CLOSE X
RSS Feed LinkedIn Instagram Twitter Facebook
Search:
FMG Law Blog Line

Archive for the ‘Professional Liability and MPL’ Category

Law Firm Falls Victim To E-Mail Scam – Loses Appeal Following Allowance Of Summary Judgment

Posted on: May 28th, 2020

By: Marc Finkel

In 2019, the United States Treasury Department released statistics detailing the number of reported business email compromise incidents over a three- year period.  The number of monthly incidents increased exponentially over those three years from approximately 500 reported incidents per month in 2016 to over 1,100 reported incidents per month in 2018.  Additionally, the total value of such scams increased from approximately $110 million per month in 2016 to $310 million per month in 2018.  Despite the efforts of law enforcement to curtail such scams, the Treasury Department statistics suggest that the problems associated with business email compromise incidents are worsening over time. 

Businesses that routinely conduct large wire transfers in the ordinary course of business, such as law firms, are particularly vulnerable to such scams.  Unfortunately, when a law firm falls victim to such a scam, the consequences can be financially devastating with little-to-no available recourse.  Such a situation recently befell a Boston area law firm that was denied relief from the Massachusetts Appeals Court in a matter arising out of an email scam that cost the firm over $300,000.00. 

In Sarrouf Law LLP v. First Republic Bank & another, a lawyer from the Plaintiff law firm was contacted through the firm’s email system from someone pretending to be the president of a large foreign construction manufacturing company.  The scammer sought to hire the law firm to represent the manufacturing company in the sale of construction equipment to a purported Massachusetts based purchaser.  The scammer went so far as to have a telephone conference with a lawyer from the Plaintiff law firm in order to discuss details concerning what was ultimately a phony business transaction and to execute a fee agreement as required by the Plaintiff. 

Once “engaged” the Plaintiff was sent two checks that were purportedly from the equipment buyer’s insurance broker.  The first check was in the amount of $3,000.00 which was meant to cover the Plaintiff’s fee.  The second check was in the amount of $337,044.00 and was purportedly an initial deposit for the purchase of the construction equipment.  Both checks were subsequently deposited in the Plaintiff’s lawyer trust account.  The scammer thereafter provided the Plaintiff with specific wiring instructions as to the second check which the Plaintiff followed—even though the first check for $3,000.00 had been returned as non-payable.

The Plaintiff’s bank, Defendant First Republic Bank, conducted a multi-tiered procedure in order to verify the requested wire transfers.  The Defendant ultimately approved the wire transfers and the recipients received the funds as directed.  It was discovered after the wire transfers were completed that the second check for $337,044.00 was counterfeit and, as a result, the Plaintiff was charged back the amount of the second check.  Accordingly, the Plaintiff’s lawyer trust account became overdrawn and required them to deposit over $300,000.00 of their own money in order to restore the account to its prior balance.  Ultimately, the Plaintiff filed a two- count complaint in the Massachusetts Superior Court against the Defendant alleging, under California law (due to choice of law considerations), negligence and a violation of the California Uniform Commercial Code.  The Superior Court granted summary judgment on behalf of the Defendant and dismissed both counts of the Plaintiff’s complaint.

On appeal, the Massachusetts Appeals Court affirmed the allowance of summary judgment.  Specifically, the Appeals Court found that the Plaintiff could not bring a viable claim for negligence against the Defendant due to (1) the absence of a legal duty based upon the relationship between the parties; (2) the economic loss doctrine’s bar against the recovery of pure economic losses in claims sounding in tort; and (3) that the Plaintiff’s common law negligence claim is preempted by sections of the Uniform Commercial Code that apply to banks and transactions similarly at issue.  Furthermore, the Appeals Court affirmed summary judgment as to the second count of Plaintiff’s complaint alleging a violation of the California Uniform Commercial Code because there was no evidence that the Defendant failed to exercise good faith or ordinary care in the performance of its obligations to follow the wire instructions as directed by the Plaintiff.  Here, the Defendant had no legal obligation to inspect the check to determine whether it was potentially counterfeit.

The Sarrouf Law LLP matter serves as a truly sad and cautionary tale of which practicing lawyers should be aware.  As the Appeals Court stated, “[a] party is in the best position to guard against the risk of a counterfeit check by knowing it’s ‘client,’ it’s client’s purported debtor and the recipient of [a] wire transfer.”  When it comes to business email compromise incidents none of us are immune to such scams and vigilance on our part alone is the only form of true protection.

