Kan. R. Rel. Disc. Att. 241
commission counsel, commission staff, a person investigating a claim on behalf of the Commission, the disciplinary administrator, members of the Office of the Disciplinary Administrator, claimants, and lawyers who assist claimants are entitled to judicial immunity from civil liability for all acts in the course of their official duties.
Kan. R. Rel. Disc. Att. 241
Comments
Subsection (a)-Purpose and Scope.
[1] The Model Rules for the Lawyers' Fund for Client Protection, approved by the American Bar Association House of Delegates on August 9, 1989, as modified, have been generally adopted by the Supreme Court. The comments are intended solely to explain the intent of the rules to the Commission, the bar, and the public.
[2] Subsection (a)(2) recognizes that lawyers individually, and the bar collectively, have the obligation to support reimbursement programs for clients who have lost money or property as a result of a lawyer's dishonest conduct. The term "dishonest conduct" is defined in subsection (l)
[3] Despite the best attempts of the legal profession to establish high standards of ethics and severe disciplinary penalties for their breach, some lawyers steal money from their clients. Typically, those lawyers lack the financial means to make restitution to their clients.
[4] The organized bar throughout the United States has responded by creating security funds to provide necessary reimbursement. The funds have been created by court rule, legislation, and voluntary action of state and local bar associations.
[5] Client protection funds reimburse claimants for dishonest conduct by members of the bar within the licensing state. Generally, a reimbursable loss must occur within a lawyer-client relationship.
[6] The underlying philosophy for these funds is that the legal profession functions by seeking and obtaining the trust of clients. The public is therefore vulnerable to the rare dishonest lawyer who breaches that trust. Moreover, the misdeeds of a lawyer in handling client money frequently taint the public atmosphere of trust on which the profession depends.
[7] Although these programs are essentially remedial in nature and do not provide preemptive public protection in the same manner as admission criteria and codes of professional responsibility, they address the growing awareness that discipline without reimbursement to claimants does not meet the profession's responsibility to itself and the public.
Subsection (b)-Establishment.
[8] The practice of law is so directly connected to the exercise of judicial power and the administration of justice that the right to define and regulate it belongs to the Supreme Court. The Supreme Court bears the responsibility for establishing qualifications for practice and for ensuring that lawyers subject to its jurisdiction adhere to the standards of conduct the Supreme Court mandates.
[9] Subsection (b)(2) links the establishment of a Fund to the Supreme Court's power to regulate the practice of law.
[10] Under subsection (b)(3), the Commission will not pay claims for losses incurred as a result of dishonest conduct committed prior to July 1, 1993.
Subsection (c)-Funding.
[11] Subsection (c)(1) suggests that the single most important factor in establishing and maintaining an effective client reimbursement program is ensuring adequate and continuous funding through a reliable source.
[12] The Supreme Court has the inherent power to establish a Fund and to require lawyers admitted to the practice of law in Kansas to contribute to it. For legislative acknowledgment, see Senate Concurrent Resolution No. 1644 (1992).
[13] Subsection (c)(3) B assigns potential liability for payment of restitution to the lawyer who caused the loss that the Fund reimbursed. See subsection (q) for restitution and subrogation enforcement standards.
Subsection (d)-Funds and Disbursements.
[14] Matters and expenses for which the Fund may be used should be considered and stated by the Commission in written policies.
[15] Administrative expenses will be incurred in operating the Fund even though lawyers volunteer their services to the Commission. The cost of administering the Fund, e.g., expenses of the Commission, hearings on claims, record keeping, and salaries for full-time and part-time staff, will be paid out of either the disciplinary fee fund or the Fund as determined by the Supreme Court.
Subsection (e)-Composition and Officers of the Commission.
[16] A Commission composed of lawyers and nonlawyers results in balanced evaluation of claims within the full context of the lawyer-client relationship.
[17] A Commission of seven members is small enough to accomplish the work of the Fund and not so large as to discourage active involvement by each member or to be cumbersome.
[18] Terms of office are staggered to encourage continuity of experience and the development of policy and precedent.
[19] Commission members will serve without compensation, pro bono publico, but will be reimbursed for expenses incurred in the discharge of their office.
