Lawyer Liable For Clients” Security Fund Payments

The North Carolina Court of Appeals affirmed in part and vacated and remanded in part for a new calculation of damages in an action brought by the State Bar seeking reimbursement for funds paid by the Clients’ Security Fund “for damages caused by [the lawyer’s] conduct.” The court rejected a host of claims/defenses brought on behalf of the lawyer, including attacks on the findings of conversion, fraud, and the use of equitable estoppel to prevent assertion of a staute of limitations defense. The court also rejected claims of accord and satisfaction, res judicata, judical estoppel, laches and subrogation.

The lawyer also made a claim that the client should not receive compensatory damages. The court disagreed:

“According to defendant, the Munavallis [the clients] were not eligible for a reimbursement by the Fund because legal liability for the unpaid CD-ROMs is on defendant, not the Munavallis. Defendant argues that since the Munavallis are not liable for the CD-ROMs, they suffered no loss, are not eligible for compensatory damages, and cannot recover double damages under N.C. Gen. Stat. § 84-13. Defendant’s argument is meritless. As stated earlier, defendant breached his fiduciary duty to the Munavallis and converted their funds, which caused a loss to the Munavallis, who were then entitled to double damages under N.C. Gen. Stat. § 84-13. Accordingly, we affirm the trial court’s award of compensatory damages.”

The court remanded based on its conclusion that the trial court improperly awarded interest on punitive damages. (Mike Frisch)