SECTION .1400 ‑ RULES GOVERNING THE ADMINISTRATION OF
THE CLIENT SECURITY FUND OF THE NORTH CAROLINA STATE BAR
27 NCAC 01D .1401 PURPOSE; DEFINITIONS
(a) The Client Security Fund of the North Carolina State
Bar was established by the Supreme Court of North Carolina pursuant to an order
dated August 29, 1984. The fund is a standing committee of the North Carolina
State Bar Council pursuant to an order of the Supreme Court dated October 10,
1984, as amended. Its purpose is to reimburse, in whole or in part in
appropriate cases and subject to the provisions and limitations of the Supreme
Court's orders and these Rules, clients who have suffered financial loss as the
result of dishonest conduct of lawyers engaged in the private practice of law
in North Carolina, which conduct occurred on or after January 1, 1985.
(b) As used herein the following terms have the meaning
(1) "Applicant" shall mean a person
who has suffered a reimbursable loss because of the dishonest conduct of an
attorney and has filed an application for reimbursement.
(2) "Attorney" shall mean an attorney
who, at the time of alleged dishonest conduct, was licensed to practice law by
the North Carolina State Bar. The fact that the alleged dishonest conduct took
place outside the state of North Carolina does not necessarily mean that the
attorney was not engaged in the practice of law in North Carolina.
(3) "Board" shall mean the Board of
Trustees of the Client Security Fund.
(4) "Council" shall mean the North
Carolina State Bar Council.
(5) "Dishonest conduct" shall mean
wrongful acts committed by an attorney against an applicant in the nature of
embezzlement from the applicant or the wrongful taking or conversion of monies
or other property of the applicant, which monies or other property were
entrusted to the attorney by the applicant by reason of an attorney‑client
relationship between the attorney and the applicant or by reason of a fiduciary
relationship between the attorney and the applicant customary to the practice
(6) "Fund" shall mean the Client
Security Fund of the North Carolina State Bar.
(7) "Reimbursable losses" shall mean
only those losses of money or other property which meet all of the following
(A) the dishonest conduct which occasioned the loss occurred
on or after January 1, 1985;
(B) the loss was caused by the dishonest conduct of an
attorney acting either as an attorney for the applicant or in a fiduciary
capacity for the benefit of the applicant customary to the private practice of
law in the matter in which the loss arose;
(C) the applicant has exhausted all viable means to
collect applicant's losses and has complied with these Rules.
(8) The following shall not be deemed
(A) losses of spouses, parents, grandparents, children
and siblings (including foster and half relationships), partners, associates or
employees of the attorney(s) causing the losses;
(B) losses covered by any bond, security agreement or
insurance contract, to the extent covered thereby;
(C) losses incurred by any business entity with which
the attorney or any person described in Part (b)(8)(A) of this Rule is an
officer, director, shareholder, partner, joint venturer, promoter or employee;
(D) losses, reimbursement for which has been otherwise
received from or paid by or on behalf of the attorney who committed the
(E) losses arising in investment transactions in which
there was neither a contemporaneous attorney‑client relationship between
the attorney and the applicant nor a contemporaneous fiduciary relationship
between the attorney and the applicant customary to the practice of law. By
way of illustration but not limitation, for purposes of this Rule [Part
(b)(8)(E) of this Rule], an attorney authorized or permitted by a person or entity
other than the applicant as escrow or similar agent to hold funds deposited by
the applicant for investment purposes shall not be deemed to have a fiduciary
relationship with the applicant customary to the practice of law.
(9) "State Bar" shall mean the North
Carolina State Bar.
(10) "Supreme Court" shall mean the
North Carolina Supreme Court.
(11) "Supreme Court orders" shall mean
the orders of the Supreme Court dated August 29, 1984, and October 10, 1984, as
amended, authorizing the establishment of the Client Security Fund of the North
Carolina State Bar and approving the rules of procedure of the Fund.
History Note: Authority Orders of the NC Supreme Court,
August 29, 1984, October 10, 1984;
Readopted Eff. December 8, 1994.