|Oregon State Bar Bulletin FEBRUARY/MARCH 2007|
By Sylvia E. Stevens
The Oregon State Bar Client Security Fund was established in 1966 to reimburse the rare client who suffers a loss because of a dishonest lawyer. One of the oldest such bar funds in the nation, the CSF paid its first claims in 1970, and it has operated continuously ever since. The fund provides a vital public protection function and in so doing, also serves the profession well, by providing real relief to clients who have been harmed at the hands of the very lawyer they trusted.
By assessment, active and inactive members alike contribute to the fund, which is held in a separate, dedicated OSB account. The fund consists of annual member assessments, money collected by subrogation from the defalcating lawyers and interest on the invested monies. The Board of Governors is the official trustee of the Client Security Fund and has final approval over all reimbursement awards. The fund is administered by the bar’s general counsel, with investigation and payment recommendations made by a committee appointed by the Board of Governors.
Only the defalcating lawyer’s client or the client’s legal representative can submit a claim for reimbursement, although a client can seek reimbursement on behalf of a third person whose funds were misappropriated. When the notarized claim is received by the bar, it is reviewed initially by the general counsel, then assigned to a member of the CSF Committee. If the committee recommends payment, the claim is forwarded to the Board of Governors. If a claim is denied by the CSF Committee, the claimant may seek board review of the committee’s decision. The decision of the Board of Governors is final.
Claims are eligible for payment if the committee and the board find that the loss of money or property was the result of the lawyer’s dishonest conduct. For purposes of the CSF, dishonest conduct means defalcation, embezzlement or other wrongful taking. Unearned fee claims are reimbursed only if the lawyer made a false promise to provide legal services in exchange for advance payment of the fee, or if there is evidence that the lawyer’s work was of no or only minimal value to the client. The fund is a resource of last resort, and claimants are required to first make a good faith effort to collect from the lawyer, including seeking a civil judgment or criminal restitution. If the loss is less than $5,000 a claim may be paid if the lawyer was disciplined or resigned in connection with the same conduct.
Eligible claims are paid up to $50,000; there is no limit to the number of claims that can be paid on behalf of one lawyer. By statute, the bar is subrogated to the rights of the reimbursed claimants against the defalcating lawyer, to the extent of reimbursement awarded. The bar also requires claimants to execute an assignment of judgments and claims in favor of the bar. The bar then attempts to collect on the subrogated and assigned claims.
The CSF Committee is made up of twelve OSB members and one public member. Serving on the Committee in 2006 were C. Scott Howard (chair), Jennifer Kimble (secretary), William B. Crow, Thomas J. Moore, Scott E. Asphaug, Dennis McCaffrey, Constantin Severe, Theodore F. Sumner, Rhonda Antell, Sean Hartfield, Robert Hutchings, Mitzi Naucler and Bonita J. Merten (public member).
Claims activity was down in 2006 compared to 2005. Only 14 claims were received in 2006, compared to 31 in 2005. Of the 14 new claims received, one was denied, 4 were paid and 9 were pending at the end of the year. Another 8 claims carried over from 2005 were paid in 2006; one claim filed in 2004 remains pending. The fund paid out a total of $46,311.40 in 2006, similar to the 2004 payout of $55,743, but only about 18 percent of the 2005 total of $253,553. Collection of receivables was steady but uneventful, totaling approximately $4,700. Outstanding receivables hover around $1 million.
The CSF reimbursed clients of the following lawyers in 2006:
Thomas E. Knapp ($1,115.50)
A client hired Knapp in October 2003 for representation in a dissolution of marriage, depositing a retainer of $1500. Knapp filed a petition for dissolution the following month and sent the client a bill for $384.50 before abandoning the matter and disappearing with the remainder of the client’s funds. Knapp submitted his Form B resignation on Jan. 21, 2004 in connection with two disciplinary matters that had been pending for some time. Knapp claimed to have performed additional services for which he had not billed the client. The committee concluded that any such services, if actually performed, were of no value to the client.
Bob Pangburn ($10,000)
This was the seventh claim for reimbursement from a client of former OSB member Bob Pangburn, the other claims having been paid in 2005.1 Pangburn quoted a flat fee of $10,000 to defend the client against attempted murder charges. The client paid $4000 in June 2004 and subsequently sold his house to raise the additional money. In early September Pangburn appeared with the client in court and promised to be in touch soon to begin preparing for trial. A few days later, without notice to the client, Pangburn submitted a Form B resignation on the eve of his disciplinary trial. Pangburn didn’t respond to the client’s requests for a refund of the fee. The CSF Committee recommended and the board approved reimbursement of the entire fee on the ground that any services performed by Pangburn were of no value to the client.
Dennis Tripp ($9,142)
The CSF reimbursed two of Tripp’s
clients in 2006, one in the amount of $6,142 and the other in the amount of $3,000. In both cases, Tripp received payment in advance for services to be performed. In October 2004, he informed his clients that he was ill and thereafter did no work on their matters. Tripp died in April 2005; there were no clients funds in his trust account.
