Title: Amendments To Rules Regulating The Florida Bar

State: florida

Issuer: Florida Supreme Court

Document:

Supreme Court of Florida
 
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No. SC01-851
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AMENDMENT TO RULES REGULATING 
THE FLORIDA BAR – RULE 5-1.1(e) – IOTA
[June 14, 2001]
PER CURIAM.
Pursuant to rule 1-12.1(f) of the Rules Regulating The Florida Bar, fifty or
more active members of The Florida Bar, on behalf of the Florida Bar Foundation
("Foundation"), petition the Court to amend rule 5-1.1(e) of the Rules Regulating
The Florida Bar.  We have jurisdiction.  See art. V, § 15, Fla. Const. 
Rule 5-1.1(e) deals with the Interest on Trust Accounts ("IOTA") Program
and requires that all nominal or short term funds that are placed in trust with a
member of The Florida Bar practicing within the state of Florida be deposited into
an interest-bearing trust account for the benefit of the Foundation.  Under the
IOTA program, the interest generated on trust accounts is used to fund programs
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that are designed to improve the administration of justice or to expand the delivery
of legal services to the poor.  
The petition was authorized by the Board of Directors of the Foundation as
the administrator of the IOTA Program.  The Foundation states that the purpose of
the amendment is to increase IOTA revenues by broadening the types of
institutions that may participate in IOTA.  The current rule permits only banks or
authorized savings and loan associations to participate in IOTA, see R. Regulating
Fla. Bar 5-1.1(e)(3).  Under the proposed amendment, investment companies will
be allowed to qualify as eligible institutions in which IOTA accounts may be
established.  
The amendment further allows the use of government money market funds
for IOTA funds; however, only money market funds that are registered with the
Securities and Exchange Commission, and are comprised solely of United States
Government Securities, are proposed for use in the IOTA program.  Further, only
those money market funds with a total asset value of at least $250 million would
be eligible to participate.  
Finally, the amendment defines institutions that are eligible to hold IOTA
accounts as only those institutions which pay IOTA account depositors the highest
interest rate or dividend generally available at their own institution to non-IOTA
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customers when IOTA accounts meet the same minimum balance or other
requirements.  According to the Foundation, the purpose of this portion of the
amendment is to secure fair treatment of IOTA accounts so that financial
institutions do not discriminate against IOTA accounts when the allowable interest
rate is calculated.  Essentially, all the Foundation asks is that IOTA accounts be
placed in parity with non-IOTA accounts within each financial institution.  The
Foundation recognizes, however, that the interest rates offered are not based on
account balance alone.  
If the amendment is approved, the Foundation proposes that it should be
charged with the responsibility of determining the initial and continuing eligibility
of banks, savings and loan associations and investment companies to hold IOTA
accounts.  We conclude that such a charge is consistent with the Foundation's
charter.  See Fla. Bar Found. Charter, art. 2.5(c) (stating that Foundation serves as
manager and administrator of the IOTA program).
The Foundation requests that the proposed amendment be made effective
thirty days after this Court's order.  However, the Foundation asks that those
institutions currently holding IOTA accounts be provided a reasonable period of
time during which to comply with the new eligibility requirements.  The
Foundation suggests a six-month time period for compliance.
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The proposed amendments were published for comment in the February 15,
2001, edition of The Florida Bar News and modifications were published in the
April 15, 2001, edition of the News.  The comments received were provided to the
Board of Governors of The Florida Bar, which approved the amendments
unanimously on March 30, 2001.  After the Foundation filed its petition with this
Court, three further comments were filed, including one from the Florida Bankers
Association ("FBA").
After reviewing the petition and comments regarding the proposed
amendment and hearing oral argument from the parties, we conclude that rule 5-
1.1(e) should be amended.  Not only does this amendment have the unanimous
endorsement of the Board of Governors, but nearly all of the comments received
have been overwhelmingly in favor of the purpose behind the amendments. 
However, in light of the concerns expressed in the comment of the FBA that the
rule be clarified to reflect the intent that there be interest parity between IOTA
accounts and non-IOTA accounts held in the same financial institution, we adopt
the FBA's suggested revisions to proposed subdivision (e)(5)(A) and add proposed
subdivision (B) to the rule.  The Foundation has indicated it has no objection to
the FBA's suggested revisions.  We thank the FBA for its assistance, cooperation
and constructive suggestions.   
1.  Because the remainder of rule 5-1.1 remains unchanged, we have elected
only to publish the subdivision being amended. 
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Accordingly, we approve the petition and amend rule 5-1.1(e) as reflected in
