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 – 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 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. “Nearly a decade later [1989], a claim, on The operational.17 (Illustrative of its growth based on experience in reimburse- Missouri Bar website since then, the Board’s 2010 appro- ment programs nationally, the rules (www.mobar.org) priation to the CSF was $200,000.) were updated and renamed Model “States fund their client security Rules for Lawyers’ Funds for Client under the “Public” funds in a variety of ways,” said Mis- Protection.”21 Additional revisions to tab, or write to The souri Bar Director of Programs Chris- these model rules have taken place Missouri Bar Client 22 topher C. Janku, whose duties include during the intervening years. Security Fund, P.O. staff support of the CSF. “Some states According to the ABA, “[s]tates have an annual assessment from each generally follow the model rules Box 119, Jefferson lawyer that goes directly to the fund, but are free to make their own City, MO 65102. similar to the annual assessment of a modifications.”23 portion of Missouri Bar dues directly to the Advisory Committee to fund the How It Functions lawyer discipline system in Missouri. In Missouri, a six-member Client Security] Fund should be there to take Rather than an annual assessment per Security Fund Committee appointed care of someone when the attorney lawyer, The Missouri Bar’s budget by the Board of Governors holds hear- has done something more than simple annually appropriates an amount to the ings on claims submitted by clients negligence,” he explained. “For ex- Client Security Fund.”18 who have been financially harmed by ample, if I miss a statute of limitations Today, all 50 states and the District the wrongful conduct of their lawyers. in filing a lawsuit for my client, I fully of Columbia have client security funds However, there are restrictions on the expect the client to be upset and I fully in operation. types of claims eligible for consider- expect the client to pursue it, including ation. filing a claim against my malpractice The ABA Weighs In For example, the Client Security insurance. But malpractice insurance The ABA’s Standing Committee Fund Committee cannot authorize doesn’t cover intentional acts involv- on Client Protection (created in 1984 compensation for fee disputes (al- ing stealing from a client.” through the merger of the Standing though a separate Missouri Bar pro- “The Client Security Fund compen- Committee on Unauthorized Practice gram does try to resolve those types sates clients for wrongful or dishonest of Law and the Standing Committee of issues) or cases of malpractice. conduct by attorney for which no other on Clients’ Security Fund) actively Rather, the attorney in question must practical remedy is available,” Janku promotes the strengthening of client be disbarred, suspended, deceased or confirmed. “Other remedies are avail- protection mechanisms, including mentally incapacitated before a claim able for a loss caused by an attorney’s programs to reimburse financial losses may be considered. A prohibition on malpractice.” caused by lawyer misappropriation of paying claims resulting from mal- In addition, Robbins said, the com- client funds.19 practice is a common feature of such mittee and Missouri Bar staff doesn’t Through its predecessor entities, programs nationwide.24 have sufficient resources to undertake the committee published “Suggested Robbins said there is a logical rea- such a chore. “If we had to look at ev- Guidelines for the Establishment and son for these restrictions. “The [Client ery alleged case of negligence, you’d