If you have questions or would like more information, please contact Marc Finkel at [email protected].

A Slow Moving Storm is Brewing: Attorneys Should Expect an Uptick in Malpractice Claims, Just Not Right Away

Posted on: May 22nd, 2020

By: Anastasia Osbrink

Many attorneys are wondering whether to expect an increase in legal malpractice claims when courts – and society at large – begin to reopen. Such an increase would follow the pattern seen with previous economic declines. For instance, after the 2008 Great Recession, there was a significant increase in legal malpractice claims. However, it took a year for those claims to reach their peak in 2009. That is because the claims against attorneys followed an initial increase in other insurance claims. The number of claims in the five most likely areas for legal malpractice suits – personal injury, real estate, family, bankruptcy and estate law – nearly doubled between 2005 and 2009. Of course, such an increase can be expected during an economic downturn.

In the case of attorneys, following the initial wave of legal filings, the number of legal malpractice claims jumped as well in 2009. A similar increase in malpractice claims occurred in 2012 following the downturn caused by the European debt crisis and the downgrading of America’s credit rating in 2011. Again, the increase in malpractice claims occurred approximately one year after the peak of other types of filings had taken place.

This time, the increase in lawsuits in general likely will take even longer. Courts are reopening slowly, deadlines have been and likely will continue to be extended, statutes of limitations are being tolled, and there will be a significant backlog for the courts. Additionally, the disease itself likely has discouraged many people from going out and finding an attorney. Eventually, though, as people feel the devastating economic effects of the largest unemployment rate since the Great Depression, they will turn to litigation and the hope of a settlement or a large verdict to ease their financial pain. When this happens, legal malpractice suits may follow, as they did in 2009 and 2012.

Yet another factor likely will lead to an increase in malpractice suits that is unique to the pandemic. Even though courts are closed and many jurisdictions have been extending filing deadlines and tolling statutes of limitations, attorneys cannot simply assume that all cases are on hold. Indeed, as is typical, how and when a case is litigated must be evaluated on a jurisdiction by jurisdiction and case by case basis. An attorney’s failure to do his or her due diligence easily could lead to one or more claims of legal malpractice (though it remains to be seen how lenient courts will be to parties that missed deadlines during the pandemic).

Given this potential paradigm, it is essential that attorneys keep track of the rules and approaches by all courts in all jurisdictions in which they practice. Nevertheless, history suggests that we can expect an increase in the number of legal malpractice claims filed, even if it takes a year or two to get there.

If you have questions or would like more information, please contact Anastasia Osbrink at [email protected].

Massachusetts Enacts Legislation Authorizing Virtual Notarization During COVID-19 State of Emergency

Posted on: April 30th, 2020

By: Jennifer Markowski

On April 27, 2020, Governor Baker signed into law An Act Providing for Virtual Notarization to Address Challenges Related to COVID-19 (the “Virtual Notarization Act” or the “Act”). In doing so, Massachusetts joins a number of other states, including Rhode Island, Pennsylvania, Connecticut, New Jersey, New York, New Hampshire and Georgia (among others), in adopting temporary measures to permit virtual notarization during the COVID-19 pandemic. The Massachusetts Virtual Notarization Act shall remain in effect until three (3) business days after Governor Baker’s March 10, 2020 declaration of state of emergency terminates and permits a duly authorized notary public to virtually notarize signatures during this time. According to the Act, notaries shall adhere to the following protocols when performing an acknowledgment, affirmation, or other notarial act using real-time video conferencing:

  • Both the notary and the signer must be physically located within Massachusetts and the signer must swear under the pains and penalties of perjury as to his or her location.
  • The notary must observe the signing of the document.
  • The signer must verbally assent to the recording of the video conference.
  • The signer must disclose any other person present in the room and make that person viewable to the notary.
  • The signer must provide the notary with satisfactory evidence of identity per M.G.L. ch. 222, § 1. If the notary is reviewing government-issued identification, the signer must visually display the front and back of the identification to the notary and then send a copy of the identification (front and back) to the notary, which will be maintained securely and confidentially for ten (10) years.
  • The notary must indicate in the notarial certificate that the document was notarized remotely under the Act and indicate the county in which the notary was located at the time the notarial act was completed.
  • After the video conference, the signer must deliver the original executed documents to the notary.
  • The notary must make an audio and video recording of the notarial act and maintain the recordings for ten (10) years.

