Clients’ Security Board awards $2.4 mil. in claims

Issue November 2010 By Bill Archambeault

The Clients' Security Board of the Supreme Judicial Court awarded $2,397,678 for 92 claims this year, the fourth-highest amount since the board began distributing money in 1975 to members of the public whose lawyers stole their money.

The single largest award was for $655,914.60, for a single case involving John D. Roberts Jr. of Dennis, who pleaded guilty to felony theft and was disbarred for taking money from his client of 25 years, according to the CSB's case summary.

The lawyers with the second-and third-highest defalcation were O. Roland Orlandi, of Boston, for $348,526.34, and Stephen J. Mason, of Lowell, for $316,887.98. Together, those three lawyers accounted for a little more than 55 percent of the total claims awarded this year.

Monies paid out to clients come from a portion of the annual fees paid by every member of the bar in Massachusetts. In all, 46 lawyers, or .08 percent of the state's 54,326, were responsible for the awarding of 92 claims.

The largest number of claims awarded were for unearned retainers, which are categorized as client money accepted by an attorney who failed to perform the agreed upon legal service. They do not include fee disputes or malpractice claims in which an attorney negligently performs legal services that led to a client's financial loss. Though the 57 unearned retainers claims made up the largest share of claims awarded, the total awards of $279,543.76 in that category accounted for just 11.66 percent of the total money paid.

Only one claim related to bankruptcy law was addressed by the board this year (an award of $1,000), but that
practice area could see an uptick as the effects of the recession persist.

"I think it might be a little too early," CSB Chair Charles W. Goddard said. "There may be some lag time. We might see a spike down the road in that practice area."

Trusts and estates a persistent concern

For the first time since 2005, trusts and estates claims did not represent the practice area accounting for the largest share of the awards. Fiduciary claims totaled $1.05 million for six claims. Trusts and estates claims, however, continue to be a concern, accounting for the second-highest payout, with $545,397 -- or 22.75 percent of total monies awarded -- going to six claims.

"Preventing losses in this practice area remains a challenge and a goal for our profession," Goddard wrote in the cover letter to the report, which covers the CSB's fiscal year of Sept. 1, 2009, to Aug. 31, 2010.

Prior efforts to reduce attorney theft in the trusts and estates practice area have been unsuccessful, but a provision in the Uniform Probate Code is showing signs of minimizing the problem, said Probate and Family Court Chief Justice Paula M. Carey. The portion of the UPC that went into effect on July 1, 2009, includes a requirement that conservators of incapacitated adults and minors file annual spending reports that make it easier to spot problems.

Carey said she was aware of the problem when she was appointed chief justice in 2007.

"I knew this was an issue, I knew something had to be done," she said. "There's greater oversight on the part of the court. This is not the first year that Clients' Security Board complaints (involving trusts and estates cases) have been relatively high. It's something that we, as a court, want to get our hands around."

In addition to the yearly spending plan, lawyers must also file care plan reports, which could raise red flags. Though the court does not have the staffing to review those itself, Senior Partners for Justice has agreed to review the care plan reports on a monthly basis and report any warning signs to the court. Carey said that while she could not quantify the effect the UPC requirement is having, she said it is definitely helping.

"I think the judges are feeling much better about this," she said. "I'd like to tell you that we'd never have any of these cases again. We're doing the best we can to make sure there's oversight by the court. There's a shift. … We do have more control of these cases. When there's oversight, we can catch the problems before they get larger, and I think we have."

Funding and long-term planning

Funding for CSB payments comes from a portion of the fees attorneys pay each year; about $40 of the $300 fee paid by most attorneys each year goes to CSB. There is no other funding source, and because no money comes from state appropriations, claims awards are not subject to the budget stresses afflicting the Trial Court Department.

For the last three years, the board has received $2.1 million from the fund, or roughly what it pays out each year. Since 2,000, CSB has paid out as little as $1.055 million, in 2003, and as much as $2.745 million, in 2000.

About 20 years ago, the SJC instructed the CSB to pay 100 percent of a client's losses if it deemed the claim worthy, and 15 years ago, the board started putting money aside in a reserve account in case there is a spike in claims awarded in any one year. There's now about $5 million set aside, roughly enough to cover two years of claims.

CSB Assistant Board Counsel Karen D. O'Toole and the CSB staff works with the Office of Bar Counsel to track investigations of attorney theft involving potentially large claims. That way, when an attorney is finally disbarred, CSB has an idea of how much they stole from their clients to expect will be filed as claims.

Some states, like California, have seen dramatic increases in claim amounts, O'Toole said, in the aftermath of refinancing of troubled mortgages. Massachusetts has not been hit hard, at least not yet.

"I don't know why we haven't seen the claims yet. We've always seen a lag in time between a weak economic period and the filing of claims. It takes a long time for the loss to become apparent," O'Toole said.

For one suspended lawyer, "a moral obligation"

Over the last three years, nearly $1 million has been paid in restitution to the CSB. Of that, $456,614.56 came from court-ordered restitution and $509,742.27 came as a result of suits brought by the CSB. It also received $15,469.93 in voluntary payments from lawyers, most of whom are interested in being reinstated, O'Toole said.

But in one unusual case, John Durkee, whose license was suspended in 1993 -- and who said he does not plan to seek reinstatement -- has been making payments to the CSB over the last several years.

"It is a bit unusual," O'Toole said, who added that she is not aware of any other attorneys who are voluntarily paying restitution with no plans for being reinstated.

The CSB awarded $38,683 in claims to Durkee's former clients, all victims of unearned retainers.

Durkee, who is currently living in another state, said he had an alcohol problem and had been in denial.

"The bottom line was that it's an obligation that I had (to pay). Not a legal obligation, but a moral obligation. I'm doing the best I can under the circumstances," he said, noting that it's "very important" to him that he pay the money back as best he can.

"I went through a very difficult time with the alcohol-related problems," he said, crediting Alcoholics Anonymous with helping him. "I don't have any excuses. I accept my responsibility."

Improved efficiency dispensing claims

In all, 106 claims were decided this year, one of the largest amounts in the last 10 years. Goddard credited a new approach to vetting cases for working through the claims more efficiently.

Normally, CSB's Assistant Board Counsel O'Toole and Adam M. Lutynski would vet and document each claim before making a recommendation to the board. This year, board members handled a few claims on their own, and the result was successful, Goddard said, by lessening the staff's load.

"We're working hard to streamline it even more than it is," he said.

There are 82 claims seeking a total of $3.07 million still pending, with trusts and estates claims accounting for $1.9 million alone. A total of 14 claims seeking $926,000 were dismissed for insufficient data, third-party settlement, no defalcation, no attorney-client relationship, restitution or negligence.

The seven members of the board, who are appointed to five-year terms by the SJC and meet monthly, are not compensated.

Some cases "take your breath away"

Cases can be discouraging, Goddard said, relating the story of a young brother and sister whose parents had died, and their court-appointed attorney was taking money from the family and not filing any papers.

S. Peter Ziomek Jr., of Ziomek & Ziomek in Amherst, helped the family recover most of its money through an insurance claim, then filed a claim with the CSB. For his efforts on behalf of the clients, Ziomek was honored with one of the CSB's two William J. LeDoux Awards. Russell S. Channen, of Phillips, Gersein & Channen in Haverhill, was also honored.

"There are some cases that take your breath away, that you can't believe," Goddard said. But the ability to cover clients' financial losses and possibly renew their faith in the legal profession is a rewarding responsibility.

"We like to think our job is to restore to the public some confidence in the profession," Goddard said.