Thursday, May 1, 2008

Garnishment Notice And Trust Account Obligations

Does a law firm that has issued a trust account check and receives notice of a writ of garnishment on the trust account prior to the cashing of the check have a duty to inquire if the check has cleared and, if not, stop payment? Yes, according to a decision issued today by the Florida Supreme Court:

"This decision is consistent with the garnishment statute and prior case law interpreting the statute, as well as the Rules Regulating the Florida Bar."

The court concluded that the law firm retains possession and control over trust funds until the check is paid, rejecting the suggestion that an escrow check is indistinguishable from a certified check. The firm had settled a case, received the proceeds and sent the settlement check to the client. Prior to the receipt of the proceeds, the firm had received a garnishment notice and truthfully responded that it held no funds. The firm did not stop payment after it had received a second garnishment notice of a judgment creditor of the client. The law firm was held liable to the creditor for amounts disbursed over and above the legal fee (which the court held the law firm entitled to).

This is a potentially significant decision exploring the duties to third parties under Rule 1.15. The court clearly concludes that the firm's inaction violated the disciplinary rule, although the case is not disciplinary. The issue was one of first impression in Florida. (Mike Frisch)

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