Oregon State Bar Bulletin — FEBRUARY/MARCH 2008
Bar Counsel
Reimbursing Lawyer Thefts
OSB Client Security Fund 2007 Annual Report
By Sylvia Stevens

Oregon lawyers have much to be proud of, not the least of which is the OSB Client Security Fund. For nearly 40 years, the CSF has been reimbursing clients whose lawyers have misappropriated their funds. With their modest $5 annual assessment,1 Oregon lawyers finance a program that literally "puts our money where are mouth is" on the issue of public protection and ameliorating the damage to the profession that is caused by the dishonesty of a few lawyers.

Oregon has one of the oldest client security funds (established in 1967),2 but every jurisdiction now has one. Over the years, the concept of client protection has grown to encompass fee arbitration, UPL enforcement, payee notification and disclosure of malpractice coverage, and has become increasingly recognized as an important aspect of lawyer regulation.

With the exception of 50-year members, all active and inactive members contribute to the CSF. The CSF assessment goes into a dedicated OSB account that is used only to reimburse claimants and to pay the expenses of the program. Additional resources of the CSF come from interest on invested funds and money collected by subrogation from the defalcating lawyers.

Only the lawyer’s client may seek reimbursement from the fund, although if the claim is for fees paid by a third person, the client can direct that any reimbursement be paid to the third person. When a claim is received, it is assigned to a member of the CSF Committee for investigation. The investigator’s report is reviewed by the committee, which is authorized to deny a claim or forward it to the Board of Governors with a recommendation for payment. The board reviews all claims that are recommended for payment. The board also reviews claims that have been denied by the committee, upon request of the claimant. The decision of the board is final.

The CSF is not a substitute for fee arbitration or a malpractice claim. There must be a finding that the client’s loss of money or property was the result of the lawyer’s dishonest conduct. "Dishonest conduct" means defalcation, embezzlement or other wrongful taking. Unearned fee claims are reimbursed only if the lawyer took fees in advance but provided no services, or if there is evidence that the lawyer’s work was of no or only minimal value to the client.

The CSF is a fund of last resort, and reimbursement of any claim lies within the discretion of the committee and the board. Claimants are required to exhaust their remedies against the lawyer, including seeking a civil judgment or criminal restitution, and making a good faith effort to collect. If the loss is less than $5000, a claim will be paid if the lawyer was disciplined or resigned in connection with the same conduct. Unlike some jurisdictions, Oregon’s CSF has no "per claimant" or "per lawyer" cap. However, the reimbursement of any claim is subject to a limit of $50,000.

ORS 9.665 subrogates the bar to the rights of the reimbursed claimant against the defalcating lawyer to the extent of reimbursement awarded. The bar also requires claimants to formally assign their claims and judgments in favor of the bar. The bar then attempts to collect on the subrogated and assigned claims. Although recoveries are typically small, there is a handful of lawyers who make regular payments to the CSF to reimburse it for awards to their former clients.

The CSF Committee is comprised of volunteers appointed by the BOG. Since its inception, the committee has included a public member. Members of the CSF Committee in 2007 were Jennifer Kimble (chair), Scott E. Asphaug (secretary), Dennis McCaffrey, Constantin Severe, Rhonda Antell, Jeff Chicoine, Sean Hartfield, Mitzi Naucler, Marty Barrack, Susan Alterman, J. Russell Rain, Michelle Teed and Ron J. Palmer (public member).

The CSF received 28 claims in 2007, double the number received in 2006. Eleven claims were paid in 2007, including seven that were carried over from the prior year. The remaining ten claims filed in 2007 remain pending. Awards paid in 2007 totaled $107, 789.94, more than twice the total for 2006. Collection of receivables was steady but uneventful, totaling $5,302.85. Outstanding receivables hover around $1 million.

Following is a brief summary of the claims paid in 2007.

