On the assumption that fewer claims means fewer lawyers misappropriating client funds, 2003 was a good year for the Client Security Fund. Claims activity was down both in the number and dollar amount, and with only one exception, all of the claims approved for payment during 2003 were for $4,000 or less.
The Client Security Fund was established in 1967 pursuant to ORS 9.625 'to relieve or mitigate pecuniary losses to the clients of active members caused by dishonest conduct of those members in their practice of law.' The 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 CSF is a dedicated fund used only to support the program and pay eligible claims. The member assessment in 2004 is $5. The fund has a reserve of approximately $900,000.
Claims are eligible for reimbursement by the fund only if the loss was caused by the lawyer’s dishonesty in a lawyer-client relationship. Fee disputes and malpractice claims are not eligible. The fund is intended as a 'last resort' source of recovery, 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 $5,000, the lawyer must have been sanctioned by the bar for the same conduct. Reimbursement is limited to the actual amount misappropriated by the lawyer and, occasionally, the claimant’s cost of obtaining a judgment against the lawyer. The fund does not reimburse lost interest, fees paid to a subsequent lawyer, damages resulting from the theft, or other incidental or consequential damages. The maximum reimbursement on any claim is $50,000.
Claims are investigated and initial decisions are made by the Client Security Fund Committee. All claims recommended for payment by the committee are subject to final approval by the Board of Governors. A claim denied by the committee may be reviewed by the Board of Governors upon timely request by the claimant.
Since its creation in 1967, the Client Security Fund has reimbursed $2.18 million dollars to clients of approximately 150 defalcating Oregon lawyers. 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.
The largest dollar volume of payments from the fund is for theft of trust or estate assets (37 percent), followed by claims for unearned fees (22 percent). Unearned fee claims account for the largest number of claims paid. Claims for reimbursement were trending downward for several years. Between 1998 and 2000, the fund received an average of 34 claims each year. In 2001, there were 16 claims, and in 2002 there were 15. The number of claims received in 2003 increased slightly to 20.
For several years there was a downward trend in the total amount of claims paid. It jumped in 2002, but went down again significantly in 2003:
Claimants who are reimbursed by the fund are required to assign to the Oregon State Bar all of their claims against the lawyer (to the extent they were reimbursed by the fund) 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 2003 totaled $7,985.
The fund has approximately $1.3 million in outstanding receivables (see below). Many have been assigned to a collection agency, but others are handled in-house by the CSF administrator. Several former lawyers make regular payments to satisfy their obligations to the fund.
CLAIMS FOR 2003
Following is a brief description of claims that were approved for payment in 2003. At the end of the year, the fund had 16 claims pending, of which six (totaling more than $25,000) are likely to be approved. (Note that the total dollar amount of claims recommended for payment by the CSF Committee is greater than the total actually paid in 2003 because claims approved late in the year were not actually paid until 2004.)
Michael T. Barrett (OSB #92223) $1,000
The CSF reimbursed Barrett’s client $1,000 paid in March 2001 for fees related to an immigration matter. The committee found that Barrett did no work on the matter and failed to stay in contact with the client, who didn’t learn until after the fact that Barrett was suspended in August 2001 and disbarred in October 2001. The fund had previously reimbursed $3,890 to three other clients of Barrett.
David F. Cuniff (OSB#78032) $1,231.25
On May 28, 2003 Cuniff accepted a retainer of $1500 to represent a client in a divorce. Cuniff filed responses to the petition for dissolution and an order to show cause before dying unexpectedly on June 23, 2003. After his death it was discovered that he had not deposited the retainer into his trust account but had deposited the funds into his business account and used them for his own purposes. The fund reimbursed the client for the unearned portion of the fees.
Paul F. Gloyn (OSB #88214) $625
Gloyn accepted a flat fee of $1500 to handle the client’s divorce, then assigned the matter to an associate in his office. Several weeks later, Gloyn fled the jurisdiction to avoid criminal prosecution, taking all the client funds in his trust account. Gloyn’s associate informed the client that she was entitled to a refund of $625 for unearned fees, but that the money was gone. Gloyn was disbarred on March 15, 2001. He was ultimately prosecuted for various crimes and is serving a prison sentence. The CSF reimbursed this client $625; between November 1999 and April 2001, the CSF paid more than $43,000 to 20 of Gloyn’s former clients under similar facts.
