Oregon State Bar Bulletin — FEBRUARY/MARCH 2014
Bar Counsel
Another Challenging Year:
Client Security Funds 2013
Annual Report
By Sylvia Stevens
The year 2013 was another challenging one for the Client Security Fund, as it finished processing the unprecedented number and volume of claims carried over from 2012 as well as 52 new claims received in 2013. The fund made 95 awards totaling $688,505.62 on claims from clients of 13 different lawyers. That was the largest number of awards in a single year (by a considerable amount), but the total dollar amount was down some from 2012’s historic high of nearly $759,000. As in 2012, the bulk of the awards were to clients of two lawyers. On the positive side, with the last of the claims from those two lawyers resolved, we begin 2014 with the expectation that fund activity will return to normal.
The Client Security Fund consists of member assessments, interest on invested funds and money collected by subrogation from the defalcating lawyers.1 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.
OSB has one of the oldest funds in the U.S.; it dates back to 1967 when, at the request of the membership, the legislature authorized the bar to establish a 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.” The first award was made in 1969. Over the ensuing years, the CSF has made awards in excess of $4.5 million to partially or fully compensate clients of 187 lawyers.
Since 1993, the CSF has maintained a reserve of at least $500,000 to promote stability and protect against volatility in claims. The reserve exceeded its $500,000 minimum for several years and allowed for modest annual member assessments of $5 from 2003 through 2009 and $15 from 2010 through 2012. Unfortunately, the high volume of claims in 2012 depleted the reserve, and effective with 2013, the assessment was increased to $45. If claims activity returns to pre-2012 levels, it is anticipated that the reserve can be rebuilt in three to four years, at which time the annual assessment can be reduced to an amount that will maintain it at the desired level.2
Although the Board of Governors has ultimate responsibility for the Client Security Fund, the investigation of claims is delegated to the Client Security Fund Committee comprised of 13 volunteers, 12 lawyers and a public member. The committee can give final approval to awards of less than $5,000; recommendations for larger awards go to the Board of Governors for approval. The board also reviews requests for reconsideration if the committee has denied a claim.
To be eligible for award from the fund, 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. Dishonesty includes failing to refund fees where no work was done on the matter or where the work done was de minimis or of no value to the client.
Following are brief summaries of the claims paid in 2012.
Gary Bertoni: $30,000
The CSF made awards of $15,000 each to two of Bertoni’s former clients. In both cases, fees were advanced at or near the time that Bertoni began a 150-day suspension in March 2012. Although Bertoni claimed to have taken steps to protect the clients’ interests during his suspension, both clients deny that Bertoni told them he wouldn’t be able to begin work right away. They each fired Bertoni shortly after learning of his suspension. Despite promises to refund the unearned portion of the advanced fees, Bertoni made no refund to either client.
Des Connall: $50,000
The client hired Des and Shannon Connall in September 2009 to seek a new trial or to appeal his conviction on multiple criminal charges. Over the next few months, the client delivered money and property to the Connalls worth more than $65,000 to cover their fees ($40,000 for the new trial and $25,000 for an appeal if it was necessary). In October 2009 the court granted the client’s request for a new trial, but the client’s relationship with the Connalls deteriorated quickly and he fired them in April 2010. Despite the client’s requests, the Connalls provided neither a refund of unearned fees or an accounting. Despite Connall’s claim that the fees were fully earned, there was no evidence of any work done after the motion for a new trial was granted. The CSF concluded that the client was entitled to a refund of $50,000. This was the third award made on behalf of Des and Shannon Connall between 2010 and 2013, and the three awards totaled $77,500.
William Ginsler: $1,100
Ginsler was hired to represent the client in a bankruptcy and deposited $1,100 for the fees and costs. After the initial consultation, the client was told that Ginsler was ill and had closed his practice. No services were provided and the CSF Committee concluded that the client was eligible for award of the entire amount paid to Ginsler. This was the fifth award to a client of Ginsler; the five awards total $7,297.03.
Daniel Goff: $28,750
The CSF made awards to two of Goff’s former clients. In the first matter, the CSF awarded $3,750, one-half of a flat fee charged by Goff to collect a note from an estate. Goff never informed the clients that their dispute was without merit or that the estate’s liabilities far exceeded its assets. Goff was suspended before the matter was concluded but refused to refund any of the clients’ prepaid fee.
In the second matter, the client was awarded $25,000 for fees advanced for a defamation suit. Goff did not inform the client that he was facing a six-month suspension beginning 60 days later. Unable to find another lawyer to take the case, Goff drafted a complaint and a response to a Rule 21 motion while he was suspended. Goff refused to refund any of the fees; the CSF concluded that Goff was dishonest in accepting the fee immediately prior to a suspension and for claiming a right to fees for work while suspended. It also found that the work he did was de minimis, entitling the client to a full refund.
