August 2008

The Future of the Lawyers' Fund for Client Protection

by WSBA President Stan Bastian

We are privileged to be part of a self-regulating profession. Only the Supreme Court and the lawyers acting under its delegation of authority have the power to decide who may enter the legal profession, who should be disciplined for misconduct, and who should be suspended or disbarred. The Legislature and the Department of Licensing have no control over the professional activities of lawyers, unlike the members of other professions, such as doctors, accountants, or architects. The Supreme Court has the exclusive power to regulate the legal profession, and the Bar Association serves as an arm of the Supreme Court in carrying out those functions. With that privilege goes the responsibility of protecting the public.

Indeed, protecting the public from harm caused by fellow lawyers is one of the core values of this bar association and the legal profession as a whole. We do this, in part, by operating a stable, well-funded Lawyers' Fund for Client Protection. In fact, this state was one of the first to establish what was then called a Lawyers' Indemnity Fund in 1960. Since that time, the lawyers of this state have compensated the victims of the few dishonest lawyers who misappropriate or fail to account for client funds or property in an amount more than $3.5 million.

Every jurisdiction in the United States, as well as Canada, Australia, New Zealand, and other countries, maintains such funds. Although common to the legal profession, similar protection funds are unknown in most other professions and callings.

The current Lawyers' Fund for Client Protection was established by the Washington State Supreme Court in 1994 at the request of the WSBA by the adoption of Rule 15 of the Admission to Practice Rules (APR). Prior to the adoption of that rule, the WSBA had voluntarily maintained a clients' security or indemnity fund out of the Bar's general fund.

Gifts from the Fund are financed solely by payments from lawyers; no public funds are involved. The Fund is maintained by a $15 annual assessment on each active member of the Bar. It is operated as a trust, separate from other funds of the WSBA. In addition, interest on those funds accrues to the Fund, and any restitution paid by lawyers is added to the Fund balance.

The WSBA Board of Governors is the trustee, and it appoints and oversees the Lawyers' Fund for Client Protection Committee, the lawyers and non-lawyers who actually administer the Fund. Bob Welden, the WSBA general counsel, acts as staff liaison to the trustees and the Committee. The administrative costs of the Fund, such as Committee expenses and staff support, are paid from the Fund and not from the WSBA general fund. 

To be eligible for payment, an applicant must show by a clear preponderance of the evidence that he or she has suffered a loss of money or property, through the dishonest acts of, or failure to account by, a lawyer. Dishonesty includes, in addition to theft, embezzlement, and conversion, the refusal to return unearned fees, as required by Rule 1.16 of the Rules of Professional Conduct. When an application is received, it is reviewed to determine that on its face it appears eligible for recovery from the Fund. If not, the applicant is advised of the reasons for its ineligibility. Unless the lawyer is deceased or disbarred, all applicants to the Fund must also file disciplinary grievances with the Office of Disciplinary Counsel.

The Fund is not available to resolve or compensate in matters of lawyer malpractice or professional negligence. It also cannot compensate for loan, investment, or other business transactions unrelated to the lawyers' practice of law.

Fortunately, the Fund has generally been able to sustain a healthy balance that is able to respond to the need to assist persons who have been the victims of those few lawyers who misappropriate or fail to account for client funds. However, this year, the Fund is faced with a number of applications from the victims of one lawyer that could, if all are approved, total more than twice the amount of available funds. Additionally, there are applications regarding 65 other lawyers. Not all will be deemed eligible for recovery from the
Fund, but there is a serious possibility that the Fund balance will not be sufficient this year to cover all approved claims. In fact, so far this year, potential exposure on the claims filed to date totals $3.9 million, but the fund has an available balance of only $1 million.

The WSBA and the Supreme Court will have to find a solution to this problem, which may involve increasing the annual assessment, imposing a special assessment, changing the eligibility rules for payment, or, most likely, a combination of all of these solutions. However, the Fund itself will continue. The desire and effort to accept responsibility for the harm caused by our colleagues is one of the shining jewels in our professional crown. It is, in part, what makes us professionals.

I would like to acknowledge the contribution of WSBA General Counsel Bob Welden not only for his help in preparing this column, but for his dedication to and guiding influence of the Fund. Without his vision and commitment, the Fund as we know it would certainly not exist. 

WSBA President Stan Bastian can be reached at stanb@jdslaw.com or 509-662-3685.