Wisconsin Lawyer: Wisconsin Client Protection Fund: Lawyers Doing the Right Thing:

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    Wisconsin Client Protection Fund: Lawyers Doing the Right Thing

    A headline that reads "Lawyer Steals $50,000 from Client" is sure to grab attention. Going unnoticed, however, is the follow-up story - the one about thousands of lawyers who pool their funds to help clients who have lost money to unscrupulous attorneys.

    Dianne Molvig

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    Wisconsin LawyerWisconsin Lawyer
    Vol. 79, No. 10, October 2006

    Wisconsin Client Protection Fund: Lawyers Doing the Right Thing

    A headline that reads "Lawyer Steals $50,000 from Client" is sure to grab attention. Going unnoticed, however, is the follow-up story - the one about thousands of lawyers who pool their funds to help clients who have lost money to unscrupulous attorneys.

    by Dianne Molvig

    Thousands of Wisconsin lawyers contribute to the Wisconsin Lawyers' Fund for Client Protection to help clients recover money lost to unscrupulous attorneys. Unfortunately, it's difficult to convey the fund's purpose, notes Kris Wenzel, fund administrator.

    "It's easy for people to look at this as a fund that exists because of dishonest attorneys," she says. "In fact, the fund exists because of honest lawyers, who want to take care of the integrity of the profession by taking care of clients who have been wronged."

    "[T]he way we look at this is not in terms of cleaning up after lawyers who messed up, but rather how do we make whole the people who trusted in lawyers. That's what's most important." – Lindsay Draper

    When Walworth County court commissioner David Reddy, chair of the Bar's Client Protection Fund Committee, speaks to his attorney colleagues about the fund, "the overriding theme I try to impart is that State Bar members can be extremely proud of our profession," Reddy says. "We're the only profession I'm aware of that reimburses clients who have suffered losses as a result of the dishonest conduct of some of our members."

    Money in the Client Protection Fund comes from active Bar members, including attorneys and judges, who pay into the fund as part of their annual Wisconsin Supreme Court assessments. For fiscal year 2007, the per-member assessment is $25.

    For fiscal year 2006, there were approved claims against 16 Wisconsin attorneys, who account for 0.1 percent of all lawyers in the state. As of Aug. 1, 2006, the fund has paid claims against 119 attorneys since 1981.

    The fund paid out 90 claims totaling $465,045 for fiscal year 2006. One attorney, Charles Koehn, Green Bay, was responsible for 62 of those claims (unearned advance fees), for a total of $156,534. Koehn did not, however, cause the biggest payouts for the same year. That was Racine attorney Gerald Proost, against whom there were four approved claims (theft from an estate and theft by investment) totaling $215,398.

    While marking the fund's 25th anniversary this year, the Client Protection Fund Committee aims to boost awareness about the fund, for various reasons. For one, the general public and Bar members need to know that help is available to clients who suffer losses. Also, Bar members can help spot problems among their colleagues and diminish the eventual damage to clients.

    Wisconsin Lawyers' Fund for Client Protection
    History of Fund, Fiscal Years 2000 - 2006

    Fiscal Year

    Claims Considered

    Claims Paid

    Total Paid to Claimants

    Claims Deferred

    Annual Assessment

    2000

    82

    69

    $338,446

    1

    $15

    2001

    56

    29

    $252,886

    1

    $15

    2002

    47

    29

    $329,670

    0

    $15

    2003

    22

    13

    $118,050

    0

    $20

    2004

    37

    22

      $83,003

    0

     $0

    2005

    35

    28

    $189,471

    7

    $10

    2006

    117

    90

    $465,045

    5

    $10

    2007

      Assessment set at $25

    "By catching problems early," Wenzel notes, "we can perhaps prevent harm or lessen the level of harm to the public."

    What's more, "If we can get lawyers and judges to identify those who perhaps fit the profile for dishonest attorneys," Reddy adds, "we can try to get those lawyers some help" to avert behavior that leads to claims.

    The Bar Takes Action

    Still, a question hovers: Why should all Wisconsin Bar members pay for the dishonesty of a few? That was a subject of debate back in the late 1970s when the Bar took steps to create the fund, according to Eau Claire attorney John Wilcox.

    Overall, "the reaction was that this was something we ought to do - that as a profession, we have a responsibility to the public," Wilcox recalls.

    The Bar's Insurance for Members Committee, of which Wilcox was a member, proposed creation of a Client Security Fund, as it was known then, to the Board of Governors. The board unanimously approved the concept on March 16, 1979, and directed the committee to study the matter and come up with a report and implementation plan. At the time, all but a handful of states had some sort of client security fund.

    But creating a fund in Wisconsin wasn't merely a matter of going along with a trend. The Insurance for Members Committee found in its study that people in the state indeed had been harmed. A February 1980 committee report to the Board of Governors stated that losses tallied about $25,000 a year.

    In March 1980, the Board voted to petition the state supreme court to create the Client Security Fund. The court established the fund in March 1981.

    The fund was set up so that the Bar administers the fund, but the fund reports directly to the state supreme court. "We're separate from the Bar's budgeting process," Wenzel points out. "If the Bar has a budget shortage, it can't take money from the fund, which sometimes happens in other states."

    From the start, the fund's committee has been made up of five attorneys and two members of the general public, who decide on claims to the fund. The State Bar president appoints committee members.

    "We felt it was important to have the public involved," Wilcox says, "rather than for this to be simply a group of lawyers." Fund committees in many other states, however, include no public members.

