IN THE MATTER OF THE ADOPTION OF THE AMENDMENTS TO APR 15-LAWYERS' FUND FOR CLIENT PROTECTION-PROCEDURAL RULES 5 (ELIGIBLE CLAIMS) AND 11 (RESTITUTION AND SUBROGATION)

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ORDER NO. 25700-A-988

     The Washington State Bar Association having recommended the adoption of the proposed amendments to APR 15-Lawyers' Fund for Client Protection-Procedural Rules 5 (Eligible Claims) and 11 (Restitution and Subrogation), and the Court having approved the proposed amendments for publication;

     Now, therefore, it is hereby

     ORDERED:

     (a) That pursuant to the provisions of GR 9(g), the proposed amendments as shown below are to be published for comment in the Washington Reports, Washington Register, Washington State Bar Association and Administrative Office of the Court's websites in January 2012.

     (b) The purpose statement as required by GR 9(e), is published solely for the information of the Bench, Bar and other interested parties.

     (c) Comments are to be submitted to the Clerk of the Supreme Court by either U.S. Mail or Internet E-Mail by no later than April 30, 2012. Comments may be sent to the following addresses: P.O. Box 40929, Olympia, Washington 98504-0929, or Camilla.Faulk@courts.wa.gov. Comments submitted by e-mail message must be limited to 1500 words.

     DATED at Olympia, Washington this 3rd day of November, 2011.

	For the Court Madsen, C.J.
	CHIEF JUSTICE

     Purpose: The WSBA Board of Governors approved three rule amendments suggested by the WSBA Lawyers' Fund for Client Protection Board. The first amendment, to Fund Procedural Rule 5(F), addresses unjust enrichment. It says that "no rule should be interpreted to provide a financial windfall to a claimant from the Fund." The purpose is to address the situation where a lawyer settles a client's case and would be entitled to a 1/3 contingent fee, but the lawyer misappropriates the entire settlement. The client's true loss is not the entire settlement but only that portion to which the client would have received if the funds had not been appropriated.

     The second amendment adds a new section, Fund Procedural Rule 5(G), addressing factors that the Board has been using when considering gifts to claimants who made investments with their lawyer. It says that "the Board should consider such factors as the sophistication of the investor, the length of the relationship with the lawyer, and whether the investor was aware that the lawyer had non-lawyer partners."

     The third amendment is to Fund Procedural Rule 11(B). The purpose is to address the situation when a claimant who has been approved for payment cannot be found. We are currently carrying seven payments on the books that go back as far as 2002. We have made diligent efforts to locate these persons, without success. The amendment reads "Failure to return a signed subrogation agreement to the Fund within three years of approval of the application will result in revocation of that approval."

     B. Time Limitations. Any application must be made within three years from the date on which discovery of the loss was made or reasonably should have been made by the applicant, and in no event more than three years from the date the lawyer dies, is disbarred, is disciplined for misappropriation of funds, or is criminally convicted for matters relating to the applicant's loss, provided that the Board or Trustees in their discretion may waive any limitations period for excusable neglect or other good cause.

     C. Dishonest Conduct. As used in these rules, "dishonest conduct" or "dishonesty" 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 thing of value, including but not limited to refusal to refund unearned fees or expenses as required by the Rules of Professional Conduct.

     D. Excluded Losses. Except as provided by Section E of this Rule, the following losses shall not be reimbursable:

     (1) Losses incurred by related persons, law partners and associate attorneys of the lawyer causing the loss. For purposes of these Rules, "related persons" includes a spouse, domestic partner, child, grandchild, parent, grandparent, sibling, or other Relative or individual with whom the lawyer maintains a close, familial relationship;

     (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 or any person or entity described in Rule 5 D (1), (2) or (3);

     (5) Losses incurred by an assignee, lienholder, or creditor of the applicant or lawyer, unless application has been made by the client or beneficiary or the client or beneficiary has authorized such reimbursement;

     (6) Losses incurred by any governmental entity or agency;

     (7) Losses arising from business or personal investments not arising in the course of or arising out of the client-lawyer relationship;

     (8) Consequential damages, such as lost interest, or attorney's fees or other costs incurred in seeking recovery of a loss.

     E. Special and Unusual Circumstances. In cases of special and unusual circumstances, the Board may, in its discretion, consider an application which would otherwise be excluded by reason of the procedural requirements of these rules.

     F. Unjust Enrichment. In cases where it appears that there will be unjust enrichment, or that the applicant contributed to the loss, the Board may, in its discretion, recommend the denial of the application. No rule should be interpreted as to provide a financial windfall to a claimant from the fund.

     G. Investment Victims. When considering gifts to claimants who were victimized after investing with a lawyer, the Board may consider such factors as the sophistication of the investor, the length of the relationship with the lawyer, and whether the investor was aware that the lawyer had non-lawyer partners.

     G. H. Exhaustion of Remedies. The Board may consider whether an applicant has made reasonable attempts to seek reimbursement of a loss before taking action on an application. This may include, but is not limited to, the following:

     (1) Filing a claim with an appropriate insurance carrier;

     (2) Filing a claim on a bond, when appropriate;

     (3) Filing a claim with any and all banks which honored a financial instrument with a forged endorsement;

     (4) As a prelude to possible suit under part (5) below, demanding payment from any business associate or employer who may be liable for the actions of the dishonest lawyer; or

     (5) Commencing appropriate legal action against the lawyer or against any other party or entity who may be liable for the applicant's loss.

     B. Subrogation. As a condition of payment, an applicant shall be required to provide the Fund with a pro tanto transfer of the applicant's rights against the lawyer, the lawyer's legal representative, estate or assigns; and of the claimant's rights against any third party or entity who may be liable for the applicant's loss. Failure to return a signed subrogation agreement to the Fund within three years of approval of the application will result in revocation of that approval.

     C. Action to Enforce Restitution. In the event the Trustees commence a judicial action to enforce restitution, they shall advise the applicant who may then join in the action to recover any unreimbursed losses. If the applicant commences such an action against the lawyer or another entity who may be liable for the loss, the applicant shall notify the fund who may join in the action.

     D. Duty to Cooperate. As a condition of payment, the applicant shall be required to cooperate in all efforts that the Fund undertakes to achieve restitution.

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