Subsection (g)-Duties and Responsibilities of the Commission.
[20] Investing money that is not needed to cover current claims permits a reasonable return without risking the integrity of the Fund. Investments should be of appropriate duration to maintain liquidity of assets and enable the Commission to pay losses promptly.
[21] Subsections (g)(5) and (g)(6) can require public information programs. The Commission has the affirmative obligation to publicize its activities to the bench, the bar, and the general public. It is suggested that the services of the Supreme Court's public information officer be utilized.
[22] The assets of the Fund should not be unduly diminished by employing investigative or other personnel who would duplicate the efforts of others interested in lawyer professional responsibility. See subsection (n) regarding the cooperative effort anticipated between the Commission and the disciplinary administrator.
[23] The Commission should make an attempt to prosecute all claims for restitution. Restitution is one way of replenishing the Fund's assets. See also subsection (q) which focuses on subrogation and other methods of restitution.
[24] Commission members should also consider involvement in seminars and continuing legal educational programs focusing on client protection. As programs for client protection become more sophisticated, the Commission should take advantage of planning or participating in these educational programs as a further deterrent to dishonest conduct.
Subsection (j)-Immunity.
[25] Immunity from civil liability encourages lawyers and nonlawyers to serve on the Commission and protects their independent judgment in the evaluation of claims. Immunity also protects the fiscal integrity of the Fund and encourages claimants and lawyers to participate in seeking reimbursement for eligible losses.
Subsection (k)-Reimbursement from Fund is a Matter of Grace.
[26] Although this rule establishes procedures for the processing of claims seeking reimbursement from the Fund, the rule is not intended to create either substantive rights to reimbursement, compensation, damages, or restitution for a lawyer's dishonest conduct or procedural rights subject to judicial review with respect to the determination of claims.
Subsection (l)-Eligible Claims.
[27] Subsection (l)(1) sets forth the basic criteria for compensability of a loss. The successful claimant is one who proves the following factors:
(1) a demonstrable loss; (2) caused by the dishonest conduct of a lawyer; and (3) the loss was within or arising out of a lawyer-client relationship. Determining whether a loss arose out of a lawyer-client relationship can be difficult especially where the loss asserted occurred following an "investment." One approach to use is a "but for" test: The loss arose out of and in the course of a lawyer-client relationship. But for the lawyer-client relationship with the client , such loss could not have occurred.The following four factors may be considered in applying this test: the disparity in bargaining power between the lawyer and client, the extent to which the lawyer's status overcame the normal prudence of the client , the extent to which the lawyer received information about the financial affairs of the client , and whether the principal part of the transaction was an activity that required a license to practice law.
[28] Subsection (l)(2) contains a one-year limitation on the filing of claims from the date the claimant knew or should have known of the dishonest conduct .
[29] Subsection (l)(3) adds to the rule a definition of "dishonest conduct." Subsection (l)(3)(A) sets forth the basic concept as one of conversion or embezzlement. Subsections (l)(3)(B), (C), and (D) make clear that if the essential nature of the transaction was conversion, dishonest conduct will be found even where the lawyer took money in the guise of a fee, a loan, or an investment. Indeed, employing such a ruse is part of the dishonesty. Subsection (l)(3)(B) sets forth a standard for the handling of problematic unearned fee claims. It is not intended to encompass legitimate fee disputes. Where money received by a lawyer was clearly neither earned nor returned, however, the client may feel violated, hardship can result, and the Commission may find dishonest conduct. Subsection (l)(3)(C) anticipates overreaching by a lawyer, in the context of a loan to the lawyer by the client, to such an egregious extent as to be tantamount to theft. Similarly, under subsection (l)(4)(D) , use by the lawyer of a purported "investment" to induce a client to turn over money will not preclude a finding of dishonest conduct where the "investment" is worthless or nonexistent.
[30] Subsection (l)(3) must be read in light of subsection (l)(1) . In focusing on dishonest conduct, it must be kept in mind that such conduct must occur within or as a result of a lawyer-client relationship in order to be compensable.
