The Friday Payroll Problem

Who may hold the checkbook?

Who is allowed to move money out of a Florida lawyer’s trust account? You might expect the answer to be “only a lawyer,” and the rules do make the lawyer answer for every dollar in it. But they do not keep staff away from the account. The Bar’s ethics committee approved an office manager drawing checks on a firm’s trust account back in 1964. In 1987 it said a trusted nonlawyer employee may draw trust checks on proper authorization and under appropriate supervision. At many firms, the person who starts an online transfer from trust is a bookkeeper or a paralegal.

So the harder question is what makes the authorization proper, and what a staff member does when it is not. The Supreme Court of Florida answered the first half in The Florida Bar v. Hines, a case about a lawyer who let the wrong person hold her escrow checkbook. This reading follows Hines from the closing that went wrong to the line the court drew. Then it carries that line into a firm like Temko Eden, where the person asking for the transfer is the managing partner. In the activity, you are the paralegal she asks.

Ten blank checks

Shari Hines had practiced law for nearly ten years, and had once run her own title agency, when she began handling closings for Paramount Lending Group in late 2007. Paramount’s principal, John Mohan, promised her about thirty closings a month at $300 each. She moved her office into Paramount’s building and opened a new escrow account for the Paramount work. Then she gave Mohan shared signing authority over it. She knew the risk, and she capped how much he could reach.

In December, a title processor named Ida Ocasio told Hines that the sale of Alyce and Frederick Droege’s home had to close right away in Orlando. Hines sent Ocasio ten blank escrow checks she had already signed. She did not attend the closing or review its papers. The Droeges left with an escrow check for $128,802.68, their proceeds from the sale. Six days later, their bank told them the check would not be paid, because someone had stopped payment on it. It was Mohan. He had moved the Droeges’ money, and the payoff owed on their mortgage, into his own bank account by electronic transfer.

Hines did what she could once she knew. She recovered $45,000 from Mohan and wired it to the Droeges. She reported him to the criminal authorities, who prosecuted him successfully, and she reported the loss to her title underwriter, which paid off the mortgage and made up the rest. The sellers were whole in about two months. The Bar charged her anyway.

The line the court drew

The referee found no violation. Nothing presented showed it was unethical to put a nonlawyer on an escrow account, the referee wrote, and the 1964 ethics opinion specifically allowed it. Hines had no reason to distrust Mohan until he stole.

The Supreme Court of Florida disagreed on one rule. Rule 4-5.3(b) requires a lawyer to make reasonable efforts to keep a nonlawyer’s conduct compatible with the lawyer’s professional obligations, the duty the activity calls supervision of nonlawyers. As escrow agent, Hines owed the parties a duty to hold their money and pay it out exactly as they had agreed. Mohan was not her employee, and she neither supervised nor controlled him. Giving him what the court called “essentially unfettered access” to the account left her no such efforts at all. Then the court stated its rule. A lawyer may give a nonlawyer authority or control over money held in trust only if that nonlawyer is employed by the lawyer or under the lawyer’s direct supervision and control.

The ethics opinion did not help her, the court said, because it was about employees. The 1987 version allowed a trusted nonlawyer employee to draw trust checks with proper authorization and supervision. It also warned that the lawyer stays responsible and can be disciplined for an employee’s misconduct with client funds. So the line runs between an office manager inside the firm and a stranger holding the account’s checks. The court sent the case back for a sanction, with a rehabilitative suspension among the options, and no later published opinion reports the result.

Eight years later, a lawyer named Randall Gilbert tried to use Hines to shorten his own suspension. The Florida Bar v. Gilbert (opens in a new tab) is the other end of the same rule. Gilbert’s bookkeeper was his own employee, a man he knew had been convicted of wire fraud. Over four years, the bookkeeper took about $4.75 million from the trust account, while Gilbert spent two to four minutes a month on the bank statements. The court disbarred Gilbert and set Hines apart. Hines was one theft, caught at once, and its victims were made whole. An employee inside the line is allowed near the money, but the lawyer’s supervision still has to be real.

When the order comes from inside

Hines is about a stranger with a key. Your place in the activity is on the other side of its line: an employee, supervised by lawyers, with authority to start a transfer. Under Hines and the 1987 opinion, that arrangement is allowed. What the case does not address is an instruction that is itself the problem. The rules answer that from three directions.

The first is the money. Rule 5-1.1(b) applies trust money only to the purpose it was entrusted for, so moving a client’s balance to cover the firm’s bills is misappropriation, even if the plan is to put it back Monday. A firm may take its own fee out of trust, and must, once the fee is due. But the fee has to be an earned fee that nobody disputes. In a contingency case, the client approves a closing statement first, and until she does, the lawyer pays no one without a court order. If she questions the fee, the disputed part stays in trust until the question is settled. Rule 5-1.2(e)(3) says the same for transfers: a fee may leave trust electronically only when it is earned and not in dispute. So “the fee is ours anyway” is a claim you can check against the file. Has the client signed? Has anyone questioned the amount?

The second is the lawyer. Rule 4-8.4(a) forbids a lawyer to violate the rules “through the acts of another,” and Rule 4-5.3(b)(3) makes a lawyer responsible for a nonlawyer’s conduct the lawyer orders. A partner’s instruction does not make a transfer proper. It makes the partner answer for it.

The third is you. The comment to Rule 4-5.3 says nonlawyers are not subject to professional discipline, so the Bar cannot suspend a paralegal. The paralegal ethics codes fill part of that gap. Canon 2 of the NALA Code (opens in a new tab) bars a paralegal from any action a lawyer may not take, and a Florida Registered Paralegal answers to a code in Rule 20-7.1 that says the same. And the Bar is not the only system that answers for a loss of trust money. It could not discipline Mohan, but a criminal court reached him.

Saying no, and to whom

A refusal protects the money only for as long as nobody else will start the transfer. So after the refusal comes the question of whom to tell. The rules give a firm’s lawyers a ladder to climb, and the first rung is the written trust plan. It names the lawyer who answers the firm’s questions about the account. Rule 5-1.2(c)(2) then lets a lawyer who knows the account is out of compliance report it to the managing partner. If nothing is corrected in a reasonable time, the lawyer must go to the Bar whenever Chapter 4 requires a report.

That ladder starts with the managing partner, which is no help when the managing partner is the one asking. Then the plan’s named lawyer is the next place the question can go, and the rules give that lawyer duties you do not have. Under Rule 4-8.3(a), a lawyer who knows another lawyer has committed a violation raising a substantial question about that lawyer’s honesty must inform the Bar. That is the core of reporting misconduct, and the duty binds lawyers, not staff. The Bar’s Ethics Hotline (opens in a new tab) works the same way. It advises members in good standing about their own contemplated conduct, and its staff decline questions about another lawyer’s conduct. A paralegal cannot call it for advice about a partner, but the partner the plan names can call about what to do next.

None of that works without a record. Put the refusal in writing to the person who asked, and write the escalation down too. Afterward, documenting a refusal means a short, dated memo that a stranger could check months later: the amount, the account, the matter, the time, who asked, and what you said. Records are how these cases get decided. In Gilbert, every monthly bank statement but two, over four years, showed at least one theft, and no one at the firm read them closely enough to see it.

Thursday afternoon

In the activity, Dana Whitfield asks you to start a $9,000 transfer from trust to operating, and she has an answer ready for every reason you give. Start with Part 1: read the Pellam file and the firm’s four-line trust plan before you open the Simulator. Know where the $30,000 came from and what has to happen before any of it moves. Then run the afternoon. The Replay afterward changes the facts until part of the money may lawfully move, which tests whether you learned the rule or only the refusal.