Philip J. Groh (OSB #95281) $850
Groh was hired in March 2000 to represent a client in a criminal case for which he was paid a flat fee of $1,000. Groh spoke to the client by telephone shortly after being retained and appeared for her arraignment. Thereafter he did nothing on the client’s case and failed to respond to the client’s efforts to contact him. He resigned Form B in October 2002. The CSF concluded that $850 of the fee was unearned and reimbursed it to the client.
Brian R. Jones (OSB #88236) $2,300
In December 2002, a collection agency client that Jones had represented in the past delivered 10 files for him to handle. The client also delivered $2,870 to cover the filing and service fees and a flat fee for Jones’ drafting of a complaint in each case (the remainder of his fee was to be contingent on recovery). Jones left on vacation and died unexpectedly. Only $570 was reimbursed to the client from Jones’ trust account; the CSF reimbursed the remaining $2,399 that was unaccounted for.
William S. Judy (OSB #79463) $34,868
The CSF paid three claims, one to a former client and two to estates for which Judy was a fiduciary in connection with his practice of law. In June 2002, Judy accepted $350 from clients to review their wills and prepare medical directives. In August 2002, Judy informed the clients that he had resigned from the practice of law. He had not done any work on their matter and failed to account for the fees. The CSF refunded $350 to the clients.
During 2001, Judy served as trustee in distributing a decedent’s trust. At the end of the year he informed the beneficiaries that there was $3,848 to be distributed among them after payment of creditors and administrative expenses. Later Judy informed the beneficiaries that he had used the balance of funds for his own purposes. A successor trustee was appointed and the fund reimbursed the trust for the missing funds.
The CSF also reimbursed $30, 670 to the estate of a severely mentally disabled woman for whom Judy was appointed conservator in 2001 by the Josephine County Circuit Court. The purpose of the conservatorship was to manage the ward’s $100,000 inheritance. During his tenure as conservator, Judy loaned $75,000 of conservatorship funds to a business associate for what ultimately turned out to be a fraudulent scheme. Judy also disbursed funds to himself, some designated as loans and some for unexplained purposes. The total loss to the estate was $85,670, which came to light in August 2002 when the ward became ill and it was determined that her insurance premiums had not been paid by the conservator. In March 2003, the court entered an order forfeiting Judy’s $55,000 conservators’ bond. The CSF reimbursed the estate the remaining $30,670. Judy resigned Form B on Sep. 24, 2002. Federal criminal charges are pending against Judy.
Kathryn G. McNannay (OSB #92394) $4,000
McNannay was appointed in early 2000 to represent an indigent client in a juvenile dependency case involving his two sons. Sometime later, McNannay told the client he would have to retain her if he wished her to continue on the case. Over the course of the next several months, the client paid McNannay $4,000 toward her fees. McNannay did not inform the court that the client had retained her privately and the CSF was unable to determine whether McNannay was also paid by the State Court Administrator for the time she spent on the client’s case. In July 2001, McNannay withdrew, citing lack of contact with the client. The court then appointed another lawyer to represent the client; the new lawyer reported that McNannay’s work on the case was of little value to the client and that she was required to start over on his case. The CSF reimbursed the client for all the monies paid to McNannay. She resigned Form B on Feb. 5, 2002.
Warren G. Moe (OSB #91082) $914
On June 5, 2002, Moe’s appeal of a disciplinary suspension was dismissed, resulting in a six-month suspension beginning July 5, 2002. At the end of June, Moe accepted a flat fee of $1,300 to represent a client in her divorce. On July 5, 2002, Moe filed a petition for dissolution and then resigned from the case because of his suspension. Moe did not tell the client of his impending suspension or that he would not be able to complete the case. He failed to refund any of her flat fee. The committee concluded that Moe had earned some of the fees (the client was able to proceed on the petition he filed) but that he had not earned $914. Moe resigned Form B on Oct. 21, 2003.