[31] Subsection (l)(4) presents various exclusions from reimbursable claims. Subsections (l)(4)(A), (C), and (D) declare classes of potential claimants to be ineligible for policy reasons. Subsection (l)(4)(E) excludes as nonreimbursable such consequential damages as lost interest and a claimant's incidental and out-of-pocket expenses. Third parties such as title insurance companies and banks cashing checks over forged endorsements are suggested in subsection (l)(4)(B); to the extent possible, recourse from a third party should be sought prior to seeking it from the Fund. Third parties lack the lawyer-client relationship necessary to prosecute a claim in their own right.
[32] Subsection (l)(5) reiterates the critical importance of vesting in the Commission the discretion to do justice in each claim considered, without strictly following technical rules. Subsection (l)(5) recognizes that it is impossible to predict every factual circumstance that will be presented to the Commission.
Subsection (m)-Procedures and Responsibilities for Filing a Claim.
[33] The Commission is required to develop a claim form for claimants to establish their eligibility for reimbursement. The form should be comprehensive enough to minimize the investigative burden of the Commission but not so detailed as to discourage eligible claimants from applying for reimbursement.
[34] Subsection (m)(3) assigns the ultimate burden of establishing eligibility for reimbursement on the claimant. Consistent with the evidentiary standards in subsection (n) , no formal or technical quantum of proof is imposed on the claimant or the Commission. In a case where the lawyer's dishonest conduct was already established in a disciplinary action based on the clear and convincing evidence standard under Rule 226 or the beyond a reasonable doubt standard in a criminal proceeding involving the same facts that constitute the claim for reimbursement, the Commission may grant a reimbursement to the claimant without further investigation or delay.
Subsection (n)-Processing Claims.
[35] This subsection seeks to set forth a framework that balances the Fund's duty to address the claimant's allegations efficiently with the need to present the respondent lawyer with an opportunity to defend . See subsections (n)(1), (3), (8), and (10).
[36] The overriding policy implicit in subsection (n) is that the Commission exercise its discretion so as to make the best possible decision in each claim presented. Under subsection (n)(11), technical rules of evidence will not be employed to hinder the Commission from accomplishing its mission . Under subsection (n)(7), the Commission may conduct any investigation it deems appropriate , including the taking of testimony as provided in subsection (n)(8) . The order and manner of payment of claims is likewise within the Commission's discretion under subsection (n)(12) . Under subsection (n)(10), the Commission is to articulate to each side the reason for its determination on a given claim.
[37] Note that under subsection (n)(10) the affirmative vote of at least four Commission members is required to dispose of a claim. For example, if the minimum four Commission members necessary for a quorum under subsection (f)(2) are present, any motion that cannot garner unanimous support will fail. Thus, a majority of the quorum present will not suffice. Subsection (n)(10) does not prevent determinations of claims by mail ballot.
[38] Ideally, the initial investigation should be done by the disciplinary administrator to avoid duplication of effort and inconsistent findings of both entities. The financial integrity of the Fund is preserved by using existing resources. Investigation by the Commission should be utilized to gather additional evidence or to provide evidence if necessary.
[39] In most matters, a criminal conviction or a finding during disciplinary proceedings will establish "dishonest conduct" for purposes of the Commission's determination of the claim.
Subsection (o)-Payment of Reimbursement.
[40] Full reimbursement is the goal of the Fund, and adequate financing is essential to its achievement. Realistically, however, this ideal must be tempered with the Fund's need to provide all eligible claimants with meaningful, if not total, reimbursement for their losses.
[41] A maximum limitation on reimbursement permits the assets of the developing fund to accumulate while establishing a historical record of claims presented. It also serves to protect the Fund from catastrophic losses.
[42] Maximum limitations, whether individual or aggregate, should be reviewed periodically in light of the Fund's actual experience in providing reimbursement to eligible claimants for their documented losses.
[43] Subsection (o)(1) assigns responsibility for the determination of the actual amount of each reimbursement to the discretion of the Commission not to exceed individual claimant and aggregate limits set by the Supreme Court.
[44] Subsection (o)(1) also grants the Commission flexibility in paying reimbursement. Depending on the Fund's financial and administrative needs, periodic payment dates can be established, and reimbursement can be paid in lump sums or in installments.
