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| The Lawyers
Who Cost You Money You can always recognize
a Minnesota attorney who has been around awhile. When you mention
the “Flanagan tax,” he responds with a nod or a scowl, mindful of
the one-time payment of $100 required of every Minnesota attorney
in the mid-1980s to help pay Flanagan’s victims. John Flanagan was
a successful personal injury lawyer in St. Paul who one day decided
that working for a living was overrated, so he, like many a criminal
before him, stole money, in this case, from clients. In response to
the number and extent of claims from aggrieved parties, the Minnesota
Supreme Court created a Client Security Fund and a governing Client
Security Board in April of 1986, with seed money raised by way of
the “Flanagan tax.” Shortly thereafter, another apparently successful
attorney, this one from Fridley, Mark Sampson, ran off with even more
client money. At this point, most Minnesota lawyers felt much like
many Catholic priests have felt these past few months; angry at those
members of their calling who have betrayed the trust of those under
their care, and upset at the collective loss of reputation due to
the treachery of others. A Decade And A Half The Client Security Fund and Board will mark a
decade and a half of official operation on July 1, 2002. We continue
to be the only profession that systematically attempts to help those
suffering loss due to the intentional actions of a small number of
our members. The Fund is a remedy of last resort for clients who cannot
be repaid from other sources, sources such as insurance companies
or the attorney involved. It is administered by the aforementioned
Board whose members are appointed by the Minnesota Supreme Court.
The Board has five lawyer members and two nonlawyer members and all
serve without compensation.1 Investigations
of claims are made by our Office. The Board determines how much, if
any, should be paid to a claimant. If the claim is denied, the unsuccessful
claimant is told the basis for the denial. While the Fund normally
covers situations in which lawyers have stolen clients’ money, there
are some requirements.2 The attorney involved
must be a licensed Minnesota lawyer and must have served the client
as either an attorney, in a fiduciary capacity, or as an escrow agent
arising from the attorney-client relationship. The loss must be caused
“by the dishonest conduct” of the lawyer “in the nature of theft or
embezzlement . . . or conversion”; losses that result from the malpractice
or negligence of lawyers are not covered. Further, there is a limitation
of claims to three years from the “date the claimant knew or should
have known of the dishonest conduct.”3 An annual assessment has been paid as part of
the attorney license fee since 1991, and this amount has ranged from
$13 to $20. It is currently $17 per attorney per year. As to the maximum
amount paid per claim, last year the Supreme Court raised the maximum
payment amount of a single claim from $100,000 to $150,000.4
There had been a $100,000 claim cap for the previous eight years.
The current maximum payment per claim is among the most generous in
the nation. While the Fund is currently in excellent shape
with a current balance of well over $2 million dollars, history has
shown that one or two attorneys can turn this good news into bad news
rather quickly. So which lawyers have been responsible for the most
money paid by the Board in its existence? Here, in the Hall of Infamy,
is the “Dirty Dozen,” listed in the chart below. Note that Flanagan, who started it all, is “only”
number nine on the list. Note also that six of the top ten listed
have left the Board holding the bag since 1998, arguably a sign that
even with the threat of disbarment and the increased threat of criminal
prosecution, some lawyers are willing to risk everything for the almighty
dollar (their clients’ dollar at that). Consider also that no claims
were paid with regards to the large sums stolen by James O’Hagan in
the 1980s and David Moskal in the 1990s, since claimants in these
matters were paid from other sources. Had these two lawyers been solo
practitioners rather than members of successful law firms, the Client
Security Fund would have taken huge hits and all of us would have
been assessed more to cover the loss. So what do these ex-attorneys have in common other
than their race and gender and the aforementioned willingness to steal
from clients? A willingness to be disbarred and go to prison seems
apparent, since misappropriation almost always results in the loss
of a law license and since both local and federal prosecutors have
shown in recent years that they will aggressively prosecute lawyers
who steal. As to the areas of law these ex-lawyers practiced, unlike
Flanagan and Sampson who gave plaintiff personal injury lawyers a
black eye in the 1980s, lawyers who left large claims in more recent
years, engaged in transactional work for the most part, including
estate administration (Orlins and Smith), real estate (McNabb and
Ploetz) and even collection work (Gurstel). All had one thing in common;
all had access to client funds. Client Security Board While the number and severity of the claims paid
by the Client Security Board over the past 15 years could have been
worse, the amount involved is still sobering. Over $4.12 million has
been paid to aggrieved parties stemming from the actions of 93 lawyers
over 15 years, averaging $275,000 per year and $12,200 per approved
claim.6 The 16 lawyer members of the Board, who have served over these
same 15 years, have stood in strong contrast to the “Dirty Dozen.”
They, along with the public members, have contributed their time and
expertise in an attempt to help clients exploited by avaricious lawyers.
We all owe the 22 members of the Board over the past decade and a
half a debt of gratitude for their service. Hopefully the next 15
years will not bring with it exploitation of this nature. However,
if it does, we can count on several consequences. More likely than
not, the lawyer will lose his license and go to jail. Meanwhile, the
members of the Client Security Board, acting as a last resort, will
be working hard to find a remedy for exploited clients. In so doing,
they will be serving the public and they will be serving the profession.
Notes 2 See, generally, Rules of the Minnesota Client
Security Board, III. Rules Governing The Claim Process (3.01-3.18).
3 Rules 3.02, Rules of the Minnesota Client
Security Board. 4 See Martin A. Cole, “Client Security: Can
We Do Even More?,” Bench & Bar, July 2001, p. 14. 5 Dennis J. Morgeson, Sr. and Bruce P. Wyant
are grouped together, since claims paid were made based on the actions
of both attorneys. 6 It should be noted that over $600,000 has
been paid to the Fund through restitution payments “from or on behalf
of the lawyers against whom claims have been paid.” See Cole, p. 14.
EDWARD J. CLEARY is director of the Office
of Lawyers’ Professional Responsibility.
He has practiced both privately and as a public defender for
20 years and is past president of the Ramsey County Bar Association.
His book, Beyond the Burning Cross, won a national award in
1996. ** The “Dirty Dozen”: Payments
by the Client Security Board
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