Daniel O’Dell ($4,500)
O’Dell was hired in 1998 to represent a client in a post-conviction matter. The initial fee deposit of $4,500 came from the client’s two sisters, who raised the money from yard sales and second mortgages on their homes. The sisters said they paid O’Dell additional funds, but O’Dell denied receiving it and the sisters had no proof of payment. O’Dell represented the client until he was suspended in August 2004. The committee concluded that O’Dell performed some services for the client, including visiting him in prison and appearing at his deposition. However, O’Dell failed to appear at the post-conviction preliminary hearing, and the client’s petition was dismissed. Reimbursement was awarded in the amount of $4,500 and was paid, with client’s authorization, to his two sisters.
Pedro Fernandez ($3,000)
A client hired Fernandez on Oct. 1, 2002 to bring a wrongful termination claim against the client’s employer. Fernandez took the case on a contingent fee basis, with the client responsible for advancing costs. The client deposited $500 for costs at the first meeting. Fernandez obtained the client’s personnel file, met with the client again, and wrote a demand letter to the employer. On October 18, Fernandez asked for an additional cost advance of $2,500 to cover the cost of a trip to Texas to meet with the employer and discuss settlement. Client advanced the money, but heard nothing more from Fernandez until April 2003, when Fernandez informed the client he had to quit practicing because of health issues. Fernandez submitted a Form B resignation with unrelated charges pending in November 2003. The CSF Committee found no evidence that Fernandez visited the client’s employer in Texas or used any of the advanced costs for the client’s benefit and awarded reimbursement in full.
Eric M. Cumfer ($12,013)
Cumfer was hired in December 2000 to appeal the denial of a client’s post-conviction relief. The fee agreement called for a flat fee of $17,000, which the client paid in advance. The agreement also provided that if Cumfer withdrew without cause, he would be compensated at the rate of $50/hour for his services and the remainder of the flat fee would be refunded to the client. The Oregon Court of Appeals affirmed the trial court judgment and in July 2003 Cumfer filed a petition for review in the state supreme court. For most of the period that he represented the client, Cumfer had no contact with him, failed to keep him advised about developments, and failed to make timely court filings to protect his client’s interests. Sometime after filing the Oregon Supreme Court petition, Cumfer informed the client that he had not used all of the flat fee and would refund the balance, but he failed to do so. Based on Cumfer’s time records, the CSF Committee and the board agreed that Cumfer had earned only $4,897 of the flat fee and reimbursed McCarvill the balance of $12,013.
Steven D. Marsh ($3,700)
Marsh was hired in March 2004 to handle a client’s dissolution and bankruptcy, and received $4,500 as a retainer against his hourly fees for both matters. Marsh drafted but did not file the petition for dissolution, and a year passed with no action on client’s matter, due in large part to Marsh suffering a serious illness. In mid-2005, Marsh sought the assistance of another lawyer who filed the petition, but it was subsequently dismissed for lack of prosecution. Marsh prepared and filed the papers for a Chapter 7 bankruptcy. The trustee moved to have the bankruptcy petition dismissed for failure to make required disclosures; with the assistance of another lawyer, the case was converted to a Chapter 11. During the committee’s investigation Marsh said he had no time records but claimed to have earned the fees. On the committee’s recommendation, the board agreed that Marsh had only earned $800 of the advanced fees and his failure to refund the balance constituted dishonesty under the CSF rules. After the reimbursement was made, Marsh asked the board to reconsider its decision, and provided billing statements, copies of fee agreements and bank records. Both the committee nor the board were skeptical about reconstructed documents; that, coupled with Marsh’s untimely response to the investigation and the unrebutted evidence that much of his work contained significant errors, resulted in the board declining to review it decision.
William Judy ($1,100)
In 2006, an eighth client of former OSB member William Judy received reimbursement from the CSF. Between 2003 and 2005, seven other claims were paid totaling more than $133,000. Judy submitted a Form B resignation in September 2002; in 2004 he pleaded guilty to federal mail fraud and "structuring" charges in connection with a illegal investment scheme. Many of the claims paid by the CSF were to clients who loaned money to Judy for investment in the scheme. This client hired Judy on August 5, 2002 to prepare a living trust and advanced the agreed fee of $1,100. On August 30, 2002 Judy informed the client that he was resigning from the practice of law and falsely stated that he had transferred the client’s file and retainer to another lawyer. The committee concluded that Judy had misappropriated the client’s funds, and the claim was paid on that basis.
R. Scott McGrew ($5,274)
The fund reimbursed three clients of McGrew, who died suddenly in March 2006. In each case, the clients had hired McGrew in late 2005 or early 2006 and advanced fees for services to be performed. On McGrew’s death it was discovered that he did not maintain a trust account and none of the clients’ funds was accounted for, despite the fact that McGrew had not performed all of the services for which he had been hired. The committee made adjustments for amounts it concluded had been earned and refunded the balances to the clients.
1. This claim was mentioned in the 2005 Annual Report, but was actually paid in early 2006.
ABOUT THE AUTHOR
Sylvia E. Stevens is general counsel of the Oregon State Bar. She can be reached at (503) 620-0222 or (800) 452-8260, ext. 359, or by e-mail at email@example.com.
© 2007 Sylvia E. Stevens