Clients’ Security Board awards lowest amount of reimbursements in 28 years

Issue November/December 2017 By Mike Vigneux

The Clients’ Security Board (CSB) of the Supreme Judicial Court (SJC) of Massachusetts awarded the lowest amount of reimbursement funds since 1989 to clients defrauded by their lawyers in fiscal year 2017.

The recently released CSB “Annual Report to the Supreme Judicial Court Fiscal Year 2017” shows that the total awarded this year to 47 claimants ($500,701.48) was the lowest amount since 1989 ($146,720.06). The 2017 report covers claims made between September 1, 2016 and August 31, 2017.

In addition, the amounts awarded in both 2017 and 2016 ($846,842.96) fell below the $1 million mark for the first time since 1992 ($968,894.77). So are the last two years enough data to suggest a downward trend? Not so fast, notes D. Ethan Jeffery, chair of the CSB.

“When examining the total annual awards for fiscal years 2016 ($846,842.96) and 2017 ($500,701.48) one might be tempted to conclude that lawyer misappropriation is vanishing from the Commonwealth,” writes Jeffery in the report. “That would be a misrepresentation of the data for two reasons. First, two years don’t make a trend. Second, a quick glance at the Total Awards column on p. 3 shows that for the 23 years between 1992 and 2015, the median annual amount awarded is $1,963,555 (2001). These figures should keep us from the temptation of either complacency or alarm.”

Another important data point to emphasize is that just two years ago in 2015, the CSB awarded the highest amount of reimbursement funds ever ($2,949,085.20).

Jeffery mentions in the report that there are “multiple variables contributing to lawyer misappropriation” making it difficult to predict award amounts from year to year. He also references five reform measures implemented in recent years which may contribute to the lower totals of the last two years:

Banks notifying the Office of Bar Counsel when a check issued from a lawyer’s trust account is dishonored;

Insurance companies notifying injured-party payees when the insurers issue checks to the payee’s lawyer;

The energetic program offered by the Office of Bar Counsel to educate lawyers on the revised trust accounting rules;

The consulting services offered by the Law Office Management Assistance Program established by Lawyers Concerned for Lawyers; and

The mandatory Practicing with Professionalism course now required by SJC Rule 3:16 for new lawyers.

The CSB, established in 1974 by an order of the SJC, is responsible for reimbursing clients whose lawyers have misappropriated their money. In contrast to most other states that cap the reimbursement amount at a certain level, the CSB in Massachusetts reimburses 100 percent of the client loss with no statute of limitations. The CSB is funded by the commonwealth’s attorneys who pay into the fund through annual Board of Bar Overseers (BBO) registration fees.

Offending lawyers must be prosecuted by the Office of Bar Counsel before the CSB can take action on claims. In 2017, just 26 lawyers out of 59,687 in the state (0.04 percent) defrauded their clients.

“The vast majority of attorneys in Massachusetts practice law in accordance with the highest ethical standards,” said MBA Chief Legal Counsel Martin W. Healy. “We welcome recent reform measures that have been made, such as the implementation of the Practicing with Professionalism course, which the MBA is proud to offer statewide. For the very rare instances in which there has been defalcation of clients’ funds by lawyers in Massachusetts, the work of the CSB is essential in ensuring full reimbursement.”

Three attorneys — Paul D. McCarthy of North Andover ($72,901.58), David Fleury of Taunton ($58,783.90) and Paul C. Dick of Amesbury ($55,964.92) — combined for more than $187,000 of defalcations in 2017 or more than 37 percent of the overall amount awarded.

In contrast to 2016, the highest amount of reimbursement came in the fiduciary category with a total of $124,061.39 (24.78 percent) through four awards. The trusts and estates category was next with 11 awards totaling $115,941.75 (23.16 percent). The highest number of awards (16) came in the unearned retainer category totaling $107,145.54 (21.40 percent). 

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