In addition to the preceding list of requirements, there are two additional steps to be taken for any documents executed in the course of a real estate transaction. If the signer is not personally known to the notary, during the initial video conference the signer must display a second form of identification containing the signer’s name. Another government-issued identification, credit card, social security card, tax or utility bill dated within 60 days of the video conference are acceptable forms of identification.  Additionally, upon receipt of the executed document(s), the notary and signer must engage in a second video conference during which the signer verifies to the notary that the document received by the notary is the same document executed during the first video conference. The signer must again disclose any other person present in the room and make him or her viewable to the notary.

The notary must also execute an affidavit that provides that he or she has:

  • Received a copy the signer’s identification and visually observed it during the video conference with the principal, if applicable;
  • Obtained the signer’s verbal assent to record the video conference;
  • Taken the signer’s affirmation that he or she was physically present within Massachusetts; and
  • Been informed of and noted on the affidavit any person present in the room and included a statement of the relationship of any person to the signer.

The notary shall retain the affidavit for ten (10) years.

The Act does not alter or amend the requirement in Massachusetts that the closing of a transaction involving a mortgage or other conveyance of title to real estate may only be conducted by an attorney duly admitted to practice law in the Commonwealth.

If a notary chooses to notarize documents under the Virtual Notarization Act, it is advisable to confirm with the client that a virtually notarized document is acceptable.  Additionally, it is also advisable to confirm that any applicable errors and omissions policy will cover professional acts involving a virtual notarization.

If you have any questions or would like more information, please contact Jennifer Markowski at [email protected].

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include re-opening the workplace, protecting business interests, shelter in place orders and more. Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**

Federal District Court Slashes Attorney’s Fees Claim

Posted on: April 24th, 2020

By: Nancy Reimer and Adrianna Michalska

Finding “pervasive shortcomings” in its billing entries, the U.S. District Court for the District of Massachusetts recently slashed a law firm’s fee request by seventy percent.  In Covidien LP and Covidien Holding Inc. v. Brady Esch, C.A. No. 16-12410-NMG (D. Mass. April 17, 2020) Covidien’s counsel sought $2.7 million dollars for representing Covidien in an employment contract dispute.  Criticizing the firm for block billing, excessive hours and unwarranted and duplicative fees, the District Court Judge slashed the fees sought to $798,500.

In the case, Covidien sued its former Director of Global Strategic Marketing for breach of confidentiality, breach of obligation to disclose “inventions” and breach of the covenant of good faith and fair dealing. After a nine-day trial, the jury returned a verdict for Covidien on its breach of confidentiality claims but found for the defendant on the other two claims. The Court entered judgment in favor of Covidien in the amount of $794,892.24, and allowed its request for costs, attorneys’ fees and expenses. Pursuant to the Court’s order, Covidien was entitled to pre- and post-judgment interest at 12% annual rate, reasonable attorneys’ fees and costs as the prevailing party. Covidien moved to alter or amend that judgment to include calculation of interest, fees and costs. The defendant opposed the motion and cross-moved to strike evidence submitted by Covidien, or in the alternative to amend judgment, reduce damages or order a new trial on some issues.

Covidien sought attorneys’ fees in the amount of $2,661,774.35, which Covidien claimed reflected the true value of the necessary work of a “limited core group of attorneys and paralegals.” The Court disagreed finding the request to be excessive. First, approximately $50,000 of the requested fees related to separate litigation pending in Delaware and California – those were not recoverable in this action. Second, more than half of the time entries billed by Covidien’s attorneys reflected a significant pattern of block billing in increments of one hour or more. The Court found the block billing represented “such a pervasive shortcoming”, it warranted an “across-the-board” global 25% reduction of all fees. Third, the Court found the billing records reflected overstaffing of both local and out of town attorneys, duplicative entries, inefficient use of junior attorneys, vague work descriptions and unreasonable hourly rates of support staff. Applying the “bedrock principle” adopted in the First Circuit that an award of attorneys’ fees should reflect the prevailing parties’ degree of success the Court further reduced the fees awarded. Although Covidien was the prevailing party for purposes of awarding costs, it attained only a part of what it sought in instituting the litigation. Thus, the Court reduced Covidien’s fees award by half of the already discounted request.

