The Massachusetts Supreme Judicial Court ruled on October 1, 2020 that unidentified funds in Interest on Lawyer Trust Accounts (“IOLTAs”) are not unclaimed property under Massachusetts Unclaimed Property Law (G.L.c. 200A, et seq.) (the “UPL”). Banks should no longer report IOLTAs to Massachusetts. The Matter of Gregory M. Olchowski  sets forth the courts findings. The matter stems from efforts to determine what to do with unidentified funds held in the IOLTA of Mr. Olchowski following his disbarment. In 2018 Mr. Olchowski’s attorney moved for an order to transfer the unidentified funds to the Massachusetts IOLTA Committee, a not-for-profit program established by the rules of professional conduct. This motion was served on the director of the unclaimed property division of the office of the Treasurer and Receiver General (“Treasurer”) and the Treasurer decided to intervene based on its position that the funds represent “abandoned property” and are due to the Treasury.
The Treasurer argued that amounts in IOLTAs constitute deposits under Section 3 of the UPL. Section 3 provides that a deposit of funds in a bank shall be presumed abandoned unless the “owner” takes action within three years. The Court points out that the Treasurer’s own regulations define “owner” as “[a] person or entity having a legal or equitable claim to abandoned property.” The court endorses the IOLTA Committee’s position that the true owner of the unidentified funds in an IOLTA is the individual client, which the bank cannot identify. It does not address that the attorney can be viewed as the “owner” pursuant to this language given the attorney’s legal claim to the funds as custodian. Therefore, the court found that banks should not escheat IOLTAs to Massachusetts under the UPL.
The court also found that not only is the bank holding the IOLTA unable to escheat the funds under the UPL, but neither is the attorney. Pursuant to the court’s analysis, the attorney is not a “holder” under the UPL because (i) there would be multiple holders of the same property, leading to confusion; and (ii) the attorney’s records would become subject to audit by the Treasurer, which could result in a breach of attorney-client privilege. In fact, the court finds that “given the incongruent fit between Section 3 and IOLTA accounts…Section 3, does not apply to unidentified funds deposited in IOLTA accounts.”
Instead, the court determined that unidentified funds in IOLTAs should be governed by a process where financial institutions holding IOLTAs must agree to notify the board when there is no activity in an IOLTA, apart from automatic interest payments to the IOLTA Committee, for more than two years. The intent of this notice is to commence a process pursuant to which bar counsel will examine the attorney’s IOLTA records, determine status of the funds, determine the owner of the funds, and determine whether or not the inactivity indicates misconduct by the attorney.
Finally, any remaining funds truly abandoned are to be transferred to the IOLTA Committee. Although the court recognized the legislative intent that all unclaimed property be ultimately deposited in the Commonwealth’s general fund, it held that unidentified IOLTA funds should not be included because an owner could force the Treasurer to perform discovery to substantiate a claim made on the funds. The better approach, the court reasoned, is for bar counsel to request a determination in county court finding that the funds are presumptively abandoned and ordered to be transferred to the IOLTA Committee. The IOLTA Committee will then deliver the funds to the true owner, with interest, if ownership is established at any time. The court orders revisions to the rules of professional conduct to document these procedures.