Indeck v. Clients' Security Bd.

• Decision Date: 10 January 2008
• Docket Number: SJC-09892.
• Citation: 450 Mass. 379,879 N.E.2d 57
• Parties: Janice INDECK v. CLIENTS' SECURITY BOARD.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

879 N.E.2d 57

450 Mass. 379

Janice INDECK v. CLIENTS' SECURITY BOARD.

SJC-09892.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued November 8, 2007.

Decided January 10, 2008.

Kara Larzelere, Boston (Owen Gallagher with her) for the plaintiff.

Christine Baily, Assistant Attorney General, for the defendant.

Present: MARSHALL, C.J., GREANEY, SPINA, COWIN, CORDY, & BOTSFORD, JJ.

CORDY, J.

The Clients' Security Fund (Fund) was established by the Supreme Judicial Court (court) in 1974. S.J.C. Rule 4:04, 365 Mass. 717 (1974). "The purpose of the Fund is to discharge, as far as practicable and in a reasonable manner, the collective professional responsibility of the members of the Massachusetts bar with respect to losses caused to the public by defalcation of members of the bar, acting either as attorneys or as fiduciaries...." S.J.C. Rule 4:04, as amended, 428 Mass. 1302 (1998). The Fund's resources come not through an appropriation of public monies, but from the annual registration fees paid by Massachusetts attorneys to the Board of Bar Overseers. S.J.C. Rule 4:03, as amended, 430 Mass. 1328 (2000). S.J.C. Rule 4:04. The assets of the Fund are held in trust by the Clients' Security Board (board), which consists of seven members of the Massachusetts bar appointed by the court. Id. The court retains supervisory authority over the board (and the Fund), including the authority to approve its rules.¹ See S.J.C. Rules 4:04-4:09, as amended; Rules 1 and 12 of the Rules of the Clients' Security Board (2007).

In fulfilling its essential purpose, the board is to "consider applications [from] clients for reimbursement of losses ... and may honor, pay, or reject such claims in whole or in part." S.J.C. Rule 4:05, § 1, 365 Mass. 718 (1974). The board's determinations are discretionary. "All reimbursements shall be a matter of grace, not right, and no client ... or other person shall have any right or interest in the Fund." Id.

This case requires us to decide whether a decision of the board with respect to the reimbursement of a claim is subject to certiorari review pursuant to G.L. c. 249, § 4,² where S.J.C. Rule 4:05, § 1, as amended, 440 Mass. 1349 (2004), provides that "[n]o decision to grant or deny reimbursement shall be subject to judicial review in a court of either appellate or original jurisdiction." We conclude that it is not.

1. Procedural history. On August 4, 2006, Janice Indeck filed a complaint in the nature of certiorari (G.L. c. 249, § 4) with the Supreme Judicial Court for Suffolk County, seeking review of the board's decision to award her $150,000 on a claim that she had suffered $569,000 in losses from a defalcation by her previous attorney, Morris Goldings.³ On September 27, 2006, on a motion of the board, the single justice dismissed Indeck's complaint for lack of subject matter jurisdiction. This appeal followed.

2. Facts. On a motion to dismiss, we accept the factual allegations as set forth in the complaint as true. Harvard Law Sch. Coalition for Civil Rights v. President & Fellows of Harvard College, 413 Mass. 66, 68, 595 N.E.2d 316 (1992). In this case, the material facts are not in dispute. From 1977 through December, 2000, Attorney Goldings represented Indeck in a variety of legal matters, including her divorce, child support proceedings, estate planning, and real estate transactions. Beginning in 1982, Indeck gradually entrusted Goldings with the investment of her money, which Goldings (falsely) claimed he would deposit in bank accounts where it would earn tax-free interest. Goldings represented that he would make periodic (monthly or quarterly) payments to her of the interest earned in these accounts.

By 1989, Indeck had entrusted Goldings with a net total of $569,000, which she understood Goldings continued to hold in bank accounts. These funds represented her life savings.⁴ Goldings made interest payments to Indeck until December, 2000, but not thereafter. On inquiry, Indeck learned that Goldings was on extended sick leave from his firm. At about this time, Indeck also began to see newspaper coverage alleging that Goldings had misappropriated his clients' funds. On February 8, 2001, Goldings's license to practice law was suspended pending further proceedings before the Board of Bar Overseers.⁵ The precise total of the interest payments Indeck received from Goldings during the period from 1982 through 2000, is unknown, although Indeck has estimated it to be $912,600.⁶

Between January and March, 2001, Goldings assured Indeck that he would return her money. When he did not, Indeck obtained other legal representation and on March 29, 2001, filed a Chapter 7 involuntary bankruptcy petition against Goldings and a proof of claim for $590,332, which included the $569,000 she had entrusted to him and $21,332 in unpaid interest.⁷ On April 6, 2001, Goldings's former law firm, Mahoney Hawkes, LLP, filed a Chapter 11 petition for bankruptcy, and Indeck filed a proof of claim in that proceeding for the same amount.