the Appendix to this opinion.1  Underscoring indicates new language; strike-
through type indicates deletions.  In accord with the Foundation's request, the
proposed amendment shall be made effective thirty days after the date of this
opinion.  However, those institutions currently holding IOTA accounts that elect
to participate in IOTA under the new rule shall be provided six months to comply
with the new eligibility requirements.  The Foundation shall be charged with the
responsibility of determining the initial and continuing eligibility of banks,
savings and loan associations and investment companies to hold IOTA accounts in
accordance with the criteria set forth in the rule.  
It is so ordered.
WELLS, C.J., and SHAW, HARDING, ANSTEAD, PARIENTE, LEWIS and
QUINCE, JJ., concur.
THE FILING OF A MOTION FOR REHEARING SHALL NOT ALTER THE
EFFECTIVE DATE OF THIS AMENDMENT
Original Proceeding - Rules Regulating The Florida Bar
A. Hamilton Cooke, President, Darryl M. Bloodworth, President-elect, and
Kathleen S. McLeroy, Andrew M. O’Malley, and William L. Thompson, Jr., of
The Florida Bar Foundation, Orlando, Florida; Randall C. Berg, Jr., Peter M.
Siegel, and JoNel Newman, Florida Justice Institute, Inc., Miami, Florida; John F.
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Harkness, Jr., Executive Director, and John A. Boggs, Division Director of
Lawyer Regulation, The Florida Bar, Tallahassee, Florida; Terrence Russell,
President-elect, The Florida Bar, Fort Lauderdale, Florida; Kristine E. Knab,
President, Project Directors Association, Legal Services of North Florida, Inc.,
Tallahassee, Florida; J. Thomas Cardwell, General Counsel, Florida Bankers
Association, of Akerman, Senterfitt & Eidson, Orlando, Florida; and Arthur J.
England of Greenberg Traurig, P.A., Miami, Florida,
for Petitioner
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APPENDIX
Rule 5-1.1.  Trust Accounts
(e)
Interest on Trust Accounts (IOTA) Program.
(1)
Definitions.  As used herein, the term:
(A)       “nominal or short term” describes funds of a client or third
person that, pursuant to subdivision (73), below, the lawyer has determined cannot
practicably be placed at interest invested for the benefit of the client or third
person;
(B)
“Foundation” means The Florida Bar Foundation, Inc.;
(C)
“IOTA account” means an interest or dividend-bearing trust
account described in subdivision (2), below benefitting The Florida Bar
Foundation established in an eligible institution for the deposit of nominal or
short-term funds of clients or third persons;
(D)
“Daily Financial Institution Repurchase Agreement” means an
overnight investment of IOTA funds described in subdivision (4), below, in a
financial institution eligible to enter into a Daily Repurchase Agreement described
in subdivision (3), below.  (3) “Eligible Financial Institutions” An IOTA Account
shall be established with means any bank or savings and loan association
authorized by federal or state laws to do business in Florida and insured by the
Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance
Corporation, or any successor insurance corporation(s) established by federal or
state laws, or any open-end  investment company registered with the Securities
and Exchange Commission and authorized by federal or state laws to do business
in Florida, all of which must meet the requirements set out in subdivision (5),
below.  The funds covered by this rule shall be subject to withdrawal upon request
and without delay.  A daily financial institution repurchase agreement, described
in subdivision (1)(D), above, may be established only with an eligible financial
institution which is deemed to be “well capitalized” or “adequately capitalized” as
defined in applicable federal statutes and regulations.
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(E)  “Interest or dividend-bearing trust account” means a federally
insured checking account or investment product, including a daily financial
institution repurchase agreement or a money market fund.  A daily financial
institution repurchase agreement must be fully collateralized by, and an open-end
money market fund must consist solely of, United States Government Securities. 
A daily financial institution repurchase agreement may be established only with an
eligible institution that is deemed to be “well capitalized” or “adequately
capitalized” as defined by applicable federal statutes and regulations.  An open-
end money market fund must hold itself out as a money market fund as defined by
applicable federal statutes and regulations under the Investment Company Act of
1940, and have total assets of at least $250,000,000.  The funds covered by this
rule shall be subject to withdrawal upon request and without delay.
(2)
Required Participation.  All nominal or short-term funds belonging to
clients or third persons that are placed in trust with any member of The Florida Bar
practicing law from an office or other business location within the state of Florida
shall be deposited into one or more interest-bearing trust checking IOTA accounts
in an eligible financial institution for the benefit of the Foundation, except as
provided in rule 4-1.15 with respect to funds maintained other than in a bank
account, or as provided in rule 5-1.2(a).  Only trust funds that are nominal or short
term shall be deposited into an IOTA account.  The member shall certify annually,
in writing, that the member is in compliance with, or is exempt from, the
provisions of this rule. 
 
