Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Barbara sheikh, Theresa Mudjer and Jay Brown have had the same sad experience with the legal profession, which twice betrayed them. Their lawyers all stole money from them, and although courts or bar associations had set up “client protection funds” to reimburse them for their losses, they’ve gotten just pennies on the dollar — or nothing at all. Such poor results were not the legal profession’s intent back in 1959, when the Vermont Bar set up the nation’s first client protection fund. Good intentions were also behind the creation of similar funds in every state and the District of Columbia since then. But client protection funds, which receive about 4,700 claims for reimbursement a year, are mostly empty promises, an investigation by The National Law Journal has found. They are poorly endowed, stingy about payouts, and virtually a secret, even to many lawyers, whose bar dues help finance them. “Just as client protection is the centerpiece of professionalism, a viable Lawyers’ Fund for Client Protection is the hub of any client protection system,” state the American Bar Association’s Model Rules for Client Protection. Most client protection funds don’t come close to that ideal. Despite energetic efforts by a few states to do right by a thieving lawyer’s victims, a cheated client’s chances of meaningful reimbursement are slim. Justice is a quirk of geography. Barbara Sheikh found that out the hard way. Her Louisiana lawyer stole $200,000 from her, but the 64-year-old widow never heard about that state’s poorly publicized client protection fund, and now it’s too late to get her money back. “You go to an attorney because you have to. You put your trust in them, and they have the power of your life in their hands,” she says of her experience. “If this is what happens, this system is not going to work.” A STUDY IN CONTRASTS Sheikh’s bad experience with Louisiana’s fund contrasts dramatically — and badly — with that of clients from states with good client protection funds. Her problem started when she hired Gregory Gambel, a socially and politically prominent lawyer who headed the state bar discipline committee. He turned out to be a crook. In re Gambel, No. 99-B-0521 (La.S.C.). Sheikh’s husband drowned in 1992, when the cruise liner on which he worked collided with a fishing trawler near Malaysia and sank in 15 minutes. She sued her husband’s employer, hiring Gambel for his maritime expertise. Sheikh learned five years later that Gambel had misrepresented the facts associated with the litigation; his actions resulted in a default of her wrongful-death case. Gambel stole $200,000 in life insurance money by forging her name on the check sent by her husband’s insurer to him. Gambel was sentenced to four months in jail and five years’ probation for his theft of Sheikh’s $200,000 — and for forging painkiller prescriptions. Sheikh has received nothing from the Louisiana client security fund. In fact, she had never heard of it until the NLJ spoke to her. A one-year limit from the discovery of a theft to application for compensation bars her from applying now. Even if she could apply, the fund pays no one more than $15,000. Her money and husband gone, Sheikh, a cruise line booker from Miami, has had to take a second job as a cashier at Miami’s Pro Player Stadium. “I basically walk around working to pay bills,” Sheikh says, adding, “Every day I have to be careful about what I spend.” In contrast, Cynthia Roberson’s losses were dealt with by one of the best funds in the nation. New York’s administrators moved promptly after she called them. Roberson, a school administrator, was among the victims of Long Island real estate attorney Perry Ferrara. She and her husband, Nathaniel, a bus mechanic, had arranged to refinance their home to pay for their son’s college. Ferrara was the intermediary. When his check for $20,000 to the mortgage company bounced, the company wanted to foreclose. The New York client protection fund contacted the mortgage company to stop the foreclosure. It awarded the Robersons $29,267 — the amount of their loss, plus interest and bank penalties. On behalf of New York’s 150,000 lawyers, the fund also apologized for Ferrara’s actions. Roberson says that the stress of possibly losing her home of 27 years because of a lawyer’s betrayal caused her hair to fall out and her skin to break out in welts. Still, she was pleased with the legal profession’s response: “They wrote me and kept writing me, and we kept in touch until the award was approved.” In all, 58 of Ferrara’s clients were paid $1.65 million by New York’s fund, fund officials say. He was disbarred and sentenced to two to six years in prison. In re Ferrara, 236 A.D. 2d58; 664 N.Y.S. 2d 830 (1997). Attorneys such as Gambel and Ferrara regularly act as conduits for clients’ money from inheritances, settlements, or