    Mary Beth Growney Selene is a Madison business owner and a nonlawyer who recently completed a term on the Client Protection Fund Committee. Nonlawyer members "bring things down to the most common denominator," she says. And when the committee's discussions about claims slip into legalese, she adds, "the other nonlawyer and I will say, `Wait, what do you mean by that?'"

    Former fund committee member, Konrad Tuchscherer, a Wausau attorney, says that public members are invaluable to the committee's work. "The lawyers tend to look at a claim from a tort perspective," he says. "The laypeople look at it from the standpoint of what's fair for the client."

    The Committee at Work

    Tuchscherer adds that working on the committee was one of his favorite activities in his years of Bar involvement. "This was something I could get my teeth into," he says. "I felt I was contributing to the betterment of the Bar."

    Still, it would seem to be a depressing tour of duty. Committee members hear the nasty details surrounding fraudulent acts that most lawyers would like to believe no colleague would commit.

    "It is draining when you see a lawyer who has hurt other people," admits Lindsey Draper, a former Milwaukee County court commissioner who completed a term on the fund committee earlier this year. "But the way we look at this is not in terms of cleaning up after lawyers who messed up, but rather how do we make whole the people who trusted in lawyers. That's what's most important."

    Claim applications come in to Wenzel at the Bar office. She then does additional investigative work to gather enough documentation for the fund committee to make a decision on the claim. Wenzel and investigators at the Office of Lawyer Regulation share information and alert each other to problem attorneys.

    Sometimes attorneys from outside the committee assist claimants through the claim application process. These attorneys and also judges can be instrumental in steering claimants to the fund for help.

    Someone who had lost more than $100,000 due to a lawyer's misconduct came to Racine attorney Jessica Grundberg to try to recover losses through a civil lawsuit. The client had tried to pursue recovery from the attorney on her own because she was reluctant to trust another attorney after having been burned by the first one. But she was unsuccessful in her recovery attempts, and a friend recommended she talk to Grundberg's firm.

    "We looked into the matter," Grundberg says, "and found that the prospects of collecting from the attorney were next to none. So we turned to the fund as her only avenue for recovery."

    Grundberg helped the client, on a pro bono basis, to complete an application to the fund. (State supreme court rules require that such assistance be pro bono.) In the end, the fund paid a significant portion of the amount the attorney had stolen.

    Milwaukee attorney Jim Collis acts as a court-appointed successor personal representative for estates. In instances when the previous personal representative was an attorney who stole from the estate, Collis has helped heirs to recoup at least some of their losses through the Client Protection Fund.

    "In their minds," Collis says, "it's like receiving found money. They're surprised to hear there's a fund that will at least partially recompense them for their loss."

    Once the application and all accompanying documentation for a claim are in committee members' hands, they decide whether to pay a claim and, if so, how much to pay. The current cap per claimant is $75,000, although the committee can, by state supreme court rule, exercise its discretion to award more in cases of "extreme hardship."

    Committee members also exercise caution in how they spend the fund's dollars, points out Draper. "We have to be mindful that we are stewards of funds contributed by Bar members," he says. "They have a right to know that we weigh everything carefully before we spend their money."

    Following the Money

    Another aspect of the committee's stewardship involves finding ways to recoup money the fund has paid out, by going after the lawyers who cheated their clients.

    For instance, a lawyer seeking reinstatement to the Bar first must reimburse the Client Protection Fund for claims paid to the lawyer's former clients. That policy went into effect in early 2005, after the committee successfully petitioned for a state supreme court rule change.

    Currently, the committee has another rule change petition before the court. "A pet project I've taken under my wing as chair," Reddy says, "is to try to get claims reduced to judgments, so we can collect against attorneys."

    He explains that currently it's difficult to get collection agencies to agree to take on the fund's cases. The agencies have found that in most instances, the wayward attorneys have been disbarred or suspended, and thus have nothing better to do than spend a lot of time challenging collection attempts.

    "I used to do collection work," Reddy notes, "and I know that getting a judgment is half the battle; collecting is the other half. Collection firms don't want to take on the whole fight because it's not worth their while. But if they already have a judgment, the battle is half over."

    Another strategy the committee has undertaken is investing some of the fund's money in revolving short-term certificates of deposit. That way, the money is available when needed to pay claims, while also earning interest to augment the fund.

    Supreme court rules require that the fund maintain a minimum fund balance of $250,000. The committee plans to petition the state supreme court to increase that to $500,000, in light of recent claims history.

    At the end of each fiscal year, the committee determines how large an assessment Bar members will pay for the following fiscal year. The figure can vary from $0 to $25. Setting the dollar amount always entails some guesswork, notes Wenzel.

    "The committee looks at the number and dollar amounts of claims that have been deferred to the next fiscal year," she explains. "And we may be aware of attorneys for whom we know we'll be receiving claims" in the year ahead. By considering that information and the amount needed to maintain the minimum fund balance as set by the state supreme court, the committee comes up with an assessment figure.

    The hope is that by boosting the sufficiency level to $500,000 and by bringing more dollars into the fund from investments and lawyers' repayments, the assessment levels could be stabilized somewhat.

    "We may be able to maintain the assessment at, say, $15 or $20," Wenzel explains. "It won't swing from $0 to $25 from one year to the next. We won't have these peaks and valleys."

    Investment earnings and increased efforts to recoup from dishonest attorneys have another benefit, Reddy adds. "We're trying to reduce costs to Bar members," he says. "We're trying to be smart with their money."

    Dianne Molvig operates Access Information Service, a Madison writing and editing service. She is a frequent contributor to area publications.




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