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The Client Protection Program – Restoring Trust

12/27/2017

December 27, 2017

“Despite the best attempts of the legal profession to establish high standards of ethics and severe disciplinary sanctions for their breach, it is a fact that some lawyers misappropriate money from their clients.”1 Unfortunately, we all recognize the truth in these words.

When a lawyer who has stolen client funds has been disbarred or suspended, the disciplinary process has successfully performed its task of protecting the public from future theft by that lawyer. But what about the victims of the lawyer who were injured before the misconduct was recognized and the lawyer removed? Will betrayed clients who may have lost their life savings to lawyer theft find much comfort in a disbarment order? Will they think better of the legal profession, or of the court system of which the lawyer was an officer? Probably not. And that is why the Client Protection Program exists.

The Illinois Supreme Court established the Client Protection Program under the auspices of the ARDC in 1994 “to promote public confidence in the administration of justice and the integrity of the legal profession by reimbursing losses caused by dishonest conduct of Illinois lawyers.”2 Every state has a similar type of program, a recognition by the profession that such a program is an essential adjunct to a well-structured and public-spirited lawyer regulation system.

As part of their annual ARDC registration fee, most Illinois lawyers pay $25 to fund the Client Protection Program.3 Payouts from the Program are capped at $100,000 per claimant, and $1,000,000 aggregate per lawyer.4 Since the Program was established in 1994, more than 5,000 claims have been received. The Commission has approved more than 2,500 claims and paid out more than $20,000,000 to claimants.

Behind these numbers are the stories of the victims, for some of whom the consequences of lawyer dishonesty were devastating, both economically and emotionally. One heartbreaking claim the Client Protection Program received involved two minor sisters whose mother died. A lawyer, a relative by marriage of the girls, was appointed their guardian, and his firm handled the wrongful death suit arising from the mother’s death. After the suit settled, the lawyer created a series of false court orders enabling him to withdraw all of the settlement money in the trust account set up for one of the girls. He also stole the proceeds of the girls’ mother’s life insurance policies. He was criminally prosecuted and disbarred.

Another very disheartening claim involved a lawyer who was hired to handle a wrongful death case after the client’s husband was killed in a car accident. The case eventually settled, but the lawyer stole the widow’s $50,000 share of the settlement. The lawyer was indicted for his theft of these settlement funds, among other thefts. He pleaded guilty, and as part of his sentence was ordered to pay restitution to seven different victims, including the widow. Prior to that sentencing, the lawyer’s family gave his defense lawyer $250,000 to place in his trust account for restitution to the victims. The defense lawyer paid a few of the victims, not including the widow, but then he stole the $85,000 balance of the restitution money. Yes, the widow’s money was stolen twice, by two different lawyers. The defense lawyer was himself prosecuted for theft, and of course both lawyers were disbarred.

Another memorable claim involved a lawyer who assisted an elderly widow with her estate planning, and who was named the successor trustee of the client’s trust. As a result of the client’s infirmities, including dementia, she was admitted to a nursing home, and the lawyer succeeded her as trustee. As trustee, he was responsible for paying all of her nursing home bills. Instead, he looted her account for more than $400,000 and eventually stopped paying her bills. When the nursing home was unable to contact the lawyer, they called the Office of the Public Guardian, and the Public Guardian reported the lawyer to the ARDC. During the lawyer’s disciplinary prosecution the client died, and the Public Guardian asked the Client Protection Program if it would consider paying for a simple memorial service and cremation for the now-penniless client.

These claims were paid by the Client Protection Program. Unfortunately, these types of sad stories are not uncommon. In recent years the Program has been inundated with claims involving serial thefts by lawyers. Since 2013 the Program has approved more than $10,000,000 in claims, but more than $5,000,000 of that total was for claims involving just eight lawyers. The claims against most of these now-former lawyers involved theft of personal injury or workers’ compensation awards and settlements, probate estate assets, or real estate proceeds. The claims against one of them, Timothy Liou, involved legal fees.

In a typical year, the Client Protection Program receives about 225 claims, but in 2015 the Program received more than 340 claims against Mr. Liou alone. Liou was a volume bankruptcy practitioner, and he was found to have cheated or over-charged hundreds of clients. As part of his disciplinary proceeding there, the bankruptcy court entered a restitution judgment order against him for over $2,000,000 in excessive or improper fees. The Client Protection Program paid out about $850,000 to the clients named in that restitution order, and also paid $150,000 to assist the hundreds of Liou clients with pending bankruptcy cases to obtain new counsel to complete their cases.

The claims involving Mr. Liou were unusual, due to their sheer volume, but claims for reimbursement of unearned fees actually account for the majority of claims submitted to the Client Protection Program, although they are typically smaller claims. Most of these claims, like the Liou claims, involve a lawyer wrongfully or dishonestly charging an excessive fee or failing to refund an unearned fee, but in 2015 the Illinois Supreme Court expanded the scope of the Client Protection Program to include reimbursement of unearned, unrefunded fees paid to Illinois lawyers who later died or were transferred to disability inactive status.5 Claims in this new category do not necessarily involve dishonest conduct, but stranded clients may have few options, and with this expansion of the Program the Court signaled its concern for those clients as well.

Clients have to trust their lawyers, and no client should have to be fearful when entrusting money to a lawyer. The Client Protection Program, funded by the lawyers of Illinois to provide a safety net to clients, is one way the legal profession demonstrates that it deserves that trust.



1 Preface to the ABA Model Rules for Lawyers’ Funds for Client Protection.

2 Illinois Supreme Court Rule 780, as adopted March 28, 1994.

3 The Client Protection Program was initially part of the disciplinary agency’s budget, but in 2007 the Illinois Supreme Court instituted the $25 per year assessment for the Program.

4 The initial claims caps were $10,000/$100,000, but over the years they have been increased a number of times to the current $100,000/$1,000,000 level.

5 Illinois Supreme Court Rule 780, as amended February 9, 2015.