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Profile: Client Protection in Kansas

By: Carol G. Green

Kansas lawyers have long been concerned about losses from attorney misappropriations and defalcations. In 1971, the Kansas Bar Association, a voluntary association, established a Client Security Fund which existed until 1985. The fund, however, had minimal funding and few claims filed; only bar association members were covered.

The bar association continued efforts to re-establish a fund, concentrating on Supreme Court approval and sponsorship. Those efforts met with success, and the Court established the Kansas Lawyers Fund for Client Protection, effective July 1, 1993. The Supreme Court's support of the program extended to appointing one of its members to serve as liaison to the newly created Commission which would administer the fund, and that direct communication with the Court has proven invaluable in the development and support of the fund.

An initial transfer of $400,000 from the Disciplinary Fee Fund with annual transfers into the Client Protection Fund have provided the kind of economic stability so essential to successful operation of the fund. The fund balance currently stands at $1,457,664 with 9211 active lawyers covered. The fund is deposited in the State Treasury and earns a modest, but safe, 5-6% return which is credited monthly.

The Kansas Client Protection Fund Commission consists of one judge, four active lawyers, and two non-lawyers, appointed by the Supreme Court. Service is limited to two consecutive three year terms, and the Commission meets quarterly. This Commission, like the Kansas Commission on Judicial Conduct, has found that non-lawyers contribute a different, valuable perspective and enrich the claims discussions.

Eligible claims must arise from the dishonest conduct of an active member of the bar, in the course of a lawyer-client relationship and by reason of that relationship, and must be filed within one year after the claimant knew or should have known of the loss. "Dishonest conduct" is defined as wrongful taking or conversion, refusal to refund unearned fees, borrowing from a client with no intent or ability to repay, or intentional dishonesty which proximately leads to a loss. The complete text of the rules appears on the Supreme Court's website at www.kscourts.org.

Kansas operates with a $50,000 cap for any individual claimant and a $200,000 cap for claims against any attorney, the attorney cap having been raised from $150,000 last year. Even with those caps, there have been only four claims in the current fund's history which could not be fully reimbursed. The Commission's first claim, filed in 1993, was one of those large claims, exceeding $2,500,000 in losses. Not only was the dollar amount overwhelming for a newly established fund, but the issues were also among the most difficult which the Commission has ever considered.

One million dollar claim in 1996 exceeded the attorney cap, and two lesser claims exceeded the individual claimant cap. The typical loss in Kansas, however, is small. On those small claims, attorneys will sometimes reimburse clients once a claim has been filed with the Commission but before action is taken. For those claims paid by the Commission, full restitution is possible.

It is the Commission's practice to consider claims at the next quarterly meeting, approving payment if proof of loss is established. Some claims will be carried over for further investigation, and claims which potentially exceed the attorney cap must, of necessity, be held until the Commission is certain that all claims have been filed or the time in which to file a claim has lapsed. Prompt payment, however, is the Commission's goal.

From July 1993 through December 2000, one hundred sixty claims had been filed with the Commission with fifty-three denied, generally because the Commission found no dishonest conduct. A total of $531,797 has been paid to eighty-nine claimants.

Kansas has a small staff, all working on client protection as an adjunct to other responsibilities. The Clerk of the Supreme Court serves as the fund's administrator with the assistance of a deputy clerk. The Disciplinary Administrator is a valuable resource, and his office provides investigative services on request of the Commission. The Disciplinary Administrator also attends Commission meetings.

Since the inception of the fund, three measures have been implemented which should discourage dishonest conduct or reveal it before significant losses occur: bank overdraft notification to the Disciplinary Administrator on attorney trust accounts, insurance payee notification on disbursements, and random compliance audits of lawyer trust accounts.