BY FRANCIS A. ADEWALE AND TIFFANY LYNCH
in this edition, Director of Finance Tiffany Lynch and I seek to answer your questions about the Client Protection Fund (the Fund or CPF). Washington is fortunate to have a history of maintaining a stable Client Protection Fund that is strongly supported by the Washington Supreme Court and the Washington State Bar Association (WSBA). Washington was one of the first states to establish what was then called the Lawyers’ Indemnity Fund in 1960. Since that time, WSBA members have compensated victims of the few dishonest members who have misappropriated or failed to account for client funds or property.
Purpose of the Client Protection Fund
“The purpose of this rule is to create a Client Protection Fund, to be maintained and administered as a trust by the Washington State Bar Association (WSBA), in order to promote public confidence in the administration of justice and the integrity of the legal profession. […] Funds accruing and appropriated to the Fund may be used for the purpose of relieving or mitigating a pecuniary loss sustained by any person by reason of the dishonesty of, or failure to account for money or property entrusted to, any member of the WSBA as a result of or directly related to the member’s practice of law, or while acting as a fiduciary in a matter directly related to the member’s practice of law. Such funds may also, through the Fund, be used to relieve or mitigate like losses sustained by persons by reason of similar acts of an individual who was at one time a member of the WSBA but who was at the time of the act complained of under a court ordered suspension.”Admission and Practice Rules 15(a) and (b).
How Did the Fund Come to Be?
In 1995, the Washington Supreme Court and the WSBA created the Client Protection Fund. The Fund may be used for the purpose of relieving or mitigating a loss sustained by any person due to the dishonesty of, or failure to account for money or property entrusted to, any member of the WSBA in connection with the member’s practice of law or while acting as a fiduciary in a matter related to the member’s practice of law.
Who Administers the Fund?
The Fund is governed by Admission and Practice Rule 15. Members of the WSBA Board of Governors comprise the trustees who manage the Fund. The trustees in turn appoint and oversee the Client Protection Board, which administers the Fund. The Board of Governors has designated liaisons to the Client Protection Board. The current Client Protection Board Liaisons are Lauren Boyd (District 3 Governor) and Kevin Fay (District 9 Governor).
Is the Fund Comingled With Other WSBA accounts?
The Fund is maintained as a separate, restricted fund on the WSBA’s books, with its own separate banking and investment accounts. The Fund is completely self-supporting—it receives no revenue from the WSBA or other entities. The Client Protection Board cannot expend more than the Fund has collected.
What is the Main Source of Revenue for the Fund?
WSBA lawyers on active status, lawyers with pro hac vice admissions, house counsel, foreign law consultants, and limited license legal technicians (LLLTs) on active status pay an annual assessment to the Fund; this is the Fund’s main source of revenue. Assessment amounts are set by order of the Washington Supreme Court, based on recommendations by the WSBA Board of Governors. The current assessment is $20. Additionally, the Fund attempts to recover restitution payments from the members on whose behalf gifts are made to injured clients.
What Types of Expenses are Incurred by the Fund?
The Fund’s major expense is gifts made to injured clients. The Fund also covers administrative costs, which consist of its share of WSBA salaries, benefits, and overhead (indirect expenses), and expenses of the Client Protection Board, which oversees the Fund and makes decisions on applications.
Who is Eligible for Gifts?
To be eligible for payment, an applicant must show by a clear preponderance of the evidence that they suffered a loss of money or property through the dishonest acts of, or failure to account by, a WSBA member. Dishonesty includes, in addition to theft, embezzlement, conversion, and the refusal to return unearned fees as required by Rule of Professional Conduct 1.16.
The Fund is not available to compensate for member malpractice or professional negligence. It also cannot compensate for loan, investment, or other business transactions unrelated to the member’s practice of law. Eligible applicants request a gift by completing and submitting an application form. Recommendations by the Client Protection Board concerning applications for more than $25,000, or for payment of more than $25,000 in connection with any one member, are reported to the trustees for approval.
What do the Fund’s Second Quarter Financials Look Like?
The Client Protection Fund budgeted a surplus of $45,788 for FY 2023. Actual results as of March 31 reflect a surplus of $658,329. Revenue from member assessments is collected as part of the member license renewal period (November–February). The revenue from member assessments equals the amount projected in the FY 23 budget. Interest income was not budgeted and has earned $103,944 and will continue to earn interest through the rest of the fiscal year. Overall expenses ($199,755) are under budget by 40 percent mainly due to direct expenses for gifts to injured clients that will be paid out toward the end of the fiscal year.
Are There Any Reviews of the Fund’s Financial Performance and Who Receives Such Reports?
Each quarter, the Client Protection Board reviews a set of financial statements and compiles and includes this information in the annual CPF report to the Board of Governors and the Washington Supreme Court. The 2022 Trustees Annual Report can be found in the May Board of Governors meeting materials.