damage awards. Most of the nation’s one million lawyers are honest, but every year, hundreds succumb to temptation and raid their clients’ trust accounts or pocket clients’ money. Such thefts shatter victims’ lives and also hurt the reputation of the legal profession. “If all lawyers are besmirched by the wrongdoing of a few,” notes the ABA’s client protection fund model rules, “so, too, are all lawyers benefited when their fund takes care of the victims.” A QUIRK OF GEOGRAPHY Despite the compelling logic of this statement, states vary hugely in the degree to which all their lawyers assume responsibility for damage caused by a few bad apples. Many client funds suffer from the following shortcomings: � Some are multimillion-dollar operations, while others are moribund. Money for client protection funds comes from direct assessments of lawyers, usually collected via bar registration fees or by appropriations from state bars. In some states, investments and litigation against lawyer-thieves help keep funds solvent. The level of funding isn’t dictated by the size of the state. A few client funds take in more than $40 per lawyer per year. Some are in big states, such as New York, California, and Pennsylvania. But they also can be found in pint-sized Hawaii, Delaware, and New Hampshire. The smallest funds collect less than a dollar a lawyer a year; several collect less than $10. Notable for having many lawyers and low client protection funding are Florida, Texas, and Illinois. A few funds regularly veer close to bankruptcy. � Awards can be ridiculously low. In Nebraska, Jay Brown, a veterinarian cheated of $150,000, was offered $1,800, which he scornfully refused. Almost all states have unrealistically low limits on awards. Ten states have caps of $5,000 or $10,000 per victim, even though crooked lawyers can steal millions — and have. In Mississippi, the top payback is $10,000. In Texas, it’s $30,000. Most states also cap aggregate payouts per crooked lawyer, which can reduce per-victim payouts to peanuts. � States differ in the vigor with which their funds attack their work. In several states, including New York and New Jersey, the Bar sues crooked lawyers to reclaim the money their funds pay. In New Jersey, the program has enforcement power through the courts and can seize the driver’s license of a crooked lawyer who fails to make restitution. But in some states, funds seem unenthusiastic toward repaying clients. In Nebraska, lawyers tried — unsuccessfully — to shut their fund down. Barbara S. Rea, Kentucky’s chief Bar counsel, says that most funds, including hers, are relatively conservative: “New York and New Jersey are really isolated programs.” Some clients, Rea says, misunderstand the funds and apply for bigger awards than their lawyers won in court: “We get a lot of claims that are inflated by people who have been wronged by a lawyer — they are more in the nature of malpractice. They think their slip-and-fall was worth more.” � Some states don’t publicize their efforts. Time and time again, the NLJ encountered attorneys — not to mention cheated clients — who didn’t know about the funds. � Victimized clients often have to wait until their lawyer has been disbarred before applying. They may also be required to exhaust alternative court remedies of recovery first, even if the lawyer is penniless and behind bars. Sybil Hornsby, a 71-year-old widow who works days as a switchboard operator and weekends as a leasing agent at her apartment complex, lost $240,000 to Ronald Welcker, a Louisiana attorney who forged her name on a settlement check. Her new attorney applied to the fund on her behalf in June 1998, even though she wouldn’t be able to collect more than $15,000. The fund won’t take action on her application, though, because she still has a case pending against the bank that cashed the check. She had planned to retire years ago, but she has had to continue working. Without two incomes, Hornsby says, “I wouldn’t be able to survive in my apartment.” � No state flatly promises full reimbursement to clients. ABA model rules state that “full reimbursement is the goal of a fund.” Still, William Paul, immediate past president of the ABA, stops short of saying that full reimbursement should be automatic. “In some cases the board might feel only a percentage could be effective, and they have to have that discretion,” he says. With unlimited paybacks, a huge theft could deplete a fund, he says. In practice, some states, such as Massachusetts, do pay on huge thefts, achieving full reimbursement or coming close. But many states keep their funds at starvation level and pay accordingly. Christina Kelsey, administrator of the impoverished Mississippi fund, says, “The whole thing about the fund is, it’s a matter of grace, not right.” Data on client funds gathered by the ABA for 1996 through 1998, and supplemented by the NLJ, suggest