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Professional Responsibility Board |
Several months ago, the National
Law Journal (NLJ) took aim at the client security funds of
the United States (the preferred term these days is actually
law client protection funds) in a feature series of articles
entitled "An Empty Promise: How client protection funds
betray those they were designed to protect." The NLJ
chronicled a series of victims of lawyer dishonesty from several
states, whose claims to their local client protection funds were
met with indifference or payments of only pennies on the dollar.
Although the efforts of a few funds were applauded, the overall
tone of the NLJ articles was decidedly negative. The report
summed up its findings thusly: "[Client protection funds]
are poorly endowed, stingy about payouts and virtually a secret,
even to many lawyers whose bar dues help finance them."
Two Midwest states were singled out for critical sidebar treatment:
Illinois for problems due to inadequate funding, and Nebraska
for unnecessary secrecy and what was labeled a "hostile
attitude" towards law client protection and the victims
of lawyer dishonesty.
Minnesota's Client Security Fund was not mentioned in the articles.
How would our fund fare, however, if scrutinized in comparison
to other client protection funds or, perhaps even more importantly,
on a scale of genuine concern and fairness? We think it holds
up pretty well such that Minnesota's lawyers and the public can
take pride in the profession's efforts to date in our state.
Nevertheless, the Client Security Board continues to seek ways
to serve the public even better, and has recently filed a petition
in the Supreme Court to increase to $150,000 the maximum amount
that can be paid to a claimant.
HOW DO WE COMPARE?
Statistics tell part of the story of the success of Minnesota's
Client Security Fund. The board was created 15 years ago in April
1986, following a petition from the MSBA. For its first year,
the board met to draft rules for operation, which the Court adopted
and which took effect in July 1987. Fourteen years later, the
board is poised to pass the $4 million mark in paid claims. This
number is both good and bad. While many lawyers take pride in
this figure as proof of the substantial level of help lawyers
have provided to victims of lawyer dishonesty in Minnesota, such
a figure also causes considerable head-shaking within the bar.
It also results in occasional finger-wagging from some members
of the public, who see it as indicative of a continuing problem
with lawyer dishonesty, since this $4 million figure does not
include any claims against some of this state's most notorious
lawyer criminals. No claims were ever paid against either David
Moskal or James O'Hagan because all of their victims were repaid
through other sources. Such facts do show, however, that lawyer
defalcations continue to be a problem. Unfortunately, the need
for a healthy client protection fund remains clear.
A more purely positive number to report is that the board recently
passed the $500,000 mark in restitution payments received from
or on behalf of the lawyers against whom claims have been paid.
The board has received funds from former respondents through
the criminal restitution process as part of a convicted lawyer's
criminal probation, through civil collection processes, and also
through negotiated payments plans. In the past two years, the
Attorney General's Office has successfully pursued several third-party
claims against various financial institutions on behalf of the
board, resulting in some relatively substantial settlements.
Attorneys seeking reinstatement following a period of suspension
must repay any client security claims paid on their behalf as
a condition for reinstatement. This process has also produced
some smaller repayments to the fund (attorneys committing the
largest thefts rarely seek reinstatement). Overall, the amount
of restitution payments received annually has been increasing
steadily.
Unlike client protection funds in some states, Minnesota's Client
Security Fund has been actively communicated to the public and
the bar. In addition to providing articles such as this, the
Board issues a press release after every meeting detailing the
number of claims paid, the amount of those claims, and against
whom they have been paid. Those press releases are then posted
on the Client Security Board's Web site (www.courts.state.mn.us/csb/csb.html),
along with copies of the rules of the board, an application form,
a "frequently asked questions" (FAQ) section, a copy
of the most recent annual report of the board, and a complete
listing of all lawyers against whom claims have been paid. Also,
board members and staff are always willing to speak to groups
about the work of the Client Security Board.
CAN WE DO MORE?
