Opinion ID: 1153836
Heading Depth: 1
Heading Rank: 3

Heading: the client security fund

Text: The concept of a fund established by attorneys to compensate clients injured by the misconduct of members of the legal profession was first translated into practice in New Zealand in 1929. (Sterling, The Argument for A Clients' Security Fund (1961) 36 State Bar J. 957, 961.) In 1958, the Vermont and Oregon bars became the first associations in the United States to vote to establish such funds. California, where the propriety of a CSF was the subject of debate, did not join the growing number of states providing such protection until 1971. (See Sterling, supra, [arguing that the bar should establish a CSF as a matter of moral principle, as well as to improve public relations]; McKnight, The Argument Against Clients' Security Fund (1961) 36 State Bar J. 963 [adoption of a CSF will demean the profession in the public eye and encourage claims].) By the time the bar successfully sought legislation empowering it to create a CSF, it was a relative latecomer following in the footsteps of over 30 state and 20 local bar associations. (Outcault & Peterson, Lawyer Discipline & Professional Standards in California: Progress and Problems (1973) 24 Hastings L.J. 675, 686.) In 1971, the Legislature enacted Business and Professions Code section 6140.5 authorizing the creation of the CSF. That provision states that the bar may establish and administer a Client Security Fund to relieve or mitigate pecuniary losses caused by the dishonest conduct of those active members of the bar. Any payments from the fund shall be discretionary and shall be subject to such regulation and conditions as the board shall prescribe. The Board of Governors of the bar is also authorized to delegate the fund's administration to the existing disciplinary board or any other board or committee which it might create. ( Id., subd. (a).) Subdivision (b) of the section allows the collection of up to $10 from each member of the bar for the purpose of funding the CSF. The next year, the bar established and promulgated rules for the administration of the CSF. (Resolution by the Bd. of Governors of the State Bar of Cal. Establishing a Client Security Fund (June 17, 1971); see Rules Proc. of State Bar, rules 670-688.) Under the procedures set forth, an applicant must file an application for reimbursement on a form which includes in bold face type a statement that the bar has no legal responsibility for the acts of individual lawyers. Payments from the [CSF] shall be made in the sole discretion of the bar. (Rule 672 C.) After an application has been filed, it may be rejected by the review department of the bar disciplinary arm if the responsible staff attorney so recommends and forwards a report to the review department briefly stating the reason for the opinion. (Rule 673 A, B.) The report may rely on information outside that supplied in the application. ( Id., subd. B.) If a majority of the review department concurs, no further hearing or other proceeding is required and the decision is final. ( Ibid.; rule 685.) In all other cases the matter is referred (apparently by the staff attorney) to a hearing panel or referee or to the review department. (Rule 673 C.) The reviewer may take and hear evidence, administer oaths, and compel the presence of witnesses through the use of a subpoena. (Rule 674.) A hearing panel or referee is entitled to conduct investigations and hold hearings as deemed necessary. (Rule 678 A.) After affording the application such consideration as it finds fit, the panel or referee must transmit to the appropriate office of the State Bar its report describing the proceedings, which includes findings of fact, conclusions and recommendations. ( Id., subd. B.) Before any payments from the fund are ordered, the lawyer involved must be notified and afforded an opportunity to be heard and present evidence and to file a written statement regarding the report submitted by the hearing panel or referee. (Rules 679, 680.) In contrast, the applicant for reimbursement may be advised of the progress of his application but is not entitled to any notice of a particular hearing or to see or respond to recommendations or other reports which may be internally submitted. (See rule 684.) The applicant is only entitled to be advised of the bar's final decision. ( Ibid. ) In carrying out its duties, the review department is required to find that a reimbursable loss as defined in these rules has been established and the extent of said loss. (Rule 681 B.) Reimbursable losses are defined as those caused by the dishonest conduct of an attorney. (Rule 671 D.) Dishonest conduct is defined in the same provision as including wrongful acts committed by a lawyer in the manner of defalcation or embezzlement of money; or the wrongful taking or conversion of money, property or other things of value.... ( Id., subd. C.) As to the right to payment, the rules specify repeatedly that All payments from the fund shall be a matter of grace and not of right and shall be in the sole discretion of the State Bar of California. No client or member of the public shall have any right in the fund as a third party beneficiary or otherwise. (Rule 682; see rule 672 C.) Consistent with the statement on the application form, the rules further recite that the review department is vested with the sole and final authority to determine whether and to what extent any application for reimbursement shall be granted.... (Rule 681 A.) Finally, for further emphasis, the rules declare that once an application is rejected by the review department at any point, such rejection is final and no further consideration shall be given by the State Bar to said application or another based upon the same alleged facts. (Rule 685.) We turn first to the issue of the proper forum for review of CSF determinations.