that a full-scale self-insurance fund for any state might cost no more than $100 per lawyer per year. On average, during the 1996-98 period, good and bad funds paid out a total of $26,414,100 in reimbursements, approving full or partial payments for 2,527 of the 4,711 claims submitted by clients in each of those three years, on average. That represents a payment of only about $25 for every lawyer. If funds eliminated restrictions such as payment caps, that figure would likely rise, as it might if the funds were publicized more. At $50 assessed per lawyer, successful programs manage to come close to 100 percent reimbursement, not taking into account some rare multimillion-dollar theft by a rogue lawyer. A $100 assessment would create reserves for such a rainy day — and would amount to less than what most lawyers earn in an hour. While most lawyers in Canada are assessed considerably more than that for client protection purposes, U.S. lawyers seem to have set their professional sights much lower. “The $50 figure is a benchmark that’s out there,” says Frederick Miller, retired ex-counsel of the fund in New York, where $50 assessments pay 99 percent of the known losses. “We could go to $100 or $200 a year, and you’d have a superb program.” SKIMPY FUNDING Mississippi’s $3,625 in annual fund income for the 1996-98 period shown in the accompanying chart wasn’t the smallest. That distinction belonged to Wyoming, at $3,000. But at 50 cents, Mississippi’s per-lawyer contribution far trailed the pack. Hawaii, with a third fewer attorneys than Mississippi, had 55 times Mississippi’s income in its fund. Minnesota and Missouri had about the same number of attorneys, but Missouri attorneys paid $2.11 each; Minnesota’s paid $17. In Louisiana, the fund is financed through donations. In 1999, the fund’s bank account, minus anticipated claims, was about $200. Administrators asked the Bar for a special funding of $100,000 and got it. This year the fund, again short, requested and received $50,000. New York’s $50 annual client protection fee is mandated by the state Legislature. On average, New York’s fund had more than $4.3 million in its reserve. Its assessments are supplemented by an aggressive litigation strategy against attorney-thieves. Revenue for 1996-1999 from restitution or subrogation averaged $572,000, about 6 percent of the fund’s income. STINGY CAPS Even richly endowed funds, however, can cause victims frustration because of the stingy caps their rules place on payouts. Most funds impose per-victim limits that officials say cover the numerous small losses, but don’t come close to the biggest ones. New Mexico’s, Colorado’s, and Wyoming’s caps are the lowest, at $5,000. Many of the funds also have aggregate limits that put a cap on all payments to victims of the same attorney. Examples are New Jersey, $1 million; Texas, $100,000; Hawaii, $150,000; and West Virginia, $20,000. In Illinois, officials expect to pay Theresa Mudjer and other victims of Anthony Cappetta, a lawyer who stole upward of $10 million. But the maximum payout will be $100,000, and it must be divided 75 ways. That’s an average of $1,333 apiece. Montana, Connecticut, and Massachusetts have no limits on individual or aggregate claims. Massachusetts’ client protection fund recently paid $700,000, full reimbursement, to one victim of a lawyer convicted of stealing from mostly elderly, working-class clients. Overall, the fund says it paid $2.3 million to the victims of Walter Palmer, 71, who was sentenced to 16 years’ imprisonment. Arthur Littleton, Pennsylvania’s client security fund counsel, says that his state’s fund employs legal gymnastics to get around a $50,000 cap on claims for any given theft, which was imposed by a Supreme Court rule. For example, if an estate with four beneficiaries is pilfered for more than $50,000 by a lawyer, fund trustees could see that as one claim or four, but tend to do the latter, he says. PUBLICITY New York is victim-friendly when it comes to making its fund’s existence known. And it’s downright aggressive when it comes to pursuing dollars from lawyers gone bad. But its approach is the exception, not the rule. Fund officials say that they have collected about $325,000 from Ferrara, the Long Island lawyer, through litigation. The fund has also seized 19 lifesize wax statues of baseball players he bought with clients’ money for a baseball museum in Cooperstown, N.Y., that he was helping to create. Likenesses of Mickey Mantle, Jackie Robinson, and Babe Ruth are awaiting sale at auction, with proceeds anticipated at $50,000. The New York fund pays the salary of an assistant state attorney general who handles all such litigation. During a six-week period ending in May, the fund recovered $1 million in settlements from three attorneys. In comparison, some other states’ funds send out press releases whenever they make a