| Oregon State Bar Bulletin — FEBRUARY/MARCH 2012 |
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Although Oregon lagged behind other English-speaking and common-law jurisdictions in accepting the concept of a client security fund, our state is now in line with the majority of sister states in this country, Canada, Australia, South Africa and England. The client security fund concept has met with growing acceptance since its birth in 1929. The fact that our Bar has embraced the idea of closing ranks and compensating the aggrieved clients of our defalcating brothers at the bar demonstrates our dedication to the public good. This unity of purpose also evidences the high professional standard our bar expects its members to maintain.
—Client Security Fund Annual Report 1968
At the request of the OSB membership, the 1967 legislature authorized the creation of a client security fund “to relieve or mitigate pecuniary losses to the clients of active members caused by dishonest conduct of those members in their practice of law.” ORS 9.655. The idea of a client security or “indemnity” fund was under consideration for more than a decade before it came to fruition. The early discussions, in the mid-1950s, considered both an insurance coverage method as well as an assessment method of financing, but it ultimately the latter was approved by the OSB membership in 1966.
The two years following the legislative authorization were spent in developing rules and procedures for the new Client Security Fund and in collecting the first assessments. By the end of the 1968-69 fiscal year, the fund had a balance of $31,997.74. During the next fiscal year, the fund received five claims and made its first award, in the amount of $307.61. The 1970 Annual Report reiterated the purpose of the fund: “We judge ourselves and we police ourselves. The claims your Committee has reviewed this year demonstrate that we must protect ourselves and the general public with this Fund if we are to continue to maintain the high professional standards the State expects from us.”
Over the ensuing 40 years, claims to the Client Security Fund have gradually increased both in number, size and, occasionally, complexity. The fund began 2011 with one claim carried over from 2009 and 25 from 2010. In 2011, 29 new claims were received. Nineteen claims were paid, 16 were denied, and 20 remain under investigation. The 19 awards were made on claims against 12 lawyers; the awards totaled slightly more than $114,000.
Member assessments, together with interest on the invested funds and money collected by subrogation from the defalcating lawyers make up the fund. It is a dedicated account (not part of the OSB general fund) and is used only to reimburse claimants and pay the expenses of operation.
A volunteer committee of 12 lawyers and a public member investigate the claims and make recommendations to the Board of Governors, which has final authority on all awards. Intake of claims and administrative processing of claims is handled by the executive director and an administrative assistant.
Awards are made from the fund only if there is evidence of dishonesty in an established lawyer-client relationship or where the lawyer was acting in a fiduciary capacity related to the lawyer’s practice of law. Awards are limited to the amount actually misappropriated and maximum reimbursement on any claim is $50,000.
Since its inception, the CSF has made awards totaling more than $2.6 million on claims involving 168 lawyers. Total awards in excess of $1 million have been made on behalf of only 7 lawyers; total awards in excess of $50,000 have been made on behalf of only 15 lawyers.
Following is a brief summary of the 2011 CSF awards:
Thomas La Follett (OSB #872813): $74,768.95
The CSF made awards to four clients of former Canby attorney Thomas La Follett, who resigned Form B in October 2008 while being investigated for an unrelated trust account overdraft. He left the state and ceased all contact with clients, many of whom didn’t learn of his departure until early 2010.
An award of $50,000 reimbursed the estate of a former client for which La Follett served as personal representative. The committee found that during the course of administering the estate La Follett made disbursements to himself of nearly $100,000; even allowing for amounts awarded to La Follett for compensation, there was more than $50,000 unaccounted for. Additionally, La Follett failed to account for $50,000 ostensibly held back from the final distribution to cover the cost of preparing estate tax returns and paying outstanding taxes.
In the second matter, La Follett held back funds from a client’s personal injury settlement, some of which was used to pay medical providers but $16,265.22 of which was unaccounted for.
La Follett represented a minor in an uninsured motorist claim. Here, too, La Follett withheld funds ostensibly owed to medical providers but never paid them and ceased all contact with the client. The fund awarded the client $7,656.73.
