Unfair, Yet Ineffective: the State Bar Cost Recovery Structure

One of the most unfair aspects of the California discipline system is the current cost recovery structure.  Not that the idea that attorneys subject to discipline should pay the costs of the proceeding is  unfair.  In practice, however, it distorts  the  discipline system by giving the discipline prosecutor undue leverage and an incentive to overcharge.

Bus. & Prof . Code section 6086.10, passed as part of the major overhaul of discipline in 1980’s, provides that the Supreme Court can order a disciplined attorney to pay:

The charges determined by the State Bar to be “reasonable costs” of investigation, hearing, and review. These amounts shall serve to defray the costs, other than fees for the services of attorneys or experts, of the State Bar in the preparation or hearing of disciplinary proceedings.

As implemented by the State Bar of California, costs are assessed as a flat fee that increases with successive stages of the discipline process, plus a fixed charge for every additional investigation matter included in the prosecution (current cost schedule here).  For instance, a matter that settles prior to the filing of disciplinary charges costs $2,865;  a single matter that goes to appeal in the Review Department of State Bar Court will cost $19,156.  These costs are fixed regardless of how many hours actually went into the prosecution, or the work of the State Bar Court;  they represent what is supposed to be an average cost for a discipline prosecution through that particular stage.

Part of the reason for this cost structure is to relieve the State Bar of the onerous burden of actually keeping track of how much work it does.  (Lawyers who have work diligently at keeping time records as required by rule 4-100(b)(3) may find this ironic.)  Failure to maintain such information was also a key criticism of the 2009 State Auditor’s report on the State Bar.   The auditors noted that the failure to maintain this information made it impossible to measure the efficiency of the discipline system.   Instead the State Bar computes what is maintains is the “average” cost of maintaining a discipline proceeding at each successive stage, e.g.:

Original Proceedings (Stage at which the matter settles) – eff. 1/1/2012 Cost Assessment
Matters that go in Default $4,159
Matters that Settle Prior to Filing of a Notice of Disciplinary Charges $2,865
Matters that Settle during first 120 days of proceeding $3,349
Matters that Settle before Pretrial Statement is filed $5,308
Matters that Settle before trial but after Pretrial Statement is filed $6,944
Matters that proceed to a One-day trial $6,944
Matters that proceed to a Multi-day trial $15,660
Matters that proceed to the Review Department $19,156
Conviction Referrals (Stage at which the matter settles) – eff. 5/11/2012 Cost Assessment

Each investigation matter beyond the first one also results in an assessment of $914.  Beyond this rough adjustment, there is no adjustment for the amount of work actually done.   A single matter that takes ten hours is assessed the same amount as one that takes 100, as long as it fall within the same range.  The “formulaic” approach to assessing costs was reaffirmed by action of the Board of Trustees in January 2011 approving changes, including an annual upward adjustment for increasing costs, as recommended by the State Auditor.   The unfairness of this approach was underscored in the Board’s agenda materials, which noted with apparent relief that “[h]istorically, the use of this formulaic approach has not received any significant challenge.

Respondents in discipline proceedings can recover their costs as well, but only out of  pocket costs.  They must be completely exonerated of all charges to recover those.   The State Bar can bring multiple counts and force the Respondent to spend the resources to defend all of them, perhaps forcing a multi-day trial;  if they prevail on one, the Respondent pays the State Bar the same formula amount, currently $15,660, in addition to any attorney’s fees paid to Respondent’s counsel.  Even if Respondent represents his or her self, the cost of contesting the State Bar is large.  This creates a large incentive to settle the matter on the State Bar’s terms, even if the case is weak.  Exonerations do occur in State Bar Court; they are not common, but they would be more common if the cost recovery structure were not so inequitable.

The current structure creates a powerful incentive to overcharge cases to gain leverage, to create “bargaining chips” that can be traded away to achieve the disposition the State Bar wants without putting its case to the test.   That inefficiency is paid for by the Respondent.  Even if overcharging is the result of poor investigation and inadequate analysis, the current structure creates no incentive to fix those problems.  Unfortunately, footnote 4 of the Silverton decision (discussed in a previous post) chastising the State Bar for not bringing every possible charge against Silverton also encouraged needless and duplicative overcharging, even as it warned against it.

Reform of the discipline system to award costs and attorneys fees to the prevailing party at trial, removing the unfair “winner take all” formula, and basing the award on the relative success of the State Bar prosecutors in proving the charges that they bring would go a long way toward decreasing overcharging and removing the undue leverage that distorts the discipline system.

But what would such a system do to the amount of costs recovered by the State Bar?  Little or nothing; the current system is not very good at recovering costs, despite its unfairness.  As noted by State Auditor (at page 41):

…the State Bar’s recovery of its discipline costs remains relatively low. The State Bar has only been able to recover $550,000 in 2007 and $766,000 in 2008, with the vast majority of these amounts representing collections from various earlier billing years, but it has billed about $1 million in each of these years.

The State Auditor blames “statutory limitations and other factors” but everyone with much experience with the discipline systems knows that the “other factor” is the fact that, by and large, disciplined lawyers just don’t have the money and probably will never have the money.   Even if the amount of money that the State Bar could collect is increased, that fact won’t change in a bad economy and a marked decline in the demand for lawyers.   Expecting disciplined attorneys to pay much more in costs than they do now is chasing smoke.  But such are the myths that the discipline system lives by.

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