IOLTA Funds Not Abandoned Property

The Massachusetts Supreme Judicial Court has resolved a case that addresses the proper disposition of unidentified funds in the escrow account of a disbarred attorney.

Notably, the court directed that its Rule 1.15 be amended to effectuate the decision

The question presented in this case concerns the proper disposition of unidentified client funds on deposit in an Interest on Lawyers’ Trust Account (IOLTA or IOLTA account): should they be remitted to the Commonwealth’s general fund under the abandoned property statute, G. L. c. 200A, or to the IOLTA committee pursuant to this court’s inherent authority to govern the conduct of Massachusetts attorneys? We conclude that trust funds on deposit in an IOLTA account do not fall within the statutory definition of “abandoned property” and therefore the disposition of these funds is not governed by G. L. c. 200A. We also conclude that unidentified IOLTA funds should be transferred to the IOLTA committee for disposition, as set forth in this opinion.

The matter involves the funds uncovered in the wake of a disciplinary action

At the time of Olchowski’s temporary suspension, he maintained two IOLTA accounts, one with Bank of America and one with Citizens Bank, which held a combined total of $29,927. Olchowski was unable to identify the owners of the funds in the IOLTA accounts, so Olchowski’s accountant, a Massachusetts certified public accountant, undertook to try to identify the owners of the unidentified funds. However, the accountant was unable to discover the identity of any of the owners of the funds in Olchowski’s IOLTA accounts.

As to “abandoned property”

In short, the careful procedures established by c. 200A to identify presumptively abandoned funds, report and remit those funds to the treasury, and allow the true owner of those funds to reclaim them by proof of ownership simply do not fit when applied to IOLTA accounts. This is not a criticism of the Legislature; there were no pooled IOLTA accounts in 1950 when the law was enacted, and although the law has since been amended, none of the amendments addresses the unique nature of an IOLTA account.

Procedures to identify owners

Our conclusion that c. 200A does not govern IOLTA accounts does not mean that there will be no process to identify abandoned funds in IOLTA accounts, to investigate bank and attorney records to determine the true owners of those funds, to restore the funds to those true owners, and to transfer any funds whose true owner cannot be identified despite diligent investigation. It simply means that we must put that process in place through our superintendence authority over the bar and the practice of law. We do so here, and direct this court’s standing advisory committee on the rules of professional conduct (standing committee) to propose amendments to Mass. R. Prof. C. 1.15 to incorporate the following guidance into our rule.

Just as a dishonored check in an IOLTA account is an indicator of a possible disciplinary violation by an attorney regarding his or her management of an IOLTA account, so, too, is the absence of any activity in an IOLTA account over an extended period of time. We currently require lawyers to maintain IOLTA accounts only in financial institutions that agree to notify the board when a check is dishonored for insufficient funds…

We shall now require similar agreements to impose an obligation on financial institutions to notify the board when there is no activity in an IOLTA account for more than two years, apart from automatic interest payments to the IOLTA committee.  This notification will allow bar counsel, where appropriate, to conduct a forensic examination of the attorney’s IOLTA account records, and other books and records, to ascertain whether the funds are abandoned and determine the true owner of any such funds so that they may be disbursed. In addition, such notice will allow bar counsel to determine whether the prolonged inactivity of the account is a sign of possible disciplinary violations or financial mismanagement by the attorney.

Of course, bar counsel need not wait for two years of IOLTA account inactivity to examine whether there are presumptively abandoned funds in certain IOLTA accounts.

Inquiry from the state treasurer 

We conclude that there is a better approach that is more protective of the confidential information so fundamental to the attorney-client relationship: where bar counsel determines after reasonable investigation that the owner of IOLTA funds cannot be identified or located, bar counsel should request the single justice of the county court to find that the funds are presumptively abandoned and to order the transfer of the abandoned funds to the IOLTA committee.  The transfer of these funds to the IOLTA committee, in order to avoid constitutional concerns, carries with it an obligation by the committee to return those funds to their true owner, with interest, if the true owner establishes ownership at any time. Therefore, we will revise our rules of professional conduct to memorialize that obligation after considering language recommended by our standing committee.

Justice Lowy dissented

We simply need to know more before we meddle with the separation of powers, a principle that is the foundation of our  constitutional system. I therefore dissent and recommend that we remand to the Chief Justice of the Trial Court for assignment of the case to create a more thorough factual record.

Suffolk University Law School has a link to the oral argument.

The video – a pre-Covid argument – is a high quality production. (Mike Frisch)