The Missouri Bar Client Security Fund by Gary Toohey
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FEATURE ARTICLE Righting Wrongs: The Missouri Bar Client Security Fund By Gary Toohey 6 Precedent Winter 2011 FEATURE ARTICLE Integrity is doing the right thing even when thing we tell everyone who makes a claim. We apologize for the conduct of the attorney giving rise to the claim, 1 no one is watching. because it is not the standard of conduct we would uphold and certainly not something the vast majority of Missouri For 45 years, The Missouri Bar’s Client Security Fund attorneys would ever think of doing.”4 has helped to maintain the professional reputation of Mis- In much the same way that a verdict from a jury of one’s souri lawyers by compensating clients financially harmed peers represents the collective judgment of society, it could by the actions of their attorneys. As a result of this ser- be said that the work of the Client Security Fund – funded Righting vice, hundreds of clients have had their faith in the legal by an annual allocation from The Missouri Bar’s budget – profession restored. Yet for both the public and the state’s Wrongs: carries with it the professional expectations of the members lawyers, it remains one of The Missouri Bar’s least known of the bar. In that role, the CSF carries out the concepts services. embodied in Missouri Supreme Court Rule 4-12: By virtue of their oath of admission to the bar, lawyers are expected to adhere to a strict code of ethical conduct. The legal profession’s relative autonomy carries But it is an unfortunate fact that, on rare occasion, some with it special responsibilities of self-government. lawyers fail to live up to the high degree of competence and The profession has a responsibility to assure that its ethics expected among members of the legal profession. It regulations are conceived in the public interest and is for just such occasions that the Client Security Fund – not in furtherance of parochial or self-interested along with other client protection programs of The Mis- concerns of the bar. Every lawyer is responsible for souri Bar – was established. observance of the Rules of Professional Conduct. A The Preamble of Missouri Supreme Court Rule 4 – the lawyer should also aid in securing their observance Rules of Professional Conduct – lays the groundwork for by other lawyers. Neglect of these responsibilities the profession’s obligation to protect clients from harm. compromises the independence of the profession While noting that lawyers must be “guided by personal and the public interest that it serves.5 conscience and approbation of professional peers,”2 the pre- amble states: In addition, in many situations the CSF serves as the only potential source of financial assistance to clients. Virtually all difficult ethical problems arise from “Oftentimes we find that attorneys who have claims conflict between a lawyer’s responsibilities to against them before the fund, because they are disbarred or clients, to the legal system, and to the lawyer’s suspended, have no real funds coming in,” Robbins said. own interest in remaining an ethical person while “The [Client Security] Fund really becomes a source of earning a satisfactory living. The Rules of Profes- repayment that would not otherwise exist.”6 sional Conduct often prescribe terms for resolving such conflicts. Within the framework of these Rules, History of Client Protection however, many difficult issues of professional The British Empire Leads the Way discretion can arise. Such issues must be resolved As is the case with so much of American law, the roots through the exercise of sensitive professional and of today’s client protection services can be traced to the moral judgment guided by the basic principles English legal system. It was during the early part of the underlying the Rules. These principles include the 20th century that nations of the English Commonwealth lawyer’s obligation zealously to protect and pursue pioneered this concept. 3 a client’s legitimate interests …. In 1901, for example, the British Parliament amended the Larceny Act of 1861 “to make it a criminal offense to con- When lawyers fail to meet this standard of conduct and vert funds or property held in trust.”7 This action was taken cause financial harm to a client, the profession has a duty to in response to the collapse of the English stock market respond, says Poplar Bluff attorney Scott A. Robbins, chair following the Boer War, which resulted in many solicitors of the Client Security Fund Committee that oversees the and well-established law firms going bankrupt. “Until then, service. solicitors commonly commingled their own funds with cli- “It’s certainly not conduct that we would expect from a ent funds, and even used clients’ funds, unless earmarked Missouri licensed attorney,” he explained. “That’s some- for a particular purpose.”8 Precedent Winter 2011 7 FEATURE ARTICLE The first effort to establish some Spurred by this action, similar funds However, it wasn’t until 1959 – “a sort of mechanism for recompense were soon thereafter created in other watershed year in the development