Bryan Gruetter: $92,929.69
During 2013, the CSF made awards to 13 of Gruetter’s clients, ranging in amount from $1,980.47 to $50,000. Gruetter secured personal injury settlements for all of the clients, but after depositing the proceeds into his trust account, failed either to pay the clients’ medical providers or to deliver the client’s share of the proceeds. The 2013 awards bring the total paid out to clients of Gruetter to nearly $939,000.
Paula Hammond: $3,633.28
Three of Hammond’s clients received awards from the CSF ranging from $920 to $1,299. In each case Hammond collected fees in advance (two for bankruptcy filings, one for estate planning) but performed little or no work before she stopped communicating with the client and resigned from the bar.
Paul Handy: $45,940.35
The client deposited $50,000 with Handy in 2007 and authorized Handy to use the funds as collateral to finance another client’s case. The client died in 2008 and, based on Handy’s claim that he could not release the funds until the other client’s matter had resolved, the personal representative allowed Handy to retain the funds. In July 2012, the personal representative requested proof that the funds remained in Handy’s trust account, forcing Handy to admit he had misappropriated the funds. The CSF awarded $45,500, in consideration of its finding that Handy had performed about 15 hours of work for the client on various legal matters prior to his death.
The second claim was from clients who retained Handy to defend a collection action. The award of $940.35 was comprised of $300 delivered to Handy for the arbitrator’s fee that was never paid and $407.35 for fees paid after Handy failed to convey the client’s agreement to settle the case.
William Horton: $5,379.07
Horton negotiated a personal injury settlement for the client in October 2007 and after deducting his fees and paying lienholders, the client’s share was $6,989.07. The client was incarcerated at the time and asked Horton to hold the funds until further notice. At the client’s request, Horton distributed $1,250 to the client; within a few weeks, Horton had misappropriated the balance of the funds. The client was released from jail in mid-2008, but when he asked for the balance of his funds, Horton refused, citing a disputed claim by client’s ex-wife to the funds. Not wanting to fight with Horton, the client let the matter drop until late in 2012 when he learned that Horton had died in 2010 and that several of his clients had received awards from the CSF. The CSF awarded the client the entire amount that should have been held in trust by Horton for the client’s benefit. With this fifth award, the total awarded to Horton’s clients is $92,457.07.
Bruce Howlett: $750
The CSF awarded $750 to a client who hired Howlett for defense of a DUII charge. Howlett quoted a flat fee of $1,900, half to be paid at the inception of the representation and the remainder if the client elected to go to trial. The client paid the first installment and subsequently elected to go to trial and paid the balance of the fee. Howlett died two months before the trial and the estate was unable to make a refund of the unearned fees. The CSF allocated $200 (Howlett’s agreed hourly rate) for the trial preparation work prior to his death.
Eric Kaufman: $1,807.24
Kaufman abandoned his practice in mid-2012 without notice to his clients. The CSF made two awards, for $1,207.24 and $600, for unearned fees collected by Kaufman in advance but for which no work was done.
Jason McBride: $37,890
The CSF made awards to 65 of McBride’s immigration clients, reimbursing unearned fees paid in advance. The CSF found little evidence that McBride had performed any meaningful services for the clients. The CSF concluded that McBride induced many clients to retain him with misrepresentations about the results he could achieve and in some cases accepted fees within days of his stipulated suspension date. Between 2012 and 2013, the CSF made awards to 80 former clients of McBride, totaling $176,765.
T. Michael Ryan: $200
The client retained Ryan for representation in a divorce, and over the next four months made payments totaling $200 toward Ryan’s fee. Within two few months, however, and without notice to the client, Ryan stipulated to an 18-month disciplinary suspension in an unrelated matter. No work was done on the client’s matter. Ryan later resigned by Form B without making any refund to the client.
Debbe J. von Blumenstein: $1,250
The client retained von Blumenstein to defend him in a criminal case and paid a $1,250 flat fee in advance. After the initial meeting, the client heard nothing more from von Blumenstein, and she failed to appear at his arraignment. The client hired a new lawyer but was unable to obtain either his file or a refund from von Blumenstein. The CSF found the loss to be eligible for an award because von Blumenstein accepted the client’s case knowing that her physical and mental condition materially impaired her ability to represent him.
Endnotes
1. Collections tend to be modest, since most lawyers responsible for CSF claims are disbarred, deceased or otherwise without assets. In a typical year, the recoveries total less than $5,000.
2. The Board of Governors is considering raising the reserve to $1 million; in that event it will take a few more years to reach the minimum.
ABOUT THE AUTHOR
Sylvia Stevens is executive director of the Oregon State Bar and administrator of the Client Security Fund. The members of the 2013 Client Security Fund Committee were: Steven R. Bennett (chair), Elaine Brown (secretary), Jane Angus, Ronald Atwood, Carlos Calderon (public member), Jessica Cousineau, William Davis, Christopher Eggert and Deanna Franco.
Ethics opinions are published and updated on the bar’s website here.
An archive of Bar Counsel articles is available here.
© 2014 Sylvia Stevens