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Payments plummet at Client Protection Fund, in number and amount

Even as potential claims facing the Client Protection Fund of the Bar of Maryland exceed $20 million, fiscal 2012 claims reached their lowest level in at least six years, both in number and amount.

The fund, which exists to make right the financial wrongs committed by lawyers, paid out $436,885 to clients whose lawyers stole from them for the year ending June 30, 2012.

That’s roughly a third of the $1.3 million the fund paid the prior year — and fiscal 2010, at $1.7 million, was even worse.

The number of claims also decreased significantly, from 96 last year to 63 for fiscal 2012.

While the lower payments are always welcome, fund Executive Director Janet C. Moss cautioned against reading too much into the results.

“There are really no trends; we can never predict what’s going to happen from year to year,” Moss said.

That’s because one or two miscreant attorneys can wreak havoc on the numbers for several years running. This is the present case, as the fund is looking at a potential of more than $20 million in pending claims, which could outstrip the $10 million reserve.

“We are concerned about the size of the claims in the pipeline right now,” said attorney Barbara A. Spicer, chairwoman of the board of trustees. “There has been a steady increase in claims, and a lot of it is coming from people, usually consumer debt attorneys, who work on a national basis but are based in Maryland.”

The fund works closely with the Attorney Grievance Commission, which prosecutes attorney misconduct cases. The cases go to the fund after the grievance cases have been resolved and the board of trustees votes on disbursals, which are paid out of the reserve that is funded by lawyers’ fees.

“It is lawyers who are paying; this is not state money being used,” Spicer said. “And, the purpose of the fund is to let the public know that good lawyers are trying to protect them from the bad ones.”

For fiscal 2012, the 63 claims ranged from $66 to $272,633.

La Plata lawyer tops list

For the second year running, the largest payment — more than half the year’s total — went to a client of Frank Plowden Jenkins II.

A disbarred lawyer from La Plata, Jenkins pleaded guilty in federal court in November 2010 to wire and mail fraud charges for illegally taking clients’ money to pay for his personal expenses as well as providing clients with fake deeds.

The fund also paid two smaller claims to other clients of Jenkins, one for $750 and the other for $1,000. In fiscal 2011, the fund paid out $748,720 on 21 claims related to him.

Jenkins was disbarred by consent in September 2009. In court, he admitted to being responsible for $1 million to $2.5 million in client and lender losses.

According to court documents, Jenkins would transfer clients’ money into his own bank accounts to cover expenses, pay for Washington Capitals hockey tickets and repay other clients whose money he had taken in the past.

He also forged signatures of clients on court documents and took out loans using false information. In one case, he persuaded the family of a dead woman to transfer nearly $900,000 to his escrow account, which he later transferred into his own accounts. The family was reimbursed $428,817 by the fund in fiscal year 2011.

Jenkins was sentenced in March 2011 to 46 months in prison with three years’ probation after his release. According to the Federal Bureau of Prisons, Jenkins is still an inmate at Federal Correctional Institution in Morgantown, a minimum security prison in West Virginia. He is scheduled to be released in August 2014.

Smaller claims can be worse

Another major source of claims for fiscal 2012 was Thomas Henry Bornhorst, a Gwynn Oak bankruptcy attorney.

Bornhorst “stole over $30,000 from people who could not afford to lose anything at all,” Moss noted.

Bornhorst was disbarred by consent on May 19, 2011, for failing to maintain an attorney escrow account and failure to perform services for which he was retained.

In fiscal 2012, the fund paid $32,871 on 28 claims with an average of $1,173 per claim for his mostly lower-income clients.

“We tried to clear these cases up as fast as we could, because the board knew that so many of these people had claims of $1,500 or less and, because of what had happened, were in danger of losing their homes, their cars, everything,” Moss said.

“In some cases, the smaller claims can be worse than the larger claims because [the clients are] people already in dire financial straits who can’t afford to lose $500 or $1,000.”

The fund also paid out $38,740 to two more victims of David Alexander Jr., a Silver Spring lawyer who was disbarred by consent in 2009 for failing to pursue his clients’ matters, failing to refund unused retainer fees upon termination and misappropriating escrow funds.

The fund paid on two claims in fiscal year 2011 against Alexander. The first claim was for $105,000 and the other for $2,300.

9 complaints, 9 clients

A family law attorney from Montgomery County, Ranji M. Garrett, added five claims to the fund’s outflow this year. The fund paid $7,200 to clients of Garrett, who was disbarred in June for leaving nine clients without legal assistance after he abandoned his practice without notifying them.

The Court of Appeals found he converted client funds to his own use, failed to return unearned fees and failed to take any meaningful steps in pursuit of their interests.

Garrett’s complaints stemmed from nine separate matters with nine separate clients. All dealt with family law issues such as divorce or custody. According to the complaint, Garrett accepted fees upfront and did little afterward to move the cases forward.

In one case, he was paid $800 in 2007 for a divorce but never served his client’s spouse. The client’s case was dismissed for want of prosecution. In another, a soldier on active duty in Iraq hired Garrett to represent him in a divorce. Garrett took the $2,500 fee but did not appear at a hearing.

With the current fiscal year having ended in June, the fund is now investigating the next round of cases that will be heard in October.

“I sit here often and think that we’re doing such a good thing and it is fulfilling to be able to right a wrong,” Moss said. “These are people, often in dire straits, and we are trying to get them whole again the best we can. I can’t think of any other industry that has something similar.”

FAQ box

Founded in 1965, the Client Protection Fund of the Bar of Maryland reimburses claims made for losses caused by the theft of funds by members of the state bar.

The approximately 36,000 active members of the bar pay $20 a year into the fund, and the disbursals are determined by a board of trustees.

The board is made up of seven attorneys and one non-attorney. Members are appointed to seven-year terms.

The fund was founded as a way to underscore the legal community’s commitment to the public by having money paid by attorneys used to compensate victims of attorneys who have stolen from them. The fund hears the cases after a determination of theft has come from the Attorney Grievance Commission.

The fund has a reserve of $10 million, and decisions about payments are made by the board. There is a cap on payments; no single claim can amount to more than 5 percent of the fund reserve. There is, however, no cap on the number of claims that can be paid per attorney. In theory, the fund could get hit with multiple million- dollar claims with each capped at 5 percent of the reserve.

The protection fund serves as a fund of last resort. Restitution is first sought through recovery from assets held by the attorney in question and or the practice, if applicable. Seeking recovery from insurance policies is not applicable since theft is not covered by malpractice insurance.

Payments by the Client Protection Fund of the Bar of Maryland

The Client Protection Fund is the fund of last resort for clients defrauded by their attorneys. Below are the amounts paid per fiscal year, along with the number of claims paid.

Source: Client Protection Fund of the Bar of Maryland

2007 – 82 claims paid totaling $ 575,238

2008 – 97 claims paid totaling $ 634,166

2009 – 85 claims paid totaling $ 975,874

2010  - 92 claims paid totaling $1,791,180

2011 – 96 claims paid totaling $1,300,052

2012 – 63 claims paid totaling $ 436,885

 

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