Garnishing a lawyer's trust account: actions to be taken by lawyer garnishee.

• Author: Wells, Thomas O.
• Position: Florida

In 2008, the Florida Supreme Court authorized the garnishment of a lawyer's trust account pursuant to Arnold, Matheny and Eagan, P.A. v. First American Holdings, Inc., 982 So. 2d 628 (Fla. 2008) (AME). Such garnishment is acknowledged in the Comments to Rule 5-1.1 of the Rules Regulating The Florida Bar. AME provided that there is no difference between the garnishment duties imposed upon bank and nonbank garnishees, and specifically imposed a duty upon a lawyer garnishee whose trust account has been garnished for the debts owed by a judgment debtor client to inquire into the status of the trust account and stop payment on trust checks that are not certified or cashier's checks, even if such checks have been drawn and delivered by the lawyer garnishee. (1) This article advises a lawyer garnishee on the legal and ethical duties if its trust account is garnished and offers advice to address payment of debts owed to the lawyer garnishee by the judgment debtor client.

Garnishment Statute

The garnishment statute is set forth in F.S. Ch. 77. F.S. [section]77.06(2) requires the garnishee to report in its answer and retain all funds maintained in its trust account created for the judgment debtor. The answer shall also state the name and address of the judgment debtor and any other person having or appearing to have an ownership interest in the trust account that has been garnished. The garnishee is required to fully answer the writ of garnishment by explaining the status of the funds held in trust as part of its good faith obligation imposed by the garnishment statute. (2) In AME, the Florida Supreme Court quotes the holding of the Third District Court of Appeal in Dixie National Bank v. Chase, 485 So. 2d 1353, 1356 (Fla. 3d DCA 1986), as follows:

[T]his statutory scheme contemplates full disclosure in the garnishee's answer of all debts owed by the garnishee to the defendant debtor and a simultaneous garnishment of said funds so as to fully protect the garnishor creditor in collecting on a debt due him by the defendant debtor. The garnishee is also protected against possible liability for its actions in serving an answer and garnishing funds so long as it acts in good faith.... The statutory scheme [[section]77.06] cannot tolerate incomplete answers wherein only some of the debts owed are disclosed and garnished.

Further, the garnishee is required to file the answer with the court and the garnishor within 20 days after service of the writ of garnishment in accordance with [section]77.04. The answer also must disclose 1) whether the garnishee is indebted to the defendant, the judgment debtor, at the time of the filing of the answer with the court or at the time of the service of the writ of garnishmen; 2) in what sum and what tangible and intangible personal property of the defendant that the garnishee has in its possession or control at the time of the answer or at the time of the service of the writ of garnishment; and 3) whether the garnishee knows of any other person indebted to the defendant or who may have any property of the defendant at the time of the answer or at the time of the service of the writ of garnishment. According to these duties, the lawyer garnishee is required to state the amount of the funds held in trust for the defendant who is the judgment debtor client and that such trust funds are owed to the defendant in accordance with Rule Reg. Fla. Bar 5-1.1(a)(1). (3)

For example, if the lawyer garnishee has in its possession a settlement check payable to the judgment debtor client and the lawyer garnishee's trust account at any time between the time the writ of garnishment is served upon the lawyer garnishee and the filing of its answer, the check constitutes a debt owed to the judgment debtor client in accordance with AME and must be disclosed in the lawyer garnishee's answer. Because the check is not the equivalent of funds, the lawyer garnishee must also retain the check pursuant to its garnishee's duty to retain property under [section]77.06(2), and must disclose the name of the party who has written the check and the amount of the check as a party who is indebted to the judgment debtor client. (4) If the lawyer garnishee has issued a check from the garnished trust account that is not a cashier's check or a certified check that has not yet been presented for payment prior to the service of the writ of garnishment or the answer, including a check to itself for payment of legal fees or a check to the judgment debtor client, the lawyer garnishee must stop payment on the check. (5)

If the lawyer garnishee fails to timely file an answer to the writ of garnishment, it is subject to a default judgment under [section]77.081, equal to the value of the judgment debtor's funds and property in the lawyer garnishee's possession during the period between the service of the writ of garnishment and the filing of its answer. (6)

In order for the lawyer garnishee to make a claim upon the property subject to the writ of garnishment, the lawyer garnishee must file an affidavit with the court in accordance with [section]77.16(1). (7) If such claim is made, then the prevailing party claimant or garnishor is entitled to recover its costs pursuant to [section]77.16(2), which presumably includes attorneys' fees. Assuming that the lawyer garnishee does not make a claim to the garnished assets, the lawyer garnishee may be entitled to attorneys' fees and costs pursuant to [section]77.28. (8) However, if the lawyer garnishee makes a claim to the garnished assets, it is not entitled to attorneys' fees and costs because it is no longer an innocent stakeholder. (9)

Facts of AME

In AME, First American Holdings, Inc., obtained a stipulated judgment owed by Preclude, Inc., in the amount of $26,000.10 Arnold, Matheny & Eagan, P.A., was counsel to Preclude, the judgment debtor, in a separate litigation that settled pursuant to a settlement agreement executed on June 14, 2002, between Preclude and Greenleaf Products, Inc., in which Greenleaf agreed to pay Preclude $50,000. First American obtained and served its first writ of garnishment on June 19, 2002, and Arnold Matheny answered the first writ of garnishment that same day stating that it did not have any funds in its possession for Preclude but that Greenleaf owed a debt to Preclude. On June 21, 2002, Arnold Matheny received the $50,000 settlement check from Greenleaf and deposited it into its trust account. On...