Opinion
Delivered July 12, 1993
In 1973 this court, by per curiam order, created the Client Security Fund. See In The Matter of Client Security Fund, 254 Ark. 1075, 493 S.W.2d 422 (1973). The purpose of this trust fund is to protect clients from losses caused by the dishonest conduct of members of the Bar of Arkansas. Over the past twenty years, a number of changes have been made in the operation of the fund. See per curiam orders In The Matter Of The Client Security Fund, 310 Ark. 812, 832 S.W.2d 815 (1992); 306 Ark. 656 (1991); 300 Ark. 643, 782 S.W.2d 357 (1989); 291 Ark. 647, 722 S.W.2d LVIII (1987). We have received a number of suggestions for changes in the operation of the Fund, and some of those suggestions have merit. The various suggestions have been made by the Arkansas Bar Association, individual members of the Bar of Arkansas, and judges.
The Arkansas Bar Association and some individual members of the Bar of Arkansas have suggested that the Fund is under-utilized because of lack of public information about the Fund. We have requested that the Administrative Office of the Courts prepare a press release for the news media that would give information about the Fund. In addition, we have requested that the Administrative Office of the Courts prepare a draft of a pamphlet for future placement in courthouses.
Claims made on the Fund must be filed with the Clerk of the Supreme Court. The Clerk maintains a supply of claim forms and will mail a form to anyone who so requests. The Clerk's name and address are:
Mr. Leslie Steen Clerk of the Supreme Court Supreme Court of Arkansas 625 Marshall Street Little Rock, Arkansas 72201
Various members of the Bar have stated that it is difficult to find information about the Fund. The citations to the various per curiam opinions creating and modifying the operations of the Fund are set out above. In addition, this per curiam order and the prior per curiam orders concerning the Client Security Fund are being merged into one order so that the current Rules for the Client Security Fund will appear in the next edition of the Court Rules volume of the Arkansas Code of 1987 Annotated.
It has been suggested that we raise the maximum amount that the Fund is authorized to pay to each client. Through the years we have raised the maximum amount from the initial $5,000 in 1973 to the current maximum amount of $25,000. Today, we raise the maximum amount to $40,000. However, we retain the language from our original per curiam that reimbursements to a client are a matter of grace, not a matter of right, that no client or member of the public has any right in the Client Security Fund as a third party beneficiary or otherwise, and that the Client Security Fund Committee is empowered to admit or reject claims in whole or in part to the extent that funds are available to it.
The Arkansas Bar Association has asked us to change the criteria for the payment of claims by the Client Security Fund Committee. The suggestion has merit, and today we slightly modify the criteria for eligible claims. At present the Committee is authorized to pay claims only for "reimbursement of losses from defalcations" by a member of the Bar. Commencing with the publication date of this order, the criteria for the Committee's payment of claims will be as follows:
A. The loss must be caused by the dishonest conduct of the lawyer and shall have arisen out of and by reason of a lawyer-client relationship or a fiduciary relationship between the lawyer and the claimant.
B. The claim shall have been filed no later than three years after the claimant knew or should have known of the dishonest conduct of the lawyer.
C. As used herein, "dishonest conduct" means wrongful acts committed by a lawyer in the nature of theft or embezzlement of money or the wrongful taking or conversion of money, property, or other things of value. A dispute over the reasonableness of a lawyer's fee is not an eligible claim.
D. Except as provided by Section F herein, the following losses shall not be reimbursable:
(1) Losses incurred by spouses, children, parents, grandparents, siblings, partners, associates, and employees of lawyer(s) causing the losses;
(2) Losses covered by any bond, surety agreement, or insurance contract to the extent covered thereby, including any loss to which any bonding agent, surety, or insurer is subrogated, to the extent of that subrogated interest;
(3) Losses incurred by any financial institution which are recoverable under a "banker's blanket bond" or similar commonly available insurance or surety contract;
(4) Losses incurred by any business entity controlled by the lawyer, any person or entity described in Section D(1), (2), or (3) hereof;
(5) Losses incurred by any governmental entity or agency.
E. In cases of extreme hardship or special and unusual circumstances, the Client Security Fund Committee may, in its discretion, recognize a claim which would otherwise be excluded under this Order.
F. In cases where it appears that there will be unjust enrichment, or the claimant unreasonably or knowingly contributed to the loss, the Client Security Fund Committee may, in its discretion, deny the claim.
It has been suggested that we establish even broader criteria for the payment of claims. We decline to do so. The Fund is not designed to cover negligence or similar acts. Its purpose is to reimburse clients, to the extent money is available and up to the maximum allowable amount, for the dishonest conduct of a lawyer. It is not insurance.
Various suggestions have been made for quicker payment of claims. Some of the suggestions are not practical because of their cost. Some, however, can be implemented, and we have modified the operation of the Client Security Fund Committee and the Committee on Professional Conduct to provide more prompt action. The Client Security Fund Committee may now reject claims without their first being fully processed by the Committee on Professional Conduct. In this way, if a client files a claim reimbursement for malpractice, for example, the committee can immediately reject the claim and so notify the client. If the client desires, he or she can still proceed to have the lawyer disciplined by the Committee on Professional Conduct. We retain the requirement that no claim can be paid until the lawyer shall have been disbarred, or suspended, from the practice of the law; has voluntarily, but permanently, surrendered his license to practice law; or has died before disbarment or suspension could take place. We provide that the Client Security Fund Committee can now vote by mail and facsimile transmission. This change is made because it is often difficult for five busy lawyers to find a convenient time to meet. In addition, more staff personnel have been added to the Committee on Professional Conduct, and that fact should have a beneficial indirect effect on the time required to pay a claim. These changes should benefit both the clients as well as the members of the Bar of Arkansas.