Clients' Security Board: 4 decades cleansing profession's reputation

Issue February 2006 By Andrea R. Barter, Esq.

It's the best-kept secret of the Massachusetts bar: Unbeknownst to most attorneys, seven members of the legal profession, aided by a team of volunteers and staff attorneys, quietly work on behalf of all Massachusetts lawyers to reimburse clients who have been defrauded by their attorneys and to reinstate their faith in our profession.

Entering its fourth decade, the Clients' Security Board consists of seven members of the bar of the Commonwealth of Massachusetts who are appointed by the Supreme Judicial Court to serve as public trustees of the Clients' Security Fund. The fund is used to reimburse members of the public who have sustained a financial loss caused by the dishonest conduct of a member of the bar acting as an attorney or a fiduciary.

"We are the only profession that takes care of people victimized by rogues in our midst. If your lawyer steals from you and you exhaust all other remedies and come to us, in theory, the lawyers of Massachusetts will make you whole. That is something every Massachusetts lawyer should be proud of," said former board member Thomas Peisch, of Conn Kavanaugh Rosenthal Peisch & Ford LLP, Boston.

All reimbursements are a matter of grace, not right, and no client has a right or interest in the fund. Reimbursement may be allowed only if the attorney of the client was engaged in active practice at the time the claim arose and has since died, been disbarred or suspended, or resigned from the bar.

Before granting an award, the board must be presented with evidence that an attorney-client or law-related fiduciary relationship existed between the claimant and the attorney, and that the loss was caused by the dishonest conduct of the attorney.

The board meets monthly to hold hearings at which claimants present information in support of their requests for reimbursement. The former attorney may appear at the hearing to explain to the board why no finding of a defalcation should be made. The exhaustion of civil remedies by claimants is a prerequisite to the granting of reimbursement from the fund. After the board has made awards to claimants, it is subrogated to claimants' rights to pursue recovery from their former attorneys, their law partners or any other liable third-party.

By order of the Supreme Judicial Court, the Clients' Security Board opened for business on Sept. 1, 1974. When it exercised its rule-making authority in 1974, the court was not starting from scratch. The Massachusetts Bar Association already had 10 years of experience in reimbursing clients whose lawyers had stolen from them.

In June 1964, the MBA created and annually contributed $10,000 to its little-known Clients' Security Fund. This made Massachusetts the eighth state to create a law client protection program.

Walter H. McLaughlin was president of the MBA during the launching of the fund. His son, Walter H. McLaughlin Jr., of Gilman McLaughlin & Hanrahan, Boston, was a young lawyer at the time and recalls that the inauguration of the fund was one of his father's proudest accomplishments as president of the bar association.

"He was very concerned about clients losing money in their dealing with lawyers. He felt it was the obligation of the bar and lawyers to alleviate this problem," said McLaughlin of his father. "He had a fierce loyalty to his clients and thought every lawyer should do the same."

The MBA's Clients' Security Fund was absorbed by the Clients' Security Board in 1974. At the same time, the Supreme Judicial Court created the Board of Bar Overseers and the Office of Bar Counsel to centralize and to unify lawyer discipline. Funding for all these activities came exclusively from a new mandatory annual registration system ordered by the court for all Massachusetts lawyers. The court wanted these enterprises to be funded solely by lawyers. No taxpayer dollars would be used.

Features of the fund
Although not the first client protection organization, its exceptional features serve as a role model for other states: there is no limit on individual awards, no limit on the aggregate awards per lawyer, no statute of limitations on filing a claim, and the board actively solicits applications from affected populations which otherwise might never know of the board and its mission.

Massachusetts is one of only three states without limits on awards to individual claimants. Likewise, only three states have no limits on the maximum payout per defalcating lawyer.

In addition, Clients' Security Board Assistant Board Counsel Karen O'Toole pointed out that it is very unusual for such a fund to have no statute of limitations. "We realize, for some victims, it may take them a long time before they can face the fact that their trust was abused, their money is gone and then come forward and talk about it enough to file a claim," said O'Toole. "Claimants often feel shame; their trust was misplaced. For victims of all sorts of abuse, we know there is a period of time when the victim has to sort of grieve and then come to terms with the situation."

Lawyer funded
The sole source of revenue to finance the Clients' Security Board, the Board of Bar Overseers and Lawyers Concerned for Lawyers comes from a portion of the registration fees paid by Massachusetts lawyers. From 1974 to 1977, the annual registration fee was $20. Since then, the court has increased the annual fee seven times to the current level of $220. In recent years, the apportionment has been approximately: Clients' Security Board, 20 percent; Board of Bar Overseers, 75 percent; and Lawyers Concerned for Lawyers, 5 percent.

From 1975 to 1984, the board made 215 awards, for a total disbursement of $337,594. In its second decade, 472 awards were made, totaling $6,025,767. From 1995 to 2004, 694 awards were made, amounting to $17,974,747 in compensation.

Not surprisingly, an increased volume of claims filed with the board triggers the need for fee increases. The fund works well as a tax on lawyers' dues up to a certain level, but like most insurance policies, a huge loss can limit the ability of the fund to make people whole. As a result, from time to time, the court has had to consider whether to retreat from its 100 percent reimbursement policy. It has steadfastly refused to do so.