Dale Stache (OSB #95122) $1,950
Stache was hired in March 1999 on an immigration matter for which he collected $4,000 in advance to cover fees and costs. Stache met with the clients in May 1999 to sign papers that they understood Stache would file with the INS right away. The clients heard nothing more from Stache and hired another attorney to complete the work. They then learned that Stache had not filed the clients’ applications and they were required to begin again. Subsequently, Stache refunded $2,050 to the clients for INS fees that he had not paid. Stache resigned Form B in October 2001. The CSF reimbursed the clients $1,950 for the legal fees collected but not earned by Stache.
Noelle Y. Wilson (OSB #97107) $1,750
The CSF reimbursed three of Wilson’s former clients. In each case, the clients paid fees in advance but Wilson failed to complete their legal work. In October 2001 Wilson abandoned her practice and left the area without notice to her clients, who later learned that she had performed little of the work for which she was retained. The clients had difficulty recovering their files and were unable to recover any of their unearned fees. The CSF reimbursed $250 to one client, $500 to another, and $1,000 to a third client. Wilson was suspended in July 2002 for failing to pay her bar dues. Multiple disciplinary charges are pending.
Members of the CSF Committee in 2003 are: Phillip H. Garrow (chair), Elizabeth C. Knight (secretary), Kim R. Carty, Robert B. Smith, Mark Tipperman, Conrad E. Yunker, Ronald E. Dusek, Debra Ehrman, David P. Roy, R. Darrin Class, Robert J. Horvat, Sarah K. Rinehart and Bonita J. Merten (public member).
ABOUT THE AUTHOR
Sylvia E. Stevens is senior assistant general counsel and CSF administrator for 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 email@example.com.
|CLIENT SECURITY FUND’S |
Attorney and Amount
Anunsen, Roger* 60,000.00
Barrett, Michael 4,890.00
Belcher, Richard 500.00
Biggs, John 7,884.00
Coe, Hal 7,278.00
Correll, Jon 3,179.00
Daughters, Harold* 1,500.00
Dewey, Robert 7,380.00
DeZell, John 3,100.00
Dickerson, Donald 3,250.00
Donovan, James 6,245.00
Eads, John 18,000.00
Fearey, Ross 73,877.75
Gloyn, Paul 44,571.25
Grady, Hugh 99,086.49
Green, Glenda 7,500.00
Griffen, Keith 23,089.47
Groh, Phillip 825.00
Guthrie, A. Sue 500.00
Harris, David Brian 4,900.00
Hilke, Charles 33,258.00
Ireland, Gregg H 2,500.00
Jacobsen, Mark W. 2,000.00
Jordan, Lawrence 1,469.84
Judy, William 34,868.00
Kelley, Philip 80,074.00
King, Lewis 101,033.56
Kolb, Gerald 1,308.09
Little, Cameron 7,750.00
Loennig, Carlton 151,000.00
Mannix, David 1,041.00
Marshall, L. Guy* 25,000.00
Martin, Thane 5,250.00
McGrady, Michael 900.00
McKnight, W. Mark 5,000.00
McNannay, Kathryn 4,000.00
Miller, Steven 22,208.97
Moe, Warren 914.00
Morin, Volney 1,550.00
O’Neal, James 50,000.00
O’Shea, Ryssha 7,132.62
Ogilvy, William 22,904.00
Pollock, Woodrow 845.00
Rae, Gary 130,762.78
Safley, Jay 4,219.32
Schwindt, Steven 6,000.00
Shannon, Bobby 18,654.85
Simms, Stephen* 11,470.65
Sizemore, William 50,000.00
Smith, Raymond 1,443.75
Sousa, Dennis 7,105.37
Stache, Dale 1,950.00
Stokes, Guy 5,500.00
Storie, William 7,500.00
Sylvester, Gregg 50,499.99
Taub, Barry 445.00
Taylor, R. Randall 7,224.00
Wangen, Erik 16,666.00
Wasson, Greg 1,650.00
Webber, Russell 28,744.00
Weerts, James 1,150.00
Weidner, Roger 9,650.00
Wilkes, John 61,190.38
Wilson, Noelle 1,750.00
Yacob, Yosef 1,010.00
Young, Ronald 17,331.24
*Indicates the lawyer makes installment payments or has another arrangement with the bar.
© Sylvia E. Stevens