Improving the public trust

Issue May 2006

In February, I wrote proudly about the comprehensive efforts undertaken by the MBA Task Force on Lawyer Discipline in reviewing and proposing revisions for the rules for the Board of Bar Overseers and the Office of Bar Counsel. The report of the task force, “Protecting the Public: Reforming the Disciplinary Process,” was approved by the House of Delegates in May 2005. The ABA, pursuant to a request of the justices of the SJC, issued a report which was released to the public in January 2006 with a request from the justices for comment by the bar. The task force reconvened and formulated a response to the SJC’s request. The MBA report and our comments on the ABA report are currently under consideration by the justices.

The MBA report was the result of intense and thorough investigation and deliberation by a group of the most knowledgeable and respected members of the bar. The task force reviewed the entire bar discipline process and conducted extensive research. Its report was 55 pages in length and supported by hundreds of pages of appendices. The House of Delegates’ endorsement of the report was accordingly based upon a reasoned and judicious review of the issues and proposals which it contained.

We now have before us another opportunity to improve the self-regulation of our profession, so vital to maintaining the trust of the public. In March, the Client Security Board presented a proposal to our House of Delegates designed to reduce the misappropriation of settlement proceeds by counsel. Known as the “Payee Notification Rule,” it would require insurers paying settlement proceeds in most tort or “third party” cases to notify clients directly when settlement checks are issued to their counsel. The rule is designed to reduce the opportunity for an unethical lawyer to receive a settlement check, negotiate it without the client’s knowledge or consent and steal some or all of the proceeds due the client.

We know this happens, and each time it does, the public is well informed of it by the media. Fortunately, it happens only a handful of times each year. Usually by a lawyer led to violate his or her oath by financial or personal desperation. But one thief amongst us, for whatever reasons, is one too many for this profession. Upon that there is unanimous agreement.

When the proposal was presented to the House of Delegates, some members embraced it as a “no-brainer.” The objective of the rule is unassailable. The rule appears simple and unburdensome to lawyers. And our ethical rules already require full disclosure and transparency of the handling of client funds, fees and expenses. These features of the proposal make it strongly appealing. I must admit that’s the way it initially struck me.

Perhaps this is why the proposal was made without some of the details necessary to implement the rule and without the investigation or supporting analysis upon which we customarily rely. This is why some of the other delegates at the House meeting raised some questions and voiced some concerns about the proposed rule.

First, does it go far enough? Although, fortunately, the total number of attorneys who defalcate, misappropriate or steal is very, very small, this rule would deter only a very few of them. Most claims handled by the CSB and the vast majority of the reimbursement payments which it makes result from other types of misappropriation occurring in other types of legal practice. Should we take a comprehensive look at all attorney misappropriation before taking action on a small portion of the problem?

Should the insurance commissioner and the insurance industry be involved in the enforcement of rules regulating our profession? The proposed rule would require insurance companies to communicate directly to our clients, with whom they have had an adversarial relationship. The procedure, manner, timing, content and form of the notification would be mandated by regulation promulgated by the insurance commissioner.

What is the actual cost of the rule to the public? We should assume that the transactional cost of this notification procedure will be passed by the insurance companies to the consumers of the commonwealth. What will be the cost of sending some hundreds of thousands of notices to clients each year? More significantly, what will be the cost of the insurance companies maintaining and updating a database of the names and addresses of settlement payees? The cost of handling notices “returned to sender” and other complications? We know that the client reimbursements made by the CSB for the type of theft at which this rule is aimed have totaled about $130,000 dollars for the past two-year period. We know that this has been borne entirely by a portion of our annual attorney license fees, which funds the CSB. Will this rule shift that burden to the public at an annual cost of millions of dollars?

Although we know 11 states have a similar rule in place, what have other states done to reduce the number of client fund misappropriations in this discrete area and in general? Have there been practical problems with the operation of the rule in those states which have adopted it? Will the rule really prevent theft by an attorney driven by desperation or psychological distress to steal? Although the rule appears directed to the traditional situation in which a firm has a single client, what logistical problems would be created for class action or mass tort cases in which settlements are made for hundreds or thousands of clients at once?

We all agree that preventing the theft of client funds is an objective of the highest priority and necessary for the very existence of our profession. What we need to do now is determine the best way to achieve that objective. I propose that we proceed in the manner which has served us well in the past: Do our research, conduct our review and base any decision about improving the rules by which we are governed upon a reasoned and judicious review of the issues and proposals.

I am appointing a task force with the mandate of reviewing the means of deterring the theft of client funds, including the payee notification rule, and reporting its findings and proposals to the House of Delegates. I thank the Client Security Board for its efforts, which have provided us with an opportunity to seek to improve and shape the future of our profession.