We were delighted last week by the SJC’s ruling that unidentified IOLTA funds should be transferred to the Massachusetts IOLTA Committee for disposition, just as the BBA had argued in an amicus brief joined by the Massachusetts Bar Association (MBA) and the Real Estate Bar Association (REBA).
A previous Issue Spot blog delved into the issues involved in the case — In the Matter of Gregory M. Olchowski (SJC-12730) — including our concerns about attorney-client confidences, which the Court noted in the opinion, by the late Chief Justice Ralph D. Gants.
Massachusetts Lawyers Weekly reported on the ruling as well (subscription required).
The full decision can be found here, but below are some key excerpts:
Gants for the 6-1 majority:
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.
As to the first set of required statutory conditions [for “abandoned property”], none of the designated sections [of the abandoned property law] specifically addresses IOLTA accounts, but the Treasurer contends that § 3, which concerns “deposits” of funds, applies to the unidentified funds in IOLTA accounts. We disagree. A careful review of this section reveals that attempting to apply § 3 to IOLTA accounts would be the legal equivalent of trying to fit a square peg into a round hole.
[I]f IOLTA accounts could be deemed “abandoned property” under § 3, the true owners of these funds would not receive notice by the bank that the account was to be reported abandoned (that notice would go only to the attorney whose name is on the IOLTA account), nor be able to take one of the six listed actions in § 3 to prevent their IOLTA funds from being presumed abandoned by the bank.
The claims process established by the Treasurer to allow true owners of presumptively abandoned property to claim those funds also does not fit the unique nature of IOLTA accounts. Under the Treasurer’s regulations, “the original owner” of the funds is required to submit documentation in support of his or her claims. See 960 Code Mass. Regs. § 4.04(1), (2) (2004). But the usual required documentation, such as the monthly statement of the bank or the holder’s certification, is not applicable to an IOLTA account because these documents would not establish a purported owner’s beneficial ownership of the funds.
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.
[I]f the attorney responsible for an IOLTA account is deemed the “holder” of the account [as the Treasurer argued, in the alternative], the Treasurer or her agents “may at any reasonable time and upon reasonable notice examine or audit a holder’s books, papers or other records to verify proper compliance with the reporting requirements of [c. 200A].” 960 Code Mass. Regs. § 4.07 (2004). Section 3 cannot be reasonably understood to mean that, by opening an IOLTA account, which an attorney may be required to do under our rules of professional conduct, the attorney opens the door to treasury agents examining all of his or her books, papers, and other records, which may contain confidential client information, attorney-client communications, or attorney work product. Allowing that to happen in the ordinary course might result in a breach of an attorney’s obligations to his or her client. See Commonwealth v. Perkins, 450 Mass. 834, 851 (2008) (“It is axiomatic that among the highest duties an attorney owes a client is the duty to maintain the confidentiality of client information” [citation omitted]); Mass. R. Prof. C. 1.6 comment 2, as amended, 474 Mass. 1301 (2016) (“A fundamental principle in the client-lawyer relationship is that, in the absence of the client’s informed consent or as otherwise permitted by these Rules, the lawyer must not reveal confidential information relating to the representation. . . . This contributes to the trust that is the hallmark of the client-lawyer relationship”); Mass. R. Prof. C. 1.6 (providing for protection of confidential client information).
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.
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 court’s standing advisory committee on the rules of professional conduct, in proposing amendments to Mass. R. Prof. C. 1.15, may consider whether a different time period is more appropriate to accomplish our purpose for requiring such notification.
Even though the disposition of these funds is not governed by c. 200A because IOLTA funds fall outside the scope of the abandoned property law, we recognize and respect the legislative purpose that all abandoned property be transferred to the general fund. We would, pursuant to our superintendence authority, transfer these funds to the general fund out of respect for that legislative purpose if funds deemed abandoned could never be claimed by their rightful owner. But such claims may be made, with no limitations period, and therein lies the rub.
