Tuesday, March 10, 2020

SJC to Address Proper Recipient of Unidentified IOLTA Funds

In a case closely watched by bar organizations and legal services programs, the Supreme Judicial Court will consider what should
happen to funds in an IOLTA account for which the rightful owner cannot be identified.  In the Matter of Gregory M. Olchowski raises the question of whether unidentified IOLTA funds should go to the IOLTA Committee to support legal services for low-income clients, as interest from IOLTA accounts already does, or to the Treasurer under Massachusetts’ abandoned and unclaimed property law, G.L. c 200A.

REBA joined with the BBA and the MBA in an amicus brief supporting the position of the IOLTA Committee (the Committee) that it should be the recipient of the unidentified funds.  As REBA notes in the joint amicus brief, a substantial amount of IOLTA revenue comes from real estate practitioners, making this issue especially relevant for REBA members.  The Board of Bar Overseers (BBO) and the Clients’ Security Board and Fund (CSB) also filed amicus briefs.

The case arises out of disciplinary proceedings against Gregory Olchowski.  As a part of his disbarment, the SJC ordered Olchowski to close his IOLTA accounts and return the funds to their owners.  Olchowski could not identify the owners of funds in his IOLTA accounts.  After extensive efforts by his accountant, his attorney, and the Office of Bar Counsel to identify the owners failed, Olchowski’s attorney filed a motion in the Single Justice session to remit the unidentified IOLTA funds to the IOLTA Committee.  The Treasurer intervened and opposed the motion.  The Single Justice then reported the matter to the full Court.

Central to the case is whether unidentified IOLTA funds meet Chapter 200A’s definition of abandoned property and, therefore, must be turned over to the Treasurer under the law.  The Committee argues that because there is no known owner of the funds and there is a regular transfer of interest from the account, the unidentified funds do not meet the statutory definition of abandoned property.  The Treasurer counters that the broad language of Chapter 200A should be interpreted to cover the unidentified funds in IOLTA account.  According to the Treasurer, the Committee’s interpretation is inconsistent with the statue as a whole and would result in an ineffective statute that excludes numerous kinds of accounts, beyond just IOLTA, that the act is clearly intended to cover.

Also, at issue is the SJC’s authority over the practice of law and that authority’s interplay with the legislature’s power.  The Committee contends the SJC’s inherent authority to regulate the practice of law extends to controlling the disposition of unidentified IOLTA funds.  It follows then, the Committee claims, that the Treasurer’s attempt to control an aspect of the IOLTA program is a violation of the separation of powers under the Massachusetts Constitution and in conflict with the Court’s authority.  The Treasurer responds that there is no separation of power concern if the statute is interpreted to cover unidentified IOLTA funds.  Because neither Rule 1.15, nor any other SJC rule, specifies the disposition of unidentified IOLTA funds, there is no conflict with the SJC’s rules.  And without such a conflict, the Treasurer argues, there is no violation of the separation of powers.

In addition to the legal issues, the parties dispute who, as a practical matter, is best-suited to find the owner of unidentified IOLTA funds.  The Treasurer points to its existing resources for helping people find their abandoned and unclaimed property.  These resources include a website that allows people to search for property that has been turned over to the Treasury, as well as advertising campaigns that encourage people to consult the website.  The Treasurer notes it currently holds funds from 572 IOLTA accounts and has returned IOLTA funds to 58 owners on prior occasions.  The Committee argues the organizations under the judiciary, i.e., the BBO, CSB, and the Committee, have experience reviewing lawyers’ files, financial records, and other resources to locate the owners of IOLTA funds, making them the better choice to search for and handle claims by owners.  This approach, the Committee claims, is far more likely to find the owners than the Treasurer’s website, which only has the attorney’s or law firm’s name for the IOLTA account, not the funds’ owners’ name. 

The amicus briefs raise several additional points.  The REBA, BBA, and MBA brief stresses the importance of attorney-client confidences to the practice of law and argues that interpreting Chapter 200A to cover unidentified funds in IOLTA accounts would open the door to significant intrusion by Treasurer into attorney-client confidences.  The joint bar brief explains that the Treasurer’s extensive audit rights under the statute would threaten those confidences.  The brief posits that investigation into, and administration of, the unidentified funds by entities under the judiciary would not raise the same concerns.

The BBO’s brief points out that a lawyer’s inability to identify IOLTA funds’ owners may raise disciplinary issues, which are the exclusive province of the Court and handled by the BBO.  If the unidentified IOLTA funds are turned over to the Treasurer without notice to the BBO, it cannot investigate and take appropriate disciplinary action.  The Committee, on the other hand, is uniquely situated to recognize and notify the BBO of these issues. 

The CSB encourages the Court to amend Rule 1.15 to require reporting unidentified IOLTA funds to an appropriate authority to investigate the funds’ owners and, provided no owner is identified, specify the funds then go to the IOLTA Committee. 

In addition to the amicus briefs, the Massachusetts Law Reform Institute submitted an amicus letter, joined by twelve other legal services programs, supporting the joint bar brief.  Driving home the substantial need for legal services funding and the importance of the IOLTA program, the letter notes that due to the lack of funding, legal aid programs in Massachusetts are forced to turn away 60% of income-eligible clients. 

Oral argument in Olchowski was held on, February 11, 2020 and a decision is pending.  Those involved with the management of IOLTA accounts will want to keep an eye out for the decision as it could change the requirements under Rule 1.15 for maintaining and closing IOLTA accounts. 

A founding co-chair of the REBA environmental law section, Mary Ryan is a partner in the litigation department of the Boston law firm of Nutter, McClennen & Fish LLP, and a member of the land use group. Her practice includes substantial trial and appellate cases in the state and federal court, particularly in environmental litigation, as well as administrative hearings and proceedings.  Her email contact is mryan@nutter.com.

Micah Miller is a partner in Nutter’s litigation department. Clients rely on Micah’s guidance in a variety of litigation matters, particularly in intellectual property litigation. Micah is well-versed in assisting clients at all stages of litigation, including pre-filing investigations, document collection and production, technical expert discovery, claim construction, and trial. Micah’s email address is mmiller@nutter.com.

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