Lastly, the Court recognized that Covidien’s sought attorneys’ fees in the amount of over $2.6 million were “nowhere near commensurate with the damages awarded by the jury, warranting a further substantial reduction” Killeen v. Westban Hotel Venture, LP, 872 N.E.2d 731, 738 (Mass. App. Ct. 2007). Accordingly, the Court reduced Covidien’s fees request by an overall 70% and awarded it $798,500 in legal fees, less than a third of what Covidien originally requested.

Covidien also asked for $531,008.76 in costs. The Court found that despite yielded mixed results, Covidien reasonably “carried the day” and was entitled to costs, but the request was cut in half to exclude the costs Covidien unreasonably and unnecessarily expended on travel and lodging for out-of-state attorneys, as well as on copying and printing its own deposition transcripts. Then the Court reduced the costs by 50% to account for Covidien’s partial success.

Most jurisdictions employ the loadstar method to calculate reasonable attorneys’ fees. The method begins with the calculation of total hours worked, which is derived from authenticated billing records, reduced by any hours that are duplicative, unproductive or excessive. The total hours worked is then multiplied by a reasonable hourly rate. To determine a reasonable hourly rate, Courts consider such factors as prevailing rates in the community, the qualifications, experience and specialized competence of the attorneys involved and the “quantum of success achieved in the litigation.” Coutin v. Young & Rubicam Puerto Rico, Inc., 124 F.3d 331, 338–39 (1st Cir. 1997).

Covidien’s attorneys learned a hard lesson.  First and foremost invoices must be carefully reviewed to ensure time is charged to the correct client and it is not excessive or duplicative. While litigation is costly, it does not justify the expenditure of attorneys’ fees, which are more than triple the amount recovered in a jury award.  If you have any questions or would like more information, please contact our Lawyers Professional Liability Practice Group, a list of which can be found at www.fmglaw.com.

Considerations For CPAs Dealing With Unpaid Fees

Posted on: April 15th, 2020

By: Nancy Reimer, Nicole Graham, Elizabeth Lowery, Zinnia Khan, and Caroline Wu

Many Certified Public Accountants and accounting firms will likely be increasingly confronted with collecting fees as the COVID-19 health crisis continues.  In dealing with unpaid fees, a CPA must pay close attention to their professional duties and obligations with respect to the release of client records, tax returns and even their own workpapers. 

In every instance, a CPA must adhere not only to the American Institute of CPAs’ (“AICPA”) Code of Professional Conduct and guidance from the Internal Revenue Service (“IRS”), but also to state-specific statutes and regulations.  There are often key differences between the AICPA Code, IRS guidance and state law.  For example, the release of client records, including a tax return or audit report, is left to a CPA’s discretion under the AICPA Code – as it states that a CPA should provide certain records upon a client’s request.  In contrast, IRS Circular 230, § 10.28 provides a CPA must, at the request of a client, promptly return the client’s records.   

Accordingly, it is best to start with the requirements of the AICPA Code of Professional conduct and IRS Circular 230 (for tax returns) and then proceed to examine the obligations set forth under the laws of the state in which the CPA is licensed. 

AICPA Code section 1.400.200.07 governs a client’s request for records or the CPA’s work product in the CPA’s custody or control and which have not previously been provided to the client.  Under section 1.400.200.07, the CPA should respond by providing the prepared records and work product, except that such records may be withheld if fees are due to the CPA for that specific work product.  This language, however, is subject to the rules and regulations of other authorities, including state laws and regulations. 

Under IRS Circular 230, § 10.28, a CPA must, at the request of a client, promptly return any and all records of the client that are necessary for the client to comply with his or her Federal tax obligations.  The existence of a dispute over fees generally does not relieve the CPA of this responsibility.  IRS Circular 230 also defers to requirements under state law.  If the applicable state law permits the retention of a client’s records in the case of a fee dispute or unpaid fees, the CPA need only return those records that must be attached to the taxpayer’s return. 

The laws and regulations concerning the return of client records and other documents for various states are set forth below.  Not coincidentally, the states below are those where Freeman, Mathis & Gary, LLP maintains one or more offices.

California  

Regardless of whether there are unpaid fees, California CPAs are required to return all client’s records. California Board of Accountancy Regulations Article 9 § 68 specifically states that: “Unpaid fees do not constitute justification for retention of client records.  Although, in general the accountant’s working papers are the property of the licensee [CPA]…”  

California’s Business and Professions Code § 5037 goes on to say that the CPA’s “working papers”, “except the reports submitted by the [CPA] to the client…shall remain the property of the [CPA] in the absence of an express agreement.”  But it is unclear what “reports submitted by the [CPA] to the client” means, and whether it includes a CPA’s work product such as prepared returns.  