John Bowles ($1,048.75)
Client hired Bowles in November 2002 to defend her in an eviction proceeding. She paid him a retainer of $150 but there was no evidence that Bowles did any work and the client appeared pro se at her trial. Client prevailed at trial and in May 2004, the landlord deposited $898.75 with the court to satisfy Client’s judgment. The court disbursed the money to Bowles, but he never forwarded it to the client. Upon inquiry, Bowles claimed to have no memory of what happened to the money. The client was awarded $898.75 to reimburse her for the landlord’s payment misappropriated by Bowles, plus the $150 paid for fees because any work Bowles did was of insignificant value.

Dennis Tripp ($50,000 and $6,044)
The CSF reimbursed two of Dennis Tripp’s clients in 2007. In the first matter, Client retained Tripp in May 2002, to assist her with various legal matters, including a dispute over her sizeable inheritance. Later that year, Client entered a substance abuse program and requested Tripp’s help in managing her financial affairs. At Tripp’s request, Client signed and gave to Tripp numerous blank checks to use for paying her bills. Tripp continued to handle Client’s finances after she was released from treatment. After Tripp’s death in April 2005, Client discovered that her funds were nearly gone; approximately $230,000 had been withdrawn by Tripp and was unaccounted for. Tripp’s estate was insolvent. The CSF reimbursed the Client its maximum award of $50,000.

The second matter involved a civil settlement that Tripp obtained in 1988, for two young victims of sexual abuse. Under the terms of the agreement, the defendant would make monthly payments, from which Tripp would deduct his one-third fee and disburse the balance to Clients. Things went smoothly for about seven years, but after March 1999, Clients heard nothing more from Tripp and received no payments. Among the papers found in Tripp’s office after his death in 2005 were records indicating that Tripp had been receiving payments regularly from the defendant but diverting them to his own use. It was not clear why the Clients had not inquired about the stoppage of the payments, but their lawyer suggested they were unsophisticated and might not have thought to ask. It was also possible that Tripp told them the defendant had stopped making payments. Regardless, the CSF concluded that they were entitled to reimbursement. After a thorough accounting, Clients were awarded the difference between what they should have received from Tripp during the period of "stopped payments" less recoveries from the PLF and the defendant.

Neil Morey ($535)
Morey was hired in January 2006, to defend a criminal case. He collected a retainer of $1000 and did some work on the matter, but on March 23, 2006, Morey resigned Form A and disappeared. Based on Morey’s billing records, he earned $465 before abandoning the client. The CSF found that Morey’s retention of unearned fees was dishonest, and the client was awarded $535.

William Kent ($1,150)
Client hired William Kent in February 2006, to pursue a custody modification and deposited $1,150 toward Kent’s fees. Approximately three months later, Kent filed and served the motion and Uniform Support Affidavit. In July 2006, Kent notified the client that he was being suspended for disciplinary reasons and would not be able to continue the representation. Kent promised an accounting of Client’s funds but failed to provide one. Client retained another lawyer to finish the matter and paid another $1,500 for her services. The new lawyer reported that the documents prepared by Kent were full of errors and she had to start essentially from the beginning. The CSF concluded that Client should be reimbursed for all the money paid to Kent because his work was of de minimis or no value. The CSF also found evidence of dishonesty in Kent’s accepting the client’s matter without mentioning that he was in the midst of formal disciplinary proceedings and was negotiating a stipulation for discipline.

Russell Vause ($6,937.13)
Client hired Russell Vause to pursue her claim for personal injuries. The case was settled in late 2001, for $59,000. Vause deducted his one-third fee, withheld $6,937.13 owed to Medicare, and delivered the balance to Client. In July 2002, Client received a demand from Medicare; she responded that she believed her attorney had satisfied the Medicare debt with funds withheld for that purpose. She heard nothing further from Medicare until March 2006, when the demand was renewed. Vause had been suspended in July 2002, for nonpayment of dues and he did not respond to the Client’s inquiry after receiving the renewed Medicare demand.