If we were to determine that unidentified IOLTA funds should be transferred to the Treasurer, we would expect the Treasurer to apply the same claims process to IOLTA funds, which fall outside the scope of c. 200A, as she applies to abandoned funds that are within the scope of c. 200A. Under that process, when someone claims an interest in property surrendered to the State, the Treasurer has “full and complete authority to determine all such claims” and, in doing so, may take testimony under oath, subpoena the attendance of witnesses, and subpoena the production of all “books, papers and documents which may be pertinent to such hearing.” G. L. c. 200A, § 10 (b)-(c). This is precisely the type of inquiry that we are reluctant to relinquish to the Treasurer should a claim be made on unidentified IOLTA funds by an attorney’s client. Attorney records concerning IOLTA accounts are necessarily intertwined with attorney-client confidences. Any such inquiry by the Treasurer poses the risk of impermissible disclosure of confidential client information, attorney-client communications, and attorney work product.
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. Where such a claim is made, the investigation of its merits should be conducted by bar counsel, whose obligation to maintain the confidentiality of information arising from an investigation is already established by rule.
Conclusion. In answer to the questions posed by the single justice in his reservation and report, we conclude that unidentified client funds on deposit in an IOLTA account do not fall within the statutory definition of “abandoned property” under G. L. c. 200A; that neither Mass. R. Prof. C. 1.15 nor any other rule of this court presently governs the disposition of such funds; and that such funds shall be transferred to the IOLTA committee for disposition under the conditions set forth in this opinion, which shall later be incorporated in revisions to Mass. R. Prof. C. 1.15. So ordered.
The court holds, without an adequate factual record to support it, that Interest on Lawyers’ Trust Accounts (IOLTAs or IOLTA accounts) fall outside the abandoned property act (act), in part because the alternative would allow the Treasurer and Receiver General (Treasurer) to inspect attorneys’ records in a manner that could allow the Treasurer to maintain and to investigate IOLTA accounts, as she does with other abandoned property. This, according to the court, would improperly risk “disclosure of confidential client information, attorney-client communications, and attorney work product,” all of which fall under the attorney-client privilege governed by the judicial branch. Because the court concludes as such, it avoids having to decide whether classifying orphaned IOLTA funds as abandoned property would impede upon the judiciary’s authority under art. 30 of the Massachusetts Declaration of Rights to regulate the practice of law, or whether keeping unclaimed IOLTA accounts within the province of the judiciary would unduly interfere with the executive or legislative powers as outlined in art. 30.
I, on the other hand, believe that the plain meaning and legislative intent of the act require categorizing unclaimed or orphaned IOLTA funds as abandoned property, a conclusion that prevents us from avoiding the lurking separation of powers issues. I therefore do not believe that we should draw any definitive conclusions from the bare factual record. Instead, we should remand to a trial court to develop a more complete record.
Because IOLTA funds are deposited into “trust accounts” in a bank by attorneys operating on behalf of their clients in a fiduciary capacity, such funds facially qualify as abandoned property under the act absent some compelling factual or legal reason to the contrary.
The court argues that “attempting to apply § 3 to IOLTA accounts would be the legal equivalent of trying to fit a square peg into a round hole.” Statutory interpretation, however, does not pursue a perfect fit when effectuating legislative intent, and some square pegs can fit into round holes.
This apparent “square peg” actually fits quite nicely into the act, even though the statute does not define “owner,” see G. L. c. 200A, § 1, because attorneys acting as fiduciaries have a “legal . . . claim to abandoned property” on behalf of their clients and therefore qualify as “owners” under the Treasurer’s regulations. … Because the attorney is the owner of the IOLTA account, I am not convinced on this record that the bank could not comply with its statutory obligations to notify the owner in advance of reporting the IOLTA account as abandoned property.
[I]t makes logical sense that responsible attorneys would report abandoned IOLTA funds to the Treasurer as abandoned property if they could not contact clients for three years, and that the bank would report the entire IOLTA account if it qualified as presumptively abandoned under the act. See 960 Code Mass. Regs. § 4.02. Although the court claims that this scenario “would be a recipe for confusion,” ante at , the factual record provides no indication of such confusion, especially considering that some attorneys and law firms have reported IOLTA funds as abandoned property. We simply need more information.
