Supreme Court Adopts Trachtenberg Rule Change Petition to Modify Rules Relating to Liens and Subrogation

By Patricia Sallen, Director of Special Services & Ethics/Deputy General Counsel
September 3, 2013

The Arizona Supreme Court has significantly amended two Ethical Rules, effective Jan. 1, in ways that ameliorate stumbling blocks for many lawyers. One rule amendment involves only a couple of words but should make advertising simpler. The other adds a whole new mechanism – apparently unique among jurisdictions — for dealing with claims to client property.

ER 7.2(c) currently requires that any communication made pursuant to the advertising Ethical Rules include the name and “office address” for at least one lawyer or law firm responsible for the content. Not only was “office address” not defined, but another Supreme Court provision – Rule 32 – used different terminology by requiring that lawyers provide the State Bar with their “street address” and “any other post office address the member may use.”

Effective Jan. 1, ER 7.2(c) will require that any communication include the name and “contact information” – instead of “office address” — for at least one lawyer or law firm. While not defined in the rule, “contact information” seems to contemplate the myriad ways a person can be contacted these days – regular mail, email, telephone. Read the amended rule here.

The State Bar filed the petition to amend ER 7.2(c) intending to resolve the “office address” issue but had a proposed a more complex revision than what the Supreme Court adopted.

The other major rule change involves ER 1.15, which deals with safekeeping of property.

ER 1.15 as currently written requires that if a lawyer holds property in which two or more people claim interests, the lawyer must hold the property “until the dispute is resolved.” A typical example involves personal-injury settlement funds to which a third party claims an interest.

As amended, ER 1.15(e) provides that the lawyer must hold the disputed property until the parties reach an agreement on the distribution of the property; a court order resolves the competing claims; or distribution is allowed under the new ER 1.15(f).

When it takes effect, ER 1.15(f) will allow a lawyer to serve written notice on the third party that the lawyer will distribute the property to the client “unless the third party initiates legal action and provides the lawyer with written notice of such action within 90 calendar days….” If the third party does not provide the written notice within the time frame and assuming the disbursement is not prohibited by law or court order, the lawyer may give the money to the client.

Geoff Trachtenberg of Levenbaum Trachtenberg, one of the lawyers who filed rule-change petitions in 2011 and 2012 proposing the notice mechanism, said that as a “practical matter, when a client receives an award or settlement, the existing rule freezes that money when a third party does nothing more than ‘make a claim’ to the funds. The third-party claim need not be legitimate, and can simply be an email or letter saying that they claim rights to the funds.”

With the new mechanism, he said, “the Supreme Court has shifted the burden to file lawsuits over these disputes from the clients and their lawyers to the third parties claiming rights to money.”

The amended rule provides more detail, including a comment that outlines the information the notice generally should include. Read the amended rule here.