Thursday, March 17, 2016

Florida Bar's Client Security Fund Coughs Up Over $1 Million To 14 Victims Of Real Estate Closing Attorney Who Went AWOL w/ Over $6 Million From Trust Account, But $tiffs Over Two Dozen Others; Lack Of Lawyer-Client Relationship Suspected As Being Fatal To Their Eligibility For Reimbursement

In West Palm Beach, Florida, The Palm Beach Post reports:
  • When Elaine Bredehoft and Keenan Frank plunked down $65,000 in earnest money for a sprawling house in Ibis Golf and Country Club, all the Virginia couple wanted was a second home.

    Instead, their simple quest turned into a three-year odyssey of litigation and recriminations because they handed their check to Lake Worth real estate attorney Timothy McCabe, who promptly disappeared with it, along with $6.1 million in his firm’s escrow account.

    Still reeling from that loss, they were hit by another financial blow. Barry and Margaret Hollander, who agreed to sell their Ibis house for $650,000, sued Bredehoft and Frank, claiming they had to cough up the full amount, never mind that McCabe had made off with their deposit.

    While an appeals court this month ruled that Bredehoft and Frank couldn’t be forced to pay the deposit twice, the victory, according to their lawyers, was a hollow one.

    “It was a tough pill to swallow when the escrow agent stole their $65,000 and then the sellers sued them,” said attorney Ryan Lehrer, who represented the couple in the litigation that began in 2013, shortly after McCabe emptied his firm’s escrow account and went on the lam for two months. “As you can imagine, it left a bad taste in their mouths.”

    More importantly, it left a gaping hole in their wallets.

    While the appeals court ordered the Hollanders to pay the nearly $50,000 Bredehoft and Frank racked up in legal bills, they are still out the $65,000.

    And they aren’t alone.

    Although the Florida Bar has a special fund to reimburse those who have been ripped off by attorneys, few of McCabe’s victims qualified for it. Of the 42 people who sought reimbursement from the Clients’ Security Fund after McCabe made off with their cash, only 14 requests were approved, said Lori Holcomb, director of special projects for the Bar.

    With one request still pending, she said $1.17 million has been paid to those who lost money to McCabe, who is scheduled to be released from federal prison in October after serving roughly 3 1/2 years of a five-year sentence. After riding around the country on a bus for months, the Boca Raton resident ultimately turned himself in and pleaded guilty to five fraud charges.

    Holcomb declined to detail the reasons 27 requests for reimbursement were denied. The records aren’t public. But in the case of Bredehoft and Frank, the reason was simple: He wasn’t their lawyer.

    “The Florida Bar Clients’ Security Fund(1) was created to provide compensation to clients when an attorney has misappropriated or embezzled client funds pursuant to an attorney and client relationship,” the Bar wrote, rejecting the couple’s request. “Such a loss must have occurred while the attorney was providing legal services, or other services customary to the practice of law on behalf of the client.”

    Because McCabe was merely holding their money and wasn’t representing them in the real estate transaction, they were not eligible for reimbursement. “Our file in this matter is closed,” the letter concluded.

    Lehrer said the Bar was splitting hairs. “I fail to see the distinction,” he said. “At the end of the day, he was acting as an escrow agent and had a fiduciary duty to both sides.”

    Vickie Meyer, a real estate agent who represented Bredehoft and Frank in the purchase, said she had another client who lost $50,000 for similar reasons. Three others were lucky. Two received $15,000 and $1,000 respectively from the fund because they had hired McCabe to review their sales contracts. A third got a partial reimbursement from a title company’s insurer because it had begun its research.

    Meyer, who estimated she lost $30,000 in commissions when sales fell through in the wake of McCabe’s theft, said she used him as an escrow agent for her clients for years without any problems. “Who would have thought he would do what he did?” she said. “It’s like something snapped in him. This was not a guy that I would have thought had all of these issues going on.”

    That is the argument Lehrer and attorney John Mullin raised to persuade Palm Beach County Circuit Judge Jack Cox, and later the 4th District Court of Appeal, to dismiss the Hollanders’ lawsuit against Bredehoft and Frank. McCabe’s actions, which stunned the community, couldn’t have been anticipated, they successfully argued. It was like an act of God for which mere mortals can’t be held responsible.

    Like others, Meyer said, the Bar’s refusal to reimburse McCabe’s victims doesn’t make sense. “But my years in real estate have taught me one thing about the law: When you think something is logical and makes sense, you’re wrong,” she said.

    Other attorneys, who initially said they planned to sue to recover money for McCabe’s victims, said they, too, ran into roadblocks. Not only were some people ineligible because they didn’t have an official attorney-client relationship with him, but his insurer also refused to pay up, said attorney Jeffrey Sonn, who explored and abandoned a half-dozen lawsuits. Insurers don’t cover intentional theft under traditional policies.

    That means, Holcomb acknowledged, that the Bar’s fund, which is generated by membership fees paid by lawyers, is a person’s only resort.

    Given that one of the leading causes of attorney discipline involves misuse of money that is entrusted to them, Sonn said the Bar should require attorneys to carry theft insurance. He said he pays $3,500 annually for a $2 million policy. “It’s really sad,” he said of the plight of McCabe’s victims. “It shows that anytime you have a person holding money in a position of trust, they should be required to have theft insurance.”

    But Bredehoft and Frank aren’t pushing for reforms. The couple has moved on, Mullin said. They did finally buy their Florida dream home. In Naples.
Source: Runaway lawyer to be released soon; some victims can’t get money back.

See, generally, Frederick Miller, "If You Can't Trust Your Lawyer .... ?", 138 Univ. of Pennsylvania Law Rev. 785 (1990) for more on the apparent, long-standing tolerance for deceit by many in the legal profession:
  • This tolerance to deception is encouraged by the profession's institutional civility. Seldom is a fig called a fig, or a shyster a shyster. No, our euphemisms are wonderfully polite: "frivolous conduct," or a "lack of candor;" or "law-office failure;" or, heaven forbid, a "peculation," a "defalcation," or a "negative balance" in a law firms's trust account.

    There is also widespread reluctance on the part of lawyers --- again, some lawyers --- to discuss publicly, much less acknowledge, that they have colleagues who engage in deceit and unprofessional conduct.

    This reluctance is magnified when the brand of deceit involves the theft of client money and property, notwithstanding that most lawyers would agree that stealing from clients is the ultimate ethical transgression.
(1) For similar "attorney ripoff reimbursement funds" that sometimes help cover the financial mess created by the dishonest conduct of lawyers licensed in other states and Canada, see:
Maps available courtesy of The National Client Protection Organization, Inc.

See generally:
  • N.Y. fund for cheated clients wants thieving lawyers disbarred, a July, 2015 Associated Press story on this Fund reporting that the Fund's executive director, among other things, is calling for prompt referral to the local district attorney when the disciplinary committee has uncontested evidence of theft by a lawyer injuring a client or an admission of culpability;

    When Lawyers Steal the Escrow, a June, 2005 New York Times story describing some cases of client reimbursements ("With real estate business surging and down-payment amounts rising with home prices, the temptation for a lawyer to filch money from a bulging escrow account and later repay it with other clients' money has never been greater, said lawyers who monitor the thefts."),

    Thieving Lawyers Draining Client Security Funds, a December, 1991 New York Times story that gives some-real life examples of how client security funds deal with claims and the pressures the administrators of those funds may feel when left insufficiently financed as a result of the misconduct of a handful of lawyer/scoundrels.

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