Even if I were to agree with the court’s statutory analysis, my foundational concern about the inadequate record remains for the court’s apparent primary concern: that the Treasurer might need to investigate attorneys’ books to determine to whom the unclaimed IOLTA funds belong, see G. L. c. 200A, § 10 (b)-(c), or to ensure that attorneys complied with their requirements as holders. See 960 Code Mass. Regs. § 4.07 (2004). The court raises the understandable concern that “[a]llowing [such an investigation] to happen in the ordinary course might result in a breach of an attorney’s obligations to his or her client,” ante at , but only hints at the secondlevel implication of that statement; allowing the Treasurer such access as the statute would require might invade upon the judiciary’s art. 30 power to protect attorney-client privilege and attorney confidentiality as part of its power to regulate the practice of law.
Of course, the court does not need to reach whether those fears would come true, because its version of statutory interpretation keeps IOLTA accounts outside the realm of abandoned property and therefore out of the possible reach of the Treasurer. The court accordingly has no obligation to provide evidence that such breaches occur or that investigations by the Treasurer would impede upon our art. 30 authority. I view the matter differently.
Because I conclude that orphaned IOLTA funds qualify as abandoned property under the act, we can only keep the Treasurer from exercising her statutory obligations regarding those funds based on some interpretation of our constitutional authority to regulate the practice of law. We could hold that the act is unconstitutional as applied to orphaned IOLTA funds, or we could craft an alternative solution that gives the Treasurer control over the orphaned IOLTA funds without unduly impeding the attorney-client privilege. Either solution necessarily implicates separation of powers concerns, as both could interfere with the Legislature’s and the executive branch’s powers under art. 30. In sum, concluding that unclaimed IOLTA funds constitute abandoned property requires me to consider how the court’s proposed solution, one that still might be constitutionally or statutorily permissible even though I determined that IOLTA accounts are abandoned property under the act, affects art. 30, and to consider whether it does so appropriately on the facts before the court.
Before we reach such a significant decision, I believe that we need a factual record to help answer critical questions beyond the bare joint statement of facts presented to the single justice. The record does not reflect whether investigating unclaimed funds in IOLTA accounts would necessarily violate the attorney-client privilege.
The amicus briefs presented by the Boston Bar Association and others and by the Board of Bar Overseers (BBO) suggest that it does [emphasis added], but the factual record only explains that a financial investigator subpoenaed records from banks and examined records held by Gregory M. Olchowski’s former accountant. There is no indication that the investigation necessarily pierced the veil of attorney-client privilege, which, if accurate, would lessen the art. 30 concerns for orphaned IOLTA funds constituting abandoned property because the Treasurer would not therefore be impeding upon the judiciary’s art. 30 authority to regulate the practice of law.
[Footnote: The court contemplates that someone will have to review attorney-client privileged materials to determine the true owners of the IOLTA funds, but it does not discuss any precise procedures for doing so beyond keeping the funds within the judiciary and having the BBO conduct an inquiry in a manner similar to how it assesses attorney accounts during disciplinary procedures. There may be alternatives. For example, it may be constitutionally permissible to require that the Treasurer transfer investigatory responsibilities to an agent of the judiciary, namely the BBO, if an examination of orphaned IOLTA accounts threatened to pierce the veil of attorney-client privilege. It also might be possible to maintain the privilege if the BBO hired outside counsel to conduct the review. It may even be possible to rely on an interpleader action, with the Treasurer and the IOLTA committee as nominal parties, so that the unclaimed IOLTA funds are deposited with the court until appropriate disposition of the matter. See Mass. R. Civ. P. 67, 365 Mass. 835 (1974). Perhaps these ideas would not be possible or constitutionally permissible, but the parties understandably did not brief this matter.]