payout. Others, such as Texas, don’t disclose awards, awardees, or names of guilty lawyers. New Hampshire’s Client’s Indemnity Fund, fat with mandatory annual contributions of $50 per lawyer, has not paid a penny since it was re-established by the court in 1998 after a Bar fund went bankrupt. What’s more, it hasn’t received a claim — “largely because we don’t tell anyone about the fund,” David Jordan, the fund’s chairman, told his counterparts from other states at an ABA conference on client funds in New Orleans in June. “Half the board doesn’t want the public to know about the fund because it says that lawyers are crooks,” Jordan said. Some funds are so low-profile that lawyers who pay for them don’t know they exist. In Texas, Abilene attorney Clinton Nix represented the estate of a woman who lost $50,000, taken by her lawyer, James Robert McMillon, who was disbarred in February 1993. Evidentiary Panel 14D, No. F2059601471. Nix prevailed in a civil suit against McMillon, but he never applied to the fund on behalf of his client. Nix says had never heard of it. “When a lawyer’s disbarred, we automatically send the application,” says Ray Bravenec, an investigator in charge of the Texas Client Security Fund. “We will send out 10 but only get three back. I don’t understand it.” Some Texas victims tell a different story. Dallas construction worker Robert Ragain’s lawyer, Shawn “Money” Frazin, took his $2,000 retainer and then did not pursue Ragain’s auto accident case. Ragain reports that he had to pester Bar officials to learn about the fund. At first the Bar told him to take his case to small claims court, he says. “I was not happy, and I expressed it,” he says. “Then someone from the Bar called me back and told me about the fund.” Ragain recently received a notice that he will be awarded $1,000 — the maximum that the Texas fund could repay him under its 50 percent cap in cases of fee ripoffs. Because his lawyer’s actions resulted in a default of Ragain’s accident suit, Ragain lost his driver’s license. His lawyer also lost his license — to practice law. Evidentiary Panel 6A, No. D0069607308. In Louisiana, Judy Wilson’s $10,000 auto accident settlement was stolen by Ronald Welcker, a New Orleans attorney who was convicted of stealing about $1 million from clients. Asked if she applied to the fund, she replies, “I don’t know. The court wanted paperwork galore.” In fact, seven out of 12 of Welcker’s victims interviewed by the NLJ said that they had never heard of the fund, and three others weren’t sure. One said that she had applied but hadn’t heard back, even though it had been about two years. One of the seven is Sadie Hynes, 64, who lives in a two-bedroom apartment in Covington, La., with her daughter and two grandchildren. After a fall, Welcker sued the city on Hynes’ behalf and negotiated a $58,700 settlement, which he then pocketed. Hynes was out of work for seven months, so her daughter had to postpone her schooling in cosmetology to work at a dry cleaner’s and a fast food restaurant to put food on the table. When Hynes was better, she resumed working fulltime as a psychiatric technician at a hospital but had to moonlight in the deli department of a supermarket to pay the medical and other bills that had stacked up while she was out of work. Hynes has a metal plate in her arm from the accident. She’d like it out. But, she says, “I haven’t had the money.” James Dottery, Louisiana’s fund chairman, says that clients are supposed to find out about the fund through the Bar disciplinary office. Charles Plattsmier, the Bar disciplinary counsel, says that he has no official role with the client security fund, although when victims come forward, “we try to make them aware of it.” Asst. District Attorney Sharon Andrews, of New Orleans, who handled both Gambel’s and Welcker’s cases, says that it didn’t occur to her to notify the victims of the fund’s existence. “My understanding is you have to be indigent to qualify for that, and his victims had means to support themselves,” she says, although the rules don’t make indigence a requirement. “I assumed the Bar would have taken the next step.” MISSISSIPPI’S PROBLEM In neighboring Mississippi, Marguerite and Elbert Pounds, 85-year-old retired teachers, got no help from the client protection fund after they lost $100,000 to a lawyer handling Pounds’ inheritance. Their attorney, William J. Harrell III, persuaded them during the estate transaction to lend him $100,000 to finance class action litigation over breast implants. But Harrell began slipping on interest payments and informed the Poundses that he couldn’t repay the loan. The couple was successful in a civil suit against him, but they say that it’s unlikely they’ll collect. He is in jail awaiting prosecution for alleged thefts and has been disbarred. Mississippi Bar v. Harrell, Cause No. 97-B-1616. The State Bar didn’t tell the couple about its client fund. Mississippi Bar Counsel David Wynne, who handled the case, says that he doesn’t inform clients of the fund: “I do not work with the client security fund. If asked specifically, I’m sure I do tell people, but I do not know what the rules are of the client security fund.” Therefore, says Wynne, whose Bar fees help finance the fund, “I don’t usually try to make the determination because I don’t know what the eligibility is.” He says that if a victim has a lawyer, he expects the lawyer to look into it. Their lawyer in the civil suit, Kirk Ladner, of Jackson, Miss.’ John Arthur Eaves Law Firm, did not tell them about the client protection fund either. “I was unaware of that fund,” he says. Christina Kelsey, who runs the client protection fund in Mississippi, says that victims learn about the fund by calling the consumer assistance program. Although the Bar has a consumer assistance section on its Web site, it doesn’t mention the fund. TANGLED IN RED TAPE Even if clients learn about client protection funds, they can find themselves tangled in application red tape. Most funds, for instance, require victims to wait until the lawyer has been disbarred before applying. Pennsylvania and Kansas are among the rare exceptions. Pennsylvania victims with legitimate claims often see reimbursement in six to nine months, Littleton says. In Kansas, a victim whose claim is clear can be reimbursed in as little as a month after the claim is made. “Our goal is to make them whole, and any delay, if they have indeed lost money at the hands of the attorney, is a further inconvenience,” says Carol Green, the clerk of the Kansas Supreme Court, who administers the client fund. She says she was surprised to hear that so many funds require discipline or death before making payment. “I don’t see what discipline has to do with it, if the attorney has stolen money,” she says. At the other end of the spectrum are funds that make applicants wait not only for disbarment, but also to pursue all avenues of litigation for recovery. This can slow the process, particularly if the litigation involves sophisticated defendants such as banks or insurance companies. According to the latest ABA fund survey, 13 states and the District of Columbia require claimants to exhaust litigation first. They are: Alabama, Louisiana, Iowa, Maryland, Massachusetts, Michigan, New Mexico, Oregon, Rhode Island, South Carolina, Vermont, and Washington. Rules in Florida and South Dakota allow the requirement on occasion. In Rhode Island, there were no claims last year. “We have a lovely, solvent fund, but we make it so difficult to pay out because we make them exhaust [every other remedy],” Helen McDonald, who administers the fund, told the ABA client fund meeting. In Louisiana, Welcker has served a one-year jail sentence, but the client fund committee has delayed considering several claims, saying that the victims need to pursue reimbursement elsewhere. “There were a number of claims in which Welcker took the settlement claims and endorsed them,” says Dottery. “We recommended to the claimants that they pursue cases against the bank or the settling insurance company before us.” In theory that may sound appropriate. In practice it’s not always reasonable. Attorney Bernard McLaughlin Jr., of Lake Charles, La., says he became furious upon learning that the committee had tabled a claim he had filed on behalf of a client named Keatha Poullard. She had lost money to a Lake Charles lawyer, Robert E. Patrick, who was disbarred in July 1999. McLaughlin obtained a $22,681 judgment on behalf of Poullard but couldn’t collect — the lawyer had moved out of state — so he turned to the client fund. But the disbarred Patrick, contacted by the fund, had declared that the civil case was on appeal, McLaughlin says, even though the appeal deadline had long since lapsed. “Do you think maybe they would contact me and say, ‘McLaughlin, do you want to respond?’ ” he says. “ Did they bother to check if an appeal was filed? Why would they believe the word of a lying, disbarred attorney and not the client and the lawyer trying to help her?” Dottery says of McLaughlin’s beef, “The information has been reported to the panel member in charge of this particular claim, and it will be discussed and, I assume, acted upon at the next meeting.” The funds don’t let lawyers charge for filing claims, so there is no financial incentive for them to help clients with the applications. But Poulard, whose schooling stopped after eighth grade, says that help was essential. “The different terms were confusing.” Sometimes, a fund’s refusal to pay a victim results in the victim’s having to lose more money in order to recover. For example, after publicity around Patrick’s disbarment and indictment made the papers, Alice Jean, a housekeeper, came to McLaughlin. She alleged she was owed money by Patrick from an