June 2008
Lawyers’ Fund For Client Protection Report
by Robert D. Welden
The Lawyers’ Fund for Client Protection Committee meets quarterly to review applications for gifts from the Fund. The Committee is authorized to make gifts less than $25,000 to eligible applicants. On applications for $25,000 or more, the committee makes recommendations to the Board of Governors, who are the Fund trustees. At their meeting on February 29, 2008, the Committee conducted the following business.
Adoption of policy regarding potential apportionment of approved payments: As previously reported, the Committee and trustees (Board of Governors) have been discussing concerns regarding the potential impact on the Fund caused by former attorney Barry A. Hammer, who resigned in lieu of disbarment. Hammer engaged in a Ponzi scheme that has resulted in substantial losses to his clients and investors. There are currently 38 Fund applications regarding him, which, if they all qualified for recovery from the Fund, would total more than $2.3 million. These are in addition to all other applications to the Fund. The Fund is budgeted to have not more than $1.1 million available this fiscal year. The Board directed the Committee to proceed on the assumption that the Fund will be limited to the amount budgeted, and to report back to the Board at the end of the fiscal year. At this meeting, the Committee adopted a policy to pay all approved applications up to $5,000, and to defer any payment above that amount to the end of the fiscal year in September to determine whether additional payments will need to be apportioned against the available funds. The Committee will begin its review of individual Hammer applications in August to determine which qualify for gifts from the Fund.
The following applications were approved:
Jack L. Burtch — WSBA No. 4161 (Aberdeen) — Suspended pending discipline 5/17/07; disbarred 1/31/08
Applicant paid Burtch $2,000 to bring a bad-faith claim against an insurance company and to remove a lien that had been filed by a contractor against Applicant’s property. Applicant explained that action needed to be taken promptly on the claim against the insurer, as the statute of limitations would expire at the end of the year. Burtch told Applicant that he would have the lien taken care of in a week and would file the lawsuit within two weeks.
In the disciplinary proceeding, the Supreme Court opinion stated that Burtch took no action for several months. Eventually, Applicant discharged him less than 30 days before the statute of limitations was due to expire. She requested a refund of $1,600. Burtch refused and instead produced an accounting showing that she owed more than the $2,000 she had paid. The hearing officer did not find this accounting credible. The Supreme Court opinion states: “There is no evidence, other than his testimony, that Mr. Burtch did anything other than make one phone call to [a contractor] regarding the services he allegedly provided [Applicant].” The Court found that Burtch failed to adequately and accurately explain his fee agreement to Applicant; that he failed to return unearned fees; and that he failed to diligently represent Applicant. The hearing officer recommended that Burtch pay restitution to Applicant of $1,900. The Committee approved payment of that amount.
David R. Hellenthal — WSBA No. 18311 (Spokane) — Suspended for 18 months 9/6/07
In 2004, Applicant’s mother died and left him approximately $170,000. Applicant hired Hellenthal because he was concerned about the potential effect of the inheritance on his continued eligibility for government benefits. The inheritance proceeds were deposited into Hellenthal’s trust account.
In a fee agreement letter to Applicant, Hellenthal said he would charge 20 percent of Applicant’s inheritance, which he set at $33,500. He proposed forming a limited liability company (LLC) to purchase a residence for Applicant, and he said he would co-sign for a loan. He said he would form a Supplemental Needs Trust, which would allow Applicant to receive Medicaid benefits for the rest of his life, and that the trust would be made a partner in the LLC. He also agreed to provide care management services for Applicant “for the rest of your life or mine.” He said he would not charge any extra fees, but he would have a 10 percent interest in the LLC. Applicant signed this agreement. Between November 2004 and January 2005, Hellenthal paid himself $33,000 from Applicant’s trust account funds.
He prepared a Supplemental Needs Trust which designated Hellenthal as both trustor and trustee. It provided that Applicant could replace him as trustee. It also provided that upon Applicant’s death, the trust estate would be distributed according to Applicant’s will or, if he had no will, it would revert back to the trustor, who was Hellenthal. Hellenthal knew at that time that Applicant had no will. At some point he and Applicant discussed drafting a will, but none was ever created.
Hellenthal did not discuss any conflicts of interest with Applicant and did not have Applicant’s consent to waive any conflicts. According to Hellenthal’s stipulation to discipline, Applicant did not understand that Hellenthal would receive his entire estate if he died without a will, and he did not intend that result. Hellenthal executed the trust, and on January 12, 2005, transferred $125,000 from his trust account, which he used to fund the trust.
Under Medicaid regulations, a Supplemental Needs Trust would need to include a provision that all benefits paid to the trustor would be repaid to the state upon Applicant’s death, and the trust would need court approval. The trust prepared by Hellenthal did not comply with Medicaid regulations and was not approved by a court. It could have made Applicant ineligible for Medicaid benefits and could have subjected him to financial penalties. This was not disclosed to Applicant.
In January 2005, Applicant hired a new lawyer who had Hellenthal removed as trustee. Hellenthal transferred $125,000 plus interest to Applicant’s new trustee. The new lawyer also asked Hellenthal to reduce his fees. Hellenthal refunded a total of $23,630 in fees, and $2,169.13 of Applicant’s funds that remained in his trust account. The total fees he retained were $7,130. The Stipulation states that other Spokane-area lawyers charge $1,000 to $3,500 for creation of a special needs trust. Hellenthal stipulated to repay Applicant $5,130.87. He has not done so, and it appears he currently has no means to do so. The Committee approved payment of that amount to Applicant.
Paul Hernandez — WSBA No. 21015 (Seattle) — Suspended pending discipline 5/25/06
Hernandez is respondent in a default disciplinary proceeding in which it is recommended that he be disbarred. He represented Applicant on a personal injury claim that was settled for $22,000. Hernandez’s settlement accounting showed that he was withholding settlement funds to pay PIP funds to Applicant’s insurer ($1,095.90), and funds owed to a chiropractor ($1,660.36).
Applicant received a letter from a collection company on behalf of the insurer advising him that their reimbursement had never been paid after Hernandez contacted them to verify the amount of their lien and stating that he was “finally ready to resolve.” They demanded payment from Applicant. Subsequently, Applicant received a copy of a letter to Hernandez from another collection agency that the funds owed to the chiropractor remained unpaid. The Committee approved payment of $2,756.26.
Other Business: The Committee reviewed 10 additional applications that were denied for lack of evidence of dishonest conduct, as fee disputes or claims for malpractice, or because restitution was made.
Restitution: Before payment is made, the Applicant must sign a subrogation agreement with the Fund, and the Fund seeks restitution from the lawyers. Because in most cases those lawyers have no assets, the chief avenue of restitution is through court-ordered restitution in criminal cases. Prosecuting attorneys cooperate with the fund in getting the Fund listed in restitution orders. As of February 2008, six lawyers were making regular restitution payments to the Fund totaling $20,565 since October 1, 2007. This includes $15,260 deposited into the Fund pursuant to Supreme Court order from abandoned and unidentifiable funds in the trust account of former attorney Barry A. Hammer.
The Committee chair is Kennewick attorney Christopher J. Mertens. WSBA General Counsel Robert D. Welden is staff liaison to the Committee.
