The Client Security Fund paid out $98,664 in 2002 to reimburse clients of dishonest lawyers. That is almost double the amount paid in 2001 and seems to be the end of a slight downward trend in claims. Nevertheless, the CSF is a healthy and stable fund that promotes public confidence in lawyers and the legal system, of which OSB members should be proud.
The purpose of the Client Security Fund is to 'relieve or mitigate pecuniary losses to the client of active members caused by dishonest conduct of those members in their practice of law.' ORS 9.625. Established at the behest of the membership in 1967, it was one of the country’s first such programs. Now, all but one jurisdiction in the United States has a fund for client protection.1While the funding mechanism varies among the jurisdictions, all client protection programs are funded by lawyers.
The OSB Client Security Fund is financed entirely by annual member assessments (set by the Board of Governors), interest on the invested fund balance and collection of fund receivables. The funds are not part of the OSB general fund and are used only to support the program and pay eligible claims. The CSF maintains a reserve using a formula based on claims activity for the prior five years, with a minimum balance of $500,000. The annual member assessment has been $15 for the past several years, but was reduced for 2003 to five dollars.
Claims are reimbursed by the fund only if the loss was caused by the lawyer’s dishonesty in a lawyer-client relationship. It is not a substitute for fee arbitration or a malpractice claim. It is also intended as a 'recovery of last resort,' making reimbursement only when the claimant has exhausted other avenues and made a good faith effort to collect from the errant lawyer. Generally, the claimant must have a civil or criminal money judgment against the lawyer or, for claims of less than $5000, the lawyer must have been sanctioned by the bar for the same conduct.
Although all final decisions for payment rest with the Board of Governors, claims are investigated and initial decisions are made by the Client Security Fund Committee.2 Each claim that is received is reviewed by the staff administrator and assigned to a committee member, who conducts an investigation and prepares a report and recommendation for the committee. After consideration of the report, the CSF Committee votes either to deny the claim or to recommend to the Board of Governors that it be paid. A claim denied by the committee may be reviewed by the Board of Governors upon timely request by the claimant.
Since 1967, the Client Security Fund has reimbursed $2 million to clients of Oregon lawyers. The maximum reimbursement on a claim is $50,000 (it was $25,000 for the first 30 years of the fund). Although the fund occasionally pays a $50,000 claim, most claims are for less than $10,000, and a large number are for less than $5,000. All of the claims paid by the Client Security Fund are attributable to only143 lawyers. Six lawyers have generated total claims in excess of $100,000, and only nine lawyers have generated total claims totaling between $50,000 and $100,000.
The largest number of claims for reimbursement arise from the lawyer’s failure to refund unearned fees, but the largest dollar volume of payments is for theft of trust or estate assets. Over the life of the CSF, the percentage of payments by type of loss is: trusts & estates, 38 percent; loans & investments, 21 percent; unearned fees, 20 percent; settlements, 11 percent; other, 7 percent; real property proceeds, 3 percent.
The number of claims submitted to the CSF each year varies considerably, ranging from about 15 to more than 50. The average between 1998 and 2002 was 34. In 2001, the fund received 16 claims for reimbursement; in 2002 there were 15.
For most of its existence, the Client Security Fund experienced yearly increases in the dollar amount of claims paid; for the past few years, however, the total amount of claims paid has been on a downward trend:
1999: $ 93,302
2000: $ 94,068
2001: $ 53,209
The 2002 total of $98,664 may be the end of the downward trend; claims pending for resolution in 2003 total $108,000.
Following is a brief description of claims that were paid in 2002:
Roger Anunsen ($20,000)
In October 1997 Anunsen collected a fixed fee of $20,000 to pursue a legal malpractice action against the client’s former counsel in complicated intra-family litigation. (The agreement provided that Anunsen would also be entitled to 20 percent of any recovery.) Anunsen did some work on the matter right away, including drafting a complaint for the client to review and making demand on the PLF. After that, he did nothing more for the client and did not inform the client that the PLF had denied his claim on the ground that the statute of limitations had expired. After many demands from the client, Anunsen met with the client in August 2000. At that time, Anunsen informed the client that he was quitting the practice of law and could not handle the malpractice matter any longer. In fact, Anunsen had done nothing more on the client’s matter after 1997 and had resigned Form B in September 1999. This was the last of $126,000 reimbursed to Anunsen’s former clients by the CSF.
Michael Barrett ($2,890)
The CSF reimbursed two clients who hired Michael Barrett to help them with immigration matters. One client sought a work permit under a limited-time opportunity offered by the INS. Barrett failed to ensure that the application was completed properly and mailed it to the wrong address, causing the client’s application to be denied. The other client hired Barrett to get a green card for his wife. Although Barrett did some work on both matters, he abandoned his practice without completing them or refunding the unearned portion of the fees. Barrett was disbarred in October 2001. The CSF reimbursed $1,000 to another former client of Barrett in 2001.
Sue Guthrie ($3,400)
Guthrie agreed to handle a post-conviction matter for a client for a fixed fee of $3,500, to be paid in monthly installments. Between November 1999 and June 2000, the client paid $3,400 toward the fee. In January 2000, Guthrie began a six-month disciplinary suspension without informing the client of her changed status. She did no work on the client’s matter and failed to refund his unearned retainer. After the CSF reimbursed the client, Guthrie repaid all but $500 to the Oregon State Bar. Guthrie remains in suspended status.
David B. Harris ($2,900)
The client hired Harris in May 1998 to appeal a criminal conviction. Harris filed the notice of appeal, but did nothing further and the case was dismissed by order of default in November 1998. Harris did not inform the client of the dismissal, but collected fees from him for the appeal in December 1998 and January 1999. Harris was disbarred in September 2002. The CSF paid $2,000 to another former client of Harris in 2001.
Eric Wangen ($16,666)
Wangen settled a personal injury claim for a client in March 2000 and received $25,000 from the defendant. Wangen had the client endorse the check and promised to remit the client’s portion of the recovery, but didn’t. The CSF reimbursed the client’s portion of the recovery. Wangen resigned Form B in July 2002.
In exchange for payment from the fund, claimants assign to the Oregon State Bar all of their claims against the lawyer (to the extent they were reimbursed by the CSF), including any judgment that was obtained. The bar then pursues collection of the assigned claims. Recoveries are generally modest, ranging between $5,000 to $10,000 per year for the last few years. Recoveries in 2002 totaled $10,428, slightly higher than average. There is approximately $1.4 million in outstanding receivables (see sidebar). Many have been assigned to a collection agency, but others are handled in-house by the CSF Administrator. A number of former lawyers make regular restitution payments to the bar.
ABOUT THE AUTHOR
Sylvia E. Stevens is assistant general counsel of the Oregon State Bar. She can be reached at (503) 620-0222 or toll-free in Oregon at (800) 452-8260, ext. 359, or by e-mail at firstname.lastname@example.org.
2. Members of the CSF Committee in 2002 were Michael C. Lewton (chair), Philip H. Garrow (secretary), Robert B. Smith, Kim R. Carty, Mark Tipperman, Elizabeth C. Knight, Ronald E. Dusek, William H. Martin, Debra Ehrman, Guy B. Greco, Stephen D. Brown and Bonita J. Merten (public member).
© 2003 Sylvia E. Stevens