Precedent Winter 2011 9 FEATURE ARTICLE have to have a standing committee explained Robbins.28 ally turned themselves in at the local with someone whose job entails only “It is common for multiple claims police department. The client got an that,” he explained. to be filed against a lawyer,” Janku early morning knock on the door from The Client Security Fund Commit- added. “Of the 74 claims paid by the the police department, and that is how tee may recommend reimbursement Fund in 2010, … 26 were caused by the client found out what had hap- of a claim in full or in part, or may one lawyer” and “three lawyers were pened.” recommend denial or dismissal of a responsible for 53 of the 74 claims claim. The committee’s recommenda- paid.” Reaction From Clients – tions are then forwarded to the Board Needless to say, these sorts of situa- and Attorneys of Governors of The Missouri Bar for tions can involve almost incomprehen- As is the case with litigation, client review. The Board retains full discre- sible behavior on the part of lawyers – reaction to decisions of the Client Se- tion regarding payment of any claim. not to mention the resulting emotional curity Fund Committee and the Board During 2010, the Board of Gover- and financial toll on clients. of Governors often boils down to who nors approved the committee’s recom- “The most egregious situation in re- won and who lost. mendations for payment of 74 claims cent years involved a criminal defense “As you might expect, some claim- for a total of $185,074. The Board law firm that, through its website, suc- ants are extremely disappointed” when also approved the committee’s recom- cessfully recruited a high volume of their claim is denied by the committee mendations for denial of 22 claims and clients seeking post-conviction relief and the Board of Governors, Janku dismissal of five claims. Those num- – many of whom were incarcerated,” said. “Unfortunately, it may strengthen bers include 84 claims received during Janku recalled. “The firm did little or the negative impression of the legal 2010 as well as claims held over from no work for the clients. Although the profession engendered by the miscon- previous years. Client Security Fund was able to pro- duct of the attorney that was the basis “To help ensure the solvency of vide at least partial monetary compen- of the claims. Although there is no their funds, many states have caps sation to many of the injured clients, appeal from the decision of the Board on the amounts that can be recovered the fund could not assist the clients in of Governors, some clients attempt from their funds, similar to the caps in restoring any right to post-conviction to appeal the decision or request a re- insurance policies that limit recovery relief they may have lost as a result of hearing with the Client Security Fund 29 on losses,” Janku said. “In Missouri the lawyers’ misconduct.” Committee.”30 there is a cap of $50,000 per single “There’s one story that I use to On the other hand … claim so that a single large claim does explain to other attorneys here in the “In the majority of cases, the clients not bankrupt the Fund or reduce the Poplar Bluff area when they ask me are very grateful when they receive Fund’s ability to pay claims from other why I’m involved with the fund,” compensation from the Fund,” Janku clients. Robbins added. “In this particular said. “Frequently they voluntarily “Also, to reduce the cumulative im- case, the attorney had agreed to repre- acknowledge that the attorney miscon- pact on the Fund from multiple claims, sent the client in a workers’ compensa- duct they experienced is not typical Missouri only pays 80 percent of the tion claim. The attorney negotiated a of the behavior of the vast majority 25 loss above $2,500.” However, he settlement, forged the client’s name of Missouri lawyers. Occasionally, added, “unlike some states, Missouri to the compromise stipulations, filed clients send thank you cards or e- does not cap the total amount paid on those documents with the Division mails to the committee to express their 26 claims involving a single lawyer.” of Workers’ Compensation, accepted appreciation.”31 Indeed, as client security funds the client’s check, forged the client’s The committee also occasionally nationwide have discovered, “lawyers name on the check, and pocketed those hears from attorneys who are seeking who steal money often steal it from a funds – all while telling the client that reinstatement following suspension number of clients, leading to multiple the case was ongoing. And the attor- or disbarment.32 Most of this contact 27 claims.” ney had done so with more than one takes place as a result of the Client “We might see 15 or 20 claims client. Security Fund’s close cooperation with against a lawyer over one or two “I guess his or her conscience got the Office of Chief Disciplinary Coun- years after they’ve been disciplined,” the best of them, because they eventu- sel and Advisory Committee. The Cli-

10 Precedent Winter 2011 FEATURE ARTICLE

The Missouri Bar Client Security Fund Activity Since 1995

Year Number of Claims Received1 Payments Authorized2 Appropriated3

1995 19 $ 48,981 $ 40,000 1996 20 $ 92,429 $ 42,000 1997 60 $ 60,889 $ 50,000 1998 49 $101,078.76 $ 60,000 1999 27 $ 15,100 $ 70,000 2000 36 $102,372 $ 70,000 2001 54 $121,447 $ 70,000 2002 82 $118,232.684 $ 70,000 2003 122 $174,213.205 $ 75,000 2004 46 $110,502.686 $ 90,000 2005 60 $105,471.13 $125,000 2006 91 $101,593.307 $175,000 2007 75 $313,695.858 $175,000 2008 50 $107,458.479 $185,000 2009 34 $ 87,920.17 $195,000 2010 84 $185,074.4410 $200,000

Totals 881 $1,846,458.68 $1,692,000

Endnotes 1 Indicates claims received during year, not number of claims paid. Claims received during one year may be held over to a later year, particularly if a claim is received prior to a lawyer’s disbarment or suspension. 2 Payments for some years may have actually occurred in immediately following fiscal year after authorization at January Board of Governors meeting. 3 Fund also accumulates interest and restitution payments. 4 Includes $35,195.68 authorized for payment at January 2003 Board of Governors meeting. 5 $223,381.43 initially recommended for payment but reduced to $174,213.20 due to limited funds. Includes $169,986 authorized for payment at January 2004 Board of Governors meeting. 6 $115,227 was initially recommended by the Client Security Fund Committee for payment in 2004. The committee’s recommendation was reduced to $110,502.68 due to the limited funds and to retain “seed money” for 2005. 7 Includes $32,334.90 authorized for payment at January 2007 Board of Governors meeting. 8 Amount authorized for payment at July 20, 2007, November 16, 2007 and January 25, 2008 Board of Governors meetings. 9 Amount authorized for payment at July 18, 2008 ($4,465.00), November 21, 2008 ($39,084.47) and January 16, 2009 ($63,909.00) Board of Governors meetings. 10 Includes amounts authorized for payment at the May 14, 2010 ($29,250), September 29, 2010 ($18,570) and November 9, 2010 ($137,254.44) Board of Governors meetings.