auto accident settlement. She sought help because her insurer was suing her, saying that $8,000 of a $16,000 settlement that she had never approved was fraudulently collected. McLaughlin agreed to help her, but he says that Patrick would not respond to letters or calls. Convinced that a civil judgment for Jean will be as uncollectible as Poullard’s was, McLaughlin filed with the fund. But the fund requires a civil judgment before it will pay a claim. If Jean, 66, is to collect anything, McLaughlin would have to donate his time to bring a pointless suit and then wait until a judgment proves uncollectible. Patrick’s number is unlisted, and he could not be reached for comment. Meanwhile, Jean lost her car because she couldn’t pay for repairs. And she says that she had to use $3,000 she had saved for retirement to pay her hospital bills. OTHER OBSTACLES Louisiana has other rules that can hamper recovery. The fund committee is supposed to consider the hardship caused by an applicant’s loss, the amount of reimbursable losses made in previous years, the total assets of the fund, and other applicants’ claims. In Nevada, the fund’s trustees are changing their attitude toward the need for exhausting court remedies, according to the administrator, Georgia Taylor. The fund had delayed paying five claims it approved for about $29,000. They had been pending since December 1996 because of unresolved probate litigation; the lawyer who took the money died before completing services. Probate litigation dragged on. It became clear that there was little money in his estate. The trustees, Taylor says, began to feel that, rather than asking whether victims had exhausted remedies, they should look at how exhausted clients were. A client who got $10,000 as a result, Jerry Rhoden, 37, says that the stress of the experience up to then had been aggravating his lupus. Of the payout, he says, “I believe it’s actually added years to my life.” Even if a fund gets everything right about funding levels, publicity, generous caps, and minimum red tape, the problems caused by a lawyer’s theft go beyond what a fund can do. For example, in Washington, D.C., Jose Felix Ocon Hernandez was one of many recent immigrants who were clients of Alake Johnson-Ford. Johnson-Ford was disbarred for stealing fees from clients, including Hernandez. A Salvadoran, he was seeking asylum status for himself and legal immigrant status for his family. In re Johnson-Ford, No. 99-BG-270, D.C. Court of Appeals, 746 A.2d 308 (2000). The D.C. fund fully repaid Hernandez’s $2,680, but the money didn’t make up for the fact that Johnson-Ford, whom he had hired in 1995, failed to file immigration papers for his wife and three children. “It’s not easy for me because my dream was to bring my family here and give them a good education,” says Hernandez, who cleans a restaurant. “I’m still waiting for them.” SEEKING SOLUTIONS Still, there is a lot of room for improvement of fund operations before the profession can tackle the beyond-reimbursement problems of victims such as Hernandez. For one thing, lawyers need to get quickly beyond patting themselves on the backs for being the rare profession that has agreed to create client protection funds in the first place. It is true, as Harriet L. Turney and John A. Holtaway wrote in the February 1998 issue of The Professional Lawyer, an ABA publication, that “[n]ot a single other profession accepts financial responsibility for maintaining its collective reputation for honesty and trustworthiness in handling client money and property.” And it’s true, as the two authors wrote, that doctors, dentists, real estate brokers, and accountants fall short of attorneys in addressing the misdeeds of dishonest practitioners. But it’s also true that it’s unusual for those other professionals to handle their clients’ money, and some professionals who do — bankers and stockbrokers, for example — are required to have insurance or be bonded. A few states have experimented with bonding lawyers or funds, but the outcome generally has not been viewed favorably. Virginia’s fund was dropped by its insurer after the first year of covering client losses through insurance. The former director of the fund, Thomas Edmonds, says that was the result of claims against a lawyer who had misappropriated more than $500,000. “The company had to make good on it, so naturally they did not renew the policy,” he says. Virginia now has a traditional client protection fund of more than $2 million that caps individual losses at $25,000. It paid out the equivalent of $8 per lawyer each year from 1996 through 1999. Lawyers generally dislike the idea of insurance to fund client protection payouts. New Mexico had insurance but dropped it last year because it became too expensive. In New Hampshire, the legislature was considering a bonding requirement for individual attorneys, but the idea was