Monday, March 2, 2009

57th Installment. Against sentimentalizing misappropriation

Irate clients lambast the State Bar for laxity, I castigate it for oppression, and the uninformed might conclude that the truth lies between. But both criticisms apply, not only because the State Bar is incompetent. Rather than lax or severe, the State Bar is unconcerned about the most important wrongdoings and exaggeratedly concerned about the less important. More exactly, its concerns follow its pecuniary interest.

What's the worst harm an attorney can inflict on a client? If you listen to the State Bar, you'll think misappropriation of the client's money. No doubt, an attorney who embezzles client funds is unfit to practice law and should be disbarred, but the State Bar's Chief Trial Counsel advises attorneys of a different threat to their livelihood when he states the main risk they run for disbarment is misappropriation by staff. (See Embezzlement justifies ejection from the profession because it is a crime of deceit. Courts comment that "willful misappropriation" encompasses a broad spectrum of acts (Edwards v. State Bar (1990) 52 Cal.3d 28, 38), yet the State Bar denominates them with a single term. Embezzlement and negligent misappropriation are essentially the same only to the State Bar, which has a financial interest in the client trust funds. The courteousness of the Chief Trial Counsel's recommendation shows he realizes attorneys who trust their staff excessively don't manifest the despicable traits of character justifying disbarment for embezzling client funds.

The public's impression that negligent misappropriation proves lack of fitness to practice law comes from the State Bar's misleading sanctimony tying mistakes in handling funds to disloyalty to client. Misappropriation can impose damaging delays on recovery, but, a well-kept secret, losses due to fraud are reimbursable by expedited Client Security Fund procedures: the clients' protection from office fraud is not, today, the attorney's primary duty. But, in an earlier day, the California State Bar balked at establishing a client security fund. In 1969, the Court of Appeal commented on the State Bar's procrastination and on the absurdity of relying on the attorney as guardian of client funds. The court pointed out that by 1967, twenty client security funds were established in twenty foreign jurisdictions, 28 states and eight local bar associations, but "the State Bar of California, instead of leading in this work, has been lagging. Although the State Bar has been studying the matter since 1961 [citation], it has yet to take action." (Blackmon v. Hale (1969) 78 Cal.Rptr. 569, 582 [withdrawn for other reasons].) The Court of Appeal parodied the State Bar's moral message:
Turn your money over to me and I'll take care of it, but if I steal it you will have no recourse against anyone but me. Not only that, but as your attorney I may claim offsets for fees earned and disbursements made on your behalf and prevent any accounting or audit of the money for years, during which time you will have no remedies against me except to usual ones of any creditor pressing a contested claim against a denying debtor.
(Id., at p. 580.)

The State Bar partly abolished client serfdom in 1972, and the Client Security Fund indemnifies for misappropriation up to $50,000. With indemnification's advent, misappropriation isn't the worst injury an attorney's office can inflict on clients. The actual worst commonly happens in the ordinary incompetent handling of cases, usually not constituting actionable malpractice. An attorney's fundamental ethical duty of client loyalty is undermined by the State Bar's disciplinary emphasis on misappropriation (and disobedience). A loyal attorney must prioritize effort based on client legal interest, but anachronistic rules assigning the attorney exclusive personal responsibility for safeguarding funds distract attorneys from attending to the client's real interests. The State Bar's sentimentalizing of the attorney-client relation diverts attorneys, distorts professional ethics, and blocks further improvements in client security, like the needed tenfold increase in Security Fund coverage.

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