CSF UPDATE

'Every lawyer has an obligation to the public to participate in the collective effort of the bar to reimburse persons who have lost money or property as a result of the dishonest conduct of another lawyer.'1 Through the Client Security Fund, Oregon lawyers fulfill that obligation. The Client Security Fund is also one of the ways that the Oregon State Bar fulfills its public protection function.2 For the most part, we do it successfully. The OSB Client Security Fund is now in its 33rd year of operation. It was created in 1967 upon a vote of the membership authorizing the Board of Governors to pursue the enabling legislation (ORS 9.615 et seq.). The purpose of the fund is to 'relieve or mitigate pecuniary losses to the clients of active members caused by dishonest conduct of those members in their practice of law.' In other words, the CSF reimburses clients for money stolen by their lawyers.

The fund is financed entirely by annual member assessments, interest on the fund balance and 'subrogation' collections (money we recover from the lawyers whose clients we have reimbursed). The CSF assessment is set by the Board of Governors. It has been $15 since 1998; over the years it has ranged from a low of $3 to a high of $25. The fund maintains a reserve of at least $500,000.

Claims are eligible for reimbursement upon a finding that the loss has been caused by the lawyer's dishonesty in a lawyer-client relationship. In addition, 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. All claims are reviewed and investigated by a member of the Client Security Fund Committee.3 The CSF Committee's recommendations for payment are referred to the Board of Governors for final approval. The maximum amount paid on a claim is $50,000.

Between Oct. 1, 1999 and Sept. 30, 2000, the fund received 145 claims for reimbursement. It paid 31 claims totaling $118,355.38. There are 18 claims pending in the total amount of $87,675.

Since its inception in 1967, the CSF has reimbursed clients more than $1.9 million. All fund losses are attributable to fewer than 100 lawyers. Only five lawyers have generated total claims in excess of $100,000. Only eight lawyers have generated total claims between $50,000 and $100,000. 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 $1,000. In exchange for payments from the fund, the claimants 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. For the period Oct. 1, 1999 through Sept. 30, 2000, recoveries were $3,571.76. Total 'receivables' are $1.2 million (see sidebar). Many have been assigned to a collection agency; others are handled in-house by the CSF administrator.

Three lawyers generated 82 percent of the losses reimbursed during this reporting period:

Paul Gloyn: $25,915.00
Gloyn practiced on Oregon's southern coast, primarily representing defendants in criminal cases. In early August 1999, Gloyn fled the area as local police executed search warrants on his home and office looking for evidence of crimes involving racketeering, prostitution, possession and delivery of controlled substances, witness tampering and endangering the welfare of a minor. In the weeks and months prior to his departure, Gloyn had accepted advance fees from clients who were abandoned with little or no legal services performed on their behalf. The fund paid a total of $25,915.00 to 15 of Gloyn's clients. Other similar claims are pending.

Phil M. Kelley: $50,000.00
Kelley represented a brain-injured client in a workers' compensation claim that was settled in 1993 with a $100,000 lump-sum payment. Kelley told the client he had paid liens and expenses of approximately $28,000 from the settlement. With the client's agreement, Kelley paid himself a fee of $10,000. Kelley did not disclose that the Claim Disposition Agreement stated that Kelley was not to receive any fee from the settlement. Kelley was to have established a conservatorship over the remainder of the client's funds, but he failed to do so. Kelley resigned Form B in November 1995 without informing the client. Represented by new counsel, the client filed a civil action against Kelley and obtained a judgment on conversion and other theories in 1998 for more than $97,000. The CSF reimbursed the client $50,000, the maximum recovery available.4

John Wilkes $21,190.38
In mid-1998, Wilkes was retained by two clients needing assistance with tax matters. Both clients deposited funds with Wilkes to be used to satisfy their outstanding tax obligations, together with advanced fees for Wilkes' services. Several months later, the clients were informed that Wilkes had closed his practice due to illness. Wilkes did not respond to the clients' requests for return of the money they had entrusted to him, and he did not account for any legal fees earned. Both clients learned subsequently that Wilkes had not performed any legal services for them. Wilkes submitted a Form B resignation that was effective in May 1999. One client was reimbursed $3,989.38; the other received $17,201. +

ENDNOTES

1. Rule 1B, Model Rules for Lawyers' Funds for Client Protection.

2. The Oregon State Bar has four functions: professional organization, partner of the judicial system, provider of assistance to the public and regulatory agency providing protection to the public. For further detail, see the 1999 OSB Annual Report in the August/September issue of the Bulletin.

3. Current member of the committee are John Svoboda (chair), Alice Bartelt (secretary), Rick Braun, Stephen D. Brown, Timothy Grabe, Guy Greco, Frank Hilton, Michael Lewton, John Casey Mills, Ron Somers, Eddy Swearinger, Shirley Treadwell (public member) and David Zarosinksi.

4. In June 1999, the fund paid another diminished-capacity client of Kelley's more than $30,000 that he had misappropriated from her inheritance and SSI checks.

5. No relation to the political activist with a similar name. +

Sylvia Stevens is assistant general counsel of the Oregon State Bar. She can be reached at (503) 620-0222 in the Portland area or toll-free in Oregon at (800) 452-8260, ext. 359, or by e-mail at sstevens@osbar.org.

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