Precedent Winter 2011 11 FEATURE ARTICLE ent Security Fund Committee advises collective professional expectations (January 18, 2011). those entities of all payments made to of Missouri Bar members – more than 7 “A History of the Client Protection Rules,” American Bar Association Center for clients and requests that reinstatement meets the profession’s call for respon- Professional Responsibility, available at http:// of any disbarred or suspended lawyer sible self-governance. www.abanet.org/cpr/clientpro/history.html. be conditioned upon reimbursement 8 Id. of the Fund. As a result, the Office of The legal profession’s rela- 9 Id. Chief Disciplinary Counsel routinely tive autonomy carries with it 10 Id. 11 Id. contacts the committee to determine special responsibilities of self- 12 Id. if there have been any payments from government. The profession 13 Id. the Fund related to a lawyer applying has a responsibility to assure 14 Id. for reinstatement. that its regulations are con- 15 Resolution Pertaining to Client Security Funds, The Missouri Bar Board of Governors ceived in the public interest (September 8, 1965). Conclusion and not in furtherance of paro- 16 Id. While proud of the role the Client chial or self-interested con- 17 Id. Security Fund plays in at least partial- cerns of the bar. Every lawyer 18 Interview with Christopher C. Janku is responsible for observance (January 26, 2011). ly compensating clients for the harm 19 Standing Committee on Client Protection, done to them by their lawyers, Rob- of the Rules of Professional American Bar Association Center for bins recognizes the constraints placed Conduct. A lawyer should Professional Responsibility, available at http:// on its operations. also aid in securing their www.abanet.org/cpr/clientpro/sclrcp.html. observance by other lawyers. 20 “A History of the Client Protection “Many of the different bar orga- Rules,” American Bar Association Center for nizations [around the nation] have Neglect of these responsibili- Professional Responsibility, available at http:// full-time staff that deals with nothing ties compromises the inde- www.abanet.org/cpr/clientpro/history.html. but client security issues,” Robbins pendence of the profession 21 Id. noted. “In fact, some of the states that and the public interest that it 22 Id. serves.35 23 http://lawbrain.com/wiki/Client_ are a little larger in terms of lawyers, Security_Funds. such as Ohio and Pennsylvania, have 24 Id. full-time investigatory staff and they “As Missouri-licensed attorneys, 25 Interview with Christopher C. Janku have funds that are in the millions of we like to complain at times about the (January 26, 2011). overall perception of the legal profes- 26 Id. dollars. Some of them actually have 27 http://lawbrain.com/wiki/Client_ websites devoted to client protection sion,” Robbins notes. “We hear the Security_Funds. and client security.”33 lawyer jokes and the overall general 28 Telephone interview with Scott A. Indeed, The Missouri Bar’s Client negative perception, and we all try to Robbins (January 18, 2011). Security Fund often walks a fine line combat that in our individual practices. 29 Interview with Christopher C. Janku “The Client Security Fund allows (January 26, 2011). between the profession’s desire to 30 Id. “make right” the harm done to clients us to have a really good, positive 31 Id. and the limited resources available to example of something that lawyers 32 Telephone interview with Scott A. it. do – something that I’m not aware that Robbins (January 18, 2011). a lot of other professions do – which 33 Id. “Historically, there seems to have 34 Id. been this conflict between ‘we want is to try to correct a wrong when one 35 Missouri Supreme Court Rule 4-12. to do this really good and worthwhile member has done something that most 36 Telephone interview with Scott A. service attempting to make clients others would consider improper.”36 Robbins (January 18, 2011). whole when their attorney has stolen money from them’ versus ‘we don’t Endnotes Gary Toohey is Director want this to be a free-for-all with the 1 Quotation by Dennis Janson. of Communications for committee having to wade through 2 Missouri Supreme Court Rule 4-7. 3 Missouri Supreme Court Rule 4-9. The Missouri Bar. He mountains of claims that may or may may be contacted at: 34 4 Telephone interview with Scott A. Robbins not be meritorious,’” said Robbins. (January 18, 2011). [email protected]. Regardless, it is clear that the Cli- 5 Missouri Supreme Court Rule 4-12. ent Security Fund – representing the 6 Telephone interview with Scott A. Robbins

12 Precedent Winter 2011