of of clients harmed by their solicitors nations of the British Commonwealth: client protection measures”13 – that the came shortly thereafter, when a special concept became reality: committee of the English Law Society In 1930, the Legal Practitio- began examining professional ac- ners’ Fidelity Guarantee Fund The first American lawyers’ counting requirements and the pos- was established in Queen- fund for client protection sible formation of a guarantee fund to sland, Australia. The first was established in Vermont protect defrauded clients. However, fidelity fund in Canada was in January 1959 through the in 1907 the full English Law Society established in Alberta in 1939, auspices of the Vermont Bar declined to recommend the creation of and entitled the Assurance Association. In February, the such a fund. Fund. A compensation fund ABA House of Delegates With the English legal system was created in England in adopted a resolution approv- sidestepping the issue, it was another 1941 into which every prac- ing such funds in principle member of the British Empire – New ticing solicitor was required and urging all state bar as- Zealand – that took the lead in the to contribute annually. Funds sociations to appoint feasibil- provision of client protection mecha- were established in Scotland ity study committees. In May, nisms. In March 1927, the Council of in 1949 and Ireland in 1954.11 the Board of Governors of the the Wellington District Law Society Illinois State Bar Association – in response to concerns voiced by Interest Grows in the adopted a resolution approv- members of the New Zealand Parlia- United States ing the principle of a fund and ment and the Association of Chambers Ironically, the impetus for cre- appointing a committee to de- of Commerce – proposed the “creation ation of similar funds in jurisdictions velop ways to establish a fund of a fund for the purpose of making throughout the United States may have with the Chicago Bar Associa- provision for monetary losses incurred come from an unlikely and unex- tion. In June, the Philadelphia by clients of defaulting solicitors.”9 pected source: World War II. Popular Bar Association adopted a The New Zealand Law Society then lore claims that a Sacramento lawyer, resolution putting a clients’ se- drafted a bill that, after lengthy discus- Kenneth G. McGilvray, learned of the curity fund into operation. In sion, was passed by the New Zealand client protection fund concept while August, a meeting of the ABA Parliament. That action created the stationed in New Zealand during the Clients’ Security Fund Com- Solicitors’ Fidelity Guarantee Fund. war. Intrigued by its possibilities, the mittee reported that 34 state story continues, he returned home and bar associations had appointed When originally established, published an article detailing the New committees to study fund cre- the fund reimbursed those Zealand experience in the California ation. In September the State who suffered monetary losses State Bar Journal in 1946.12 Bar of Washington voted to because of theft by a solici- Seven years later, American Bar establish a security fund. The tor or a solicitor’s servant or Association (ABA) President Rob- next month, bar associations agency of any money or other ert G. Storey brought the concept of in Colorado and New Mexico valuable property entrusted lawyers’ funds for client protection to followed suit. In November to the solicitor in the course the fore during a report to that orga- the Board of Governors of the of practice. All solicitors nization’s membership. In 1955, the Virginia State Bar Association were required to contribute ABA established a committee to study approved the establishment of to the fund. After the Act was and promote the creation of such funds a fund in principle.14 adopted, the Law Society – a movement endorsed by such legal drafted an advertising circular, heavyweights as New Jersey Supreme Missouri Joins the Trend for publication by local law Court Chief Justice Arthur G. Vander- On September 8, 1965, the Board societies, informing the public built and Harvard Law School Dean of Governors of The Missouri Bar about the fund benefits.10 Erwin Griswold. adopted a resolution creating the Cli- 8 Precedent Winter 2011 FEATURE ARTICLE ent Security Fund (effective January Operation of a Clients’ Security Fund” 1, 1966) “for the purpose of reimburs- in the mid-1970s. By the end of that Look for the ing losses to clients, subject to the decade, the ABA began to codify Regulations and establishment of rules for the opera- into black letter the basic mechanism Rules of Procedure tion of said fund ….”15 That resolu- to achieve reimbursement of losses tion required 15 percent of monies caused by the dishonest conduct of that govern the available at the end of each fiscal year lawyers.20 Client Security Fund, to be retained as “seed” money for This was followed in 1981 by the along with the form the ensuing year.16 For the 1964-1965 ABA House of Delegates’ approval of fiscal year, the Board of Governors the Model Rules for Clients’ Security submitted to initiate appropriated $10,000 to make the fund Funds.