In a statement issued in 1998, the justices said, "The operations of the Board of Bar Overseers, the Clients' Security Board and Lawyers Concerned for Lawyers are crucial in establishing and maintaining the accountability of lawyers for their conduct. An effective disciplinary process assures that the bar and the judiciary are responding appropriately to unethical actions of lawyers and shows the public that improper professional conduct will not be tolerated. In this way, the integrity of the bar is maintained. In reimbursing clients whose lawyers have harmed them by the theft of their funds, and doing so at the full amount of the clients' losses, the bar of the commonwealth seeks to preserve its integrity and reputation."

In its three decades of work, the board has paid out approximately $25 million to make whole 1,381 victims of dishonest attorneys. Surprisingly, claims against only three attorneys Ñ Walter Palmer, James Richard Locke and Fred Dellorfano Ñ account for more than 21 percent of the nearly $25 million dollars. However, in any given year, the number of lawyers whose misconduct triggers an award is approximately one-twentieth of 1 percent of the 47,000 active lawyers in the commonwealth.

Board members
Board members range from sole practitioners to partners in some of the largest law firms in the nation. Each member practices in a field of law different from the others, but any given board will typically have experts in litigation, real estate, banking, trusts and estates and bankruptcy. Board members receive no financial compensation for their time and efforts in performing their five-year terms. Current board members are: Chairman John R. Gobel, Gobel & Hollister, Pittsfield; Peter G. DeGelleke, of counsel, McWalter, Barron & Boisvert, Concord; Lucy W. West, Rackemann, Sawyer & Brewster, Boston; Guy B. Moss, Bingham McCutchen LLP, Boston; Pamela Jeanne Koehr, Attorney General's designee to the Board of Appeal on Motor Vehicle Liability Policies and Bonds; Kathryn A. O'Leary, Gould & Ettenberg PC, Worcester; and Thomas O. Bean, McDermott, Will & Emery LLP, Boston.

Although the board has been in existence for 30 years and its members meet monthly, attend national conferences on client protection and meet annually with the Supreme Judicial Court, surprisingly few attorneys actually know what the board does.

Even former board member Peisch admits that he knew virtually nothing about the Clients' Security Board before he was appointed. "I saw the breakdown on my bar dues statement and shook my head. Then I got appointed and it was one of the most rewarding things I've done as a lawyer," said Peisch.

O'Toole said that, in spite of good media coverage, a fine Web site and inclusion in professional responsibility courses, "I still get calls from lawyers who have been practicing in Massachusetts for years saying, 'I've never heard of the board.'"

Peisch speculates that so few attorneys know about the board and its function because there is so little "thievery" among Massachusetts attorneys. "We've been very lucky: 99 percent of Massachusetts lawyers are competent and honest and honorable. It's the handful of bad apples that generate the problems," he said.

"I don't' think most people realize how lawyers are policing themselves, frankly," said former board member Mary Schmidt, Packenham Schmidt & Federico PC, Boston. "At the time I was nominated for it, I knew very little about the organization. I knew very little about the conduct of lawyers that led to the necessity for the establishment of such an organization. In my five years on the board, I learned a lot!"

Schmidt said she learned "that out of the 45,000 lawyers admitted to practice in the commonwealth, there are a few who take advantage of vulnerable clients." But she focused most on praising the professionalism, hard work and dedication of her fellow board members and staff.

Schmidt was not alone in her respect for the lawyers who volunteer to represent claimants before the board, as well as the lawyer-employees of the board who prepare cases, answer questions, and provide documentation when requested: Michael Fredrickson, Karen D. O'Toole and Adam M. Lutynski.

Peisch and Gobel concurred with Schmidt's praise: board members "could not possibly overstate" the contributions of the staff.

"The commonwealth is very fortunate to have lawyers dedicating their entire careers to client protection," added Schmidt.

Support of SJC
Supreme Judicial Court Chief Justice Margaret Marshall "highly commend[s] the members of the Clients' Security Board for their unselfish work as public trustees.ÊThey volunteer hundreds of hours to assist victims of attorney misappropriations, devoting enormous time and effort to protect the public."

According to O'Toole, the Massachusetts board is nationally known because of the support the court gives it and because the board members are so diligent.

Board members credit their effectiveness to continuous support by the Supreme Judicial Court.

Peisch said, "The key to success is to have the court behind us."

For two years, while presenting the board's budget to the SJC, Justice Wilkins' only question was, "Do you have enough money?" Peisch recalled. "The court has been magnificent in its support of the board's effort. Courts in other states have not been," he said.

"The SJC is the most supportive governing organization for a client security board in the country," said Gobel. "We have a tradition of fully compensating clients, regardless of the amount and without a statute of limitations. Almost every other state has limits on the amount they'll award to one client or on one lawyer's losses. We don't have those limits and we have a court that's dedicated to funding us to the amount necessary to meet that goal. We are truly unique and fortunate to have the court behind us."

MBA President Warren Fitzgerald praised the work of the Clients' Security Board and its staff. "The work done by the CSB is some of the most important work by bar members to ensure the integrity of the profession and maintain public confidence in us. The demanding work and diligent efforts of the volunteers who assist the CSB are greatly appreciated by the entire bar and we applaud their efforts," said Fitzgerald.