Dan Doyle ($10,000)
Doyle was hired in June 2001 by Clients who wanted his help to prevent the City of Salem from putting a new city water line over their properties. In July 2001, Doyle indicated that an appraisal of the clients’ properties was needed and a November 2001 billing statement indicated that Doyle was researching and interviewing appraisers. In March 2002, Doyle requested and received $10,000 for the appraisal. Thereafter, Doyle had a few meetings with the city and reported on his progress to the clients throughout 2003, after which communications ceased. In March 2004, the city announced it was deferring any action on the proposed water line. In June 2004, Doyle informed the clients that he had been suspended from the bar for 30 days beginning June 4, 2004. After that, Doyle was increasingly difficult for the clients to contact. In December 2004, the clients informed Doyle by letter that they were going to retain new counsel and asked for a refund of the funds advanced for the appraisal. Doyle never responded to that letter and did not refund the money. In early February 2005, Doyle resigned from representing the clients, telling them he was quitting the practice of law. Doyle submitted a Form B resignation effective Jan. 10, 2006. In his Form B, Doyle acknowledged that his conduct in connection with these clients involved dishonesty.

Thomas Okai ($22,500)
Okai was hired in the fall of 2005 to pursue post-conviction relief for the son of former clients. The parents used their savings and mortgaged their home to raise the retainer of $22,500 requested by Okai, which was paid in several installments between November 2005 and September 2006. There was an initial flurry of work and Okai filed a petition for post-conviction relief, but otherwise he had little contact with the client or the parents. The trial began on Sept. 16, 2006, but Okai performed so poorly that the court terminated the proceedings and rescheduled it to allow Okai to better prepare. On Oct. 10, 2006, Okai’s office informed Client and his parents that Okai would not be handling the matter further, that Okai was unable to refund the unearned fees, and referred Client to the PLF. Successor counsel indicated that no investigation had been done, and Okai’s work was of no value. Client was awarded a full refund of the fees paid.

David Tombleson ($750)
Tombleson was hired to pursue Client’s claim against an investment broker and his company. After paying Tombleson a flat fee for his initial research and demand on the other parties, Client gave Tombleson a retainer of $750 toward his hourly fees for litigation. Tombleson drafted and filed a complaint on Sept. 8, 2006, and the defendants were served on Sept. 13, 2006. In November, Tombleson told the client he believed the broker had filed a petition in bankruptcy and was checking into the matter further. That was Client’s last communication with Tombleson. In April 2007, she wrote him demanding that he return her original documents, but he didn’t respond. She later learned that her complaint had been dismissed for lack of prosecution in January 2007. The CSF found that Tombleson’s work was of no value to Client and she was awarded the entire retainer amount.

Todd Wetsel ($1,000)
Client contacted Wetsel in January 2007, requesting assistance with a child support modification. On Feb. 8, 2007, Client delivered a $1,000 retainer for Wetsel but she heard nothing from him thereafter. Wetsel was suspended in June 2007, in connection with two complaints that had been filed in 2005. The CSF concluded that Wetsel either took Client’s money with no intention of providing legal services or failed to refund an unearned fee.

Betty Jo White ($7,825.06)
Betty Jo White was the personal representative of an estate. She was removed in April 2005, after failing to respond to a show cause order. The successor personal representative subsequently obtained a judgment in the probate court surcharging White in the principal amount of $9,825.06 for estate funds she had misappropriated to her own use between 2000 and 2005. White resigned Form B in December 2005, with three complaints pending, all involving unaccounted-for funds that White had been handling as a fiduciary or for clients. The decedent’s estate was awarded the amount of the judgment less sums paid by White’s surety.

Endnotes

1. Since its inception in 1967, the CSF annual assessment has ranged between $3 and $25. It has been at $5 since 2003.

2. See ORS 9.

Legal Ethics Assistance
The Oregon State Bar offers the assistance of its general counsel’s office to discuss your legal ethics questions. Call the bar at (503) 620-0222 in the Portland metropolitan area or toll-free statewide at (800) 452 8260 and speak with Sylvia Stevens, general counsel, ext. 359 or 361.

ABOUT THE AUTHOR
Sylvia Stevens is general counsel 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 sstevens@osbar.org.

© 2008 Sylvia Stevens


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