If the California Supreme Court tolerates the State Bar Court, the practical importance of client-fund security is one of its reasons. While strict ethical liability is legally indefensible, it seems to enhance fund security by simplifying proof, supposedly creating a greater incentive to avoid impropriety. We can ask two questions. Does the measure accomplish this purpose? Does it accomplish it better than alternatives?
Strict ethical liability neither prevents misappropriation by staff nor yields rapid reimbursement. Katie Lee is the only defrauded person to get restitution, and she got it directly from J.B. Kim, the criminal mastermind, not by any action of the State Bar. The State Bar lacks the instrumentalities to hasten recovery of embezzled funds; the coercive powers of the criminal justice system are more powerful, the comprehensive powers of the civil law system more adaptable. A smoothly functioning legal system, however, should afford clients complete security against theft. Even the criminal justice system and civil law do not provide immediate recovery, which would require insuring funds held for clients. Laws barring insurance and indemnification for intentional torts, an archaic limitation rooted in moralism, block this alternative.
Even so, the mere threat of civil action induced Kim to pay part of his damages to defrauded person Katie Lee, and its effect dims when compared to what she might have recovered with an able attorney. While Lee's attorney, Scott A. Meyers, Esq., threatened me with a lawsuit on behalf of his other client, the chiropractor, he never sued me or even threatened a lawsuit on Lee's behalf. Meyers's sheer ignorance of the law likely caused his reluctance to litigate, as Meyers is the kind of attorney who neither knows nor knows how to find out that a business is liable for the intentional torts of its employees, including punitive damages.
Readers, if not the State Bar Court, are bound to have noticed that "strict ethical liability" is self-contradictory. Ethics concern the propriety of conduct, ethical strictures necessarily apply to the conduct of the person charged, and the State Bar Court's jurisdiction is inherently ethical. Concerned with assessing danger to the public, the Bar necessarily must focus only on the conduct of the Member, whereas civil law concerns a broader range of priorities and is free to fix penalties pragmatically. The courts distinguish between ethical and pragmatic rules, as they hold punitive damages assessable despite the absence of owner culpability. The laws concerning corollary matters are construed accordingly, for example, the owner can insure against punitive damages due to the misdeeds of staff. As the 9th Circuit held, interpreting California law:
"Indemnity for [damages because of the wrong-doing of insured's agent] is not contrary to public policy because the insured in such a case is guilty of no wrong-doing, but simply has the misfortune to be legally responsible for the wrong-doing of another." (Dart Industries, Inc. v. Liberty Mutual Ins. Co. (9th Cir. 1973) 484 F.2d 1295, 1298.)
Even without insurance-law reform, civil action provides a more practical vehicle for deterring embezzlement. Kim targeted his Korean victims because he knew they couldn't get able counsel. Otherwise, why would they accept Kim as effectively their attorney, without even so much as a retainer agreement bearing a lawyer's signature? Provided a client is well represented, the threat of punitive damages — which cannot be discharged in bankruptcy — is a powerful deterrent, and one that would be applied within a year of filing under California "fast track" rules. Yet the State Bar is oblivious of the problems of service delivery to recent immigrants. Worse, it enforces anti-partnership provisions, construing them overbroadly, to bar immigrant litigants from getting better lawyers than Scott A. Meyers, Esq.
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