PayPal Fee Trust Account Mishap Results in NJ Disciplinary Reprimand
October 14, 2024
PayPal Fee Trust Account Mishap Results in NJ Disciplinary Reprimand
Here is my recent Daily Record column. My past Daily Record articles can be accessed here.
****
At the turn of the century, it was uncommon for lawyers to accept credit cards. Today, however, most law firms take advantage of the flexibility and convenience of online payments. According to the 2024 MyCase and LawPay Legal Industry Report, 78% of law firms now accept online payments via credit or debit card. Nearly half of those firms (44%) report that they collect $3,000 or more per month as a result.
With the rise of online payments in the legal field and beyond, there has been a corresponding increase in the number of tools that enable law firms to accept credit card payments. Sifting through the many options available requires an analysis of features, processing fees, and ethical compliance, among other things. Identifying the right tool for your firm’s needs can be a challenging task, but many experts recommend choosing a payment platform designed for the needs of lawyers in order to avoid violating the many ethical requirements surrounding lawyer trust accounts.
Case in point: a recent case where a New Jersey lawyer was reprimanded due to an $18.90 overdraft of the firm’s trust account. The reprimand was recommended by the Disciplinary Review Board and imposed by the New Jersey Supreme Court on September 4th in The Matter of Michael A. Gorokhovich (D-70 September Term 2023 089080.
The reprimand stemmed from an overdraft caused by a $19.99 PayPal Business charge to his trust account. The record showed that two earlier debits were similar in nature, but those had not overdrawn the trust account and went unnoticed. The lawyer claimed he had not authorized the debits and closed his PayPal account to prevent future issues.
The attorney was reprimanded for “failing to maintain receipts and disbursements journals; conduct monthly, three-way ATA reconciliations; maintain individual client trust ledgers; maintain a running cash balance in his ATA checkbook; and retain ABA and ATA records for seven years. Moreover, because of his inept recordkeeping practices, he failed to notice, let alone put a stop to, allegedly unauthorized electronic charges to his ATA until after the third such charge caused an overdraft in that account.”
As a result of the reprimand, he was required to “(1) complete a recordkeeping course preapproved by the Office of Attorney Ethics within sixty days of this order; (2) submit proof to the Office of Attorney Ethics, within sixty days of this order, that the recordkeeping deficiencies identified during the audit have been corrected; and (3) provide to the Office of Attorney Ethics monthly reconciliations of respondent’s attorney accounts, on a quarterly basis, for two years…”
Using payment processing software specifically designed for lawyers could have prevented this type of mishap. Legal-specific payment platforms are designed with the complexities of law firm billing and trust accounting in mind and typically include built-in safeguards tailored to meet the ethical requirements surrounding attorney trust accounts.
These tools automatically separate earned fees from unearned funds, protecting trust accounts from unauthorized and unethical debits. Similarly, these platforms prevent credit card processing and other fees from being withdrawn directly from attorney trust accounts, avoiding unauthorized debits and potential overdrafts similar to the one that triggered the reprimand in this case.
Another benefit of legal payment platforms is that they can include features that simplify compliance with trust accounting rules. Detailed transaction reports can be run that enable easy tracking of client funds and facilitate the three-way reconciliations required by most state bar associations.
Payment processing tools built for legal professionals are designed to ensure the proper maintenance of accounting records. If your firm isn’t yet using a legal payment processing platform, the New Jersey disciplinary case clearly shows why now is the time to make that change. Legal-specific platforms help protect client funds, ensure trust account compliance, and prevent the ethical pitfalls that can arise with general payment processors like PayPal.
Nicole Black is a Rochester, New York attorney, author, journalist, and Principal Legal Insight Strategist at MyCase, CASEpeer, Docketwise, and LawPay, practice management and payment processing tools for lawyers (AffiniPay companies). She is the nationally-recognized author of "Cloud Computing for Lawyers" (2012) and co-authors "Social Media for Lawyers: The Next Frontier" (2010), both published by the American Bar Association. She also co-authors "Criminal Law in New York," a Thomson Reuters treatise. She writes regular columns for Above the Law, ABA Journal, and The Daily Record, has authored hundreds of articles for other publications, and regularly speaks at conferences regarding the intersection of law and emerging technologies. She is an ABA Legal Rebel, and is listed on the Fastcase 50 and ABA LTRC Women in Legal Tech. She can be contacted at [email protected].