[45] Similarly, where a loss involves a minor or an incompetent person, subsection (o)(2) permits the Commission to pay the reimbursement directly to a parent or legal representative for the benefit of the claimant.
Subsection (p)-Reconsideration.
[46] Authorization for payment is within the discretion of the Commission. A procedure providing an opportunity for reconsideration of a claim permits an aggrieved claimant further consideration without creating a right of appeal or judicial review. The opportunity for reconsideration also provides a safeguard against dismissal of a claim not fully presented earlier.
Subsection (q)-Restitution and Subrogation.
[47] As fiduciaries of the Fund, the Commission has the obligation to seek restitution in appropriate cases for reimbursement paid to claimants. Successful restitution efforts can enlarge the Fund's financial capacity to provide reimbursement to eligible claimants and also reduce the need to increase assessments on lawyers to finance the Fund's operations .
[48] The Commission may seek restitution by direct legal action against a lawyer, as well as by the enforcement of rights provided by subrogation and assignment against the lawyer, the lawyer's estate, or any other person or entity who may be liable for the claimant's loss.
[49] Subsection (q)(1) is a statement of the Fund's right to seek restitution from the lawyer whose dishonest conduct resulted in a payment of reimbursement.
[50] Subsection (q)(2) requires the Commission to establish a subrogation policy that requires claimants who receive reimbursement from the Fund to contractually transfer to the Fund their rights against the lawyer and any other person or entity who may be liable for the reimbursed loss. This ordinary transfer of rights by subrogation is to the extent of the reimbursement provided by the Fund.
[51] Subsections (q)(3) and (q)(4) provide for appropriate notice and joinder of parties in subrogation actions by the Fund or by a claimant where the claimant has received less than full reimbursement from the Fund.
[52] Subsection (q)(5) requires that a claimant agree to cooperate with the Fund in its efforts to secure restitution.
[53] The provisions of subsections (q)(2), (3), (4), and (5) will ordinarily be incorporated into the Fund's subrogation agreement with the claimant.
[54] Subrogation agreements should be carefully drawn to maximize the Commission's creditor rights. In appropriate cases, subrogation should be supplemented with assignment of specific rights possessed by a claimant, such as a payee's rights as a party to a negotiable instrument or as a judgment creditor.
Subsection (r)-Judicial Relief.
[55] Occasionally a situation arises in which the protection of clients and this subsection require the appointment of a custodial receiver to wind down a lawyer's practice and to preserve assets. Subsection (r) makes explicit the Commission's authority to seek these remedies when available under Kansas law.
Subsection (s)-Confidentiality.
[56] The need to protect wrongly accused lawyers and to preserve the independence of the Commission's deliberations should be balanced with the interests of protecting the public and enhancing the administration of justice.
[57] It is within the discretion of the Commission to determine which agencies other than the disciplinary administrator should be given access to claim files. Criminal prosecutors and agencies considering judicial or administrative appointments may be assisted by access to information contained in claims for reimbursement from the Fund. Subsection (s)(2) adopts Rule 237(c) 's exclusion of the claimant and the lawyer from the rule of confidentiality.
[58] Publication of the decisions of the Commission highlights the responsiveness of the legal profession to clients and its commitment to self-regulation. The Commission should be aware that on occasion the need to protect the client's identity from the results of publicity may occur. Timing of the release may be based on other pending proceedings. Responsible public information programs are essential to achieve the Fund's purpose . Both the public and the news media should be kept informed of the Commission's activities and the Fund's status . After payment of reimbursement, the Commission may publicize the reimbursement through the Supreme Court's public information officer or in any other manner directed by the Commission.
Subsection (t)-Compensation for Representing Claimant.
[59] Claimants occasionally may appear before the Commission represented by counsel. Claimants in need of counsel in preparing or presenting a claim should receive such assistance. Since the Commission members volunteer their services, lawyers should also contribute their legal services pro bono publico. However, it is not the intent of this subsection to require assisting lawyers to spend their own money. They may request the Fund to reimburse out-of-pocket expenses.