If you have lost money as a result of a lawyer's dishonesty, you may wish to file a claim with the State Bar Client Security Fund.
Following are some typical questions and answers regarding the Client Security Fund.
Q: What is the Client Security Fund?
The Client Security Fund was established by the North Carolina Supreme Court in 1984 to reimburse clients who have suffered financial loss as the result of dishonest conduct of lawyers engaged in the private practice of law in North Carolina . The fund is administered by a board of trustees , called the Client Security Fund Board, appointed by the North Carolina State Bar Council.
Q: What losses are reimbursable?
Reimbursable losses are losses of money or property that satisfy the following conditions:
(1) the dishonest conduct occurred on or after January 1, 1985;
(2) the loss was caused by dishonest conduct of a lawyer acting as a lawyer for the applicant to the Client Security Fund or in a fiduciary capacity (such as the executor of a will, an escrow agent, or a closing lawyer for a sale of real estate) for the benefit of the applicant (if the lawyer's work as a fiduciary is customary to the private practice of law); and
(3) the applicant has exhausted all other practicable means to collect the applicant's losses.
Q: What losses are not reimbursable?
(1) losses of a spouse, parent, grandparent, child, brother, sister, partner, associate, or employee of the lawyer causing the loss;
(2) losses covered by any bond, security agreement, or insurance contract, to the extent covered;
(3) losses of any business entity in which the lawyer or any person described in (1) above is an officer, director, shareholder, partner, joint venturer, promoter, or employee;
(4) losses for which reimbursement has otherwise been received from or paid by or on behalf of the lawyer who committed the dishonest conduct; and
(5) losses in investment transactions in which there was neither a contemporaneous attorney/client relationship between the lawyer and the applicant nor a contemporaneous fiduciary relationship between the lawyer and the applicant.
Q: How much is reimbursed?
The fund only reimburses the actual amount embezzled or misappropriated by the attorney. It does not reimburse any related additional losses or damages, such as interest, fees paid to another lawyer to represent the applicant against the lawyer or before the Client Security Fund Board, penalties for late payment of taxes, and the like.
Q: Does the Client Security Fund Board pay all claims in full?
No. There is no right to reimbursement from the fund. The board decides whether to make any reimbursements from the fund. The board's decision is final. For any amount to be paid, the board must first find that the applicant has suffered a reimbursable loss. When deciding whether to pay some or all of a claim, the board may consider such things as the financial condition of the fund, any negligence of the applicant that contributed to the loss, the comparative hardship the applicant suffered because of the loss, the total amount of reimbursable losses in previous years for which complete reimbursement has not yet been made, the total assets of the fund, and the amount of insurance or other sources of funds available to compensate an applicant for a reimbursable loss.
Q: Are there dollar limits on reimbursements?
Yes, $100,000 for an applicant who suffered a reimbursable loss (or losses) as the result of the dishonest conduct of one lawyer.
Q: Can I get back fees paid to the lawyer?
If the board finds that the lawyer accepted fees knowing that the lawyer could not or would not perform the agreed services and the lawyer did not perform any services, all or part of the fees may be reimbursed. If the lawyer actually performed some services, such as writing letters on the applicant's behalf, reviewing papers, filing court documents or the like, fees probably are not reimbursable. Fees are not reimbursable simply because the applicant is dissatisfied with the services or the amount charged, or because the work was not completed or was not done correctly. In some cases, the applicant may be able to recover fees paid by filing a civil suit against the lawyer.
Q: How are applications processed?
When a written application is filed, it is investigated by an investigator employed by the fund. When the investigation is complete, the application is placed on the agenda of a quarterly meeting of the Client Security Fund Board. A copy of the application is sent to the lawyer who is alleged to have committed dishonest conduct. When the board meets, it may request testimony from the applicant or others having knowledge of the facts, and the lawyer will be given an opportunity to be heard if requested. The application, investigation, reports, and hearing are confidential unless and until the board authorizes reimbursement or the lawyer requests that the matter be made public. However, relevant information may be provided by the board to disciplinary committees of the North Carolina State Bar or anyone else to whom the council of the North Carolina State Bar authorizes release of information.
Q: When does the board meet?
The board currently meets four times a year in January, April, July and October. Special meetings may be called at other times.
Q: What happens after the meeting?
After a claim is heard at a Board meeting, the applicant is notified by mail of the board's decision as soon as possible. If the board decides to reimburse an applicant either fully or partially, the North Carolina State Bar becomes subrogated to the rights of the applicant. That means that the State Bar has the right to sue the lawyer or the lawyer's estate or any other party who is liable to recover the amount reimbursed by the fund. As a condition of reimbursement, the applicant is required to sign a written “subrogation agreement.”
Q: How can I contact the fund?
The fund can be contacted and applications for reimbursement obtained by calling or writing:
The Client Security Fund
PO Box 25908
Raleigh , NC 27611
Send e-mail to:
PLEASE NOTE: Due to COVID-19, effective immediately and until further notice, please communicate with the State Bar through email only. Attempts to communicate with the State Bar via telephone, United States Mail, UPS, FedEx, or facsimile may result in substantial delay.