result.

Common questions

Q: Can an out-of-state partner be the only person who signs checks on a South Carolina trust account?

A: No. The committee said Rule 417(2)(a), SCACR, as amended in 2011, allows only a South Carolina-admitted lawyer or a person under that lawyer's direct supervision to be an authorized signatory, and a partner licensed only elsewhere does not qualify.

Q: Does being a licensed lawyer in another state make the partner a "lawyer" under Rule 417?

A: No. The committee read "nonlawyer" in Rule 2 to include lawyers admitted in jurisdictions other than South Carolina, so the out-of-state partner is treated as a nonlawyer for signatory purposes.

Q: Could the partner sign if supervised by the South Carolina attorney?

A: Not on these facts. The committee found the partner was not under the attorney's direct supervision either geographically (hundreds of miles away) or hierarchically (the attorney appeared subordinate to the partner), citing Rule 5.2.

Q: Did the rest of the arrangement comply with the trust rules?

A: Yes, in the committee's view. It said the arrangement appears to comply with Rule 1.15 and Rule 412, SCACR; the only defect was the signatory provision under Rule 417.

Background and rules framework

The opinion interprets South Carolina Rule 1.15 (safekeeping property; account in the lawyer's office state; six-year records; compliance with Rule 417) and Rule 5.2 (responsibilities of a subordinate lawyer), which correspond to the like-numbered Model Rules, together with Rule 412, SCACR (IOLTA) and Rule 417, SCACR (financial record-keeping). The dispositive provision is Rule 417's Rule 2(a), adopted in September 2011, limiting authorized signatories to a South Carolina-admitted lawyer or a person under that lawyer's direct supervision.

Citations and references

Rules of Professional Conduct:

• MR 1.15 / SC Rule 1.15(a) (safekeeping property; account location; records; compliance with Rule 417)
• MR 5.2 / SC Rule 5.2 (responsibilities of a subordinate lawyer)

Court rules:

• Rule 412, SCACR (IOLTA accounts)
• Rule 417, SCACR (financial record-keeping), Rule 2(a) and comment (signatory limits; nondelegable duty), as revised September 2011

See also

• SC Bar Ethics Op. 12-01: Trust Surplus on Another Matter
• SC Bar Ethics Op. 06-02: Marked-Up Recording Fees at Closing
• SC Bar Ethics Op. 06-05: Nonlawyer Sole Access to Trust Funds

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-12-05/
• Original PDF: https://www.scbar.org/media/dqzbb1f2/12-05.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 12-05

SC Rules of Professional Conduct: 1.15

SC Appellate Court Rules: 412, 417

Facts

Attorney works for a Texas-based law firm as the sole employee of the firm’s Columbia, South Carolina office. Attorney opened an IOLTA account in South Carolina. A Partner of the firm has instructed Attorney to send the checks for the IOLTA account to Virginia, where Partner is based and where the law firm’s accounting office is located. Partner is licensed in Texas, Virginia, and D.C. but not in South Carolina. It is contemplated that Attorney will deposit client funds in the account and inform Partner of such deposits. Attorney will submit disbursement requests to Partner, and Partner will have sole ability to write checks drawn on the South Carolina IOLTA account. Attorney has informed Partner of South Carolina record keeping requirements. Partner agrees to abide by these requirements and to send regular reports of deposits and withdrawals.

Question

Is the proposed accounting arrangement permissible under RPC Rule 1.15 and Rule 412, SCACR?

Summary

The proposed arrangement appears to comply with Rule 1.15 and Rule 412, but it does not comply with Rule 417, SCACR, as recently amended.

Opinion

Rule 1.15(a) of the Rules of Professional Conduct (“Safekeeping Property”) provides:

A lawyer shall hold property of clients or third persons that is in a lawyer’s possession in connection with a representation separate from the lawyer’s own property. Funds shall be kept in a separate account maintained in the state where the lawyer’s office is situated, or elsewhere with the consent of the client or third person…. Complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of six years after termination of representation. A lawyer shall comply with Rule 417, SCACR (Financial Record-keeping).

Rule 417, in turn, imposes record keeping requirements with respect to all client trust accounts, including but not limited to IOLTA accounts established under Rule 412, SCACR.

The proposed arrangement appears to comply with the requirements of Rule 1.15 and Rule 412, SCACR. However, the proposed arrangement does not comply with Rule 417. In September 2011, the South Carolina Supreme Court adopted a revised version of Rule 417. The revision includes new Rule 2(a), which provides that “only a lawyer admitted to practice law or a person under the direct supervision of the lawyer shall be an authorized signatory or authorize transfers from a client trust account.” The Comment to Rule 2 emphasizes the lawyer’s “nondelegable duty to protect and preserve the funds in a client trust account” and makes clear that nonlawyer access to a trust account “should be limited and closely monitored.” The Committee believes that the term “nonlawyer,” as used in Rule 2, includes persons like Partner in the proposed arrange-ment, i.e., lawyers admitted to practice in jurisdictions other than South Carolina.

The proposed arrangement does not comply with Rule 417(2)(a) because Partner is not admitted to practice in South Carolina and is not under Attorney’s direct supervision in either a geographical or hierarchical sense. Geographically, Partner is hundreds of miles away. Hierarchically, Attorney appears to be subordinate to Partner. Cf. Rule 5.2 (Responsibilities of a Subordinate Lawyer).