The final matter arose out of La Follett’s representation of a client in the acquisition and foreclosure of trust deeds. The client’s last invoice showed a balance in trust of $938. La Follett abandoned the client’s matter and failed to account for or reimburse the trust balance, which was reimbursed by the fund.
La Follett was convicted of theft in Clackamas County in connection with the first and third claims. Both clients have assigned their restitution rights to the bar.
William Ginsler (OSB # 060636): $2,400
Awards of $1,200 each were made to two of Portland attorney William Ginsler’s clients. In each case the clients paid in advance for Ginsler’s assistance in Chapter 7 bankruptcy proceedings. After the initial meetings (in late 2008 and early 2009, respectively) neither client ever heard from Ginsler again, and there was no evidence that he performed any work on their matters. By December 2009 Ginsler had abandoned his practice entirely; he resigned Form B in August 2010 with 11 complaints under investigation, all involving failure to communicate, charging excessive fees and failing to maintain client funds in trust.
Estate of James Oakey (OSB # 043793): $500
A disabled client paid Florence attorney James Oakey $500 in advance to prepare an income cap trust. Oakey began drafting the trust, but died before completing the work. There was no money in his trust account at the time of his death. The CSF committee found that the fee was not “earned on receipt” and that Oakey’s services were “minimal or insignificant” within the meaning of the CSF Rules so as to entitle the claimant to reimbursement of the fee.
Karen Read (OSB #953900): $500
The client retained Portland attorney Karen Read to defend against a debt collection action, depositing a $500 retainer against Read’s hourly fees. After the initial meeting, communication between lawyer and client was sporadic. Read was ill at the time and eventually closed her practice, with the client’s matter unresolved. Read claimed to have provided services sufficient to earn the retainer; the CSF committee concluded that the work was of little or no value to the client and that the claim was eligible for reimbursement under CSF rules because Read’s services were minimal or insignificant. A disciplinary case remains pending, although Read was suspended in July 2010 for failing to pay annual fees.
Marsha Morasch (OSB #900920): $3,000
Portland attorney Marsha Morasch was retained in a parenting plan matter and collected a $3,500 retainer against her hourly fees. She did little or no work on the matter and failed to maintain communication with the client before the client terminated the representation six months later. Morasch ignored the client’s request for an accounting and refund of the unused retainer. The CSF Committee awarded the client $3,000 on the ground that Morasch’s services were minimal or insignificant. Morasch has reimbursed the CSF in full.
Keith Hayes (OSB #902950): $12,750
Five clients of former Salem attorney Keith Hayes received awards ranging from $1500 to $3500. Three of the representations were bankruptcy cases. The court ordered disgorgement of the fee in two of the cases; in the third Hayes collected a fee from the clients after having been paid through their legal insurance plan, which was to be the only fee. The other two representations involved child custody and criminal charges; no work of any significance was performed on either case. In each case, Hayes had been hired in late 2008 or early 2009. In March 2009, Hayes was suspended from practice by the bankruptcy court and abandoned his practice soon thereafter without notice to the clients. An interim disciplinary suspension order was entered against Hayes in January 2010 and he was disbarred in July 2010.
Estate of Timothy Cardwell (OSB #020370): $500
The client hired former Tualatin attorney Timothy Cardwell in September 2010 for a Chapter 7 bankruptcy, depositing $500 at the first meeting toward the costs and fees. The client heard nothing further from Cardwell and eventually learned that Cardwell had taken his own life in February 2011, leaving several client matters uncompleted. Cardwell had no trust account and there were no assets in the estate. The CSF reimbursed the client on the ground that Cardwell’s failure to keep the unearned fees in trust was dishonesty within the meaning of the CSF Rules and that no services had
been provided.