dropped. The cost of bonding was variously estimated at $150 to $450 apiece. A drawback of bonding: insurers could reject applicants — so, in effect, they would become licensers of attorneys. New York’s Miller says there’s a philosophical problem also. “Insurance companies try not to pay out,” he says. “A good client security fund is glad to pay out on eligible loss.” Mike Bracken, a vice president of C&A Pro-Commercial in New Jersey, a division of the insurance company that previously bonded New Mexico’s client security fund, makes that clear. Generally speaking, he says, for insurance companies, the preferred programs are “those funds at the discretion of the bar that are intended to be good will. Those meant for hardship only, for a client that has suffered to the extent that they are, maybe not destitute, but something approaching that.” STIRRINGS OF REFORM There have been scattered calls for reform of client protection. The ABA’s Committee on Client Protection promulgates model rules, hosts an annual conference, and publishes a statistical booklet every three years on the subject. When invited, the ABA assesses states’ disciplinary systems, including the client protection fund. The ABA recommends: � That the highest court in the state, in most cases the supreme court, administer funds. � That lawyers be assessed by court mandate so that funds don’t have to rely on the whims of bar associations. � That states publicize their programs. � That states not impose caps on total payouts to all victims of a single attorney. � That 100 percent reimbursement be the fund’s goal. The ABA does acknowledge that funds establishing themselves or needing protection against a catastrophic loss may need to cap payments to individuals. The National Conference of Chief Judges last year said it’s essential that a plan “substantially reimburse” losses resulting from a lawyer’s misuse of client and escrow property. The judges called for mandatory assessments and publicity for the funds. The ABA also has ideas for lowering the likelihood of lawyer theft in the first place. One recommendation: Require financial institutions to notify the state lawyer disciplinary agency if an overdraft has occurred in a lawyer’s trust or escrow account. Twenty-eight states and Washington, D.C., have this rule. In New York, the Lawyers’ Fund for Client Protection studied the effect of the rule since its inception in 1993. Miller says that because of it, 87 attorneys have been disciplined for mishandling escrow accounts and 43 have been disbarred. The ABA also recommends that insurers be required to give written notice to the client whenever a payment goes to their lawyer. This rule exists in 10 states. It doesn’t necessarily prevent theft, but it makes wrongdoing easier to spot. Some people are critical of the ABA for not doing more. Four years ago, in a move to boost client services to promote ABA membership, the ABA merged its committee on client protection with another one. The move was reversed, but not before New York’s Miller, among others, quit the ABA. The Standing Committee on Client Protection now also handles fee arbitration and unauthorized-practice-of-law issues. It had a $23,000 budget last year. Miller says the ABA’s low level of funding — a minuscule percentage of its $158 million budget — reveals the low status of client protection within the organization. There is not enough money for analysis, he says, just for the annual conference. “To many of us, the standing committee is little more than a supper club,” Miller says. After his departure from the ABA, Miller and others formed the National Client Protection Organization. It publishes a quarterly newsletter, holds regional conferences, has a speaker’s bureau, and maintains a Web site at http://www.ncpo.org/. It has similar goals to the ABA and cooperates with it on issues. Even though it is only about two years old, the organization, with 75 individual members and 35 state members, apparently has started to have an impact on client recovery. Nevada’s Taylor said that an article in its newsletter persuaded her state’s fund trustees to pay Rhoden’s and the four other outstanding claims that had been on hold for three and a half years. Miller says that for client protection funds to improve, “you need leadership and you need money.” He says that state supreme courts should initiate reforms. But the biggest need, he says, is for more money. “Ten cents a week is not enough,” he says, referring to the pittance some lawyers are assessed for their funds. “How about a dollar a week? After all, who pays this? The client. This is built into a legal fee, just like the client is paying for the malpractice insurance. It’s really not a gift to the world from lawyers.”

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at custome[email protected]

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.