Client Protection Fund Sees Spike in Claims and Payouts in 2010

Claims by clients whose attorneys stole from them surged in 2010, as did the size of payouts from the Lawyers' Fund for Client Protection.

There were 820 claims to the fund last year, 67 percent more than in 2009, according to its annual report released Friday.

The $8.5 million paid out last year to the clients of 47 attorneys was 42 percent higher than the $5.6 million paid out in 2009.

Individual awards in 2010 ranged from $179 to $300,000, the maximum under the program. The median award was $12,962 and the median claim made to the fund was $109,000.

Timothy J. O'Sullivan, the counsel and executive director of the fund, called last year's increased activity "dramatic" and said administrators believe it is related in some way to the sputtering economy.

While the economy appeared to make a slow recovery in 2010 in parts of New York, Mr. O'Sullivan said that many of the awards made last year reflected attorney conduct in 2008 or 2009, when the state was more deeply mired in recession.

Mr. O'Sullivan said the desperation levels of the 47 offending lawyers seemed to be reflected in the far higher overall payout in 2010.

"When the economy slows down and there are problems, a lawyer who may have a problem of some kind, those losses tend to surface more," Mr. O'Sullivan said in an interview Friday.

The fund ended the year with 852 claims pending, the highest year-end total in its existence. Those claims allege losses of $82.3 million, though only a fraction of claims tend to result in awards once they are examined by the fund.

Former Manhattan attorney Marc A. Bernstein was responsible for the largest overall fund expenditure—$1.5 million to 25 former clients. Mr. Bernstein, formerly of Bernstein & Bernstein, stole money he had won on behalf of medical malpractice clients. He was disbarred and sentenced to three years in state prison (NYLJ, Oct. 13, 2010).

The most claims, 36, were paid out against former Manhattan attorney Marc A. Zirogiannis for his role in a mortgage scam (NYLJ, July 9, 2009). His former clients received $770,782 from the fund last year.

Attorney misconduct for which the fund reimburses clients includes the theft of funds held in escrow, the theft of funds from court awards or debt collections, the embezzlement of investments placed with lawyers on clients' behalf and the nonperformance of agreed upon services for which fees have been taken.

Fund administrators said the mishandling of clients' real property escrow accounts made up the largest share of reimbursable awards in 2010, totalling $3.5 million.

Over the fund's 28-year history, most thefts have involved solo practitioners, the majority male and middle-aged. The most typical causes of attorney theft are substance abuse, economic pressures, mental illness and marital difficulties.

Sixty dollars is assigned to the fund out of the $375 biennial attorney registration fee paid by New York attorneys. There are 262,000 registered lawyers in the state.

By Joel Stashenko, jstashenko@alm.com

Source: New York Law Journal