California Board of Accountancy Regulations Article 9 § 68.1 defines “working papers” as the “[CPA’s] records of the procedures applied, the tests performed, the information obtained and the pertinent conclusions reached in an audit, review, compilation, tax, special report or other engagement” and “include, but are not limited to, audit of other programs, analyses, memoranda, letters of confirmation and representations, abstracts of company documents and schedules or commentaries prepared or obtained by the [CPA].” Thus, the definition of “working papers” arguably includes all of a CPA’s work product.  This makes sense since, in the case of unpaid fees, there is no specific return requirement for any documents other than a client’s own records.

Connecticut                                                        

Conn. Gen. Stat. § 20-281k(b) provides, a CPA shall return a client’s original records to his client or former client upon the client’s request and reasonable notice.  The CPA may make and retain copies of such documents of the client when such documents form the basis for work done by him.  Unlike the AICPA Code, this language imposes a mandatory duty on CPAs to return client records upon request

Florida

Florida’s provides that a CPA must return all of the client’s own records upon request, and can charge reasonable fees for costs incurred in doing so.  Section (c) of the same rule appears to build in the requirement of payment by the client before any work product is released, as it defers to the terms of the engagement between the CPA and client.  Florida’s Regulation of Professions and Occupations, Title XXXII Chapter 473.318 addresses the ownership of working papers, and is almost word for word identical to that of California’s BPC § 5037 quoted above which states that working papers remain the property of the CPA. 

Georgia

In Georgia, section 20-12-.12. of the Rules of the State Board of Accountancy Public Accountancy Act of 2014, states:

A licensee[CPA] shall furnish to his or her client or former client, upon request made within a reasonable time:

(a) Any accounting or other records belonging to, or obtained from or on behalf of, the client which the [CPA] removed from the client’s premises or received for the client’s account, but the [CPA] may make and retain copies of such documents when they form the basis for work done by him or her; and

(b) A copy of the [CPA’s] working papers, to the extent that such working papers include records which would ordinarily constitute part of the client’s books and records and are not otherwise available to the client.

The Georgia State Board of Accountancy issued a Statement of Policy (Policy No. 5) relating to section 20-12-.12. of the rules.  The Statement of Policy explains:

During the course of a professional engagement, a [CPA] may possess certain records of a client, or may have developed certain records without which the Client Records would be incomplete. Retention of Client Records after the client has made a request for them is a violation of Rule 20-12-.12. The [CPA] does not have a lien on these records, and they must be returned regardless of the fact that the fee of the [CPA] may remain unpaid. For purpose of this Rule, the term “Client Records” refers to those journals, ledgers, bank statements and cancelled checks, copies of invoices and similar documentation of the transactions that are reflected in financial statements. It is anticipated that the client will have retained copies of financial statements, income tax returns, and similar documents. A [CPA] is not required to convert records that are not in electronic format to electronic format. However, if the client requests records in a specific format and the [CPA] was engaged to prepare the records in that format, the client’s request should be honored. If a [CPA] is engaged to perform certain work for a client and the engagement is terminated prior to the completion of such work, the [CPA] is required to return or furnish copies of only those records originally given to the [CPA] by the client. Any working papers developed by the [CPA] incident to the performance of the engagement which do not result in changes to the Client Records or are not in themselves part of the records ordinarily maintained by such client, are considered to be solely “accountant’s working papers” and are not the property of the client.  Once the [CPA] has returned the Client Records or furnished the client with copies of such records and/or necessary supporting data, the [CPA] has discharged the obligation in this regard and need not comply with any subsequent requests to again furnish such records. If the [CPA] has retained copies of Client Records already in possession of the client, the [CPA] is not required to return such copies to the client.

Kentucky               

Kentucky Revised Statutes Chapter 325.420(a) requires the licensee[CPA] to return any of the client’s own records upon request. Kentucky Revised Statutes Chapter 325.420(b) then builds in the requirement for payment by the client for services rendered, before the [CPA] is required to provide their work product, which specifically includes tax returns.

Maine

Maine compels the return of client records upon the client’s request.  Me. Rev. Stat. tit. 32, § 12280 states a CPA shall furnish to his client or former client upon request and reasonable notice:

  1. A copy of the CPA’s working papers, to the extent that the working papers include records that would ordinarily constitute part of the client’s records and are not otherwise available to the client; and
  2. Any accounting or other records belonging to, or obtained from or on behalf of, the client that the CPA removed from the client’s premises or received for the client’s account. The CPA may make and retain copies of those documents of the client when they form the basis for work done by him.