(7)(3)
Determination of Nominal or Short-Term Funds.  The lawyer shall
exercise good faith judgment in determining upon receipt whether the funds of a
client or third person are nominal or short term.  In the exercise of this good faith
judgment, the lawyer shall consider such factors as:
(A)       the amount of a client's or third person's funds to be held by
the lawyer or law firm;
(B) 
the period of time such funds are expected to be held;
(C) 
the likelihood of delay in the relevant transaction(s) or
proceeding(s);
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(D)
the cost to the lawyer or law firm of establishing and
maintaining an interest-bearing account or other appropriate investment for the
benefit of the client or third person; and
(E)       minimum balance requirements and/or service charges or fees
imposed by the eligible financial institution.
The determination of whether a client's or third person's funds are
nominal or short term shall rest in the sound judgment of the lawyer or law firm. 
No lawyer shall be charged with ethical impropriety or other breach of
professional conduct based on the exercise of such good faith judgment.
(6) (4)
Notice to Foundation.  Lawyers or law firms shall advise the
Foundation, at Post Office Box 1553, Orlando, Florida 32802-99191553, of the
establishment of an IOTA account for funds covered by this rule.  Such notice
shall include:  the IOTA account number as assigned by the financial eligible
institution; the name of the lawyer or law firm on the IOTA account; the financial
eligible institution name; the financial eligible institution address; and the name
and Florida Bar attorney number of the lawyer, or of each member of The Florida
Bar in a law firm, practicing from an office or other business location within the
state of Florida that has established the IOTA account.  Lawyers or law firms shall
provide to the Foundation advance notice of their intent to establish a daily
financial institution repurchase agreement.  Such advance notice shall include:  the
IOTA account number; the name of the lawyer or law firm on the IOTA account;
the financial institution name; and the financial institution address.
(4)     Interest Rates.  The rate of interest on funds covered by this rule shall
not be less than the rate paid by the financial institution on funds of non-IOTA
account depositors.  Higher rates offered by the financial institution to customers
whose deposits exceed certain time or quantity minimums may be obtained by a
lawyer or law firm for IOTA accounts on some or all of the deposited funds
through use of eligible financial institution daily repurchase agreements in which
the underlying security consists solely of direct obligations of the United States
Government or agency thereof so long as there is no impairment of the right to
immediately withdraw or transfer principal.
(5)
Remittance Instructions.  Lawyers or law firms shall direct the
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financial institution:  Eligible Institution Participation in IOTA.  Participation in
the IOTA program is voluntary for banks, savings and loan associations, and
investment companies.  Institutions that choose to offer and maintain IOTA
accounts must meet the following requirements:
(A)       Interest Rates and Dividends.  Eligible institutions shall
maintain IOTA accounts which pay the highest interest rate or dividend generally
available from the institution to its non-IOTA account customers when IOTA
accounts meet or exceed the same minimum balance or other account eligibility
qualifications, if any.
(B)       Determination of Interest Rates and Dividends.  In
determining the highest interest rate or dividend generally available from the
institution to its non-IOTA accounts in compliance with subdivision (5)(A),
above, eligible institutions may consider factors, in addition to the IOTA account
balance, customarily considered by the institution when setting interest rates or
dividends for its customers, provided that such factors do no discriminate between
IOTA accounts and accounts of non-IOTA customers, and that these factors do not
include that the account is an IOTA account.
(C)
Remittance and Reporting Instructions.  Eligible institutions
shall:
(A)(i)  to calculate and remit interest or dividends on the balance of
the deposited funds, in accordance with the financial institution's standard practice
for non-IOTA account depositors customers, less reasonable service charges or
fees, if any, in connection with the deposited funds, at least quarterly, to the
Foundation;
(B)(ii) to transmit with each remittance to the Foundation a statement
showing the name of the lawyer or law firm from whose IOTA account the
remittance is sent, the lawyer's or law firm's IOTA trust account number as
assigned by the financial institution, the rate of interest applied, the period for
which the remittance is made, the total interest or dividend earned during the
remittance period, the amount and description of any service charges or fees
assessed during the remittance period, and the net amount of interest or dividend
remitted for the period; and
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(C)(iii) to transmit to the depositing lawyer or law firm, for each
remittance, a report statement showing the amount of interest or dividend paid to
the Foundation, the rate of interest applied, and the period for which the report
statement is made.
(8) (6)  Small Fund Amounts.  The Foundation may establish procedures for
a lawyer or law firm to maintain an interest-free trust account for client and third-
person funds that are nominal or short term when their nominal or short-term trust
funds cannot reasonably be expected to produce or have not produced interest
income net of reasonable financial eligible institution service charges or fees.
(9) (7)
Confidentiality.  The Foundation shall protect the
confidentiality of information regarding a lawyer's or law firm's trust account
obtained by virtue of this rule.