ABA STANDING COMMITTEE
ON CLIENT PROTECTION
STATEMENT TO THE COMMISSION
ON MULTIJURISDICTIONAL PRACTICE
The Standing Committee on Client Protection ("Committee") is the ABA entity charged with responsibility for issues involving client protection funds, fee arbitration and unauthorized practice of law. The maintenance of client protection funds and arbitration programs in each jurisdiction supports the publics confidence that our self-regulated profession is accountable to our clients. Without such programs, we not only could lose the privilege of remaining a self-regulated profession, but we would undermine the publics trust in our system of jurisprudence.
The Committee appreciates the opportunity to provide the Commission on Multijurisdictional Practice ("Commission") with the Committees perspective regarding client security matters. The Committee was gratified to see in Chairman Positans Spring 2001 "Inventory of Selected Issues on MJP" references to both client protection funds and fee arbitration programs as issues that the Commission recognizes must be addressed during the MJP deliberations. In light of those references, the Committee makes three recommendations to the Commission:
- Require that a lawyers home licensing states client protection fund will compensate losses caused by that lawyer, even if the loss occurs in another state, unless the lawyer has contributed to the foreign states fund through either reciprocal admission or pro hac vice fees.
No matter what structure the Commission recommends for practicing across state lines, the protection of the clients must be paramount; lawyers must be accountable to those they serve. The following three examples illustrate how the concept would work.
- Assume Lawyer is licensed only in State A but has a client in adjacent State B. Clients legal matter requires the application of State B law and Lawyer travels to State B to visit Client. Lawyer misappropriates money from Client. Client may reasonably expect and is entitled to receive the same level of protection and accountability from Lawyer that Client would have if Client had engaged a lawyer licensed in State B and thus, Client may seek compensation from State As Client Protection Fund. Lawyers home licensing state, State A, must protect clients who hire State A licensed lawyers. Therefore, when a lawyer is not admitted in the foreign state where the lawyer performs legal work but misappropriates money from clients in the foreign state, the home licensing state must be responsible for those claims.
- Reciprocal admission, however, assumes that a lawyer from State A who seeks admission in States B, C, and D will apply and pay bar dues, at least to the extent necessary to fund the lawyer regulation systems in each of those states. If the lawyer is contributing to the cost of regulating the profession in each state, the lawyer also should contribute to the client protection fund in each state where he or she practices. Thus, if Lawyer receives reciprocal admission in State B and steals money from a client in State B, State Bs client protection fund should compensate that client.
- Pro hac vice admission exists in all states right now, but very few jurisdictions require an admission fee. In order to protect the clients residing in the state where a lawyer seeks pro hac admission, the lawyer should be obligated to pay into that states client protection fund. This will be even more crucial if the pro hac vice admission provisions are expanded to include transactional and arbitration matters. Again, the state with the closest nexus to the misappropriation and into which the defalcating lawyer has contributed to the fund, should cover the losses of that lawyer.
2. A lawyer must agree to participate in a states fee arbitration program if the lawyer represents a client in that state.
Very few states currently have mandatory fee arbitration programs for lawyers. Most states have voluntary fee arbitration, where lawyers may choose to participate in arbitration, using volunteer arbitrators. Fee arbitration programs provide a non-litigious mechanism for clients and lawyers to resolve disputes over fees. These programs are, like client protection funds, another crucial element in a self-regulatory framework. Their existence provides clients with the confidence that if they have a concern about the fees charged to them by their lawyer, there is a resource to resolve the dispute and assure that the fees they are charged comport with the lawyers ethical obligations.
The Committee recommends both that all states have mandatory, binding fee arbitration, at the request of a client, and that lawyers who represent a client in a state where they are not admitted should be obligated to participate in fee arbitration in that state if requested by the client. This too is part of the privilege to practice in a state. Even absolute pessimists who could object to this proposal because of the financial impact such program expansions might cause could be assuaged if a modest filing fee was required. With or without the fee, the privilege to practice in a state means the lawyer must be accountable in that state to clients in that state. There should not be any venue objections - if a lawyer wants to recover fees from someone in the state, they should be subject to fee arbitration in that state.
3. Require that all private practice lawyers disclose, in writing, whether or not they have malpractice insurance.
In addition to assuring that lawyers practicing around the country participate in applicable client protection and fee arbitration programs as mentioned above, the Standing Committee on Client Protection also encourages the Commission to require that lawyers disclose whether or not they carry malpractice coverage. Clients have the right to know whether or not their lawyer has malpractice insurance because this is a material fact to many clients in selecting a lawyer.
Disclosure of malpractice coverage becomes even more crucial as lawyers practice across state lines in jurisdictions where they are not admitted. All clients of a lawyer are entitled to choose a lawyer based upon an informed decision, which requires the disclosure of relevant information about the attorney, including the existence of insurance. Many clients mistakenly believe that lawyers are required to have malpractice coverage and thus clients do not even inquire about coverage when they retain a lawyer. Moreover, clients cannot ascertain from most state bars or state supreme courts whether their lawyer is insured. Only three states, Alaska, South Dakota, and Ohio currently require disclosure of coverage and only one state, Virginia, requires lawyers to inform the state bar about their insurance policies.
Therefore, the Commission should mandate that lawyers disclose their insurance or bonding status on firm stationery and in all fee agreements. The Standing Committee on Client Protection is not recommending that the Commission require that lawyers maintain malpractice coverage, merely that lawyers disclose whether or not they are protected. The Committee would suggest, however, that the Commission may want to study the need for mandatory insurance or bonding of lawyers as an additional measure of accountability for lawyers wherever they practice.
The Standing Committee has drafted proposed changes to the Rules of Professional Conduct to require insurance disclosure, which are attached to this Statement. The Committee encourages the Commission to include these disclosure requirements in whatever multijurisdictional framework the Commission recommends. This additional measure of disclosure will help clients make an informed decision about retaining a lawyer and uphold public confidence in our self-regulated profession.
Conclusion. The Committee again thanks the Commission for the opportunity to present its perspective to the Commission on these important client security issues. The Committee urges the Commission to include these recommendations in whatever regulatory framework the Commission proposes to address MJP. The Committee at this time is not including any specific recommendations to the Commission on the issue of unauthorized practice of law, as this issue appears to underlie all of the Commissions work.
Lynda C. Shely
Chair, ABA Standing Committee on Client Protection