Daniel Dickerson (OSB #980491): $5,000
Former Milwaukie attorney Daniel Dickerson was hired by in February 2007 to represent the client in a custody matter. The client deposited $5000 toward Dickerson’s fees. The client contacted Dickerson regularly for status reports, but after a while Dickerson stopped responding. The client fired Dickerson in May; he demanded an accounting and a refund of the unearned fees, but got no response. In response to disciplinary counsel’s inquiry, Dickerson claimed to have performed some services but was unable to provide any evidence that reflected any work. The client’s new attorney found nothing of consequence in the file. The disciplinary investigation also showed that Dickerson failed to deposit the client’s advance fee payment into his trust account. The CSF found dishonesty in Dickerson’s failure to hold the client funds in trust and that the services provided were minimal or insignificant, making the claim eligible for reimbursement. Dickerson was disbarred in August 2010.
Michael Dell Long (OSB #923773): $430
The client hired Portland attorney Long in November 2009 to incorporate client’s business and provide a variety of services related to the business. The fee agreement called for fixed fees for some of the services and hourly fees for others. The client paid $2000 in advance. The relationship between the client and Long was difficult and the client claimed Long was unreachable for extended periods. In April 2010 the client fired Long and demanded an accounting and a refund of the unearned portion of the advanced fees. The client also filed a bar complaint, during the investigation of which it was learned that Long had withdrawn all of the advanced fees within two days of being hired. The committee found dishonesty in Long’s failure to keep unearned client fees in trust. While the issue of a refund was a close call, given that Long had performed many of the agreed services, the fund ultimately awarded $430 to the client. Long reimbursed the Fund immediately upon demand.
Estate of Richard Dalrymple (OSB # 932477): $852
The client hired former Klamath Falls attorney Richard Dalrymple in June 2008 for representation in a DUII case and deposited a $1500 retainer. Dalrymple performed some work on the matter, including a court appearance in September. By the end of October 2008, Dalrymple had applied $648 of the retainer to his fees and in November 2008 tendered a statement showing a trust balance of $852. According to the client, no further work was needed on the matter, but Dalrymple insisted on holding the balance of the retainer, claiming it was his practice in case new charges were filed.
Dalrymple took his own life in February 2009, and the money remaining in his trust account was insufficient to satisfy all the client claims. The CSF committee ultimately concluded that the claim was eligible for reimbursement because Dalrymple had been dishonest in failing to keep the retainer balance in trust, and claiming to need to keep the unearned money in case additional charges were filed.
Shannon Connall (OSB # 975382): $13,500
The client (Ryan) was referred to former Portland attorney Shannon Connall by her estranged husband, Johns. In February 2010, Ryan paid what she understood was a flat fee of $5000 for help with a DHS matter. In April, Ryan paid Connall what she understood was a flat fee of $2500 on a DUII matter. Connall did some work on the DHS matter, but other than appear at arraignment, Connall did nothing on the DUII.
In July 2010, Connall told Ryan that she had used Johns’ $11,000 bail money (deposited by Johns’ mother solely for that purpose) for Ryan’s legal fees and that Ryan needed to reimburse that amount. Although Ryan believed she had fully paid for all of Connall’s services and was not particularly pleased with the services she had received, Ryan wanted to avoid problems with Johns’ mother, so she paid Connall $11,000.
Ryan eventually went to the police. Connall was charged and pleaded no contest to Theft in the 1st Degree in May 2011; she was ordered to pay Ryan $13,835 (for the $11,000 paid in July 2010 and the $2,500 paid in April for the DUII plus miscellaneous costs). The CSF awarded Ryan $13,500 in exchange for an assignment of her rights against Connall, including the right to any restitution payments. Connall submitted a Form B resignation in November 2010 with Ryan’s and other complaints pending.
ABOUT THE AUTHOR
Sylvia Stevens is executive director of the Oregon State Bar.
The members of the Client Security Fund Committee are: Max Taggart (chair), Terry Wright (secretary), Martin Barrack, C. Scott Howard, Michael McGean, Linda Gouge, Elizabeth E. Welch, Carlos Calderon (public member), Chris Eggert, Eric Kekel, Stephen Bennett and Jessica Cousineau.
Ethics opinions are published and updated on the bar’s website here.
An archive of Bar Counsel articles is available here.
© 2012 Sylvia Stevens