On August 27, 2002, Indeck submitted a claim to the board for reimbursement of the $569,000. On March 20, 2003, the board conducted a hearing on the claim, in which Indeck participated by telephone, and which her attorney attended in person.

At its August 14, 2003, meeting, the board concluded that while Indeck suffered a loss as a result of defalcations by Goldings, the more than $900,000 Indeck received from him between 1982 and 2000 "mitigated that loss." In accordance with its practice of treating distributions that a client receives from an attorney who has been entrusted with funds for investment purposes, as a return of the principal originally entrusted to that attorney, the board decided that Indeck "retained no compensable claim." Nevertheless, the board decided to award Indeck $150,000, under a provision of its rules that allows the board to recognize and compensate a claim "that would otherwise be excluded" in "cases of hardship," in this case the loss by an elderly client of her life savings.⁸ See Rule 2(f) of the Rules of the Clients' Security Board (2007). As a condition of receiving this award, Indeck executed a subrogation agreement and an assignment, entitling the board to claim any funds (up to the $150,000 award) collected in the bankruptcy proceedings against Goldings's law firm.

On June 2, 2006, the bankruptcy trustee in the Mahoney Hawkes, LLP, proceeding recognized Indeck's claim in the amount of $569,000 as the "principal" that Goldings had misappropriated from her.⁹ The firm's malpractice insurance covered claims arising out of the law firm's negligent supervision of its attorneys, and the insurance carrier agreed to distribute $6.5 million (an amount significantly less than the losses incurred) to creditors, including Indeck, who were clients of Goldings.

On June 8, 2006, immediately following the recognition of her $569,000 claim by the bankruptcy trustee, Indeck filed a petition with the board, essentially asking it to reconsider its decision. Indeck contended that the payments she received from Goldings should be considered return on her investment, rather than return of principal, that she therefore had a compensable claim of $569,000, and that the board should reimburse her in this amount, less any monies received in the bankruptcy proceeding.¹⁰ On June 15, 2006, the board denied her petition.

3. Discussion. S.J.C. Rule 4:05, § 1, as amended, 440 Mass. 1349 (2004), was amended to include the following language: "No decision to grant or deny reimbursement shall be subject to judicial review in a court of either appellate or original jurisdiction." This amendment was proposed to the court by the board in September, 2003, in response to the holding in Ruci v. Clients' Sec. Bd., 53 Mass.App.Ct. 737, 739-740, 762 N.E.2d 325 (2002), allowing certiorari review of a board decision dismissing a claim for compensation. The proposed amendment was published for comment in the Massachusetts Lawyers Weekly on October 13, 2003, with a closing date for comments of November 14, 2003. No comments were received. The rule change was then adopted by the court on December 11, 2003, effective January 1, 2004. In the circumstances, there can be little doubt that the rule, as amended, was intended to foreclose all manner of judicial review of the board's discretionary reimbursement decisions, including certiorari review brought pursuant to G.L. c. 249, § 4.¹¹

We have in other circumstances concluded that certiorari review is not necessarily precluded even if a decision is declared (by rule or statute) to be final or unreviewable. See, e.g., MacKenzie v. School Comm. of Ipswich, 342 Mass. 612, 614, 174 N.E.2d 657 (1961) (if administrative review unavailable, "certiorari is the only way of reviewing decisions declared final by statute"); Natick v. Massachusetts Dep't of Pub. Welfare, 341 Mass. 618, 620, 171 N.E.2d 273 (1961) ("It is well established that certiorari lies notwithstanding provisions barring appeal by any party" [emphasis in original] ); Gudanowski v. Northbridge, 17 Mass.App.Ct. 414, 417, 458 N.E.2d 1207 (1984) (allowing certiorari review of county commissioner decisions, even though applicable statute considered those decisions final). However, even assuming that S.J.C. Rule 4:05 does not, on its face, preclude certiorari review, such review is available only if the complaint is consistent with the purpose of certiorari, and meets its requisite elements.

"Although certiorari is provided for by G.L. c. 249, § 4, its origins are in the common law, and the requirements which give it life were stated in Swan v. Superior Court, 222 Mass. 542, 544, 111 N.E. 386, [1916] [Swan ]." Boston Edison Co. v. Selectmen of Concord, 355 Mass. 79, 82, 242 N.E.2d 868 (1968). In Swan, supra, the court held that the writ's "appropriate function is to relieve aggrieved parties from the injustice arising from errors of law committed in proceedings affecting their...