Despite these accomplishments, the board is always searching
for ways to do even more to assist victims of lawyer dishonesty.
The Minnesota Client Security Board rules currently provide for
a maximum payment per claim (commonly referred to as a "cap")
of $100,000. Only six states have caps that are more generous
than that. Many have limits as low as $10,000 or less. In several
states there also exist maximum payments per respondent attorney
("aggregate caps"), which are especially cited as a
cause of claimant dissatisfaction. For example, a state with
an aggregate cap of $200,000 on behalf of one lawyer must wait
until all claims are received, or set cut-off dates for filing
claims against a particular lawyer. Then all claims must be resolved
in order to determine the total amount of loss, and then a pro
rata share is awarded. In addition to substantial delay for claimants,
this often results in payments of only pennies on the dollar
of a claimant's loss. A stingy aggregate cap was a major factor
in the negative publicity Illinois' fund received from the NLJ.
Minnesota has no aggregate maximum payment amount. As a result,
as much as $419,000 has been paid on behalf of one lawyer in
Minnesota, and $547,000 against two partners jointly.
Despite already ranking high nationally in its ability to pay
claims, the board this past year explored whether the means exist
to raise the maximum payment per claim in Minnesota. Following
close scrutiny of the board's funding and budget needs, and a
review of the history of those claims presented to the board
to which the cap was applied, it was determined that an increase
of the cap to $150,000 per claim could be absorbed. Moreover,
absent the discovery of multiple new major defalcation cases,
such an increase will be feasible without any increase in the
attorney registration fee. A petition for such an increase in
the cap was filed with the Court in April and put out for comment.
A copy of the petition and the board's supporting statement are
available at the board's Web site. As this article went to press,
the MSBA prepared to review the board's petition at its June
meeting. The board welcomes further input from individual members
of the bar on their willingness to raise the cap. Oral argument
on the request likely will be held this fall.
The board currently receives $17 per year per licensed Minnesota
attorney, collected as part of the annual attorney registration
fee. Prior to May 1998, the portion of the registration fee allocated
to the board had been $20 per year, but the board advised the
Court that, based upon budgetary projections, a reduction was
appropriate. Now, thanks to a year in which payable claims have
been down considerably, such that the fund balance has grown
to approximately $2.4 million, the board felt it was more fair
to consider providing a boost for the victims. In the eight years
since the cap was fixed by rule at $100,000 per claim, on average
there has been one claim per year to which the cap was applied.
Thus, the board reasoned, if that historical average continues
in future, an increase in payouts of no more than $50,000 per
year will occur, an amount that will have minimal impact on the
overall fund balance.
Even though the total number of victims who have not been paid
in full is relatively small, what makes an increase in the cap
particularly appropriate is that the size of those claims to
which the board had to apply the cap continues to increase. This
results in a corresponding increase in the uncompensated portion
of the claim that is above the cap. Large trusts and estates
in particular have been the victims of some unscrupulous attorneys.
Such entities are generally treated as one claimant for purposes
of client protection reimbursement; each beneficiary may not
bring a separate claim. In at least two such claims paid by the
board in recent years, the actual loss exceeded $400,000. While
even paying an additional $50,000 on such losses does not make
the victim whole, enabling the payment of additional amounts
without any increase in the registration fee is worthwhile. In
other instances, an increased cap will allow full reimbursement,
which ought to be the goal of any client protection system.
CONCLUSION
The Client Security Board is one part of the comprehensive
system of lawyer regulation and public protection. Lawyer discipline,
continuing legal education, and assistance programs for impaired
lawyers also play a role in preventing and detecting lawyer theft.
The unique role of the Client Security Board is to help the victims
overcome their financial losses caused by dishonest lawyers.
Minnesota's fund is doing that task well and the board aspires
to do it even better. |
MARTIN COLE is Assistant Director
of the Minnesota Client Security Board and Senior Assistant Director
of the Office of Lawyers Professional Responsibility. |