Massachusetts

Under 252 C.M.R. 3.03(3), a CPA shall furnish to a client or former client, upon request made within a reasonable time after original issuance of the document in question, if not previously furnished:

  • A copy of the tax return of the client;
  • A copy of any report or other document issued by the CPA to or for such client;
  • Any accounting or other records belonging to, or obtained from or on behalf of the client (but the CPA may make and retain copies of such documents of the client when they form the basis for work done by the CPA); and
  • A copy of the CPA’s workpapers, to the extent that such workpapers include records that would ordinarily constitute part of the client’s books and records and are not otherwise available to the client.

New Hampshire

Pursuant to N.H. Rev. Stat. Ann. § 309-B:19 (II), a CPA shall furnish to the client or former client, upon request and reasonable notice:

  • A copy of the CPA’s working papers, to the extent that such working papers include records that would ordinarily constitute part of the client’s records and are not otherwise available to the client; and
  • Any accounting or other records belonging to, or obtained from or on behalf of, the client that the CPA removed from the client’s premises or received for the client’s account. The CPA may make and retain copies of such documents of the client when they form the basis for work done by the CPA.
  • A copy of computer-prepared client data diskettes containing client ledger data, spread sheet data, client documents and any other such data of the client or former client that would ordinarily constitute part of the client’s records and not otherwise be available to the client.

New Jersey

N.J.A.C. 13:29-3.16 provides:

(a)  A licensee[CPA] or the [CPA’s] firm shall furnish to the [CPA’s] client or former client, upon request made within a reasonable time after original issuance of the document in question:

1.  A copy of a tax return of the client;

2.  A copy of any report, or other document, issued by the [CPA] to or for such client;

3.  Any accounting or other records belonging to, or obtained from or on behalf of, the client which the [CPA] removed from the client’s premises or received for the client’s account, but the [CPA] or the [CPA’s] firm may make and retain copies of such documents when they form the basis for work done by the [CPA]; and

4.  [CPA]-prepared client records that would ordinarily constitute part of the client’s books and records, are contained in the [CPA]’s or his or her firm’s working papers, and are not otherwise available to the client. Copies of such records shall be produced to the client in the same manner, media, and format as the record was created by the [CPA].

(b)  A [CPA] or the [CPA’s] firm shall not withhold client records for the non-payment of fees for services performed.

Pennsylvania 

A CPA shall furnish to its client or former client upon request made within a reasonable time after original issuance of the document in question:

(1) A copy of a tax return of the client.

(2) A copy of any report or other document issued by the [CPA] to or for such client and not formally withdrawn or disavowed by the [CPA] prior to the request.

(3) A copy of the [CPAs] working papers to the extent that such working papers include records that would ordinarily constitute part of the client’s records and are not otherwise available to the client. However, a [CPA] may require that fees due the [CPA] with respect to completed engagements be paid before such information is provided.

(4) Any accounting or other records belonging to, or obtained from or on behalf of, the client that the [CPA] removed from the client’s premises or received for the client’s account. The[CPA]  may make and retain copies of such documents of the client whenever those documents form the basis for work done by him.

(5) If a [CPA] can document compliance with the foregoing requirements, he need not comply with subsequent requests to again provide such information.

63 P.S. s. 9.11(b).

Rhode Island

Rhode Island law does not expressly address the return of client records, though R.I. Gen. Laws Section 5-3.1-22 governs the ownership of such records.  In Rhode Island, all statements, records, schedules, working papers, memoranda, and any other data, including, but not limited to, a data bank, that are retained by a CPA or accounting firm incident to or in the course of professional services rendered to clients are the property of that CPA or accounting firm in the absence of an express agreement to the contrary.

CPAs licensed in Rhode Island must therefore comply with the requirements prescribed by the AICPA code and IRS Circular 230, § 10.28 when examining their obligations to return client records.

Vermont 

Under Vt. Stat. Ann. tit. 26, § 81(c), original copies of client documents in the possession of the CPA are the property of the client and must be returned to the client upon request.  Subsection (a) provides, however, statements, records, schedules, working papers and memoranda made by a CPA are the property of the CPA.

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Topics include COVID-19’s impact on finances and loans, the FFCRA, the CARES Act and more. Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**